<PAGE> 1
INTERCAPITAL INCOME SECURITIES INC. Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS
DEAR SHAREHOLDER:
The fiscal year ended September 30, 1995 was characterized first by rising
interest rates and a robust economy during the final three months of 1994,
followed by an economic slowdown and declining interest rates in 1995. Overall,
interest rates on U.S. Treasury securities declined by 0.75 percentage points to
1.40 percentage points over the fiscal year.
RISING, THEN FALLING INTEREST RATES
Robust economic growth continued through the final three months of 1994, along
with related inflationary fears. In an effort to slow the rate of economic
growth to more sustainable levels, the Federal Reserve Board raised the
federal-funds rate by 75 basis points to 5.75 percent in November. As a result,
intermediate-term interest rates continued to rise and by December 31 had risen
by as much as 1.0 percentage points from their September 30, 1994 levels.
Two-year U.S. Treasury securities experienced the most dramatic increase, while
30-year U.S. Treasury bonds were virtually unchanged.
Beginning in late January, investor sentiment shifted as the market focused on
actual inflation or rather its absence. By February, not only had inflation
failed to surface, but the economy was beginning to show signs of slowing down.
Interest rates began to decline and even plummet, despite one further tightening
move by the Federal Reserve in early February. The decline in interest rates was
further fueled into the summer as the central bank reduced the federal-funds
rate by .25 percentage points on July 6, to 5.75 percent. Almost immediately
following this shift in Federal Reserve policy, the economy began to show signs
of resurgence and interest rates began to rise. Housing, autos and retail sales,
which had turned sluggish at higher interest rate levels, now looked to be
returning to health. By September, however, the economy was again sending mixed
signals and lower interest rates seemed nearer once more.
<PAGE> 2
INTERCAPITAL INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS, continued
PERFORMANCE AND PORTFOLIO
For the fiscal year ended September 30, 1995, InterCapital Income Securities
Inc. produced a total return of 16.32 percent, based on its net asset value of
$18.02 per share. Based on its closing market price of $16.25 per share on the
New York Stock Exchange, the Fund produced a return of 5.24 percent. During the
same period, the Lehman Brothers Government/Corporate Bond Index returned 14.35
percent. U.S. government securities returned 13.57 percent during the same
period, while corporate bonds returned 16.99 percent.
The Fund's performance over the fiscal year was reflective of the sharp decline
in interest rates during 1995, as well as from its heavy concentration in
corporate bonds. Corporate bonds comprised 86 percent of the portfolio, with
U.S. governments representing the remaining 14 percent. The portfolio was
diversified among 58 issues with an average coupon of 9.27 percent and an
average quality rating of Baa1. On September 30, 1995, the Fund's average
maturity was 21.21 years, while the average duration (duration measures a bond
fund's sensitivity to interest rate changes; basically, the effect of interest
rate fluctuations on a bond fund can be determined by multiplying its duration
by the percentage rates rise or fall) was only 5.24 years, reflective of the
high coupons and call features on many of the securities held in the portfolio.
During the reporting period, the Fund received approximately $14.7 million in
proceeds from bonds called prior to maturity, representing 7 percent of the
value of the portfolio. Currently, approximately 52 percent of the portfolio is
invested in callable securities with call dates varying from less than one year
to nine years. At current interest rate levels, approximately 31 percent of the
portfolio is expected to come due within the following twelve months, while 53
percent are expected to come due in more than ten years.
In reaction to falling interest rates earlier in the year, the Fund looked to
lock in attractive yields on Baa-rated industrials and utilities versus U.S.
Treasuries and called corporates. Most new purchases were made at yields of 8.50
percent and higher and involved securities with call protection of at least four
years. More recently, the Fund has reduced the average quality of the portfolio
to take advantage of attractive opportunities that have arisen from time to time
in the Baa-rated corporate market. Swaps within the same credits such as KMart,
RJR Nabisco and Telecommunications, Inc. were accomplished for substantial
pickups in yield.
<PAGE> 3
INTERCAPITAL INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS, continued
LOOKING AHEAD
As long as the economy continues on a path of moderate growth and low inflation,
we believe the Federal Reserve Board is likely to maintain their current
monetary policy. As a result, interest rates are likely to remain in a fairly
narrow band. Some volatility may occur from month to month as the economic
reports of the moment tilt expectations in one direction or the other. Near
term, all eyes are focused on Washington and congressional progress toward a
balanced budget. Any meaningful, positive legislation should be favorable for
market fundamentals and fixed-income securities. Lack of action on this front
will be seen as a negative by the market.
We would like to inform shareholders that the Directors have approved a
procedure whereby the Fund, when appropriate, may repurchase shares in the open
market or in privately negotiated transactions at a price not above market value
or net asset value, whichever is lower at the time of purchase.
We appreciate your continued support of InterCapital Income Securities Inc. and
look forward to serving your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (85.6%)
Airlines (4.7%)
$ 5,000 Delta Air Lines, Inc. ................ 9.30 % 01/02/10 $ 5,535,850
4,300 United Air Lines, Inc. ............... 9.35 04/07/16 4,630,541
----------
10,166,391
----------
Automotive Finance (0.8%)
1,500 Ford Capital BV (Netherlands)......... 9.375 05/15/01 1,689,615
----------
Bank Holding Companies (0.5%)
1,000 NCNB Corp. ........................... 9.375 09/15/09 1,187,880
----------
Banks (3.4%)
6,000 Continental Bank N.A. ................ 12.50 04/01/01 7,564,020
----------
Banks - International (2.1%)
5,000 Bank of China......................... 8.25 03/15/14 4,708,200
----------
Brokerage (3.0%)
3,000 Morgan Stanley Group, Inc. ........... 7.25 10/15/23 2,787,900
2,000 Morgan Stanley Group, Inc. ........... 7.50 02/01/24 1,914,300
2,000 Paine Webber Group, Inc. ............. 7.625 02/15/14 1,900,800
----------
6,603,000
----------
Computer Equipment (0.5%)
1,000 Unisys Corp. ......................... 13.50 07/01/97 1,116,250
----------
Food Processing (1.5%)
3,000 Borden, Inc........................... 9.20 03/15/21 3,267,450
----------
Foreign Government Agencies (4.5%)
6,600 Italy (Republic of)................... 6.875 09/27/23 6,042,102
4,000 Quebec Province (Canada).............. 7.50 07/15/23 3,917,680
----------
9,959,782
----------
Gas (1.7%)
3,600 Southwest Gas Corp. .................. 9.375 02/01/17 3,800,124
----------
Gas Transmission (1.2%)
3,100 Tennessee Gas Pipeline Co. ........... 6.00 12/15/11 2,668,045
----------
Health & Personal Care (2.3%)
5,000 Columbia Healthcare Corp. ............ 7.50 12/15/23 4,999,900
----------
Insurance & Financial Services (1.4%)
3,000 Penn Central Corp. ................... 10.875 05/01/11 3,132,210
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Manufacturing (2.0%)
$ 2,000 Weirton Steel Corp. .................. 10.875% 10/15/99 $ 2,027,500
2,400 Westinghouse Electric Corp. .......... 8.625 08/01/12 2,272,968
----------
4,300,468
----------
Metals & Mining (3.1%)
6,000 Inco, Ltd. (Canada)................... 9.60 06/15/22 6,726,360
----------
Oil & Gas (2.7%)
3,000 Louisiana Land & Exploration Co. ..... 7.625 04/15/13 2,958,960
3,000 Parker & Parsley Petroleum Co. ....... 8.25 08/15/07 3,087,660
----------
6,046,620
----------
Oil Related (9.4%)
5,200 Lasmo (USA), Inc. .................... 8.375 06/01/23 5,445,648
2,000 Occidental Petroleum Corp. ........... 9.625 07/01/99 2,046,860
7,240 Occidental Petroleum Corp. ........... 11.75 03/15/11 7,743,180
5,000 Phillips Petroleum Co. ............... 8.49 01/01/23 5,369,150
----------
20,604,838
----------
Paper & Forest Products (3.4%)
6,000 Georgia Pacific Co. .................. 9.625 03/15/22 6,706,560
685 Stone Container Corp. ................ 11.50 09/01/99 703,838
----------
7,410,398
----------
Retail (4.0%)
2,800 Dayton Hudson Corp. .................. 8.50 12/01/22 2,993,200
2,850 KMart Corp. .......................... 13.50 01/01/09 3,353,652
2,500 KMart Corp. .......................... 9.35 01/02/20 2,511,275
----------
8,858,127
----------
Telecommunications (2.4%)
5,100 Tele-Communications, Inc. ............ 9.25 01/15/23 5,335,314
----------
Telephones (9.6%)
2,000 Alltel Corp. ......................... 10.375 04/01/09 2,122,360
2,000 Alltel Corp. ......................... 9.50 03/01/21 2,162,740
5,000 GTE South, Inc. ...................... 9.375 06/15/30 5,269,900
6,000 Northwestern Bell Telephone Co. ...... 9.125 12/01/30 6,254,220
5,000 Southern Bell Telephone & Telegraph
Co. .................................. 8.625 09/01/26 5,205,750
----------
21,014,970
----------
Tobacco (1.4%)
2,975 RJR Nabisco, Inc. .................... 8.75 08/15/05 3,000,823
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Utilities - Electric (20.0%)
$ 1,000 Cleveland Electric Illuminating Co.
(Series B)............................ 9.50 % 05/15/05 $ 1,005,480
5,000 Cleveland Electric Illuminating Co.
(Series E)............................ 9.00 07/01/23 4,532,550
6,325 Commonwealth Edison Co. .............. 8.875 10/01/21 6,676,038
1,000 Consolidated Edison................... 9.70 12/01/25 1,079,820
2,000 CTC Mansfield Funding Corp. .......... 11.125 09/30/16 2,080,000
1,000 Long Island Lighting Co. ............. 9.00 11/01/22 1,010,170
6,000 Long Island Lighting Co. ............. 9.625 07/01/24 6,142,320
2,000 Louisiana Power & Light Co. (Series
A).................................... 10.67 01/02/17 2,152,820
1,000 Louisiana Power & Light Co. (Series
C).................................... 10.67 01/02/17 1,077,680
2,000 Niagara Mohawk Power Corp. ........... 9.50 03/01/21 2,113,740
4,000 Niagara Mohawk Power Corp. ........... 8.75 04/01/22 4,109,440
4,000 Southern California Edison Co. ....... 9.25 12/01/22 4,175,240
3,000 Texas Utilities Electric Co. ......... 8.50 08/01/24 3,203,310
4,300 United Illuminating Co. .............. 10.24 01/02/20 4,638,281
----------
43,996,889
----------
TOTAL CORPORATE BONDS
(Identified Cost $180,699,262)................................ 188,157,674
----------
U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(11.4%)
2,000 Federal Home Loan Banks............... 9.02 01/19/05 2,019,902
5,000 Tennessee Valley Authority (Series
G).................................... 8.625 11/15/29 5,457,850
1,200 U.S. Treasury Bond.................... 7.125 02/15/23 1,271,062
1,000 U.S. Treasury Bond.................... 7.625 02/15/25 1,130,781
5,000 U.S. Treasury Note.................... 9.25 01/15/96 5,049,245
10,000 U.S. Treasury Note.................... 9.375 04/15/96 10,187,500
----------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(Identified Cost $25,133,398)................................. 25,116,340
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.8%)
REPURCHASE AGREEMENT
$ 1,818 The Bank of New York (dated 09/29/95;
proceeds $1,818,776; collateralized by
$2,010,941 U.S. Treasury Note 6.875%
due 07/31/99 valued at $2,090,293)
(Identified Cost $1,817,962).......... 5.375% 10/02/95 $ 1,817,962
----------
TOTAL INVESTMENTS
(Identified Cost $207,650,622) (a)..................... 97.8% 215,091,976
OTHER ASSETS IN EXCESS OF LIABILITIES................... 2.2 4,800,435
---- ----------
NET ASSETS............................................ 100.0% $219,892,411
---- ----------
---- ----------
</TABLE>
- ---------------------
<TABLE>
<S> <C>
(a) The aggregate cost for federal income tax purposes is $207,738,107; the
aggregate gross unrealized appreciation is $9,939,226 and the aggregate gross
unrealized depreciation is $2,585,357, resulting in net unrealized appreciation
of $7,353,869.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
ASSETS:
Investments in securities, at value
(identified cost $207,650,622).......... $215,091,976
Interest receivable...................... 5,077,739
Prepaid expenses and other assets........ 3,258
----------
TOTAL ASSETS......................... 220,172,973
----------
LIABILITIES:
Investment management fee payable........ 108,065
Accrued expenses......................... 172,497
----------
TOTAL LIABILITIES.................... 280,562
----------
NET ASSETS:
Paid-in-capital.......................... 242,462,484
Net unrealized appreciation.............. 7,441,354
Distributions in excess of net investment
income.................................. (50,978)
Accumulated net realized loss............ (29,960,449)
----------
NET ASSETS........................... $219,892,411
----------
----------
NET ASSET VALUE PER SHARE,
12,200,518 shares outstanding (unlimited
shares authorized of $.01 par value).... $18.02
-----
-----
STATEMENT OF OPERATIONS
For the year ended September 30, 1995
NET INVESTMENT INCOME:
INTEREST INCOME........................... $19,942,317
---------
EXPENSES
Investment management fee................. 1,056,264
Transfer agent fees and expenses.......... 183,288
Shareholder reports and notices........... 74,105
Professional fees......................... 56,620
Registration fees......................... 30,450
Directors' fees and expenses.............. 28,249
Custodian fees............................ 26,242
Other..................................... 8,554
---------
TOTAL EXPENSES........................ 1,463,772
---------
NET INVESTMENT INCOME................. 18,478,545
---------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss......................... (7,028,971)
Net change in unrealized depreciation..... 20,218,112
---------
NET GAIN.............................. 13,189,141
---------
NET INCREASE.............................. $31,667,686
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1995 30, 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 18,478,545 $ 19,850,296
Net realized loss................................. (7,028,971) (5,373,942)
Net change in unrealized depreciation............. 20,218,112 (21,289,097)
---------- ----------
NET INCREASE (DECREASE)....................... 31,667,686 (6,812,743)
---------- ----------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income............................. (18,124,479) (19,764,839)
Paid-in-capital................................... (176,298) --
---------- ----------
TOTAL......................................... (18,300,777) (19,764,839)
---------- ----------
TOTAL INCREASE (DECREASE)..................... 13,366,909 (26,577,582)
NET ASSETS:
Beginning of period............................... 206,525,502 233,103,084
---------- ----------
END OF PERIOD
(Including distributions in excess of net
investment income of $50,978 and $45,424,
respectively)................................. $219,892,411 $206,525,502
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1995
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 (in cases where a security
is traded on more than one exchange, the security is valued on the exchange
designated as the primary market by the Directors); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation; (3)
when market quotations are not readily available, including circumstances under
which it is determined by 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 Directors; (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, if available, in determining what it believes is the fair valuation
of the portfolio securities valued by such pricing service; and (5) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
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.
<PAGE> 11
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1995, continued
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 its Investment Manager a
management fee, accrued weekly and payable monthly, 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 ended September 30, 1995 aggregated
$110,114,489 and $96,155,042, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $29,858,768 and
$31,794,549, respectively.
For the year ended September 30, 1995, the Fund incurred brokerage commissions
of $602 with Dean Witter Reynolds Inc., an affiliate of the Investment Manager,
for portfolio transactions executed on behalf of the Fund.
<PAGE> 12
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1995, continued
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At September 30, 1995, the Fund had transfer agent fees and
expenses payable of approximately $25,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors/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 year ended September 30,
1995 included in Directors' fees and expenses in the Statement of Operations
amounted to $7,585. At September 30, 1995, the Fund had an accrued pension
liability of $50,977 which is included in accrued expenses in the Statement of
Assets and Liabilities.
4. CAPITAL STOCK
<TABLE>
<CAPTION>
CAPITAL PAID
PAR VALUE OF IN EXCESS OF
SHARES SHARES PAR VALUE
---------- ------------ ------------
<S> <C> <C> <C>
Balance, September 30, 1993.................................................. 12,200,518 $122,003 $243,249,558
Reclassification due to permanent book/tax differences....................... -- -- (1,085,679)
-------- --------- ----------
Balance, September 30, 1994.................................................. 12,200,518 122,003 242,163,879
Reclassification due to permanent book/tax differences....................... -- -- 352,900
Distribution from paid-in-capital............................................ -- -- (176,298)
-------- --------- ----------
Balance, September 30, 1995.................................................. 12,200,518 $122,003 $242,340,481
-------- --------- ----------
-------- --------- ----------
</TABLE>
5. DIVIDENDS
On September 26, 1995, the Fund declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ------------------ ------------------
<S> <C> <C>
$0.12 October 6, 1995 October 20, 1995
0.12 November 10, 1995 November 24, 1995
0.12 December 8, 1995 December 22, 1995
</TABLE>
<PAGE> 13
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1995, continued
6. FEDERAL INCOME TAX STATUS
At September 30, 1995, the Fund had a net capital loss carryover of
approximately $23,247,000, to offset future capital gains to the extent provided
by regulations, available through September 30 of the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ---------------------------------------------------
1998 1999 2000 2003 TOTAL
- ----- ------- ------ ------ -------
<S> <C> <C> <C> <C>
$ 782 $13,382 $2,370 $6,713 $23,247
--- ------ ----- ----- ------
--- ------ ----- ----- ------
</TABLE>
Capital and foreign currency 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. During fiscal 1995, the Fund incurred and will
elect to defer net capital losses of approximately $3,372,000 and other losses
(which are considered to be foreign currency losses for federal income tax
purposes) of approximately $3,254,000 on two US-dollar denominated principal
exchange-rate linked securities which matured during the year.
As of September 30, 1995, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales and
permanent book/tax differences primarily attributable to foreign currency
losses. To reflect reclassifications arising from permanent book/tax differences
for the year ended September 30, 1995, distributions in excess of net investment
income was charged $359,620, accumulated net realized loss was credited $6,720
and paid-in-capital was credited $352,900.
7. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------------------------
9/30/95 6/30/95 3/31/95 12/31/94
--------------------- --------------------- ---------------------- ---------------------
TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE
------- --------- ------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment
income.................. $ 4,790 $ 0.39 $ 4,981 $ 0.41 $ 5,108 $ 0.42 $ 5,063 $ 0.41
Net investment income.... 4,427 0.36 4,584 0.37 4,755 0.39 4,713 0.39
Net realized and
unrealized gain
(loss).................. 739 0.06 9,348 0.76 5,343 0.44 (2,241) (0.18)
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------------------------
9/30/94 6/30/94 3/31/94 12/31/93
--------------------- --------------------- ---------------------- ---------------------
TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE
------- --------- ------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment
income.................. $ 5,302 $ 0.43 $ 5,239 $ 0.43 $ 5,346 $ 0.44 $ 5,470 $ 0.45
Net investment income.... 4,922 0.40 4,831 0.39 4,975 0.41 5,122 0.42
Net realized and
unrealized loss......... (3,992) (0.32) (7,806) (0.64) (10,422) (0.85) (4,443) (0.37)
</TABLE>
- ---------------------
* Amounts in thousands.
<PAGE> 14
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
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE
OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 16.93 $ 19.11 $ 18.72 $ 18.03 $ 16.97
------ ------ ------ ------ ------
Net investment income............................................ 1.51 1.62 1.69 1.79 1.94
Net realized and unrealized gain (loss).......................... 1.08 (2.18) 0.38 0.79 0.96
------ ------ ------ ------ ------
Total from investment operations................................. 2.59 (0.56) 2.07 2.58 2.90
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income......................................... (1.49) (1.62) (1.68) (1.89) (1.84)
Paid-in-capital............................................... (0.01) -- -- -- --
------ ------ ------ ------ ------
Total dividends and distributions................................ (1.50) (1.62) (1.68) (1.89) (1.84)
------ ------ ------ ------ ------
Net asset value, end of period................................... $ 18.02 $ 16.93 $ 19.11 $ 18.72 $ 18.03
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Market value, end of period...................................... $ 16.25 $16.875 $21.375 $ 22.25 $ 20.50
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN+......................................... 5.24% (14.12)% 2.97% 19.91% 13.40%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................... 0.69% 0.68% 0.66% 0.69% 0.72%
Net investment income............................................ 8.75% 9.02% 9.04% 9.69% 11.11%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................... $219,892 $206,526 $233,103 $228,424 $218,524
Portfolio turnover rate.......................................... 50% 82% 85% 61% 56%
</TABLE>
- ---------------------
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends 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> 15
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, 1995, 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 at
September 30, 1995 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
November 8, 1995
<PAGE> 16
(This page has been left blank intentionally.)
<PAGE> 17
BOARD OF DIRECTORS
- -----------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire INTERCAPITAL
Dr. Manuel H. Johnson INCOME
Paul Kolton SECURITIES
Michael E. Nugent INC.
Philip J. Purcell
John L. Schroeder
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
Annual Report
September 30, 1995
