<PAGE> 1
INTERCAPITAL INCOME SECURITIES INC. Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS March 31, 1996
DEAR SHAREHOLDER:
For much of the six-month period under review, interest rates moved dramatically
lower as the economy continued to weaken and inflation remained benign. High
expectations for a balanced budget also contributed to the decline. Given this
environment, anticipation for further reductions in the federal-funds rate was
ignited. As expected, the Federal Reserve Board lowered the federal-funds rate
by 0.25 percentage points in December and again in January. By mid-February,
yields on 2- and 3-year U.S. Treasury securities had declined by nearly one
percentage point, while yields on 10-year and 30-year U.S. Treasuries declined
by 0.50 and 0.38 percentage points, respectively.
Beginning in mid-February, after a prolonged period of harsh winter weather and
the resumption of more normal government operations, the economy began to hint
of a possible upturn. The tabling of the balanced budget by Congress and
comments by Alan Greenspan, Chairman of the Federal Reserve Board, that he was
satisfied with the level of current economic activity erased much of the
market's optimism and interest rates erased all of their recent gains. By the
end of March, yields on 10- and 30-year U.S. Treasuries were higher than they
were at the end of September 1995. The rise in interest rates was further
exacerbated by a surprisingly strong employment report released in March,
showing the creation of more than 700,000 new jobs in February.
PERFORMANCE RESULTS
For the six-month period ended March 31, 1996, InterCapital Income Securities
provided a total return of 5.97 percent, based on its closing market price of
$16.50 per share on the New York Stock Exchange. Based on its net asset value of
$17.47 per share, the Fund returned 1.18 percent for the same period, compared
to a return of 2.21 percent for the Lehman Brothers Government Corporate Bond
Index. U.S. government securities, as measured by the Lehman Brothers Government
Bond Index, returned 2.20 percent during the six-month period, while corporate
bonds, measured by the Lehman Brothers Corporate Bond Index, returned 2.23
percent. The Fund distributed income dividends totaling $0.72 per share during
the six-month period.
<PAGE> 2
INTERCAPITAL INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS March 31, 1996, continued
The Fund's performance during the period was inhibited by its commitments to
Kmart Corp. and Niagara Mohawk Power Corp., which both suffered significant
declines in market value due to credit downgrades by the major rating services.
Recently, however, both issues have improved in credit perception and price. The
Fund's performance was also reflective of the extreme rise in interest rates
beginning in the second half of February and the Fund's duration extension as
proceeds from called bonds were reinvested in longer maturities to lock in
higher yields.
During the reporting period, the Fund received approximately $31.6 million in
proceeds from high-coupon bonds, with coupons from 9.00 percent to 11.75 percent
called prior to maturity, representing nearly 15 percent of the value of the
portfolio on September 30, 1995. As a result, it was necessary to lower the
Fund's monthly income dividend from $0.12 per share to $0.11 per share,
effective with the April 1996 dividend. While an additional 15 percent of the
portfolio is eligible for early redemption prior to 1997, it is not anticipated
that all of these securities will be called. The Fund currently holds no other
bonds callable prior to 1999 and only $6.0 million par value mature before 1999.
PORTFOLIO STRUCTURE AND STRATEGY
On March 31, 1996, the Fund's net assets exceeded $212 million. Corporate bonds
comprised 87 percent of the portfolio, while U.S. government securities
comprised the remaining 13 percent. The portfolio was diversified among 56
issues with an average coupon of 8.80 percent and an average quality rating of
Baa1. At the end of the period under review, the Fund's average maturity was
23.8 years and the average duration was 7.57 years.
New purchases emphasized bond with final maturities of twenty to thirty years
and with call protection of at least four years. While most of these securities
are more volatile to changes in interest rates than those that were called, many
of them have proved somewhat defensive during the period due to their 7.875
percent to 8.75 percent coupons and their intermediate call dates. In reaction
to falling interest rates during the first half of the reporting period, the
Fund looked to maintain its defensive posture by buying intermediate maturities
and high-coupon 30-year corporates yielding well in excess of one percentage
point over comparable maturity Treasuries. As interest rates started to trend up
in February, more non callable corporates were added at yields to maturity in
excess of 8.0 percent. New purchases emphasized telephones, oil and gas and
cables. The Fund also sought to eliminate a portion of its lower rated debt as
these bonds considerably outperformed the rest of the market during the period.
Issues sold included Penn Central Corp., Parker & Parsley Petroleum Co. and
United Air Lines, Inc. The Fund also liquidated a portion of its Kmart Corp.
holdings.
<PAGE> 3
INTERCAPITAL INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS March 31, 1996, continued
LOOKING AHEAD
While the economy is displaying signs of renewed strength and the labor picture
is looking brighter, there is little expectation left that further easing by the
Federal Reserve is in the offing over the next few months. Commodity prices have
been rising over the past month with oil well over $20 per barrel and gasoline
hitting five-year highs. Consumers still seem willing to spend and retail sales
have been looking positive. Given this background, concern over the possibility
of escalating inflation is taking hold. Inflation has been benign through most
of the nineties as improved technology and corporate downsizing have contained
costs despite rising commodity prices. However, should the economy prove to be
as strong as some economic reports indicate, and should political rhetoric
continue regarding labor's failure to share in the vast improvement in corporate
profits of recent years, inflation could creep up on the heels of higher labor
costs.
Calendar year 1996 has begun with a number of events which may be obscuring the
true nature of the economy -- the severe winter, government shutdown, General
Motor's strike and the political ramifications of a presidential election year.
Should the economic picture clear and continue to exhibit signs of health, the
Federal Reserve will have no reason to ease interest rates and should the
existing harbingers of inflation remain or intensify, the Federal Reserve will
be quick to quash rising prices by raising short-term rates. For now, the rosy
image presented at the end of 1995 by the fixed-income markets, consisting of a
sluggish economy, a balanced budget and no inflation pressures, will be hard to
recapture. Given how quickly the fixed-income markets can turn, we will be
closely monitoring the economy and the inflation outlook for evidence of the
true economic condition.
We would like to remind you 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 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.
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 20, 1995, an annual meeting of stockholders of the Fund was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
Jack F. Bennett
For........................... 8,612,152
Withheld...................... 131,700
Michael Bozic
For........................... 8,615,023
Withheld...................... 128,829
Charles A. Fiumefreddo
For........................... 8,607,534
Withheld...................... 136,318
Edwin J. Garn
For........................... 8,608,219
Withheld...................... 135,633
John R. Haire
For........................... 8,613,752
Withheld...................... 130,100
Manuel H. Johnson
For........................... 8,614,634
Withheld...................... 129,218
Paul Kolton
For........................... 8,614,192
Withheld...................... 129,660
Michael E. Nugent
For........................... 8,614,934
Withheld...................... 128,918
Philip J. Purcell
For........................... 8,606,034
Withheld...................... 137,818
John L. Schroeder
For........................... 8,615,094
Withheld...................... 128,758
</TABLE>
(2) CONTINUANCE OF CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT WITH DEAN
WITTER
INTERCAPITAL INC.:
<TABLE>
<S> <C>
For.............................................................................................. 8,491,593
Against.......................................................................................... 93,354
Abstain.......................................................................................... 158,905
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS FOR THE
FISCAL YEAR ENDING SEPTEMBER 30, 1996:
<TABLE>
<S> <C>
For.............................................................................................. 8,588,270
Against.......................................................................................... 37,670
Abstain.......................................................................................... 117,912
</TABLE>
<PAGE> 5
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (85.6%)
Airlines (2.6%)
$ 5,000 Delta Air Lines, Inc. ............... 9.30 % 01/02/10 $ 5,532,050
----------
Automotive - Finance (0.5%)
1,000 Ford Capital BV (Netherlands)........ 9.50 07/01/01 1,122,020
----------
Banks (3.5%)
6,000 Continental Bank N.A. ............... 12.50 04/01/01 7,487,340
----------
Brokerage (1.8%)
2,000 Morgan Stanley Group, Inc. .......... 7.50 02/01/24 1,896,620
2,000 Paine Webber Group, Inc. ............ 7.625 02/15/14 1,917,520
----------
3,814,140
----------
Cable & Telecommunications (6.5%)
6,000 News America Holdings, Inc. ......... 7.75 12/01/45 5,495,280
5,100 Tele-Communications, Inc. ........... 9.25 01/15/23 5,288,904
3,000 Time Warner Entertainment Co. ....... 8.375 07/15/33 3,020,670
----------
13,804,854
----------
Canadian Government (3.2%)
7,000 Quebec Province...................... 7.50 07/15/23 6,768,300
----------
Computer Equipment (0.5%)
1,000 Unisys Corp. ........................ 15.00 07/01/97 1,067,500
----------
Entertainment/Gaming & Lodging (1.1%)
2,500 Circus Circus Enterprises, Inc. ..... 6.45 02/01/06 2,371,825
----------
Food Processing (1.4%)
3,000 Borden, Inc.......................... 9.20 03/15/21 2,967,060
----------
Gas (1.8%)
3,600 Southwest Gas Corp. ................. 9.375 02/01/17 3,764,880
----------
Gas Transmission (3.5%)
5,000 Columbia Gas System, Inc. ........... 7.62 11/28/25 4,756,200
3,100 Tennessee Gas Pipeline Co. .......... 6.00 12/15/11 2,618,446
----------
7,374,646
----------
Health & Personal Care (2.4%)
2,000 Columbia Healthcare Corp. ........... 7.50 12/15/23 1,955,680
3,500 Columbia/HCA Healthcare Corp. ....... 7.05 12/01/27 3,229,940
----------
5,185,620
----------
Manufacturing (1.1%)
2,400 Westinghouse Electric Corp. ......... 8.625 08/01/12 2,371,032
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Metals & Mining (3.1%)
$ 6,000 Inco, Ltd. (Canada).................. 9.60 % 06/15/22 $ 6,543,960
----------
Oil & Gas Products (2.2%)
5,000 Lyondell Petrochemical Co. .......... 7.55 02/15/26 4,738,200
----------
Oil Related (7.6%)
4,000 Apache Corp. ........................ 7.70 03/15/26 3,879,840
5,200 Lasmo (USA), Inc. ................... 8.375 06/01/23 5,222,360
2,000 Occidental Petroleum Corp. .......... 9.625 07/01/99 2,017,780
5,000 Phillips Petroleum Co. .............. 8.49 01/01/23 5,175,650
----------
16,295,630
----------
Paper & Forest Products (5.3%)
4,500 Champion International Corp. ........ 7.35 11/01/25 4,140,135
6,000 Georgia Pacific Co. ................. 9.625 03/15/22 6,438,300
685 Stone Container Corp. ............... 11.50 09/01/99 687,569
----------
11,266,004
----------
Retail (3.4%)
2,800 Dayton Hudson Corp. ................. 8.50 12/01/22 2,795,632
2,350 Kmart Corp. ......................... 13.50 01/01/09 2,303,000
2,500 Kmart Corp. ......................... 9.35 01/02/20 2,064,075
----------
7,162,707
----------
Steel (1.0%)
2,000 Weirton Steel Corp. ................. 10.875 10/15/99 2,037,500
----------
Telecommunications (2.0%)
4,000 AT&T Corp. .......................... 8.625 12/01/31 4,271,320
----------
Telephones (5.9%)
2,000 Alltel Corp. ........................ 9.50 03/01/21 2,142,500
3,000 BellSouth Telecommunications,
Inc. ................................ 7.625 05/15/35 2,989,230
2,000 Pacific Bell......................... 8.50 08/15/31 2,089,340
5,620 U.S. West Communications, Inc. ...... 7.50 06/15/23 5,421,895
----------
12,642,965
----------
Tobacco (1.4%)
2,975 RJR Nabisco, Inc. ................... 8.75 08/15/05 2,913,536
----------
Transportation (2.3%)
4,975 Union Pacific Corp. ................. 7.875 02/01/23 4,901,868
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Utilities - Electric (21.5%)
$ 1,000 Cleveland Electric Illuminating Co.
(Series B)........................... 9.50 % 05/15/05 $ 986,330
5,000 Cleveland Electric Illuminating Co.
(Series E)........................... 9.00 07/01/23 4,464,850
6,325 Commonwealth Edison Co. ............. 8.875 10/01/21 6,431,260
2,000 CTC Mansfield Funding Corp. ......... 11.125 09/30/16 2,050,000
3,500 Long Island Lighting Co. ............ 9.75 05/01/21 3,578,750
3,500 Long Island Lighting Co. ............ 9.625 07/01/24 3,578,750
2,000 Louisiana Power & Light Co. ......... 8.75 03/01/26 2,007,540
2,000 Louisiana Power & Light Co.
(Series A)........................... 10.67 01/02/17 2,152,740
1,000 Louisiana Power & Light Co.
(Series C)........................... 10.67 01/02/17 1,077,580
2,000 Niagara Mohawk Power Corp. .......... 9.50 03/01/21 1,938,020
4,000 Niagara Mohawk Power Corp. .......... 8.75 04/01/22 3,672,120
3,500 San Diego Gas & Electric Co. ........ 9.625 04/15/20 3,918,005
5,250 Texas Utilities Electric Co. ........ 8.75 11/01/23 5,525,625
4,300 United Illuminating Co. ............. 10.24 01/02/20 4,455,359
----------
45,836,929
----------
TOTAL CORPORATE BONDS (Identified Cost $182,741,725).......... 182,241,886
----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (12.5%)
7,000 Tennessee Valley Authority (Series
G)................................... 8.625 11/15/29 7,427,656
8,600 U.S. Treasury Bond................... 7.25 05/15/16 8,982,969
4,000 U.S. Treasury Note................... 9.375 04/15/96 4,004,375
6,100 U.S. Treasury Note................... 7.875 01/15/98 6,313,526
----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Identified Cost $27,545,666)................................. 26,728,526
----------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
1,186 The Bank of New York (dated 03/29/96;
proceeds $1,185,946; collateralized
by $1,131,661 U.S. Treasury Bond
7.20% due 05/15/96 valued at
$1,209,665) (Identified Cost
$1,185,946).......................... 4.50 04/01/96 1,185,946
----------
TOTAL INVESTMENTS
(Identified Cost $211,473,337) (a)..................... 98.7% 210,156,358
OTHER ASSETS IN EXCESS OF LIABILITIES.................. 1.3 2,756,404
---- ----------
NET ASSETS............................................ 100.0% $212,912,762
==== ==========
</TABLE>
- ---------------------
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $5,114,572 and the
aggregate gross unrealized depreciation was $6,431,551, resulting in net
unrealized depreciation of $1,316,979.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $211,473,337)....................................... $210,156,358
Receivable for:
Interest.......................................................... 5,169,699
Investments sold.................................................. 1,044,695
Prepaid expenses and other assets..................................... 20,738
----------
TOTAL ASSETS...................................................... 216,391,490
----------
LIABILITIES:
Payable for:
Investments purchased............................................. 3,225,812
Investment management fee......................................... 108,356
Accrued expenses and other payables................................... 144,560
----------
TOTAL LIABILITIES................................................. 3,478,728
----------
NET ASSETS:
Paid-in-capital....................................................... 242,215,034
Net unrealized depreciation........................................... (1,316,979)
Distributions in excess of net investment income...................... (144,474)
Accumulated net realized loss......................................... (27,840,819)
----------
NET ASSETS........................................................ $212,912,762
==========
NET ASSET VALUE PER SHARE,
12,185,518 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $17.47
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended March 31, 1996 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $ 9,403,438
---------
EXPENSES
Investment management fee.............................................. 550,328
Transfer agent fees and expenses....................................... 87,379
Shareholder reports and notices........................................ 21,534
Professional fees...................................................... 18,189
Custodian fees......................................................... 15,069
Directors' fees and expenses........................................... 10,324
Registration fees...................................................... 9,622
Other.................................................................. 5,516
---------
TOTAL EXPENSES..................................................... 717,961
---------
NET INVESTMENT INCOME.............................................. 8,685,477
---------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain...................................................... 2,119,630
Net change in unrealized depreciation.................................. (8,758,333)
---------
NET LOSS........................................................... (6,638,703)
---------
NET INCREASE........................................................... $ 2,046,774
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 8,685,477 $ 18,478,545
Net realized gain (loss)......................... 2,119,630 (7,028,971)
Net change in unrealized
appreciation/depreciation....................... (8,758,333) 20,218,112
------------ ------------
NET INCREASE................................. 2,046,774 31,667,686
------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income............................ (8,778,973) (18,124,479)
Paid-in-capital.................................. -- (176,298)
------------ ------------
TOTAL........................................ (8,778,973) (18,300,777)
------------ ------------
Net decrease from capital stock transactions..... (247,450) --
------------ ------------
TOTAL INCREASE (DECREASE).................... (6,979,649) 13,366,909
NET ASSETS:
Beginning of period.............................. 219,892,411 206,525,502
------------ ------------
END OF PERIOD
(Including distributions in excess of net
investment income of $144,474 and $50,978,
respectively)................................ $212,912,762 $219,892,411
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1996 (unaudited)
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 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. Dividend
income is recognized on the ex-dividend date. 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> 12
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1996 (unaudited) 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 a management fee, accrued weekly
and payable monthly, by applying the annual rate of 0.50% to the Fund's 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 six months ended March 31, 1996 aggregated
$124,198,271 and $110,918,007, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $35,308,314 and
$21,692,906, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At March 31, 1996, the Fund had transfer agent fees and expenses
payable of approximately $41,000.
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
<PAGE> 13
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1996 (unaudited) continued
the last five years of service. Aggregate pension costs for the six months ended
March 31, 1996 included in Directors' fees and expenses in the Statement of
Operations amounted to $2,271. At March 31, 1996, the Fund had an accrued
pension liability of $52,144 which is included in accrued expenses in the
Statement of Assets and Liabilities.
4. CAPITAL STOCK
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR VALUE EXCESS OF
SHARES OF 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
Treasury shares purchased and retired (weighted average discount 2.91%)*...... (15,000) (150) (247,300)
--------- ------- -----------
Balance, March 31, 1996....................................................... 12,185,518 $121,853 $242,093,181
========= ======= ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
5. DIVIDENDS
On March 26, 1996, the Fund declared the following dividends from net investment
income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- ---------- -------------- ---------------
<S> <C> <C>
$0.11 April 4, 1996 April 19, 1996
$0.11 May 3, 1996 May 17, 1996
$0.11 June 7, 1996 June 21, 1996
</TABLE>
<PAGE> 14
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1996 (unaudited) 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. The Fund incurred and will elect to defer net
capital and foreign currency losses of approximately $3,372,000 and $3,254,000,
respectively, during fiscal 1995. As of September 30, 1995, the Fund had
temporary book/tax differences primarily attributable to post-October loss
deferrals and capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to foreign currency losses.
<PAGE> 15
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30
MARCH 31, ----------------------------------------------
1996 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $18.02 $16.93 $ 19.11 $ 18.72
------- ----- ------ ------
Net investment income....................................... 0.71 1.51 1.62 1.69
Net realized and unrealized gain (loss)..................... (0.54) 1.08 (2.18) 0.38
------- ----- ------ ------
Total from investment operations............................ 0.17 2.59 (0.56) 2.07
------- ----- ------ ------
Less dividends and distributions from:
Net investment income.................................... (0.72) (1.49) (1.62) (1.68)
Paid-in-capital.......................................... -- (0.01) -- --
------- ----- ------ ------
Total dividends and distributions........................... (0.72) (1.50) (1.62) (1.68)
------- ----- ------ ------
Net asset value, end of period.............................. $17.47 $18.02 $16.93 $19.11
======= ===== ====== ======
Market value, end of period................................. $16.50 $16.25 $16.875 $21.375
======= ===== ====== ======
TOTAL INVESTMENT RETURN+.................................... 5.97%(1) 5.24% (14.12)% 2.97%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.65%(2) 0.69% 0.68% 0.66%
Net investment income....................................... 7.89%(2) 8.75% 9.02% 9.04%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $212,913 $219,892 $206,526 $233,103
Portfolio turnover rate..................................... 55%(1) 50% 82% 85%
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
----------------------------------------------
1992 1991
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $18.03 $16.97
----- -----
Net investment income....................................... 1.79 1.94
Net realized and unrealized gain (loss)..................... 0.79 0.96
----- -----
Total from investment operations............................ 2.58 2.90
----- -----
Less dividends and distributions from:
Net investment income.................................... (1.89) (1.84)
Paid-in-capital.......................................... -- --
----- -----
Total dividends and distributions........................... (1.89) (1.84)
----- -----
Net asset value, end of period.............................. $18.72 $18.03
===== =====
Market value, end of period................................. $22.25 $20.50
===== =====
TOTAL INVESTMENT RETURN+.................................... 19.91% 13.40%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.69% 0.72%
Net investment income....................................... 9.69% 11.11%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $228,424 $218,524
Portfolio turnover rate..................................... 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 brokerage commissions.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
BOARD OF DIRECTORS
- ------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
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 Waterhuse 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.
INTERCAPITAL
INCOME
SECURITIES
INC.
SEMIANNUAL REPORT
MARCH 31, 1996
