<PAGE> 1
INTERCAPITAL INCOME SECURITIES INC. Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS March 31, 1997
DEAR SHAREHOLDER:
As the six-month period under review began, interest rates were falling in
response to what appeared to be an environment of declining inflation risk, due
to a slowdown in economic growth. However, as 1996 drew to a close it became
obvious that the economy had merely paused to catch its breath before surging
ahead to renewed faster growth. Reports released in early 1997 showed that the
economy had grown almost 4 percent in the final quarter of 1996, and subsequent
news confirmed that this strong growth trend was likely to continue. Although
inflation remained benign, Federal Reserve Chairman Alan Greenspan expressed
concern that the robust economy could pose an inflationary threat and suggested
that a "preemptive" strike against inflation might be necessary. As 1997
progressed, interest rates increased, as did the probability of an increase in
the federal-funds rate. As expected, the Federal Reserve Board raised this rate
by 25 basis points on March 25. By March 31 the yield on the two-year government
bond was 6.41 percent, and the yield on the ten-year bond was 7.10 percent, or
32 and 17 basis points higher, respectively, than they had been on September 30,
1996.
PERFORMANCE AND PORTFOLIO
For the six-month period ended March 31, 1997, InterCapital Income Securities
Inc. provided a total return of 4.16 percent, based on its net asset value of
$17.41 per share and reinvestment of dividends totaling $0.66 per share. Based
on its March 31 closing market price of $15.625 per share on the New York Stock
Exchange and the reinvestment of dividends, the Fund's total return was 2.58
percent. During the same period, the Lehman Brothers Government/Corporate Bond
Index returned 2.17 percent. U.S. government securities, as measured by the
Lehman Brothers Government Bond Index, returned 2.08 percent compared to 2.44
percent for corporate bonds, as measured by the Lehman Brothers Corporate Bond
Index.
<PAGE> 2
INTERCAPITAL INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS March 31, 1997, continued
The Fund's strong performance reflects our emphasis on corporate bonds and the
superior credit trends of specific sectors and individual issues. Several of the
Fund's corporate holdings received positive credit news, causing the market
value of these securities to rise despite a decline in Treasury prices.
Cleveland Electric, Long Island Lighting, Niagara Mohawk, Kmart, Tenneco Gas
Transmission and Westinghouse were among the holdings that performed
particularly well. The strong performance of brokerage debt early in 1997, amid
consolidation and takeover rumors, prompted the Fund to take profits in this
sector and move into retailers, such as May Department Stores, Dayton Hudson and
regional telephone companies. To offset the fact that the expected maturity of
higher-coupon callable bonds tends to lengthen as interest rates rise, the Fund
increased its exposure to shorter-term Treasuries versus longer-maturity
corporates.
The Fund continued to work toward ensuring sufficient income to maintain its
current monthly dividend and to provide a cushion against loss of income from
calls of high-coupon securities. Toward this goal, call protection was extended,
with the majority of the callable bonds protected until 2002. As of March 31,
1997 slightly more than 10 percent of the portfolio's holdings were callable
within twelve months. In the unlikely event that all these bonds were called and
their proceeds reinvested at today's rates, the Fund would still earn in excess
of the income needed to maintain its current $0.11 per share monthly dividend.
On March 31, 1997 the Fund's average maturity was 22.8 years; adjusted for
likely early redemptions, the average maturity was 18 years. The average
duration (a measure of a bond fund's sensitivity to interest-rate moves) was
7.86 years. At the end of the period, the portfolio consisted of 91 percent
corporate bonds, slightly more than 8 percent U.S. government obligations and
less than 1 percent money markets. The portfolio was diversified among 54 issues
with an average coupon of 8.82 percent and an average quality rating of Baa-1.
At the close of the period, the Fund's net assets totaled $209 million. Income
dividends of $0.66 were distributed during the six-month period.
LOOKING AHEAD
Interest rates are likely to continue to climb, given the strength that is
evident in virtually all sectors of the economy. Demand appears strong on nearly
every front, from consumers to manufacturing purchasing managers, as attested to
by sizable increases in retail sales and factory orders. Labor markets continue
to be tight; the unemployment rate slipped to 5.2 percent in March, hourly
earnings increased at an annualized 4 percent and factory overtime is at its
highest level since 1956. While the strong dollar may be currently subduing
prices for raw materials, higher wages are likely to pressure prices sometime
later this year. Productivity gains and benefits cost-cutting have been holding
down
<PAGE> 3
INTERCAPITAL INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS March 31, 1997, continued
labor expenses, but indications are that their ability to stabilize prices at
the consumer level may be on the wane. Although inflation is not yet evident,
Chairman Greenspan has made it clear that he does not intend to wait for its
appearance before striking. Rather, he will look at the overall economy for
signs of overheating, which could prompt the Federal Reserve Board to tighten
monetary policy even more in the future.
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. During the period under
review, the Fund purchased 86,800 shares of common stock at a weighted average
market discount of 10.82 percent.
We appreciate your ongoing support of InterCapital Income Securities and look
forward to continuing to serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
INTERCAPITAL INCOME SECURITIES INC.
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 27, 1996, an annual meeting of the Fund's shareholders 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>
Michael Bozic
For........................................................... 8,907,860
Withheld...................................................... 199,997
Charles A. Fiumefreddo
For........................................................... 8,906,207
Withheld...................................................... 201,650
Edwin J. Garn
For........................................................... 8,907,559
Withheld...................................................... 200,298
John R. Haire
For........................................................... 8,907,055
Withheld...................................................... 200,802
Manuel H. Johnson
For........................................................... 8,907,063
Withheld...................................................... 200,794
Michael E. Nugent
For........................................................... 8,907,220
Withheld...................................................... 200,637
Philip J. Purcell
For........................................................... 8,906,207
Withheld...................................................... 201,650
John L. Schroeder
For........................................................... 8,907,538
Withheld...................................................... 200,319
</TABLE>
<PAGE> 5
INTERCAPITAL INCOME SECURITIES INC.
RESULTS OF ANNUAL MEETING (unaudited) continued
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For........................................................... 8,583,807
Against....................................................... 187,573
Abstain....................................................... 336,477
</TABLE>
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For........................................................... 8,800,384
Against....................................................... 69,669
Abstain....................................................... 237,804
</TABLE>
<PAGE> 6
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (89.1%)
Airlines (2.6%)
$ 5,000 Delta Air Lines, Inc. ................ 9.30% 01/02/10 $ 5,497,250
------------
Automobiles (2.4%)
5,000 General Motors Corp. ................. 8.10 06/15/24 4,935,850
------------
Automotive - Finance (0.5%)
1,000 Ford Capital BV (Netherlands)......... 9.50 07/01/01 1,082,980
------------
Banks (3.4%)
6,000 Continental Bank N.A. ................ 12.50 04/01/01 7,088,760
------------
Cable & Telecommunications (7.1%)
3,300 News America Holdings................. 8.25 08/10/18 3,261,357
7,100 Tele-Communications, Inc. ............ 9.25 01/15/23 6,792,925
5,000 Time Warner Entertainment Co. ........ 8.375 07/15/33 4,870,550
------------
14,924,832
------------
Canadian Government (3.2%)
7,000 Quebec (Province of).................. 7.50 07/15/23 6,633,830
------------
Chemical - Specialty (1.4%)
3,200 Millennium America Inc. .............. 7.00 11/15/06 3,025,344
------------
Computer Equipment (0.5%)
1,000 Unisys Corp. ......................... 15.00 07/01/97 1,022,500
------------
Defense (2.5%)
5,000 Northrop Grumman Corp. ............... 9.375 10/15/24 5,324,750
------------
Financial (1.5%)
3,000 Conseco, Inc. ........................ 8.125 02/15/03 3,066,030
------------
Food Processing (1.4%)
3,000 Borden, Inc. ......................... 9.20 03/15/21 2,949,450
------------
Gas Transmission (2.7%)
5,000 Columbia Gas System, Inc. ............ 7.62 11/28/25 4,672,150
1,000 Panhandle Eastern Corp. .............. 8.625 04/15/25 1,016,800
------------
5,688,950
------------
Health & Personal Care (1.5%)
3,500 Columbia/HCA Healthcare Corp. ........ 7.05 12/01/27 3,173,905
------------
Leisure Time/Equipment (1.3%)
3,000 Brunswick Corp. ...................... 7.375 09/01/23 2,802,056
------------
Manufacturing (1.2%)
2,400 Westinghouse Electric Corp. .......... 8.625 08/01/12 2,458,920
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Metals & Mining (2.3%)
$ 5,000 Cyprus Amax Minerals Co. ............. 8.375% 02/01/23 $ 4,859,450
------------
Oil & Gas Products (2.2%)
5,000 Lyondell Petrochemical Co. ........... 7.55 02/15/26 4,648,700
------------
Oil Refineries (1.6%)
3,500 Diamond Shamrock Corp. ............... 8.00 04/01/23 3,354,050
------------
Oil Related (4.9%)
5,200 Lasmo (USA), Inc. .................... 8.375 06/01/23 5,095,532
5,000 Phillips Petroleum Co. ............... 8.49 01/01/23 5,061,900
------------
10,157,432
------------
Paper & Forest Products (4.1%)
2,500 Champion International Corp. ......... 7.35 11/01/25 2,282,750
6,000 Georgia Pacific Co. .................. 9.625 03/15/22 6,359,040
------------
8,641,790
------------
Retail (7.8%)
5,800 Dayton Hudson Corp. .................. 8.50 12/01/22 5,770,768
2,350 Kmart Corp. .......................... 13.50 01/01/09 2,549,750
2,500 Kmart Corp. .......................... 9.35 01/02/20 2,350,000
5,597 May Department Stores Co. ............ 8.30 07/15/26 5,597,784
------------
16,268,302
------------
Steel (0.3%)
590 Weirton Steel Corp. .................. 10.875 10/15/99 595,900
------------
Telecommunications (3.4%)
7,000 AT&T Corp. ........................... 8.625 12/01/31 7,137,900
------------
Telephones (4.5%)
6,500 Pacific Bell.......................... 8.50 08/15/31 6,522,880
3,000 US West Capital Funding, Inc. ........ 7.90 02/01/27 2,923,350
------------
9,446,230
------------
Transportation (2.2%)
4,975 Union Pacific Corp. .................. 7.875 02/01/23 4,701,872
------------
Utilities - Electric (21.6%)
1,000 Cleveland Electric Illuminating Co.
(Series B)........................... 9.50 05/15/05 1,048,970
6,500 Commonwealth Edison Co. .............. 8.375 02/15/23 6,343,610
2,000 CTC Mansfield Funding Corp. .......... 11.125 09/30/16 2,121,580
3,500 Long Island Lighting Co. ............. 9.75 05/01/21 3,618,125
3,500 Long Island Lighting Co. ............. 9.625 07/01/24 3,605,000
2,000 Louisiana Power & Light Co. .......... 8.75 03/01/26 1,979,620
2,000 Louisiana Power & Light Co. (Series
A).................................... 10.67 01/02/17 2,142,380
1,000 Louisiana Power & Light Co. (Series
C).................................... 10.67 01/02/17 1,072,100
2,000 Niagara Mohawk Power Corp. ........... 9.50 03/01/21 2,067,820
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,000 Niagara Mohawk Power Corp. ........... 8.75% 04/01/22 $ 3,914,040
3,500 San Diego Gas & Electric Co. ......... 9.625 04/15/20 3,826,340
3,000 Southern California Edison Co. ....... 8.875 06/01/24 3,083,400
5,250 Texas Utilities Electric Co. ......... 8.75 11/01/23 5,360,670
4,300 United Illuminating Co. .............. 10.24 01/02/20 4,569,180
------------
44,752,835
------------
Utilities - Gas (1.0%)
2,000 Southern California Gas Co. .......... 8.75 10/01/21 2,035,200
------------
TOTAL CORPORATE BONDS
(Identified Cost $188,844,413)............................... 186,275,068
------------
U.S. GOVERNMENT OBLIGATIONS (8.1%)
1,300 U.S. Treasury Bond.................... 7.50 11/15/16 1,337,297
2,000 U.S. Treasury Bond.................... 6.50 11/15/26 1,841,380
1,000 U.S. Treasury Note.................... 7.88 01/15/98 1,014,370
5,000 U.S. Treasury Note.................... 7.75 11/30/99 5,141,800
7,250 U.S. Treasury Note.................... 8.50 11/15/00 7,669,340
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $17,391,191)................................ 17,004,187
------------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
1,169 The Bank of New York (dated 03/31/97;
proceeds $1,169,425; collateralized
by $370,090 U.S. Treasury Bond 5.875%
due 01/31/99 valued at $370,337 and
$819,606 U.S. Treasury Bond 6.125%
due 08/31/98 valued at $822,298)
(Identified Cost $1,169,250)......... 5.375 04/01/97 1,169,250
------------
TOTAL INVESTMENTS
(Identified Cost $207,404,854) (a)................... 97.8% 204,448,505
OTHER ASSETS IN EXCESS OF LIABILITIES.................. 2.2 4,647,166
------ ------------
NET ASSETS........................................... 100.0% $209,095,671
====== ============
</TABLE>
- ---------------------
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,982,777 and the
aggregate gross unrealized depreciation is $5,939,126, resulting in net
unrealized depreciation of $2,956,349.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $207,404,854).......... $204,448,505
Interest receivable...................... 4,822,984
Prepaid expenses and other assets........ 26,094
------------
TOTAL ASSETS.......................... 209,297,583
------------
LIABILITIES:
Investment management fee payable........ 90,209
Accrued expenses and other payables...... 111,703
------------
TOTAL LIABILITIES..................... 201,912
------------
NET ASSETS:
Paid-in-capital.......................... 236,534,680
Net unrealized depreciation.............. (2,956,349)
Accumulated undistributed net investment
income.................................. 316,460
Accumulated net realized loss............ (24,799,120)
------------
NET ASSETS............................ $209,095,671
============
NET ASSET VALUE PER SHARE,
12,007,018 shares outstanding
(unlimited shares authorized of $.01 par
value).................................. $17.41
============
STATEMENT OF OPERATIONS
For the six months ended March 31, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 9,009,701
------------
EXPENSES
Investment management fee................ 535,861
Transfer agent fees and expenses......... 74,843
Professional fees........................ 30,640
Shareholder reports and notices.......... 13,908
Registration fees........................ 12,182
Custodian fees........................... 10,003
Directors' fees and expenses............. 6,172
Other.................................... 4,977
------------
TOTAL EXPENSES........................ 688,586
------------
NET INVESTMENT INCOME................. 8,321,115
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................ 1,711,618
Net change in unrealized depreciation.... (2,275,824)
------------
NET LOSS.............................. (564,206)
------------
NET INCREASE............................. $ 7,756,909
============
</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
MONTHS ENDED FOR THE YEAR
MARCH 31, ENDED
1997 SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 8,321,115 $ 17,168,371
Net realized gain.................................. 1,711,618 196,014
Net change in unrealized depreciation.............. (2,275,824) (8,121,879)
------------ ------------
NET INCREASE................................... 7,756,909 9,242,506
------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.............................. (7,955,647) (13,912,704)
Paid-in-capital.................................... -- (2,886,612)
------------ ------------
TOTAL.......................................... (7,955,647) (16,799,316)
------------ ------------
Net decrease from capital stock transactions....... (1,380,629) (1,660,563)
------------ ------------
NET DECREASE................................... (1,579,367) (9,217,373)
NET ASSETS:
Beginning of period................................ 210,675,038 219,892,411
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $316,460 and dividends in excess of net
investment income of $49,008, respectively).... $209,095,671 $210,675,038
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (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's primary investment objective is to
provide as high a level of current income as is consistent with prudent
investment and, as a secondary objective, capital appreciation. The Fund
commenced operations on April 6, 1973.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock Exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted 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 Dean Witter InterCapital Inc. (the "Investment Manager"), that
sale or 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
(valuation or debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Directors. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, 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.
<PAGE> 12
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined 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.
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, the Fund pays the Investment
Manager 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.
<PAGE> 13
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
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, 1997 aggregated
$87,172,678 and $85,983,180, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $30,024,066 and
$22,942,227, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At March 31, 1997, the Fund had transfer agent fees and expenses
payable of approximately $11,300.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended March 31, 1997
included in Directors' fees and expenses in the Statement of Operations amounted
to $646. At March 31, 1997, the Fund had an accrued pension liability of $48,079
which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. CAPITAL STOCK
<TABLE>
<CAPTION>
CAPITAL
PAR VALUE PAID IN
OF EXCESS OF
SHARES SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, September 30, 1995..................................................... 12,200,518 $122,005 $242,340,479
Treasury shares purchased and retired (weighted average discount 9.96%)*........ (106,700) (1,067) (1,659,496)
Distribution from paid-in-capital............................................... -- -- (2,886,612)
---------- -------- ------------
Balance, September 30, 1996..................................................... 12,093,818 120,938 237,794,371
Treasury shares purchased and retired (weighted average discount 10.82%)*....... (86,800) (868) (1,379,761)
---------- -------- ------------
Balance, March 31, 1997......................................................... 12,007,018 $120,070 $236,414,610
========== ======== ============
</TABLE>
- ---------------------
* The Directors have voted to retire the shares purchased.
<PAGE> 14
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
5. DIVIDENDS
On March 25, 1997, 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, 1997 April 18, 1997
$0.11 May 9, 1997 May 23, 1997
$0.11 June 6, 1997 June 20, 1997
</TABLE>
6. FEDERAL INCOME TAX STATUS
At September 30, 1996, the Fund had an approximate net capital loss carryover,
which may be used to offset future capital gains to the extent provided by
regulations, which is available through September 30 of the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -------------------------------------------------------------
1998 1999 2000 2003 2004 TOTAL
- ---- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
$782 $13,382 $2,370 $6,713 $2,634 $25,881
===== ======== ======= ======= ======= ========
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $368,000, during fiscal 1996.
At September 30, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
<PAGE> 15
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 SIX
MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30*
MARCH 31, ----------------------------------------------
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 17.42 $ 18.02 $ 16.93 $ 19.11
-------- -------- -------- --------
Net investment income....................................... 0.68 1.41 1.51 1.62
Net realized and unrealized gain (loss)..................... (0.04) (0.64) 1.08 (2.18)
-------- -------- -------- --------
Total from investment operations............................ 0.64 0.77 2.59 (0.56)
-------- -------- -------- --------
Less dividends and distributions from:
Net investment income.................................... (0.66) (1.14) (1.49) (1.62)
Paid-in-capital.......................................... -- (0.24) (0.01) --
-------- -------- -------- --------
Total dividends and distributions........................... (0.66) (1.38) (1.50) (1.62)
-------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares........... 0.01 0.01 -- --
-------- -------- -------- --------
Net asset value, end of period.............................. $ 17.41 $ 17.42 $ 18.02 $ 16.93
======== ======== ======== ========
Market value, end of period................................. $ 15.625 $ 15.875 $ 16.25 $ 16.875
======== ======== ======== ========
TOTAL INVESTMENT RETURN+.................................... 2.58%(1) 6.39% 5.24% (14.12)%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.64%(2) 0.65% 0.69% 0.68%
Net investment income....................................... 7.76%(2) 8.03% 8.75% 9.02%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $209,096 $210,675 $219,892 $206,526
Portfolio turnover rate..................................... 41%(1) 88% 50% 82%
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30*
--------------------------------
1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 18.72 $ 18.03
-------- --------
Net investment income....................................... 1.69 1.79
Net realized and unrealized gain (loss)..................... 0.38 0.79
-------- --------
Total from investment operations............................ 2.07 2.58
-------- --------
Less dividends and distributions from:
Net investment income.................................... (1.68) (1.89)
Paid-in-capital.......................................... -- --
-------- --------
Total dividends and distributions........................... (1.68) (1.89)
-------- --------
Anti-dilutive effect of acquiring treasury shares........... -- --
-------- --------
Net asset value, end of period.............................. $ 19.11 $ 18.72
======== ========
Market value, end of period................................. $ 21.375 $ 22.25
======== ========
TOTAL INVESTMENT RETURN+.................................... 2.97% 19.91%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.66% 0.69%
Net investment income....................................... 9.04% 9.69%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $233,103 $228,424
Portfolio turnover rate..................................... 85% 61%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust 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
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.
[PHOTO]
Semiannual Report
March 31, 1997
