<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS October 31, 1997 New York 10048
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,
1997.
Stimulated by a resurgence of consumer spending in late 1996, the economy
grew at a rapid pace in the first quarter of 1997. This prompted the Federal
Reserve Board to tighten its monetary policy in March in a preemptive move
against a possible increase in the rate of inflation. Economic growth slowed
in the second quarter and the bond market rallied. In addition to more
moderate economic growth, low inflation and stable monetary policy, the bond
rally through July was supported by a shrinking federal budget deficit and a
strong dollar. However, by August the bond market retreated on fears that
stronger employment conditions might prompt the Federal Reserve Board to
tighten further. Yields declined in October when turmoil in the global stock
markets precipitated "flight-to-quality" demand for U.S. Treasuries.
BOND YIELDS 1994-1997
INSURED MUNICIPAL
30-YEAR INSURED 30-YEAR U.S. REVENUE YIELDS
MUNICIPAL TREASURY AS A PERCENTAGE OF U.S.
REVENUE YIELDS YIELDS TREASURY YIELDS
-------------- ------ ---------------
December 1993 5.4 % 6.34% 85.17%
January 1994 5.4 6.24 86.54
February 1994 5.8 6.66 87.09
March 1994 6.4 7.09 90.27
April 1994 6.35 7.32 86.75
May 1994 6.25 7.43 84.12
June 1994 6.5 7.61 85.41
July 1994 6.25 7.39 84.57
August 1994 6.3 7.45 84.56
September 1994 6.55 7.81 83.87
October 1994 6.75 7.96 84.8
November 1994 7 8 87.5
December 1994 6.75 7.88 85.66
January 1995 6.4 7.7 83.12
February 1995 6.15 7.44 82.66
March 1995 6.15 7.43 82.77
April 1995 6.2 7.34 84.47
May 1995 5.8 6.66 87.09
June 1995 6.1 6.62 92.15
July 1995 6.1 6.86 88.92
August 1995 6 6.66 90.09
September 1995 5.95 6.48 91.82
October 1995 5.75 6.33 90.84
November 1995 5.5 6.14 89.58
December 1995 5.35 5.94 90.07
January 1996 5.4 6.03 89.55
February 1996 5.60 6.46 86.69
March 1996 5.85 6.66 87.84
April 1996 5.95 6.89 86.36
May 1996 6.05 6.99 86.55
June 1996 5.9 6.89 85.63
July 1996 5.85 6.97 83.93
August 1996 5.9 7.11 82.98
September 1996 5.7 6.93 82.25
October 1996 5.65 6.64 85.09
November 1996 5.5 6.35 86.61
December 1996 5.6 6.63 84.46
January 1997 5.7 6.79 83.95
February 1997 5.65 6.8 83.09
March 1997 5.9 7.1 83.1
April 1997 5.75 6.94 82.85
May 1997 5.65 6.91 81.77
June 1997 5.6 6.78 82.6
July 1997 5.3 6.3 84
August 1997 5.5 6.61 83
September 1997 5.4 6.4 84.4
October 1997 5.35% 6.15% 86.9 %
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields, but with less
volatility. Long-term insured revenue index yields increased from 5.65
percent to 5.90 percent between October 1996 and March 1997. The bond rally
over the past seven months pushed 30-year yields down to 5.35 percent by the
end of October 1997. Yields on one-year notes were little changed at 3.75
percent over the 12-month period. Consequently, the yield pickup for
extending maturities from 1 to 30 years narrowed from 190 basis points to 160
basis points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury
yields rose from 83 percent at the end of March 1997 to 87 percent in
October. A rising ratio means that municipals have underperformed Treasuries
and have become relatively more attractive. Over the past four years, this
ratio has annually ranged from an average low of 83 percent to an average
high of 90 percent.
New-issue underwriting volume was slightly ahead in the first half of 1997.
The decline in interest rates subsequently led to a surge in refunding
activity. As a result, new-issue municipal volume was up 17 percent during the
first 10 months of 1997. Refundings accounted for more than 25 percent of total
volume.
PERFORMANCE
During the fiscal year ended October 31, 1997, the Trust's net asset value
(NAV) improved from $15.35 to $15.53. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.9625 per share, the Trust's
total NAV return was 7.73 percent. IMB's market price on the New York Stock
Exchange moved from $14.125 to $16.00 per share. Based on this change in
market price plus reinvestment of tax-free dividends, the Trust's total
market return was 20.62 percent. On October 31, 1997, IMB traded at a
3 percent premium to NAV.
Monthly dividends for the fourth quarter of 1997 were declared in September.
Over the past 12 months the level of undistributed net investment income
increased from $0.117 to $0.137 per share. Beginning with the October 1997
payment, the monthly dividend was increased from $0.08 per share to $0.0825
per share to more closely reflect the Trust's anticipated income.
PORTFOLIO STRUCTURE
IMB remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 10 long-term sectors and 39 credits. The
Trust's weighted average maturity was 19 years. The distribution of call
dates in the portfolio produced 5 years of weighted average call protection.
To assure
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
LARGEST SECTORS AS OF OCTOBER 31, 1997
(% OF NET ASSETS)
Mortgage 30%
Refunded 22%
Transportation 10%
Education 9%
IDR/PCR* 8%
All Others 21%
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
MBIA 42%
FGIC 25%
FSA 19%
GNMA 8%
AMBAC 6%
Portfolio structure is subject to change.
CALL STRUCTURE AS OF OCTOBER 31, 1997 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 5 YEARS
YEAR PERCENT
CALLABLE CALLABLE
- -------- --------
1999 2%
2000 26%
2001 44%
2002 5%
2003 2%
2004 0%
2005 6%
2006 12%
2007 0%
2008 1%
2009+ 2%
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
the timely payment of principal and interest, each position in the portfolio
was backed by triple "A" rated bond insurance or 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 to one year. Incremental income to common shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second
is the spread between the portfolio's cost yield and ARPS expenses (ARPS
auction rate and expenses). The greater the spread and the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders. The level of net investment income
available for distribution to common shareholders varies with the level of
short-term interest rates.
During the fiscal year, ARPS leverage contributed approximately $0.12 per
share to common share earnings. The Trust's only ARPS series yielded 3.73
percent during the period. The series totaled
$30 million and represented 27 percent of net assets.
LOOKING AHEAD
So far this year, long-term municipal bonds have followed the trend of
Treasuries toward lower yields. The recent enactment of the Taxpayer Relief
Act of 1997 did not impact municipals directly and the long-term benefits of
tax-exempt income have remained intact.
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. During the 12-month period ended
October 31, 1997, the Trust purchased and retired 24,000 shares of common
stock at a weighted average market discount of 6.52 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.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
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 MEETINGS (unaudited)
* * *
On May 20, 1997, a special meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEE:
Wayne E. Hedien
For......... 4,120,229
Withheld .. 86,326
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Dr.
Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and John L.
Schroeder.
(2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND
DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN
STANLEY GROUP INC. WITH DEAN WITTER,
DISCOVER & CO.:
For........ 3,929,805
Against .. 63,532
Abstain .. 213,218
On October 24, 1997, an annual meeting of the Trust's shareholders was held
for the purpose of voting on two separate matters, the results of which were
as follows:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
Edwin J. Garn
For......... 3,946,079
Withheld .. 75,868
Michael E. Nugent
For......... 3,952,110
Withheld .. 69,837
Philip J. Purcell
For......... 3,943,827
Withheld .. 78,120
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
RESULTS OF MEETINGS (unaudited) continued
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
John R. Haire
For......... 564
Withheld .. 0
The following Trustees were not standing for reelection at this meeting:
Michael Bozic,
Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H. Johnson and John L.
Schroeder.
(2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
For........ 3,887,185
Against .. 22,668
Abstain .. 112,094
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.6%)
Educational Facilities Revenue (8.8%)
$6,000 Massachusetts Health & Educational Facilities Authority,
Boston University 1991 Ser K & L (MBIA) ....................... 6.66 % 10/01/31 $ 6,521,940
2,000 New York State Dormitory Authority, St John's University Ser
1996 (MBIA) .................................................... 5.70 07/01/26 2,057,820
1,000 Pennsylvania Higher Educational Facilities Authority, Duquesne
University Refg Ser A of 1991 (MBIA) .......................... 6.75 04/01/20 1,067,540
- ----------- --------------
9,000 9,647,300
- ----------- --------------
Electric Revenue (6.2%)
3,000 Piedmont Municipal Power Agency, South Carolina, 1991 Refg Ser
(FGIC) ........................................................ 6.50 01/01/11 3,228,060
1,500 South Carolina Public Service Authority, Santee Cooper 1997 Refg
Ser A (MBIA)(WI) .............................................. 5.00 01/01/29 1,422,870
2,000 Snohomish County Public Utility District #1, Washington, 1993
Ser (FGIC) .................................................... 6.00 01/01/18 2,090,900
- ----------- --------------
6,500 6,741,830
- ----------- --------------
Hospital Revenue (5.8%)
3,000 Illinois Health Facilities Authority, Memorial Medical Center
Ser 1989 (MBIA) ................................................ 6.75 10/01/11 3,232,560
2,000 University of Missouri, Health Ser 1996 A (AMBAC) .............. 5.50 11/01/16 2,019,740
1,000 Nebraska Investment Finance Authority, Methodist Health System
Inc 1991 (MBIA) ............................................... 7.00 03/01/06 1,097,670
- ----------- --------------
6,000 6,349,970
- ----------- --------------
Industrial Development/Pollution Control Revenue (7.5%)
2,500 Jasper County, Indiana, Northern Indiana Public Service Co
Collateralized Ser 1991 (MBIA) ................................ 7.10 07/01/17 2,742,775
1,000 Rockport, Indiana, Indiana & Michigan Power Co Ser B (Secondary
FGIC) ......................................................... 7.60 03/01/16 1,105,880
1,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA) ... 7.00 06/01/31 1,092,270
3,000 New Hampshire Industrial Development Authority, Canal Electric
Co (AMT) (FGIC) ............................................... 7.375 12/01/20 3,281,490
- ----------- --------------
7,500 8,222,415
- ----------- --------------
Mortgage Revenue -Multi-Family (2.9%)
3,000 New York State Housing Finance Agency, 1996 Ser A Refg (FSA) ... 6.10 11/01/15 3,164,190
- ----------- --------------
Mortgage Revenue -Single Family (26.9%)
1,675 District of Columbia Housing Finance Agency, GNMA Collateralized
Ser 1988 E (AMT) .............................................. 7.70 12/01/22 1,755,115
185 Hawaii Housing Finance & Development Corporation, Ser 1989 A
(AMT) (Bifurcated FSA) ........................................ 7.70 07/01/29 192,535
945 Sedgwick & Shawnee County, Kansas, GNMA Collateralized 1990 Ser
B (AMT)(AMBAC) ................................................ 7.80 06/01/22 1,001,473
5,000 Maine Housing Authority, Ser 1991 A (Bifurcated FSA) ........... 7.40 11/15/22 5,288,050
4,720 Massachusetts Housing Finance Agency, Ser 14 (Bifurcated FSA) .. 7.60 12/01/14 4,956,708
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 265 Michigan Housing Development Authority, Ser 1990 D (AMT)
(Bifurcated FSA) .............................................. 7.65 % 12/01/19 $ 271,750
1,855 Minnesota Housing Finance Agency, Ser 1990 A (AMT)(Bifurcated
FSA) .......................................................... 7.85 07/01/22 1,958,583
1,880 Missouri Housing Development Commission, GNMA-Backed 1991 Ser A
(AMT) ......................................................... 7.375 08/01/23 1,990,657
5,000 Nebraska Investment Finance Authority, GNMA-Backed 1990 Ser 1 &
2 (AMT) ....................................................... 7.631 09/10/30 5,313,200
620 New Jersey Housing & Mortgage Finance Agency, Home Buyer Ser E
(MBIA) ........................................................ 7.65 10/01/16 647,999
1,910 Tennessee Housing Development Agency, Homeownership Issue S
(AMT) (Secondary MBIA) ........................................ 7.625 07/01/22 2,034,513
3,935 Wisconsin Housing & Economic Development Authority,
Homeownership 1991 Ser A (Bifurcated FSA) ..................... 7.50 09/01/17 4,160,908
- ----------- --------------
27,990 29,571,491
- ----------- --------------
Transportation Facilities Revenue (10.1%)
3,000 Hawaii, Airports Second Ser 1990 (AMT)(FGIC) ................... 7.50 07/01/20 3,262,530
2,000 Wayne County, Michigan, Detroit Metropolitan Wayne County
Airport Sub Lien Ser 1991 B (AMT)(MBIA) ....................... 6.750 12/01/21 2,172,800
5,000 New Hampshire, Turnpike 1991 Refg Ser B & C (FGIC) ** .......... 6.805 11/01/17 5,691,750
- ----------- --------------
10,000 11,127,080
- ----------- --------------
Water & Sewer Revenue (5.9%)
2,250 Broward County, Florida, Utility Ser 1991 (FGIC) ............... 6.00 10/01/20 2,330,640
4,000 Norfolk, Virginia, Water Ser 1995 (MBIA) ....................... 5.875 11/01/20 4,167,320
- ----------- --------------
6,250 6,497,960
- -----------
Other Revenue (1.8%)
2,000 Las Cruces, New Mexico, Ser 1995 (AMT)(MBIA) ................... 5.50 12/01/15 2,011,260
- ----------- --------------
Refunded (21.7%)
2,000 Castaic Lake Water Agency, California, Ser 1990 COPs (MBIA) .... 7.125 08/01/00++ 2,199,140
5,000 Eastern Municipal Water District, California, Water & Sewer Ser
1991 COPs (FGIC) .............................................. 6.50 07/01/01++ 5,495,900
2,000 Connecticut Health & Educational Facilities Authority, Yale-New
Haven Hospital Ser F (MBIA) ................................... 7.10 07/01/00++ 2,184,780
3,000 Jacksonville Health Facilities Authority, Florida, New
Children's Hospital at Baptist Medical Center Ser 1991 (MBIA) .. 7.00 06/01/01++ 3,330,420
5,000 Cook County, Illinois, Ser 1992 A (MBIA) ....................... 6.60 11/15/02++ 5,606,300
1,425 Port of Portland, Oregon, Portland International Airport Ser
Seven B (AMT)(MBIA) ........................................... 7.10 01/01/12++ 1,701,878
3,000 Bucks County Industrial Development Authority, Pennsylvania,
Grand View Hospital Ser of 1991 (AMBAC) ....................... 7.00 07/01/01++ 3,330,750
- ----------- --------------
21,425 23,849,168
- ----------- --------------
99,665 TOTAL MUNICIPAL BONDS (Identified Cost $98,735,323) ................................. 107,182,664
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATIONS (1.8%)
$1,000 St Charles Parish, Louisiana, Shell Oil Co Refg Ser 1995 (Demand
11/03/97) ..................................................... 4.00*% 10/01/25 $ 1,000,000
1,000 Missouri Health & Educational Facilities Authority, Washington
University Ser 1996 C (Demand 11/03/97) ....................... 4.10* 09/01/30 1,000,000
- ----------- --------------
2,000 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $2,000,000) ................. 2,000,000
- ----------- --------------
$101,665 TOTAL INVESTMENTS (Identified Cost $100,735,323)(a) ..................... 99.4% 109,182,664
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 0.6 623,196
----- --------------
NET ASSETS .............................................................. 100.0% $109,805,860
===== ==============
</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 demand obligation.
** A portion of these securities are segregated in connection with
the purchase of when issued securities.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$8,453,954 and the aggregate gross unrealized depreciation is
$6,613, resulting in net unrealized appreciation of $8,447,341.
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, 1997
<TABLE>
<CAPTION>
<S> <C>
California 7.0%
Connecticut 2.0
District of Columbia 1.6
Florida 5.2
Hawaii 3.1
Illinois 8.0
Indiana 3.5
Kansas 1.9
Louisiana 0.9
Maine 4.8%
Massachusetts 10.5
Michigan 2.2
Minnesota 1.8
Missouri 4.6
Nebraska 5.8
New Hampshire 8.2
New Jersey 0.6
New Mexico 1.8
New York 4.8%
Oregon 1.5
Pennsylvania 4.0
South Carolina 4.2
Tennessee 1.9
Virginia 3.8
Washington 1.9
Wisconsin 3.8
-------
Total 99.4%
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $100,735,323)........................................ $109,182,664
Cash................................................................... 220,979
Receivable for:
Interest............................................................. 2,006,017
Investments sold..................................................... 473,825
Prepaid expenses ...................................................... 88,126
--------------
TOTAL ASSETS ........................................................ 111,971,611
--------------
LIABILITIES:
Payable for:
Investments purchased................................................ 1,915,622
Dividends to preferred shareholders.................................. 101,172
Investment management fee............................................ 36,843
Accrued expenses....................................................... 112,114
--------------
TOTAL LIABILITIES.................................................... 2,165,751
--------------
NET ASSETS........................................................... $109,805,860
==============
COMPOSITION OF 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, 5,137,563 shares outstanding)......................... 70,937,933
Net unrealized appreciation ........................................... 8,447,341
Accumulated undistributed net investment income........................ 705,781
Accumulated net realized loss.......................................... (285,195)
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................ 79,805,860
--------------
TOTAL NET ASSETS .................................................... $109,805,860
==============
NET ASSET VALUE PER COMMON SHARE
($79,805,860 divided by 5,137,563 common shares outstanding) ......... $ 15.53
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME......................... $6,877,784
------------
EXPENSES
Investment management fee............... 382,402
Auction commission fees................. 112,501
Professional fees....................... 102,002
Shareholder reports and notices......... 21,282
Transfer agent fees and expenses ....... 21,281
Trustees' fees and expenses............. 18,111
Registration fees....................... 16,259
Auction agent fees...................... 8,305
Custodian fees.......................... 5,213
Other................................... 16,599
------------
TOTAL EXPENSES ....................... 703,955
Less: expense offset.................... (5,202)
------------
NET EXPENSES ......................... 698,753
------------
NET INVESTMENT INCOME ................ 6,179,031
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss....................... (27,561)
Net change in unrealized appreciation .. 847,032
------------
NET GAIN.............................. 819,471
------------
NET INCREASE............................ $6,998,502
============
</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 ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 6,179,031 $ 6,271,605
Net realized loss.................................. (27,561) (48,911)
Net change in unrealized appreciation ............. 847,032 (837,846)
---------------- ----------------
NET INCREASE..................................... 6,998,502 5,384,848
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred.......................................... (1,131,150) (1,123,038)
Common............................................. (4,947,971) (4,679,522)
---------------- ----------------
TOTAL............................................ (6,079,121) (5,802,560)
---------------- ----------------
Decrease from transactions in common shares of
beneficial interest............................... (345,471) (1,068,077)
---------------- ----------------
NET INCREASE (DECREASE).......................... 573,910 (1,485,789)
NET ASSETS:
Beginning of period................................ 109,231,950 110,717,739
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$705,781 and $605,964, respectively)............. $109,805,860 $109,231,950
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997
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, 1997, 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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Trust pays a management fee, calculated
weekly and payable monthly, by applying the annual rate of 0.35% to the
Trust's 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, 1997
aggregated $3,877,240 and $2,517,843, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $900.
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 years of service. Aggregate pension costs for the year
ended October 31, 1997 included in Trustees' fees and expenses in the
Statement of Operations amounted to $3,965. At October 31, 1997, the Trust
had an accrued pension liability of $38,364 which is included in accrued
expenses in the Statement of Assets and Liabilities.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
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 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>
<S> <C> <C> <C> <C>
RANGE OF
AMOUNT IN RESET DIVIDEND
SHARES* THOUSANDS* RATE* DATE RATES**
- --------- ------------ ------- ---------- ----------------
600 30,000 3.73% 07/02/98 3.73% -3.76%
</TABLE>
- ------------
* As of October 31, 1997.
** For the year ended October 31, 1997.
Subsequent to October 31, 1997 and up through December 5, 1997, the Trust
paid dividends at a rate of 3.73% in the aggregate amount of $187,014.
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, 1997, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
----------- ----------- -------------
<S> <C> <C> <C>
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
Treasury shares purchased and retired (weighted average discount 6.52%)* (24,000) (240) (345,231)
----------- ----------- -------------
Balance, October 31, 1997 ............................................... 5,137,563 $51,376 $70,886,557
=========== =========== =============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Trust had a net capital loss carryover of
approximately $285,000, which may be used to offset future capital gains to
the extent provided by regulations, which is available through October 31 of
the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- -------------------------------------
2001 2002 2003 2004 2005
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
$79 $68 $62 $49 $27
====== ====== ====== ====== ======
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 23, 1997, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- ------------- -------------------- ---------------------
<S> <C> <C>
$0.0825 November 7,1997 November 21,1997
$0.0825 December 5,1997 December 19,1997
</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*
---------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................................ $15.35 $ 15.41 $ 14.16 $ 16.75 $ 14.84
---------- ---------- ---------- ---------- ----------
Net investment income ............................................... 1.20 1.21 1.22 1.34 1.41
Net realized and unrealized gain (loss) ............................. 0.16 (0.17) 1.30 (2.49) 2.04
---------- ---------- ---------- ---------- ----------
Total from investment operations .................................... 1.36 1.04 2.52 (1.15) 3.45
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income .............................................. (0.96) (0.90) (1.04) (1.21) (1.26)
Common share equivalent of dividends paid to preferred shareholders (0.22) (0.22) (0.23) (0.23) (0.24)
Net realized gain .................................................. -- -- -- -- (0.04)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ................................... (1.18) (1.12) (1.27) (1.44) (1.54)
---------- ---------- ---------- ---------- ----------
Anti-dilutive effect of acquiring treasury shares ................... -- 0.02 -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ...................................... $15.53 $ 15.35 $ 15.41 $ 14.16 $ 16.75
========== ========== ========== ========== ==========
Market value, end of period ......................................... $16.00 $14.125 $14.625 $12.875 $17.875
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ............................................ 20.62% 3.06% 22.10% (22.37)% 17.74%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ...................................................... 0.89%(1) 0.92% 0.91%(1) 1.03% 1.01%
Net investment income before preferred stock dividends ............. 7.80% 7.85% 8.16% 8.68% 8.86%
Preferred stock dividends ........................................... 1.43% 1.41% 1.53% 1.49% 1.49%
Net investment income available to common shareholders ............. 6.37% 6.44% 6.63% 7.19% 7.37%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............................. $109,806 $109,232 $110,718 $109,377 $128,031
Asset coverage on preferred shares at end of period ................. 365% 363% 369% 312% 319%
Portfolio turnover rate ............................................. 2% 5% 6% 12% 6%
</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) Does not reflect the effect of expense offset of 0.01%.
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, 1997, 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, 1997 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 5, 1997
1997 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1997, all of the Trust's dividends
from net investment income received by both common and preferred
shareholder classes were exempt interest dividends, excludable from
gross income for Federal income tax purposes.
<PAGE>
TRUSTEES
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
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
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
INTERCAPITAL
INSURED
MUNICIPAL
BOND TRUST
ANNUAL REPORT
OCTOBER 31, 1997
