<PAGE> 1
INTERCAPITAL INCOME SECURITIES INC. Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS March 31, 1998
DEAR SHAREHOLDER:
Over the past six months, interest rates were lower and inflation remained
benign, even slowing, despite a robust economy and tight labor markets. Turmoil
in the Asian financial markets brought with it a flight to quality in U.S.
government securities amid concerns that demand for U.S. products would slow,
eventually weakening the U.S. economy. This combination of factors pushed
interest rates on intermediate and longer-term maturities down far more than on
shorter-term Treasuries.
The markets anticipated continued low interest rates throughout 1998, due to the
potential for a balanced federal budget and fallout from the financial
disruptions in Asia. As 1998 progressed, the outlook for Asia appeared to
brighten and economic activity continued at a rapid pace, reducing the
probability of lower interest rates in the near term. On March 31, 1998,
five-year Treasuries yielded 5.61 percent while thirty-year bonds yielded 5.93
percent, still down 0.37 and 0.47 percentage points respectively from where they
began the fiscal period in October.
PERFORMANCE AND PORTFOLIO
For the six-month period ended March 31, 1998, InterCapital Income Securities
Inc. provided a total return of 5.77 percent, based on its net asset value of
$18.72 per share and reinvestment of dividends totaling $0.66 per share. Based
on its March 31 closing NYSE market price of $17.375 per share and the
reinvestment of dividends, the Fund's total return was 8.25 percent. During the
same period, the Lehman Brothers Government/Corporate Bond Index returned 4.77
percent. U.S. government securities, as measured by the Lehman Brothers
Government Bond Index, returned 4.88 percent compared to 4.49 percent for
corporate bonds, as measured by the Lehman Corporate Bond Index.
The Fund's performance reflects our emphasis on corporate bonds and improved
credit trends of specific sectors and individual issues. Two of the Fund's
holdings that performed particularly well were The Money Store and Digital
Equipment. New holdings that have been added to the Fund
<PAGE> 2
INTERCAPITAL INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS March 31, 1998, continued
are Noranda Forest, General Telephone of the North, Cummins Engine, Burlington
Northern Railroad, John Deere Capital, and Pohang Iron & Steel.
As of March 31, 1998, less than 6 percent of the portfolio's holdings were due
to mature or to be called within twelve months. Bonds that were called during
the past six months totaled $4.3 million, less than 2 percent of the portfolio's
holdings. Despite the reduction in income resulting from the retirement of
called bonds, the $0.11 monthly dividend the Fund has maintained since March
1996 remained secure.
On March 31, 1998, the Fund's average maturity was 10.71 years, adjusted for
likely calls. The average duration (a measure of a bond fund's sensitivity to
interest-rate moves) was 5.9 years, which resulted from the reinvestment of
proceeds from called bonds into corporates with four or more years of call
protection. At the end of the period, the portfolio consisted of 88.2 percent
corporate bonds, 11.7 percent U.S. government obligations and less than 1
percent money market securities. The portfolio was diversified among 54 issues
with an average coupon of 8.57 percent and an average quality rating of BBB. At
the close of the period, the Fund's net assets totaled more than $222 million.
LOOKING AHEAD
With a strong dollar and an expected federal budget surplus, we expect that the
Federal Reserve is unlikely to raise interest rates in 1998. However, strong
economic growth and tight labor markets are not encouraging the Federal Reserve
to lower interest rates either. Unless inflation returns or the economy sags, we
believe that the stage is set for a stable interest rate environment.
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 43,900 shares of common stock at a weighted average
market discount of 7.69 percent.
We appreciate your ongoing support of InterCapital Income Securities Inc. and
look forward to continuing to serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
2
<PAGE> 3
INTERCAPITAL INCOME SECURITIES INC.
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 18, 1997, 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..................... 9,235,419
Withheld................ 174,862
Charles A. Fiumefreddo
For..................... 9,240,839
Withheld................ 169,442
Edwin J. Garn
For..................... 9,183,704
Withheld................ 226,577
John R. Haire
For..................... 9,241,078
Withheld................ 169,203
Wayne E. Hedien
For..................... 9,247,555
Withheld................ 162,726
Dr. Manuel H. Johnson
For..................... 9,251,886
Withheld................ 158,395
Michael E. Nugent
For..................... 9,221,992
Withheld................ 188,289
Philip J. Purcell
For..................... 9,251,011
Withheld................ 159,270
John L. Schroeder
For..................... 9,251,740
Withheld................ 158,541
</TABLE>
(2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For..................................................... 9,128,237
Against................................................. 61,019
Abstain................................................. 221,025
</TABLE>
(3) ELIMINATION OF THE FUND'S FUNDAMENTAL POLICY REGARDING INVESTMENTS IN
RESTRICTED SECURITIES:
<TABLE>
<S> <C>
For..................................................... 5,567,270
Against................................................. 448,726
Abstain................................................. 724,282
</TABLE>
The shareholders of the Fund voted to eliminate a fundamental policy of the Fund
which provided that the Fund could not invest more than 10 percent of its total
assets in restricted securities, which policy could only be changed by
shareholder vote. The elimination of this fundamental policy will allow the Fund
greater access to the institutional markets for restricted securities. The
Fund's current policy with respect to restricted securities is non-fundamental,
with investment limits in such securities set by the Board of Directors of the
Fund in response to changes in the markets for such securities.
3
<PAGE> 4
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (86.6%)
Airlines (2.7%)
$5,000 Delta Air Lines, Inc. ............... 9.30% 01/02/10 $ 5,988,750
------------
Automobiles (3.7%)
2,600 Ford Motor Co. ...................... 8.875 11/15/22 2,884,414
5,000 General Motors Corp. ................ 8.10 06/15/24 5,447,550
------------
8,331,964
------------
Automotive - Finance (0.5%)
1,000 Ford Capital BV (Netherlands)........ 9.50 07/01/01 1,098,300
------------
Banks (3.2%)
6,000 Continental Bank N.A. ............... 12.50 04/01/01 7,035,480
------------
Cable & Telecommunications (9.2%)
3,300 News America Holdings, Inc. ......... 8.25 08/10/18 3,632,112
2,900 News America Holdings, Inc. ......... 7.70 10/30/25 3,039,490
7,450 Tele-Communications, Inc. ........... 8.75 02/15/23 8,166,541
5,000 Time Warner Entertainment Co. ....... 8.375 07/15/33 5,710,650
------------
20,548,793
------------
Canadian Government (2.4%)
5,000 Quebec (Province of)................. 7.50 07/15/23 5,436,950
------------
Chemicals - Specialty (1.4%)
3,200 Millennium America, Inc. ............ 7.00 11/15/06 3,210,336
------------
Computers - Systems (1.0%)
2,000 Digital Equiptment Corp. ............ 8.625 11/01/12 2,304,200
------------
Defense (2.7%)
5,000 Northrop Grumman Corp. .............. 9.375 10/15/24 5,926,700
------------
Financial (1.0%)
2,000 John Deere Capital................... 8.625 08/01/19 2,238,560
------------
Food Processing (1.5%)
3,000 Borden, Inc. ........................ 9.20 03/15/21 3,350,790
------------
Gas Transmission (0.5%)
1,000 Panhandle Eastern Corp. ............. 8.625 04/15/25 1,117,860
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health & Personal Care (0.4%)
$1,000 Columbia/HCA Healthcare Corp. ....... 7.19 % 11/15/15 $ 896,190
------------
Healthcare Services (0.8%)
2,000 MedPartners, Inc. ................... 7.375 10/01/06 1,761,340
------------
Industrials (0.9%)
2,000 Cummins Engine Co., Inc. ............ 7.125 03/01/28 1,973,760
------------
Insurance (1.7%)
3,500 American General Investment Co. ..... 9.625 07/15/00 3,763,235
------------
Manufacturing (1.2%)
2,400 Westinghouse Electric Corp. ......... 8.625 08/01/12 2,586,312
------------
Manufacturing - Consumer & Industrial Products
(2.4%)
5,000 Toro Co. ............................ 7.80 06/15/27 5,285,600
------------
Metals & Mining (2.3%)
5,000 Cyprus Amax Minerals Co. ............ 8.375 02/01/23 5,166,100
------------
Office Equipment & Supplies (1.4%)
3,000 Staples, Inc. ....................... 7.125 08/15/07 3,077,250
------------
Oil & Gas Products (2.3%)
5,000 Lyondell Petrochemical Co. .......... 7.55 02/15/26 5,062,400
------------
Oil Refineries (1.6%)
3,500 Diamond Shamrock Corp. .............. 8.00 04/01/23 3,654,840
------------
Oil Related (5.0%)
5,200 Lasmo (USA), Inc. ................... 8.375 06/01/23 5,573,464
5,000 Phillips Petroleum Co. .............. 8.49 01/01/23 5,444,800
------------
11,018,264
------------
Paper & Forest Products (4.8%)
6,000 Georgia Pacific Co. ................. 9.625 03/15/22 6,702,000
4,000 Noranda Forest, Inc. (Canada)........ 6.875 11/15/05 4,008,280
------------
10,710,280
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail (7.9%)
$5,800 Dayton Hudson Corp. ................. 8.50 % 12/01/22 $ 6,259,360
2,350 Kmart Corp. ......................... 13.50 01/01/09 2,535,063
2,500 Kmart Corp. ......................... 9.35 01/02/20 2,673,375
5,597 May Department Stores Co. ........... 8.30 07/15/26 6,210,711
------------
17,678,509
------------
Steel (1.1%)
2,000 Pohang Iron & Steel Co. (South
Korea)............................... 7.125 11/01/06 1,704,720
590 Weirton Steel Corp. ................. 10.875 10/15/99 618,025
------------
2,322,745
------------
Telecommunications (3.5%)
7,000 AT&T Corp. .......................... 8.625 12/01/31 7,707,980
------------
Telephones (4.1%)
2,000 GTE North, Inc. ..................... 6.73 02/15/28 1,981,480
6,700 Pacific Bell......................... 8.50 08/15/31 7,234,794
------------
9,216,274
------------
Transportation (3.8%)
3,500 Burlington Northern Railroad, Inc.... 6.875 12/01/27 3,479,000
4,975 Union Pacific Corp. ................. 7.875 02/01/23 5,046,640
------------
8,525,640
------------
Utilities - Electric (11.6%)
1,000 Cleveland Electric Illuminating Co.
(Series B).......................... 9.50 05/15/05 1,102,290
4,500 Commonwealth Edison Co. ............. 8.375 02/15/23 4,801,185
3,000 Gulf States Utility Co. ............. 8.94 01/01/22 3,146,580
3,500 Long Island Lighting Co. ............ 9.625 07/01/24 3,535,000
3,500 Long Island Lighting Co. ............ 9.75 05/01/21 3,535,000
2,000 Louisiana Power & Light Co. ......... 8.75 03/01/26 2,171,200
2,000 Niagara Mohawk Power Corp. .......... 9.50 03/01/21 2,128,780
5,000 Niagara Mohawk Power Corp. .......... 8.75 04/01/22 5,441,550
------------
25,861,585
------------
TOTAL CORPORATE BONDS
(Identified Cost $183,056,923)............................ 192,856,987
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
INTERCAPITAL INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (11.4%)
$2,500 U.S. Treasury Bond................... 6.125% 11/15/27 $ 2,563,200
8,000 U.S. Treasury Note................... 7.75 11/30/99 8,272,960
5,825 U.S. Treasury Note................... 8.50 02/15/00 6,121,900
7,000 U.S. Treasury Note................... 8.50 11/15/00 7,482,020
1,000 U.S. Treasury Note................... 7.50 11/15/01 1,059,190
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $25,645,875)............................. 25,499,270
------------
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT
336 The Bank of New York (dated 03/31/98;
proceeds $336,512) (a)
(Identified Cost $336,462).......... 5.375 04/01/98 336,462
------------
TOTAL INVESTMENTS
(Identified Cost $209,039,260) (b)............ 98.2% 218,692,719
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................... 1.8 4,069,170
----- ------------
NET ASSETS........................................ 100.0% $222,761,889
===== ============
</TABLE>
- ---------------------
<TABLE>
<S> <C>
(a) Collateralized by $342,282 U.S. Treasury Note 6.00% due
09/30/98 valued at $343,191.
(b) The aggregate cost for federal income tax purposes
approximates identified cost.
The aggregate gross unrealized appreciation is $11,304,469
and the aggregate gross unrealized depreciation is
$1,651,010, resulting in net unrealized appreciation of
$9,653,459.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $209,039,260)............................. $218,692,719
Cash........................................................ 743
Receivable for:
Interest................................................ 4,667,287
Investments sold........................................ 2,219,450
Prepaid expenses and other assets........................... 28,318
-----------
TOTAL ASSETS............................................ 225,608,517
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 2,623,966
Investment management fee............................... 97,729
Capital stock repurchased............................... 34,810
Accrued expenses and other payables......................... 90,123
-----------
TOTAL LIABILITIES....................................... 2,846,628
-----------
NET ASSETS.............................................. $222,761,889
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $234,725,624
Net unrealized appreciation................................. 9,653,459
Accumulated undistributed net investment income............. 752,366
Accumulated net realized loss............................... (22,369,560)
-----------
NET ASSETS.............................................. $222,761,889
===========
NET ASSET VALUE PER SHARE,
11,898,518 shares outstanding
(unlimited shares authorized of $.01 par value)............ $18.72
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
INTERCAPITAL INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended March 31, 1998 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $8,735,639
----------
EXPENSES
Investment management fee................................... 555,842
Transfer agent fees and expenses............................ 63,614
Professional fees........................................... 25,277
Shareholder reports and notices............................. 22,804
Registration fees........................................... 12,388
Directors' fees and expenses................................ 9,171
Custodian fees.............................................. 7,270
Other....................................................... 3,366
----------
TOTAL EXPENSES.......................................... 699,732
----------
NET INVESTMENT INCOME................................... 8,035,907
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 2,306,965
Net change in unrealized appreciation....................... 1,281,156
----------
NET GAIN................................................ 3,588,121
----------
NET INCREASE................................................ $11,624,028
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<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
1998 SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 8,035,907 $ 16,496,018
Net realized gain.................................. 2,306,965 1,834,213
Net change in unrealized
appreciation/depreciation......................... 1,281,156 9,052,828
------------ ------------
NET INCREASE................................... 11,624,028 27,383,059
Dividends from net investment income............... (7,866,920) (15,863,631)
Net decrease from capital stock transactions....... (753,805) (2,435,880)
------------ ------------
NET INCREASE................................... 3,003,303 9,083,548
NET ASSETS:
Beginning of period................................ 219,758,586 210,675,038
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $752,366 and $583,379, respectively)........ $222,761,889 $219,758,586
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (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
11
<PAGE> 12
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (unaudited) continued
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.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income 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
12
<PAGE> 13
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (unaudited) continued
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, 1998 aggregated
$49,137,688 and $49,352,555, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $13,288,203 and
$10,415,088, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent.
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, 1998
included in Directors' fees and expenses in the Statement of Operations amounted
to $1,953. At March 31, 1998, the Fund had an accrued pension liability of
$48,654 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, 1996................................. 12,093,818 $120,936 $237,794,373
Treasury shares purchased and retired (weighted average
discount 10.18%)*.......................................... (151,400) (1,514) (2,434,366)
---------- -------- ------------
Balance, September 30, 1997................................. 11,942,418 119,422 235,360,007
Treasury shares purchased and retired (weighted average
discount 7.69%)*........................................... (43,900) (439) (753,366)
---------- -------- ------------
Balance, March 31, 1998..................................... 11,898,518 $118,983 $234,606,641
========== ======== ============
</TABLE>
- ---------------------
* The Directors have voted to retire the shares purchased.
13
<PAGE> 14
INTERCAPITAL INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (unaudited) continued
5. DIVIDENDS
On March 24, 1998, 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 3, 1998 April 17, 1998
$0.11 May 8, 1998 May 22, 1998
$0.11 June 5, 1998 June 19, 1998
</TABLE>
6. FEDERAL INCOME TAX STATUS
At September 30, 1997, the Fund had a net capital loss carryover of
approximately $24,646,000 to offset future capital gains to the extent provided
by regulations available through September 30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ---------------------------------------------------------------------------
1999 2000 2003 2004
- ------- ------ ------ ------
<S> <C> <C> <C>
$12,909 $2,390 $6,713 $2,634
======= ====== ====== ======
</TABLE>
14
<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 FOR THE YEAR ENDED SEPTEMBER 30*
MONTHS ENDED ---------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 18.40 $ 17.42 $ 18.02 $16.93 $ 19.11 $ 18.72
------- ------- ------- ------ ------- -------
Net investment income............................. 0.67 1.37 1.41 1.51 1.62 1.69
Net realized and unrealized gain (loss)........... 0.30 0.91 (0.64) 1.08 (2.18) 0.38
------- ------- ------- ------ ------- -------
Total from investment operations.................. 0.97 2.28 0.77 2.59 (0.56) 2.07
------- ------- ------- ------ ------- -------
Less dividends and distributions from:
Net investment income.......................... (0.66) (1.32) (1.14) (1.49) (1.62) (1.68)
Paid-in-capital................................ -- -- (0.24) (0.01) -- --
------- ------- ------- ------ ------- -------
Total dividends and distributions................. (0.66) (1.32) (1.38) (1.50) (1.62) (1.68)
------- ------- ------- ------ ------- -------
Anti-dilutive effect of acquiring treasury
shares........................................... 0.01 0.02 0.01 -- -- --
------- ------- ------- ------ ------- -------
Net asset value, end of period.................... $ 18.72 $ 18.40 $ 17.42 $18.02 $ 16.93 $ 19.11
======= ======= ======= ====== ======= =======
Market value, end of period....................... $17.375 $16.688 $15.875 $16.25 $16.875 $21.375
======= ======= ======= ====== ======= =======
TOTAL INVESTMENT RETURN+.......................... 8.25%(1) 14.06% 6.39% 5.24% (14.12)% 2.97%
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 0.64%(2) 0.65% 0.65% 0.69% 0.68% 0.66%
Net investment income............................. 7.39%(2) 7.69% 8.03% 8.75% 9.02% 9.04%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $222,762 $219,759 $210,675 $219,892 $206,526 $233,103
Portfolio turnover rate........................... 23%(1) 63% 88% 50% 82% 85%
</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
15
<PAGE> 16
BOARD OF DIRECTORS
- -------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- -------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- -------------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records
of the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
INTERCAPITAL
INCOME
SECURITIES
INC.
Semiannual Report
March 31, 1998
