<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1995
DEAR SHAREHOLDER:
Bonds have rallied significantly since late last year. Progressive tightening
of monetary policy by the Federal Reserve Board over the 12 months through
February 1995 led to slower economic growth and caused bonds to advance. The
trend toward lower long-term interest rates this year was also aided in July
by a 25 basis point reduction in the federal-funds rate (the interest rate
banks charge each other for overnight loans).
MUNICIPAL MARKET CONDITIONS
Long-term municipal bond yields declined from a high of 7.37 percent in
November 1994 to 6.02 percent at the end of October 1995, as tracked by The
Bond Buyer Revenue Bond Index*. This 135 basis point decline in yield
corresponded to an 11 percent price increase for callable municipal bonds
with 30-year maturities. Similarly, yields on 1-year municipal notes moved
from 4.51 percent to 3.82 percent. The yield pickup for extending maturity
from 1-to 30- years was at 220 basis points.
Tax-exempt bonds began the year by outperforming U.S. Treasury bonds, but
then deteriorated on a relative basis. The ratio of the Revenue Bond Index
yield to the 30-year U.S. Treasury bond yield moved from 89 percent in
December 1994 to 84 percent by the end of February 1995. A declining ratio
means that municipal bond prices have been stronger than U.S. Treasury
prices. In the spring the municipal market began to discount the risk of
comprehensive changes in the tax code created by flat tax rhetoric from
Washington. This caused the yield ratio to reach a high of 95 percent
during the summer. Over the past 10 years, long municipal yields
have averaged 89 percent of U.S. Treasury yields.
The municipal market continued to experience consolidation in 1995. Municipal
underwriting in the first 10 months of the year was down
- ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of
25 selected municipal revenue bonds with 30-year maturities. Credit ratings
of these bonds range from Aa1 to Baa1 by Moody's Investors Services, Inc.,
and AA+ to A- by Standard & Poor's Corp.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
16 percent from the same period in 1994. This change followed a 44 percent
drop in volume for all of 1994. The effect of lower volume and profitability
was also apparent in the decisions of several major dealers to withdraw from
the municipal business.
TAX REFORM
Flat-tax advocates have generated increased publicity for their proposals and
have affected the municipal market since early 1995. Most of the discussion
on proposed tax-reform measures is based on theoretical concepts, containing
broad assumptions and lacking specific details. Basically, the various plans
raise questions about the fairness of changing from a progressive to a
regressive tax structure. Low flat-tax rate plans call for the elimination of
deductions of mortgage interest, charitable contributions, property taxes,
and state and local income taxes. Should politicians make tax reform a
central issue in the 1996 elections, media coverage will expand from the
financial page to the front page. If that happens, municipal bonds could come
under further pressure. For example, when major tax reform turmoil occurred
in 1986, municipal yields briefly exceeded taxable yields.
In addition to the market risk associated with the flat-tax proposals,
municipal credits would also be negatively affected. If mortgage interest and
property tax deductions were eliminated, municipalities would experience a
decline in their property tax base. The loss of state and local income tax
deductions would increase the relative economic disadvantage that high-tax
states already face. The flat tax represents a shift in tax accountability
from the federal to local governments. Taxpayer recognition of the extent of
changes under consideration may impede the passage of comprehensive tax
reform.
FUND PERFORMANCE
The net asset value (NAV) of InterCapital Insured Municipal Income Trust
(IIM) rose from $11.41 to $13.69 per share during the fiscal year ended
October 31, 1995. Based on this NAV change plus reinvestment of tax-free
dividends totaling $0.80 per share, the Trust's total return was 28.93
percent. Over the same period, IIM's market price on the New York Stock
Exchange appreciated 10.8 percent from $10.375 to $11.50 per share. Based on
this market price change and reinvestment of tax-free dividends, the Trust's
total return was 19.11 percent. IIM began the fiscal year trading at a 9
percent discount to NAV and closed at a 16 percent discount. Undistributed
net investment income totaled $0.039 per share on October 31, 1995
versus $0.06 per share a year ago. Since the amount of IIM's undistributed
net investment income continued to shrink during the summer, the Trustees
voted to reduce the monthly dividend from $0.065 to $0.0625 per share
beginning with the November 1995 payment. This revised dividend rate
more accurately reflects the Trust's current earnings.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
PORTFOLIO STRUCTURE
On October 31, 1995, IIM's long-term portfolio was diversified among 13
long-term municipal sectors and 73 credits. The three largest sectors --
electric, hospital and water & sewer revenue bonds -- represented 45 percent
of the portfolio. The average maturity and call protection of the Trust's
long-term holdings were 24 and 8 years, respectively. Net assets exceeded
$612 million.
Each position in the portfolio was backed by triple "A" rated bond insurers.
This is to ensure the timely payment of principal and interest. The
distribution of credit enhancements is illustrated at right.
[DATA POINTS FOR PIE CHART TO COME]
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution
to common shareholders includes incremental income provided by Auction Rate
Preferred Share (ARPS) leverage. ARPS dividends reflect prevailing short-term
interest rates on maturities normally ranging from one week to one year.
Incremental income to common shares depends on two factors: first, the spread
between the 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 available for
distribution to common shareholders.
The profitability of ARPS declined in 1994 and the first half of 1995. ARPS
yields have moved somewhat lower since the Federal Reserve Board's initial
easing in July 1995. A reduction in the amount of ARPS outstanding -- to
control the portfolio's price volatility last year -- also diminished
incremental income to common shares. Currently, $155 million in ARPS are
outstanding. This represents 25 percent of net assets.
LOOKING AHEAD
The slower pace of economic growth in 1995 and the Federal Reserve Board's
previous interest rate moves have improved bond-market expectations. The
decreasing supply of new issues, combined with significant maturities and
calls for redemption, should continue to be positive for the municipal
market. However,
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
tax-reduction proposals are likely to continue to receive publicity and may
cloud the outlook for tax-exempt bonds. With long-term municipal securities
yielding more than 90 percent of the yield on U.S. Treasuries, the market
has already begun the process of discounting the risk that a flat tax
might eventually become law.
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 fiscal year ended
October 31, 1995, the Trust purchased and retired 1,409,800 shares of common
stock at a weighted average market discount of 11.59 percent. The Tust 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 Income
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 INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 31, 1995, 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 BY ALL SHAREHOLDERS:
<TABLE>
<CAPTION>
<S> <C>
Jack F. Bennett
For .................... 24,404,269
Withheld ............... 705,036
Michael Bozic
For .................... 24,406,903
Withheld ............... 702,402
</TABLE>
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
<TABLE>
<CAPTION>
<S> <C>
Charles A. Fiumefreddo
For .................... 2,436
Withheld ............... 4
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Paul Kolton,
Michael E. Nugent, Philip J. Purcell and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT:
<TABLE>
<CAPTION>
<S> <C>
For .................. 23,483,540
Against .............. 615,163
Abstain .............. 1,010,602
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For .................. 24,117,191
Against .............. 300,673
Abstain .............. 691,441
</TABLE>
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- --------------------------------------------------------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.2%)
General Obligation (9.2%)
District of Columbia,
$ 5,000 Refg Ser 1993 B (AMBAC) ....................................... 5.50 % 06/01/09 $ 4,903,300
6,000 Refg Ser 1993 B (FSA) ......................................... 5.50 06/01/10 5,787,540
3,400 Aurora, Illinois, Refg Ser 1993 A (FGIC) ...................... 5.125 01/01/19 3,125,484
8,500 Chicago, Illinois, Refg Ser 1993 A (MBIA) ..................... 5.50 01/01/17 8,251,120
10,000 Cook County, Illinois, Ser B (FGIC) ........................... 5.50 11/15/22 9,579,600
5,000 River Rouge School District, Michigan, Bldg & Site Unltd Tax
(FSA) ........................................................ 5.625 05/01/22 4,922,200
3,000 Vicksburg Community Schools, Michigan, 1993 Refg (MBIA) ....... 5.625 05/01/20 2,990,130
7,215 Clark County Sanitation District, Nevada, Refg 1993 (FGIC) ..... 5.70 07/01/12 7,283,759
9,385 Washoe County, Nevada, Reno - Sparks Convention Ltd Tax Ser 1993
A (FGIC) ..................................................... 5.75 07/01/22 9,283,173
- -------- ------------
57,500 56,126,306
- -------- ------------
Educational Facilities Revenue (3.8%)
4,000 Alabama State University, Gen Tuition & Fee Ser 1993 (MBIA) .... 5.70 05/01/15 4,002,920
5,050 Indiana University, Student Fee Ser J (FGIC) ................... 5.00 08/01/18 4,566,311
10,000 Wayne State University, Michigan, Ser 1993 (AMBAC) ............. 5.50 11/15/18 9,820,400
Rhode Island Health & Educational Building Corporation,
2,500 Providence College Ser 1993 (MBIA) ............................ 5.60 11/01/15 2,432,625
2,500 Providence College Ser 1993 (MBIA) ............................ 5.60 11/01/22 2,409,125
- -------- ------------
24,050 23,231,381
- -------- ------------
Electric Revenue (19.1%)
16,000 Redding, California, Ser 1993 A COPs (FGIC) ................... 5.684 06/01/19 15,782,400
Massachusetts Municipal Wholesale Electric Company,
8,000 1993 Ser A (AMBAC) ............................................ 5.00 07/01/10 7,615,760
10,000 1993 Ser A (AMBAC) ............................................ 5.45 07/01/18 9,524,500
8,000 North Carolina Eastern Municipal Power Agency, Refg Ser 1993 B
(FGIC) ....................................................... 5.50 01/01/17 7,727,760
20,000 North Carolina Municipal Power Agency #1, Catawba Ser 1993
(MBIA) ....................................................... 5.60 01/01/20 19,507,200
10,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) ....................................................... 5.375 01/01/25 9,594,500
15,000 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) 5.50 07/01/21 14,518,200
6,000 Lower Colorado River Authority, Texas, Jr Lien Refg 4th Ser
(FSA) ........................................................ 5.625 01/01/17 5,893,920
8,000 Texas Municipal Power Agency, Refg Ser 1993 (MBIA) ............ 5.25 09/01/12 7,747,520
10,000 Washington Public Power Supply System, Nuclear Proj #1, Refg Ser
1993 A (MBIA) ................................................ 5.70 07/01/17 9,780,200
10,000 Wisconsin Public Power Incorporated, Refg Ser 1993 A (AMBAC) .. 5.25 07/01/21 9,345,300
- -------- ------------
121,000 117,037,260
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------------------------------------------------------------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Hospital Revenue (12.9%)
$ 2,100 District of Columbia, Children's Hospital Refg Ser 1992 A (FGIC) 6.25 % 07/15/10 $ 2,195,760
9,250 Fulton-DeKalb Hospital Authority, Georgia, Refg Ser 1993 (MBIA) 5.50 01/01/20 8,902,478
3,000 Illinois Health Facilities Authority, Franciscan Sisters Health
Care 1992 Ser C (MBIA) ....................................... 5.75 09/01/18 2,936,310
4,800 Indiana Health Facilities Financing Authority, Deaconess
Hospital Refg (MBIA) ......................................... 5.75 03/01/15 4,733,472
5,000 Cedar Rapids, Iowa, St Lukes-Methodist Hospital Refg Ser 1993
(FGIC) ....................................................... 5.75 08/15/22 4,919,000
5,000 Kentucky Economic Development Finance Authority, St Elizabeth
Medical Center Inc Ser 1993 A (FGIC) ......................... 6.00 12/01/22 5,059,700
12,000 Louisiana Public Facilities Authority, Our Lady of the Lake
Regional Medical Center Ser 1993 D & E (FSA) ................. 5.90 12/03/21 11,902,200
10,000 Maine Health & Higher Educational Facilities Authority, Ser 1993
A (FSA) ...................................................... 5.50 07/01/23 9,601,500
5,000 Massachusetts Health & Educational Facilities Authority, Lahey
Clinic Medical Center Ser B (MBIA) ........................... 5.625 07/01/15 4,932,300
10,000 Michigan Hospital Finance Authority, Oakwood Hospital Refg Ser
1993 A (FGIC) ................................................ 5.625 11/01/18 9,791,700
5,000 Washington County Hospital Authority, Pennsylvania, Washington
Hospital Ser 1993 (AMBAC) .................................... 5.625 07/01/23 4,886,450
4,000 Chattanooga-Hamilton County Hospital Authority, Tennessee,
Erlanger Medical Center Refg Ser 1993 (FSA) .................. 5.50 10/01/13 3,909,400
5,500 Wisconsin Health & Educational Facilities Authority, Sisters of
the Sorrowful Mother Health Care Ser AA (MBIA) ............... 6.25 06/01/20 5,605,600
- ------- ------------
80,650 79,375,870
- ------- ------------
Industrial Development/Pollution Control Revenue (10.3%)
7,500 Adams County, Colorado, Public Service Co of Colorado Refg 1993
Ser A (MBIA) ................................................. 5.875 04/01/14 7,671,825
15,000 Indiana Development Finance Authority, PSI Energy Inc Ser 1993 B
(AMT) (MBIA) ................................................. 5.75 02/15/28 14,549,250
4,900 Monroe County, Michigan, Detroit Edison Co Ser CC (AMT) (MBIA) . 6.55 06/01/24 5,126,625
5,400 Forsyth, Montana, Puget Sound Power & Light Co Ser 1993 (MBIA) . 5.875 04/01/20 5,401,620
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1990 (AMT)
(MBIA) ....................................................... 6.65 06/01/17 5,367,800
New York State Energy Research & Development Authority,
6,000 Brooklyn Union Gas Co Ser D-1 & 2 (AMT) (MBIA) ................ 5.635 07/08/26 5,783,760
4,000 New York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA) .... 6.15 07/01/26 4,076,320
15,000 Brazos River Authority, Texas, Texas Utilities Electric Co Ser
1993 A (AMT) (AMBAC) ......................................... 6.05 04/01/25 15,106,050
- ------- ------------
62,800 63,083,250
- ------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- --------------------------------------------------------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Mortgage Revenue - Multi-Family (1.3%)
$ 8,675 West Virginia Housing Development Fund, Ser A (AMBAC) ......... 5.65 % 11/01/21 $ 8,201,518
- ------- -----------
Mortgage Revenue - Single Family (7.2%)
3,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A
(MBIA) (WI) .................................................. 5.875 12/01/24 2,936,400
17,390 Connecticut Housing Finance Authority, 1992 Ser A-2 (AMT)
(Secondary FSA) .............................................. 6.05 11/15/25 17,199,405
1,195 Maine Housing Authority, Mortgage Purchase 1990 Ser A-6 (AMT)
(Secondary MBIA) ............................................. 6.35 11/15/22 1,209,436
13,000 New Jersey Housing & Mortgage Finance Agency, Home Buyer 1990
Ser F-3 (AMT) (MBIA) ......................................... 5.95 04/01/25 12,909,910
10,000 Virginia Housing Development Authority, 1992 Ser B (AMT)
(Secondary FSA) .............................................. 6.30 01/01/27 10,055,900
- ------- ------------
44,585 44,311,051
- ------- ------------
Public Facilities Revenue (7.2%)
10,000 California Public Works Board, Corrections Refg 1993 Ser A
(AMBAC) ...................................................... 5.00 12/01/19 9,113,000
5,000 Florida Department of Management Services, Pool Refg Ser 1992
(AMBAC) ...................................................... 5.40 09/01/14 4,895,500
10,000 Chicago Public Building Commission, Illinois, Ser A 1993 (MBIA). 5.75 12/01/18 9,873,600
10,000 Metropolitan Pier & Exposition Authority, Illinois, McCormick
Place Ser 1992 A (Secondary AMBAC) ........................... 6.50 06/15/27 10,608,200
10,000 Marion County Convention & Recreational Facilities Authority,
Indiana, Excise Tax Refg Ser 1993 A (AMBAC) .................. 5.50 06/01/21 9,653,700
- ------- ------------
45,000 44,144,000
- ------- ------------
Student Loan Revenue (2.9%)
18,000 Pennsylvania Higher Education Assistance Agency, 1988 Ser D
- ------- (AMT) (AMBAC) ................................................ 6.05 01/01/19 18,063,540
Transportation Facilities Revenue (8.5%)
5,000 Tucson, Arizona, Street & Highway Jr Lien Refg Ser 1993 (MBIA) . 5.50 07/01/12 5,018,200
7,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Second Lien Refg
1993 Ser A (AMT) (MBIA) ...................................... 5.60 01/01/18 6,749,890
18,000 Regional Transportation Authority, Illinois, Ser 1993 B (FGIC).. 5.85 06/01/23 17,974,440
3,000 Kentucky Turnpike Authority, Econ Dev Road Revitalization Refg
Ser 1993 (AMBAC) ............................................. 5.50 07/01/11 3,017,640
3,125 Allegheny County, Pennsylvania, Pittsburgh Int'l Airport 1993
Ser C (AMT) (FSA) ............................................ 5.625 01/01/23 3,009,062
10,000 Pennsylvania Turnpike Commission, Refg Ser O (FGIC) ............ 5.50 12/01/17 9,823,900
3,250 Salt Lake City, Utah, Airport Refg Ser 1993 B (FGIC) .......... 5.875 12/01/18 3,203,395
3,000 Richmond Metropolitan Authority, Virginia, Expressway 1992 Ser B
(FGIC) ....................................................... 6.25 07/15/22 3,107,520
- ------- ------------
52,375 51,904,047
- ------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- --------------------------------------------------------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Water & Sewer Revenue (12.5%)
$ 20,000 Central Lake County Joint Action Water Agency, Illinois, Refg
Ser 1993 (FGIC) .............................................. 5.375% 05/01/20 $ 18,995,800
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky, Ser 1993 (MBIA) .................................... 5.30 05/15/19 9,635,300
3,000 Detroit, Michigan, Sewage Refg Ser 1993 A (FGIC) .............. 5.70 07/01/13 3,003,480
15,000 Houston, Texas, Water & Sewer 1992 Ser C (MBIA) ............... 5.75 12/01/15 15,020,100
5,000 Loudoun County Sanitation Authority, Virginia, Refg Ser 1992
(FGIC) ....................................................... 6.25 01/01/30 5,141,700
Seattle, Washington, Sewer
10,000 Refg Ser Y (FGIC) ............................................. 5.70 01/01/15 9,964,500
10,000 Refg Ser X (FGIC) ............................................. 5.50 01/01/16 9,784,700
5,000 West Virginia Water Development Authority, Loan Program II Refg
Ser A-11 (FSA) ............................................... 5.50 11/01/23 4,773,600
- -------- ------------
78,000 76,319,180
- -------- ------------
Other Revenue (2.5%)
5,000 Indianapolis, Indiana, Gas Utility Ser 1994 A (AMBAC) ......... 5.875 06/01/24 5,001,650
10,000 Rhode Island Depositors Economic Protection Corporation, Refg
1992 Ser B (MBIA) ............................................ 6.00 08/01/17 10,116,600
- -------- ------------
15,000 15,118,250
- -------- ------------
Refunded (0.8%)
5,000 Shelby County Health, Educational & Housing Facility Board,
Tennessee, LeBonheur Children's Medical Center Inc Ser D (MBIA)
- -------- (ETM) ........................................................ 5.50 08/15/19 4,885,450
612,635 TOTAL MUNICIPAL BONDS (Identified Cost $601,287,883) ............................... 601,801,103
- -------- ------------
SHORT-TERM MUNICIPAL OBLIGATION (0.5%)
2,800 Washington Health Care Facilities Authority, Sisters of
Providence Ser 1985 E
- -------- (Demand 11/01/95) (Identified Cost $2,800,000) ............... 3.90* 10/01/05 2,800,000
------------
$615,435 TOTAL INVESTMENTS (Identified Cost $604,087,883) (a) .................... 98.7% 604,601,103
========
1.3
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 8,237,521
------------
NET ASSETS .............................................................. 100.0% $612,838,624
============
<FN>
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrow to Maturity.
WI Security purchased on a when issued basis.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes is $604,087,883;
the aggregate gross unrealized appreciation is $4,647,357 and the
aggregate gross unrealized depreciation is $4,134,137, resulting in
net unrealized appreciation of $513,220.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Alabama ............. 0.7%
Alaska .............. 0.5
Arizona ............. 0.8
California .......... 4.1
Colorado ............ 1.3
Connecticut ......... 2.8
District of Columbia 2.1
Florida ............. 0.8
Georgia ............. 1.5%
Illinois ............ 14.4
Indiana ............. 6.3
Iowa ................ 0.8
Kentucky ............ 2.9
Louisiana ........... 1.9
Maine ............... 1.8
Massachusetts ....... 3.6
Michigan ............ 5.8%
Montana ............. 0.9
Nevada .............. 3.6
New Jersey .......... 2.1
New York ............ 1.6
North Carolina ...... 4.4
Pennsylvania ........ 5.8
Rhode Island ........ 2.4
South Carolina ...... 3.9%
Tennessee ........... 1.4
Texas ............... 7.1
Utah ................ 0.5
Virginia ............ 3.0
Washington .......... 5.3
West Virginia ....... 2.1
Wisconsin ........... 2.5
------
Total ............... 98.7%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $604,087,883) ......... $604,601,103
Cash .................................... 182,708
Interest receivable ..................... 11,648,572
Deferred organizational expenses ....... 16,733
Prepaid expenses ........................ 20,285
--------------
TOTAL ASSETS .......................... 616,469,401
--------------
LIABILITIES:
Payable for:
Investments purchased .................. 2,955,198
Common shares of beneficial interest
purchased ............................ 371,710
Investment management fee .............. 186,848
Accrued expenses ........................ 117,021
--------------
TOTAL LIABILITIES ..................... 3,630,777
--------------
NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of
non-participating $.01 par value, 3,100
shares outstanding) .................... 155,000,000
--------------
Common shares of beneficial interest
(unlimited shares authorized of
$.01 par value, 33,455,313
shares outstanding) .................... 470,621,774
Net unrealized appreciation ............. 513,220
Accumulated undistributed net investment
income ................................. 1,294,175
Accumulated net realized loss ........... (14,590,545)
--------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS .......................... 457,838,624
--------------
TOTAL NET ASSETS ...................... $612,838,624
==============
NET ASSET VALUE PER COMMON SHARE
($457,838,624 divided by 33,455,313
common shares outstanding) ............. $13.69
==============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ...................... $ 35,548,751
-------------
EXPENSES
Investment management fee ............ 2,065,317
Auction commission fees .............. 416,285
Transfer agent fees and expenses .... 191,570
Professional fees .................... 107,197
Shareholder reports and notices ..... 70,398
Auction agent fees ................... 59,244
Registration fees .................... 32,965
Trustees' fees and expenses .......... 31,159
Custodian fees ....................... 27,854
Organizational expenses .............. 7,198
Other ................................ 49,177
-------------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET ............................. 3,058,364
LESS: EXPENSE OFFSET ............... (27,670)
-------------
TOTAL EXPENSES AFTER EXPENSE
OFFSET ............................. 3,030,694
-------------
NET INVESTMENT INCOME .............. 32,518,057
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss .................... (4,412,338)
Net change in unrealized depreciation 80,924,580
-------------
NET GAIN ........................... 76,512,242
-------------
NET INCREASE ......................... $109,030,299
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED OCTOBER ENDED OCTOBER
31, 1995 31, 1994
- -------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ............................. $ 32,518,057 $ 38,840,925
Net realized loss ................................. (4,412,338) (10,178,207)
Net change in unrealized appreciation/depreciation 80,924,580 (114,431,371)
---------------- ----------------
NET INCREASE (DECREASE) ......................... 109,030,299 (85,768,653)
---------------- ----------------
DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET
INVESTMENT INCOME ................................. (5,967,188) (7,323,339)
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income ............................. (27,342,089) (31,802,504)
Net realized gain ................................. -- (359,635)
---------------- ----------------
TOTAL ........................................... (27,342,089) (32,162,139)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred ......................................... (40,000,000) (55,000,000)
Common ............................................ (15,641,169) (10,865,631)
---------------- ----------------
TOTAL ........................................... (55,641,169) (65,865,631)
---------------- ----------------
TOTAL INCREASE (DECREASE) ....................... 20,079,853 (191,119,762)
NET ASSETS:
Beginning of period ............................... 592,758,771 783,878,533
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income
of $1,294,175 and $2,085,395, respectively) .... $612,838,624 $ 592,758,771
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Insured Municipal Income (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust was organized as a Massachusetts
business trust on March 12, 1992 and commenced operations on February 26,
1993.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Trust
by an outside independent pricing service approved by the Trustees. The
pricing service has informed the Trust that in valuing the Trust's 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 Trust's 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 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;
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
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 amounts of $36,000 which have been reimbursed for the full amount
thereof. Such expenses have been deferred and are being amortized by the
straight-line method over a period not to exceed five years from the
commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays 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, 1995
aggregated $6,940,510 and $41,352,437, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1995, the Trust had transfer agent
fees and expenses payable of approximately $16,000.
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, 1995 included in Trustees' fees and expenses in the
Statement of Operations amounted to $11,999. At October 31, 1995, the Trust
had an accrued pension liability of $21,497 which is included in accrued
expenses in the Statement of Assets and Liabilities.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, 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. On April 15, 1993, the Trust issued 5,000 shares of
Auction Rate Preferred Shares ("Preferred Shares") consisting of 1,000 shares
each of Series One through Five for gross total proceeds of $250,000,000. The
preferred shares 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.
During the year ended October 31, 1995, the Trust purchased and retired
preferred shares as follows:
<TABLE>
<CAPTION>
SERIES SHARES AMOUNT
- -------- -------- --------------
<S> <C> <C>
1 300 $15,000,000
4 200 10,000,000
5 300 15,000,000
</TABLE>
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
RANGE OF DIVIDEND
SHARES* SERIES RATE* RESET DATE RATES**
- --------- -------- ------- ---------- ------------------
<S> <C> <C> <C> <C>
400 1 3.73% 11/03/95 2.875% - 5.75%
900 2 3.90 11/03/95 3.25 - 4.30
1,000 3 3.75 11/03/95 3.45 - 4.70
400 4 3.90 11/03/95 3.32 - 6.00
400 5 3.85 11/03/95 3.00 - 5.75
</TABLE>
- ---------------
* As of October 31, 1995.
** For the year ended October 31, 1995.
Subsequent to October 31, 1995 and up through December 6, 1995, the Trust
paid dividends to each of the Series 1 through 5, at rates ranging from 3.60%
to 4.10%, respectively, in the aggregate amount of $568,237.
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 INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, 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, 1993 .............................................. 35,707,113 $357,071 $496,771,503
Treasury shares purchased and retired (weighted average discount 3.62%)* (842,000) (8,420) (10,857,211)
------------- ---------- --------------
Balance, October 31, 1994 .............................................. 34,865,113 348,651 485,914,292
Treasury shares purchased and retired (weighted average discount
11.59%)* .............................................................. (1,409,800) (14,098) (15,627,071)
------------- ---------- --------------
Balance, October 31, 1995 .............................................. 33,455,313 $334,553 $470,287,221
============= ========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1995, the Trust had a net capital loss carryover of
approximately $14,590,000 of which $10,178,000 will be available through
October 31, 2002 and $4,412,000 will be available through October 31, 2003 to
offset future capital gains to the extent provided by regulations.
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust has declared the following dividends from net investment income:
<TABLE>
<CAPTION>
AMOUNT PER
DECLARATION DATE SHARE RECORD DATE PAYABLE DATE
- ----------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
October 31, 1995 $0.0625 November 10, 1995 November 24, 1995
November 28, 1995 $0.0625 December 8, 1995 December 22, 1995
</TABLE>
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
8. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
10/31/95 7/31/95 4/30/95 1/31/95
------------------ ----------------- ------------------ -----------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
--------- ------- -------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income .......... $ 8,804 $0.26 $8,920 $0.26 $ 8,724 $ 0.25 $ 9,101 $0.27
Net investment income ............ 8,062 0.24 8,153 0.24 7,973 0.24 8,330 0.24
Net realized and unrealized gain 22,086 0.67 8,375 0.26 21,048 0.62 25,003 0.73
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------
10/31/94 7/31/94 4/30/94 1/31/94
-------------------- ------------------ -------------------- ------------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
---------- -------- --------- ------- ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income ......... $ 10,537 $ 0.30 $10,484 $0.30 $ 10,633 $ 0.30 $10,968 $0.31
Net investment income ........... 9,527 0.27 9,561 0.27 9,722 0.28 10,031 0.28
Net realized and unrealized gain
(loss) ........................ (51,331) (1.45) 8,759 0.25 (85,898) (2.43) 3,861 0.11
</TABLE>
- ------------
* Amounts in thousands.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME 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 FOR THE PERIOD
OCTOBER 31 FEBRUARY 26, 1993*
---------------------- THROUGH
1995** 1994**++ OCTOBER 31, 1993**
- ------------------------------------------------------------------- ---------- ---------- -------------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
Net asset value, beginning of period ............................... $11.41 $ 14.95 $14.06
---------- ---------- ------------------
Net investment income .............................................. 0.96 1.10 0.63
Net realized and unrealized gain (loss) ............................ 2.22 (3.53) 0.96
---------- ---------- ------------------
Total from investment operations ................................... 3.18 (2.43) 1.59
---------- ---------- ------------------
Less dividends from:
Net investment income ............................................. (0.80) (0.90) (0.45)
Common share equivalent of dividends paid to preferred
shareholders ...................................................... (0.16) (0.21) (0.11)
---------- ---------- ------------------
Total dividends .................................................... (0.96) (1.11) (0.56)
Anti-dilutive effect of acquiring treasury shares .................. 0.06 0.01 --
Offering costs charged against capital ............................. -- (0.01) (0.14)
---------- ---------- ------------------
Net asset value, end of period ..................................... $13.69 $ 11.41 $14.95
========== ========== ==================
Market value, end of period ........................................ $11.50 $10.375 $15.00
========== ========== ==================
TOTAL INVESTMENT RETURN+ ........................................... 19.11% (25.81)% 3.05% (1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses before expense offset ............................... 0.71%(3) 0.80% 0.63%(2)
Net investment income before preferred stock dividends ............ 7.51%(3) 8.23% 6.49%(2)
Preferred stock dividends .......................................... 1.38% 1.55% 1.14%(2)
Net investment income available to common shareholders ............ 6.13% 6.68% 5.35%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............................ $612,839 $592,759 $783,879
Asset coverage on preferred shares at end of period ................ 395% 304% 313%
Portfolio turnover rate ............................................ 1% 7% 3%(1)
</TABLE>
- ------------
* Commencement of operations.
** 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 Trust's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) The above expense and net investment income ratios would have been
0.70% and 7.52%, respectively, which reflects 0.01% effect for
custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF INTERCAPITAL INSURED MUNICIPAL INCOME 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 Income Trust (the "Trust") at October 31, 1995, 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 the two years in the period then ended and for the period February 26,
1993 (commencement of operations) through October 31, 1993, 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, 1995 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 6, 1995
1995 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1995, the Trust paid the following per
share amounts from tax-exempt income: $0.80 to common shareholders, $1,891
to Series 1 preferred shareholders, $2,027 to Series 2 preferred
shareholders, $2,024 to Series 3 preferred shareholders, $1,969 to Series 4
preferred shareholders, $1,941 to Series 5 preferred shareholders.
<PAGE>
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
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 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
INCOME
TRUST
ANNUAL REPORT
OCTOBER 31, 1995
