<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST Two World Trade Center, New York,
New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1996
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of InterCapital
Insured Municipal Bond Trust (IMB) for the fiscal year ended October 31,
1996.
Stronger economic growth and the potential threat of inflation shifted the
tone of the fixed-income markets from bullish to bearish in early 1996. This
change in market psychology was confirmed in March by a surprisingly large
increase in payroll employment. The rise in interest rates between February
and July may be attributed to market weakness on the days that strong monthly
employment figures were reported. The bond market sporadically pushed
long-term yields higher, anticipating that the Federal Reserve Board might
raise the federal-funds rate. However, with slower growth in employment and
overall economic activity between August and October, the central bank left
monetary policy unchanged. As a result, by the end of October the
fixed-income markets had regained an optimistic outlook and rallied to levels
not seen since February.
MUNICIPAL MARKET CONDITIONS
Between February and July, 30-year insured revenue bond yields rose 75 basis
points from 5.40 percent to reach 6.15 percent in April and again in
mid-June. Subsequently, demand for municipal bonds improved and followed the
trend of U.S. Treasury securities toward lower yields. Insured bond yields
reached 5.60 percent by the end of October. One-year municipal note yields
declined marginally from 3.80 percent to 3.70 percent over the past 12
months. In October, the yield curve pickup for extending maturities from 1 to
30 years was 190 basis points.
The ratio of insured revenue bond yields to 30-year U.S. Treasury yields
moved from 91 percent to 84 percent over the course of the fiscal year. A
declining ratio means that municipal bond prices outperformed U.S. Treasury
prices. The relative improvement in municipals occurred as flat-tax proposals
failed to gain public support.
The municipal market also benefited from steady demand. In addition to
regular maturities and calls for redemption this year, it has been estimated
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
that investors also faced the retirement of over $60 billion of debt that has
been previously refinanced. On the supply side, new issues increased 20
percent to $147 billion over the calendar year to date.
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
(The chart below represents information which appears as a
graphic in the printed report)
A pie chart reflecting the credit quality of the portfolio as ratings
of the Five Largest Sectors as of October 31, 1996.
SECTORS PERCENT
Mortgage 32%
All others 27%
Refunded 12%
Transportation 12%
Education 9%
*IDR/PCR 8%
*Industrial Development/Pollution Control Revenue
CREDIT ENHANCEMENTS PERCENT
MBIA (Municipal Bond Investors Assur. Corp.) 42%
FGIC (Financial Guaranty Insurance Co.) 25%
FSA (Financial Security Assurance Co.) 20%
GNMA 9%
AMBAC (AMBAC Indemnity Corp. 4%
PERFORMANCE
The Trust's net asset value (NAV) moved from $15.41 to $15.35 per share
during the fiscal year ended October 31, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.90 per share, the Trust's
total return was 6.29 percent. Over the same period, IMB's market price on
the New York Stock Exchange moved from $14.625 to $14.125 per share. Based on
this market price change and reinvestment of tax-free dividends, the Trust's
total return was 3.06 percent.
IMB began the fiscal year trading at a 5 percent discount to NAV and closed
at an 8 percent discount. Undistributed net investment income available for
dividends improved $0.091 per share during the year to $0.117 per share. As a
result, the Trust's monthly dividend was increased from $0.075 to $0.08
per share beginning with the November payment.
PORTFOLIO STRUCTURE
On October 31, 1996, the Trust's net assets of $109 million were diversified
among 11 long-term municipal sectors and 37 credits. The average maturity and
call protection of IMB's long-term portfolio were 21 and 5 years,
respectively. To assure the timely payment of principal and interest, each
position in the portfolio was backed by triple "A" rated bond insurance or by
U.S. government guaranteed securities.
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution
to common shareholders includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
to one year. Incremental income to common shares depends on two factors:
first, the spread between interest earned on the long-term bonds in the
established portfolio of investments and the ARPS auction rate plus ARPS
expenses; second, the amount of ARPS outstanding. The greater the amount of
ARPS outstanding, the greater the amount of incremental income normally
available for distribution to common shareholders.
Weekly ARPS yields ranged between 3.32 and 4.75 percent during the fiscal
year. Leverage contributed approximately $0.14 per share to common share
earnings during the fiscal year. One ARPS series totaling $30 million and
representing 27 percent of net assets was outstanding.
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities
is expected to remain positive for the municipal market. Long-term insured
municipal securities currently yield 84 percent of U.S. Treasury securities
and may be expected to move in tandem with the Treasury market. Although
municipal performance relative to U.S. Treasury securities has improved,
tax-exempts could again be affected by market uncertainty if new tax
reduction proposals were to resurface.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust,
when appropriate, may purchase 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. Over the past fiscal year IMB
purchased and retired 76,550 shares of common stock at a weighted average
market discount of 9.33 percent. The Trust may also utilize procedures to
reduce or eliminate the amount of outstanding ARPS, including their purchase
in the open market or in privately negotiated transactions.
We appreciate your ongoing support of InterCapital Insured Municipal Bond
Trust 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>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 29, 1996, an annual meeting of the Trust's shareholders was held
for the purpose of voting on three separate matters, the results of which
were as follows:
(1) ELECTION OF TRUSTEES:
Dr. Manuel H. Johnson
<TABLE>
<CAPTION>
<S> <C>
For ...................... 3,985,421
Withheld ................. 57,250
</TABLE>
John L. Schroeder
<TABLE>
<CAPTION>
<S> <C>
For ...................... 3,982,883
Withheld ................. 59,788
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael
E. Nugent and Philip J. Purcell.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT
WITH DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<CAPTION>
<S> <C>
For ..................... 3,888,112
Against .................. 38,948
Abstain .................. 115,611
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ..................... 3,939,762
Against .................. 23,768
Abstain .................. 79,141
</TABLE>
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (96.2%)
General Obligation (5.0%)
$5,000 Cook County, Illinois, Ser 1992 A (MBIA) ....................... 6.60 % 11/15/22 $5,470,200
- ----------- --------------
Educational Facilities Revenue (8.7%)
6,000 Massachusetts Health & Educational Facilities Authority, Boston
University 1991 Ser K & L (MBIA) ............................... 6.66 10/01/31 6,375,240
2,000 New York State Dormitory Authority, St. John's University Ser
1996 (MBIA) (WI) .............................................. 5.70 07/01/26 1,988,480
1,000 Pennsylvania Higher Educational Facilities Authority, Duquesne
University Refg Ser A of 1991 (MBIA) .......................... 6.75 04/01/20 1,079,200
- ----------- --------------
9,000 9,442,920
- ----------- --------------
Electric Revenue (4.8%)
3,000 Piedmont Municipal Power Agency, South Carolina, 1991 Refg Ser
(FGIC) ........................................................ 6.50 01/01/11 3,220,650
2,000 Snohomish County Public Utility District #1, Washington, 1993
Ser (FGIC) .................................................... 6.00 01/01/18 2,010,040
- ----------- --------------
5,000 5,230,690
- ----------- --------------
Hospital Revenue (7.0%)
3,000 Jacksonville Health Facilities Authority, Florida, New
Children's Hospital at Baptist Medical Center Ser 1991 (MBIA) .. 7.00 06/01/21 3,299,820
3,000 Illinois Health Facilities Authority, Memorial Medical Center
Ser 1989 (MBIA) ............................................... 6.75 10/01/11 3,257,400
1,000 Nebraska Investment Finance Authority, Methodist Health System
Inc Ser 1991 (MBIA) ........................................... 7.00 03/01/06 1,103,830
- ----------- --------------
7,000 7,661,050
- ----------- --------------
Industrial Development/Pollution Control Revenue (7.6%)
2,500 Jasper County, Indiana, Northern Indiana Public Service Co
Collateralized Ser 1991 (MBIA) ................................ 7.10 07/01/17 2,771,050
1,000 Rockport, Indiana, Indiana & Michigan Power Co Ser B (Secondary
FGIC) ......................................................... 7.60 03/01/16 1,133,400
1,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA) ... 7.00 06/01/31 1,102,110
3,000 New Hampshire Industrial Development Authority, Canal Electric
Co (AMT) (FGIC) ............................................... 7.375 12/01/20 3,325,560
- ----------- --------------
7,500 8,332,120
- ----------- --------------
Mortgage Revenue - Multi-Family (2.8%)
3,000 New York State Housing Finance Agency, 1996 Ser A Refg (FSA) ... 6.10 11/01/15 3,067,200
- ----------- --------------
Mortgage Revenue - Single Family (29.0%)
1,755 District of Columbia Housing Finance Agency, GNMA Collateralized
Ser 1988 E (AMT) .............................................. 7.70 12/01/22 1,843,663
225 Hawaii Housing Finance & Development Corporation, Ser 1989 A
(AMT) (Bifurcated FSA) ........................................ 7.70 07/01/29 235,503
1,055 Sedgwick & Shawnee County, Kansas, GNMA Collateralized 1990 Ser
B (AMT) (AMBAC) ............................................... 7.80 06/01/22 1,114,154
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000 Maine Housing Authority, Ser 1991 A (Bifurcated FSA) ........... 7.40 % 11/15/22 $ 5,282,650
4,810 Massachusetts Housing Finance Agency, Ser 14 (Bifurcated FSA) .. 7.60 12/01/14 5,096,820
1,280 Michigan Housing Development Authority, Ser 1990 D (AMT)
(Bifurcated FSA) .............................................. 7.65 12/01/19 1,307,661
1,980 Minnesota Housing Finance Agency, Ser 1990 A (AMT) (Bifurcated
FSA) .......................................................... 7.85 07/01/22 2,089,712
1,885 Missouri Housing Development Commission, GNMA-Backed 1991 Ser A
(AMT) ......................................................... 7.375 08/01/23 1,994,745
5,500 Nebraska Investment Finance Authority, GNMA-Backed 1990 Ser 1 &
2 (AMT) ....................................................... 7.631 09/10/30 5,838,580
620 New Jersey Housing & Mortgage Finance Agency, Home Buyer Ser E
(MBIA) ........................................................ 7.65 10/01/16 646,982
1,910 Tennessee Housing Development Agency, Homeownership Issue S
(AMT) (Secondary MBIA) ........................................ 7.625 07/01/22 2,019,004
3,935 Wisconsin Housing & Economic Development Authority,
Homeownership 1991 Ser A (Bifurcated FSA) ..................... 7.50 09/01/17 4,162,718
- ----------- --------------
29,955 31,632,192
- ----------- --------------
Transportation Facilities Revenue (11.5%)
3,000 Hawaii, Airports Second Ser 1990 (AMT) (FGIC) .................. 7.50 07/01/20 3,290,790
2,000 Wayne County, Michigan, Detroit Metropolitan Wayne County
Airport Sub Lien Ser 1991 B (AMT) (MBIA) ...................... 6.75 12/01/21 2,148,100
5,000 New Hampshire, Turnpike 1991 Refg Ser B & C (FGIC) ............. 6.805 11/01/17 5,479,400
1,500 Port of Portland, Oregon, Portland International Airport Ser
Seven B (AMT) (MBIA) .......................................... 7.10 07/01/21 1,651,305
- ----------- --------------
11,500 12,569,595
- ----------- --------------
Water & Sewer Revenue (5.8%)
2,250 Broward County, Florida, Utility Ser 1991 (FGIC) ............... 6.00 10/01/20 2,284,222
4,000 Norfolk, Virginia, Water Ser 1995 (MBIA) ....................... 5.875 11/01/20 4,037,080
- ----------- --------------
6,250 6,321,302
- ----------- --------------
Other Revenue (1.8%)
2,000 Las Cruces, New Mexico, Ser 1995 (AMT) (MBIA) .................. 5.50 12/01/15 1,944,660
- ----------- --------------
Refunded (12.2%)
2,000 Castaic Lake Water Agency, California, Ser 1990 COPs (MBIA) .... 7.125 08/01/00++ 2,232,840
5,000 Eastern Municipal Water District, California, Water & Sewer Ser
1991 COPs (FGIC) .............................................. 6.50 07/01/01++ 5,540,000
2,000 Connecticut Health & Educational Facilities Authority, Yale - New
Haven Hospital Ser F (MBIA) ................................... 7.10 07/01/00++ 2,209,920
3,000 Bucks County Industrial Development Authority, Pennsylvania,
Grand View Hospital Ser of 1991 (AMBAC) ....................... 7.00 07/01/01++ 3,357,000
- ----------- --------------
12,000 13,339,760
- ----------- --------------
98,205 TOTAL MUNICIPAL BONDS (Identified Cost $97,411,380) ................................. 105,011,689
- ----------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (1.7%)
$ 1,900 Valdez, Alaska, Marine Terminal Exxon Pipeline Co 1993 Ser C
- ----------- (Demand 11/01/96) (Identified Cost $1,900,000) ................ 3.50*% 12/01/33 $ 1,900,000
-------------
$100,105 TOTAL INVESTMENTS (Identified Cost $99,311,380) (a) ..................... 97.9% 106,911,689
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 2.1 2,320,261
-------------
NET ASSETS .............................................................. 100.0% $109,231,950
===== =============
</TABLE>
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when issued basis.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross and net unrealized
appreciation was $7,600,309.
Bond Insurance:
- --------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Alaska ................. 1.8
California ............. 7.1
Connecticut ............ 2.0
District of Columbia ... 1.7
Florida ................ 5.1
Hawaii ................. 3.2
Illinois ............... 8.0
Indiana ................ 3.6
Kansas ................. 2.0
Maine .................. 4.8
Massachusetts .......... 10.5
Michigan ............... 3.2
Minnesota .............. 1.9
Missouri ............... 1.8
Nebraska ............... 6.4
New Hampshire .......... 8.1
New Jersey ............. 0.6
New Mexico ............. 1.8
New York ............... 4.6
Oregon ................. 1.5
Pennsylvania ........... 4.1
South Carolina ......... 2.9
Tennessee .............. 1.8
Virginia ............... 3.7
Washington ............. 1.9
Wisconsin .............. 3.8
------
Total 97.9%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $99,311,380) .......... $106,911,689
Cash .................................... 209,202
Receivable for:
Investments sold ....................... 2,349,875
Interest ............................... 1,972,564
Prepaid expenses ........................ 88,356
--------------
TOTAL ASSETS .......................... 111,531,686
--------------
LIABILITIES:
Payable for:
Investments purchased .................. 1,978,627
Dividends to preferred shareholders ... 95,802
Common shares of beneficial interest
repurchased ........................... 70,775
Investment management fee .............. 35,601
Accrued expenses ........................ 118,931
--------------
TOTAL LIABILITIES ..................... 2,299,736
--------------
NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of
non-participating $.01 par value, 600
shares outstanding) .................... 30,000,000
--------------
Common shares of beneficial interest
(unlimited shares authorized of
$.01 par value, 5,161,563 shares
outstanding) ........................... 71,283,404
Net unrealized appreciation ............. 7,600,309
Accumulated undistributed net investment
income ................................. 605,964
Accumulated net realized loss ........... (257,727)
--------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS .......................... 79,231,950
--------------
TOTAL NET ASSETS ...................... $109,231,950
==============
NET ASSET VALUE PER COMMON SHARE
($79,231,950 divided by 5,161,563
common shares outstanding) ............. $15.35
======
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ......................... $7,004,919
------------
EXPENSES
Investment management fee ............... 385,239
Professional fees ....................... 117,667
Auction commission fees ................. 82,760
Trustees' fees and expenses ............. 37,189
Transfer agent fees and expenses ....... 32,204
Shareholder reports and notices ........ 31,455
Registration fees ....................... 16,903
Auction agent fees ...................... 10,515
Custodian fees .......................... 5,640
Organizational expenses ................. 2,669
Other ................................... 16,646
------------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET ................................ 738,887
LESS: EXPENSE OFFSET ................. (5,573)
------------
TOTAL EXPENSES AFTER EXPENSE OFFSET ... 733,314
------------
NET INVESTMENT INCOME ................. 6,271,605
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ....................... (48,911)
Net change in unrealized appreciation (837,846)
------------
NET LOSS .............................. (886,757)
------------
NET INCREASE ............................ $5,384,848
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED OCTOBER ENDED OCTOBER
31, 1996 31, 1995
- -------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 6,271,605 $ 6,367,146
Net realized loss ................................. (48,911) (62,197)
Net change in unrealized appreciation ............. (837,846) 6,819,075
---------------- ----------------
NET INCREASE .................................... 5,384,848 13,124,024
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ......................................... (1,123,038) (1,196,552)
Common ............................................ (4,679,522) (5,423,197)
---------------- ----------------
TOTAL ........................................... (5,802,560) (6,619,749)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred ......................................... -- (5,000,000)
Common ............................................ (1,068,077) (163,890)
---------------- ----------------
TOTAL ........................................... (1,068,077) (5,163,890)
---------------- ----------------
NET INCREASE (DECREASE) ......................... (1,485,789) 1,340,385
NET ASSETS:
Beginning of period ............................... 110,717,739 109,377,354
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income
of $605,964 and $136,919, respectively) ........ $109,231,950 $110,717,739
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Insured Municipal Bond Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust's investment objective is to provide
current income which is exempt from federal income tax. The Trust was
organized as a Massachusetts business trust on February 27, 1990 and
commenced operations on February 28, 1991.
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 -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. 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. The Trust amortizes premiums and accretes discounts over the life of
the respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
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.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Trust's common shares in
the amount of $40,281 which have been reimbursed for the full amount thereof.
Such expenses were fully amortized as of February 29, 1996.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays the Investment
Manager a management fee, calculated weekly and payable monthly, by applying
the annual rate of 0.35% to the Trust's average weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust'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 Trust 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
Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended October 31, 1996
aggregated $4,944,480 and $7,398,975, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1996, the Trust had transfer agent
fees and expenses payable of approximately $5,500.
The Trust has an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Trust who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
years of service. Aggregate pension costs for the year ended October 31, 1996
included in Trustees' fees and expenses in the Statement of Operations
amounted to $22,344. At October 31, 1996, the Trust had an accrued pension
liability of $36,802 which is included in accrued expenses in the Statement
of Assets and Liabilities.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of
the common shareholders. The Trust has issued 800 shares of Auction Rate
Preferred Shares ("Preferred Shares") which have a liquidation value of
$50,000 per share plus the redemption premium, if any, plus accumulated but
unpaid dividends, whether or not declared, thereon to the date of
distribution. The Trust may redeem such shares, in whole or in part, at the
original purchase price of $50,000 per share plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
RANGE OF
AMOUNT IN RESET DIVIDEND
SHARES* THOUSANDS* RATE* DATE RATES**
- --------- --------------- ------- ---------- ----------------
<S> <C> <C> <C> <C>
600 30,000 3.76% 07/02/97 3.32% - 4.75%
</TABLE>
- ------------
* As of October 31, 1996.
** For the year ended October 31, 1996.
Subsequent to October 31, 1996 and up through December 9, 1996, the Trust
paid dividends at a rate of 3.76% in the aggregate amount of $191,604.
The Trust is subject to certain restrictions relating to the preferred
shares. Failure to comply with these restrictions could preclude the Trust
from declaring any distributions to common shareholders or purchasing common
shares and/or could trigger the mandatory redemption of preferred shares at
liquidation value.
The preferred shares, which are entitled to one vote per share, generally
vote with the common shares but vote separately as a class to elect two
Trustees and on any matters affecting the rights of the preferred shares.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF PAR
SHARES PAR VALUE VALUE
----------- ----------- -------------
<S> <C> <C> <C>
Balance, October 31, 1994 ............................................... 5,251,113 $52,511 $72,462,860
Treasury shares purchased and retired (weighted average discount 9.49%)* (13,000) (130) (163,760)
----------- ----------- -------------
Balance, October 31, 1995 ............................................... 5,238,113 52,381 72,299,100
Treasury shares purchased and retired (weighted average discount 9.33%)* (76,550) (765) (1,067,312)
----------- ----------- -------------
Balance, October 31, 1996 ............................................... 5,161,563 $51,616 $71,231,788
=========== =========== =============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Trust had a net capital loss carryover of
approximately $258,000 to offset future capital gains to the extent provided
by regulations, which will be available through October 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ----------------------------------------------------
2001 2002 2003 2004 TOTAL
- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C>
$79 $68 $62 $49 $258
====== ====== ====== ====== =======
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
AMOUNT PER RECORD PAYABLE
DECLARATION DATE SHARE DATE DATE
- ----------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
October 30, 1996 $0.08 November 8, 1996 November 22, 1996
November 26, 1996 $0.08 December 6, 1996 December 20, 1996
</TABLE>
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31*
--------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .......................... $ 15.41 $ 14.16 $ 16.75 $ 14.84 $ 14.66
--------- --------- --------- --------- ---------
Net investment income ......................................... 1.21 1.22 1.34 1.41 1.45
Net realized and unrealized gain (loss) ....................... (0.17) 1.30 (2.49) 2.04 0.09
--------- --------- --------- --------- ---------
Total from investment operations .............................. 1.04 2.52 (1.15) 3.45 1.54
--------- --------- --------- --------- --------
Less dividends and distributions from:
Net investment income ........................................ (0.90) (1.04) (1.21) (1.26) (1.08)
Common share equivalent of dividends paid to preferred
shareholders ................................................. (0.22) (0.23) (0.23) (0.24) (0.26)
Net realized gain ............................................ -- -- -- (0.04) (0.02)
--------- --------- --------- --------- --------
Total dividends and distributions ............................. (1.12) (1.27) (1.44) (1.54) (1.36)
Anti-dilutive effect of acquiring treasury shares ............. 0.02 -- -- -- --
--------- --------- --------- --------- --------
Net asset value, end of period ................................ $ 15.35 $ 15.41 $ 14.16 $ 16.75 $ 14.84
========= ========= ========= ========= ========
Market value, end of period ................................... $14.125 $14.625 $12.875 $17.875 $16.375
========= ========= ========= ========= ========
TOTAL INVESTMENT RETURN+ ...................................... 3.06% 22.10% (22.37)% 17.74% 13.05%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses before expense offset .......................... 0.92% 0.91%(1) 1.03% 1.01% 0.99%
Net investment income before preferred stock dividends ....... 7.85% 8.16%(1) 8.68% 8.86% 9.61%
Preferred stock dividends ..................................... 1.41% 1.53% 1.49% 1.49% 1.70%
Net investment income available to common shareholders ....... 6.44% 6.63% 7.19% 7.37% 7.91%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ....................... $109,232 $110,718 $109,377 $128,031 $117,998
Asset coverage on preferred shares at end of period ........... 363% 369% 312% 319% 295%
Portfolio turnover rate ....................................... 5% 6% 12% 6% 7%
</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 and distributions are
assumed to be reinvested at the prices obtained under the Trust's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
(1) The above expense and net investment ratios would have been 0.90% and
8.17%, respectively, after expense offset, which reflect 0.01% effect
for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF INTERCAPITAL INSURED MUNICIPAL BOND TRUST
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of InterCapital
Insured Municipal Bond Trust (the "Trust") at October 31, 1996, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996, by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 9, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1996, the Trust paid the following
per share amounts from tax-exempt income: $0.90 to common
shareholders and $1,712 to preferred shareholders.
<PAGE>
TRUSTEES
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
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
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
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
INSURED
MUNICIPAL
BOND TRUST
ANNUAL REPORT
OCTOBER 31, 1996
