<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME 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 Income Trust (IIM) 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 INCOME 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 INCOME TRUST
(The chart below represents information which appears as a
graphic in the printed report)
A pie chart reflecting the Five Largest Sectors and Credit Enhancement
as of October 31, 1996.
FIVE LARGEST SECTORS PERCENT
-------------------- -------
All others 36%
Electric 18%
Water & Sewer 13%
Hospital 13%
IDR/PCR * 11%
Mortgage 9%
* Industrial Development/Pollution Control Revenue. Portfolio
structure is subject to change.
CREDIT ENHANCEMENT PERCENT
------------------ -------
MBIA (Municipal Bond Investors
Assurance Corp.) 39%
FGIC (Financial Guaranty Ins. Co.) 26%
AMBAC (AMBAC Indemnity Corp.) 22%
FSA (Financial Security Assurance Inc.) 13%
PERFORMANCE
The Trust's net asset value (NAV) increased from $13.69 to $13.86 per share
during the fiscal year ended October 31, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.75 per share, the Trust's
total return was 7.97 percent. Over the same period, IIM's market price on
the New York Stock Exchange increased from $11.50 to $11.625 per share. Based
on this market price change and reinvestment of tax-free dividends, the
Trust's total return was 7.81 percent.
IIM began and ended the fiscal year trading at a 16 percent discount to NAV.
Undistributed net investment income available for dividends improved $0.049
per share during the year to $0.088 per share. As a result, the Trust's
monthly dividend was increased from $0.0625 to $0.065 per share beginning
with the November 1996 payment.
PORTFOLIO STRUCTURE
On October 31, 1996, the Trust's net assets of $591 million were diversified
among 13 long-term municipal sectors and 72 credits. The average maturity and
call protection of IIM's long-term portfolio were 23 and 7 years,
respectively. To assure the timely payment of principal and interest, each
position in the portfolio is backed by triple "A" rated bond insurance.
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 shares depends on two factors:
first, the spread
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
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 available for distribution to common
shareholders.
Weekly ARPS yields ranged between 2.93 and 5.125 percent during the fiscal
year. Leverage contributed approximately $0.08 per share to common share
earnings during the fiscal year. Five ARPS series totaling $155 million and
representing 26 percent of net assets were 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 IIM
purchased and retired 1,989,500 shares of common stock at a weighted average
market discount of 14.91 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 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 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
For .................................................. 22,451,893
Withheld ............................................ 978,964
John L. Schroeder
For .................................................. 22,131,652
Withheld ............................................ 1,299,205
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.:
For .................................................. 21,870,554
Against ............................................. 570,820
Abstain ............................................. 989,483
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
For .................................................. 22,463,952
Against ............................................. 276,098
Abstain ............................................. 690,807
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME 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 (98.2%)
General Obligation (8.7%)
District of Columbia,
$ 5,000 Refg Ser 1993 B (AMBAC) ....................................... 5.50 % 06/01/09 $ 4,986,250
6,000 Refg Ser 1993 B (FSA) ......................................... 5.50 06/01/10 5,960,040
2,000 Aurora, Illinois, Refg Ser 1993 A (FGIC) ....................... 5.125 01/01/19 1,823,320
5,000 Chicago, Illinois, Refg Ser 1993 A (MBIA) ...................... 5.50 01/01/17 4,822,600
10,000 Cook County, Illinois, Ser B (FGIC) ............................ 5.50 11/15/22 9,534,700
5,000 River Rouge School District, Michigan, 1993 Bldg & Site Unltd
Tax (FSA) ..................................................... 5.625 05/01/22 4,916,900
3,000 Vicksburg Community Schools, Michigan, 1993 Refg (MBIA) ........ 5.625 05/01/20 2,940,630
7,215 Clark County Sanitation District, Nevada, Refg 1993 (FGIC) ..... 5.70 07/01/12 7,269,257
9,385 Washoe County, Nevada, Reno -Sparks Convention Ltd Tax Ser 1993
A (FGIC) ..................................................... 5.75 07/01/22 9,359,191
- ----------- ---------------
52,600 51,612,888
- ----------- ---------------
Educational Facilities Revenue (3.9%)
4,000 Alabama State University, General Tuition & Fee Ser 1993 (MBIA) 5.70 05/01/15 3,995,480
5,050 Indiana University, Student Fee Ser J (FGIC) ................... 5.00 08/01/18 4,530,860
10,000 Wayne State University, Michigan, Ser 1993 (AMBAC) ............. 5.50 11/15/18 9,653,300
Rhode Island Health & Educational Building Corporation,
2,500 Providence College Ser 1993 (MBIA) ............................ 5.60 11/01/15 2,428,875
2,500 Providence College Ser 1993 (MBIA) ............................ 5.60 11/01/22 2,400,900
- ----------- ---------------
24,050 23,009,415
- ----------- ---------------
Electric Revenue (17.7%)
16,000 Redding, California, Ser 1993 A COPs (FGIC) .................... 5.684 06/01/19 15,603,040
Massachusetts Municipal Wholesale Electric Company,
8,000 1993 Ser A (AMBAC) ............................................ 5.00 07/01/10 7,633,360
10,000 1993 Ser A (AMBAC) ............................................ 5.45 07/01/18 9,380,300
20,000 North Carolina Municipal Power Agency #1, Catawba Ser 1993
(MBIA) ........................................................ 5.60 01/01/20 19,164,400
5,640 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) ........................................................ 5.375 01/01/25 5,468,544
15,000 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) 5.50 07/01/21 14,488,500
6,000 Lower Colorado River Authority, Texas, Jr Lien Refg 4th Ser
(FSA) ......................................................... 5.625 01/01/17 5,868,600
8,000 Texas Municipal Power Agency, Refg Ser 1993 (MBIA) ............. 5.25 09/01/12 7,732,320
10,000 Washington Public Power Supply System, Nuclear Proj #1 Refg Ser
1993 A (MBIA) ................................................. 5.70 07/01/17 9,820,600
10,000 Wisconsin Public Power Incorporated, Refg Ser 1993 A (AMBAC) ... 5.25 07/01/21 9,407,100
- ----------- ---------------
108,640 104,566,764
- ----------- ---------------
Hospital Revenue (12.7%)
2,100 District of Columbia, Children's Hospital Refg Ser 1992 A (FGIC) 6.25 07/15/10 2,208,402
8,000 Fulton-DeKalb Hospital Authority, Georgia, Grady Memorial
Hospital Refg Ser 1993 (MBIA) ................................. 5.50 01/01/20 7,675,840
4,800 Indiana Health Facilities Financing Authority, Deaconess
Hospital Inc Refg Ser 1993 (MBIA) ............................. 5.75 03/01/15 4,719,552
5,000 Cedar Rapids, Iowa, St Lukes-Methodist Hospital Refg Ser 1993
(FGIC) ........................................................ 5.75 08/15/22 4,959,650
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME 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 Kentucky Economic Development Finance Authority, St Elizabeth Medical
Center Inc Ser 1993 A (FGIC) .................................. 6.00 % 12/01/22 $ 5,109,350
12,000 Louisiana Public Facilities Authority, Our Lady of the Lake
Regional Medical Center Ser 1993 D & E (FSA) .................. 5.90 12/03/21 11,758,680
10,000 Maine Health & Higher Educational Facilities Authority, Ser 1993
A (FSA) ....................................................... 5.50 07/01/23 9,568,400
5,000 Massachusetts Health & Educational Facilities Authority, Lahey
Clinic Medical Center Ser B (MBIA) ............................ 5.625 07/01/15 4,928,600
10,000 Michigan Hospital Finance Authority, Oakwood Hospital Refg Ser
1993 A (FGIC) ................................................. 5.625 11/01/18 9,784,000
5,000 Washington County Hospital Authority, Pennsylvania, Washington
Hospital Ser 1993 (AMBAC) ..................................... 5.625 07/01/23 4,861,700
4,000 Chattanooga-Hamilton County Hospital Authority, Tennessee,
Erlanger Medical Center Refg Ser 1993 (FSA) ................... 5.50 10/01/13 3,982,360
5,500 Wisconsin Health & Educational Facilities Authority, Sisters of
the Sorrowful Mother Health Care Ser AA (MBIA) ................ 6.25 06/01/20 5,714,665
- ----------- ---------------
76,400 75,271,199
- ----------- ---------------
Industrial Development/Pollution Control Revenue (11.4%)
7,500 Adams County, Colorado, Public Service Co of Colorado Refg 1993
Ser A (MBIA) .................................................. 5.875 04/01/14 7,668,975
4,000 St Johns County Industrial Development Authority, Florida,
Professional Golf Hall of Fame Ser 1996 (MBIA) (WI) ........... 5.875 09/01/23 4,026,720
15,000 Indiana Development Finance Authority, PSI Energy Inc Ser 1993 B
(AMT) (MBIA) .................................................. 5.75 02/15/28 14,512,800
4,900 Monroe County, Michigan, Detroit Edison Co Ser CC (AMT) (MBIA) . 6.55 06/01/24 5,247,998
5,400 Forsyth, Montana, Puget Sound Power & Light Co Ser 1993 (MBIA) . 5.875 04/01/20 5,444,226
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1990 (AMT)
(MBIA) ........................................................ 6.65 06/01/17 5,378,950
New York State Energy Research & Development Authority,
6,000 Brooklyn Union Gas Co Ser D-1 & 2 (AMT) (MBIA) ................ 5.635 07/08/26 5,717,640
4,000 New York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA) .... 6.15 07/01/26 4,081,120
15,000 Brazos River Authority, Texas, Texas Utilities Electric Co Ser
1993 A (AMT) (AMBAC) .......................................... 6.05 04/01/25 15,117,000
- ----------- ---------------
66,800 67,195,429
- ----------- ---------------
Mortgage Revenue -Multi-Family (1.4%)
8,675 West Virginia Housing Development Fund, Ser A (AMBAC) .......... 5.65 11/01/21 8,459,687
- ----------- ---------------
Mortgage Revenue -Single Family (7.5%)
3,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A
(MBIA) ........................................................ 5.875 12/01/24 3,005,880
17,220 Connecticut Housing Finance Authority, 1992 Ser A-2 (AMT)
(Secondary FSA) ............................................... 6.05 11/15/25 17,306,444
1,195 Maine Housing Authority, Mortgage Purchase 1990 Ser A-6 (AMT)
(Secondary MBIA) .............................................. 6.35 11/15/22 1,214,610
13,000 New Jersey Housing & Mortgage Finance Agency, Home Buyer 1990
Ser F-3 (AMT) (MBIA) .......................................... 5.95 04/01/25 12,928,630
10,000 Virginia Housing Development Authority, 1992 Ser B (AMT)
(Secondary FSA) ............................................... 6.30 01/01/27 10,194,900
- ----------- ---------------
44,415 44,650,464
- ----------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Public Facilities Revenue (6.7%)
$ 10,000 California Public Works Board, Corrections Refg 1993 Ser A
(AMBAC) ....................................................... 5.00 % 12/01/19 $ 9,313,200
5,000 Florida Department of Management Services, Pool Refg Ser 1992
(AMBAC) ....................................................... 5.40 09/01/14 4,904,250
5,000 Chicago Public Building Commission, Illinois, Ser A 1993 (MBIA) 5.75 12/01/18 4,895,700
10,000 Metropolitan Pier & Exposition Authority, Illinois, McCormick
Place Ser 1992 A (Secondary AMBAC) ............................ 6.50 06/15/27 10,762,800
10,000 Marion County Convention & Recreational Facilities Authority,
Indiana, Excise Tax Refg Ser 1993 A (AMBAC) ................... 5.50 06/01/21 9,533,600
- ----------- ---------------
40,000 39,409,550
- ----------- ---------------
Student Loan Revenue (3.1%)
18,000 Pennsylvania Higher Education Assistance Agency, 1988 Ser D
- ----------- (AMT) (AMBAC) ................................................. 6.05 01/01/19 18,142,920
---------------
Transportation Facilities Revenue (8.1%)
5,000 Tucson, Arizona, Street & Highway Jr Lien Refg Ser 1993 (MBIA) . 5.50 07/01/12 4,999,600
5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Second Lien Refg
1993 Ser A (AMT) (MBIA) ....................................... 5.60 01/01/18 4,796,250
15,000 Regional Transportation Authority, Illinois, Ser 1993 B (FGIC) . 5.85 06/01/23 14,899,050
3,000 Kentucky Turnpike Authority, Econ Dev Road Revitalization Refg
Ser 1993 (AMBAC) .............................................. 5.50 07/01/11 3,020,310
3,125 Allegheny County, Pennsylvania, Pittsburgh Int'l Airport 1993
Ser C (AMT) (FSA) ............................................. 5.625 01/01/23 3,014,906
10,000 Pennsylvania Turnpike Commission, Refg Ser O 1992 (FGIC) ....... 5.50 12/01/17 9,743,900
4,000 Salt Lake City, Utah, Airport Refg Ser 1993 B (FGIC) ........... 5.875 12/01/18 4,012,320
3,000 Richmond Metropolitan Authority, Virginia, Expressway 1992 Ser B
(FGIC) ........................................................ 6.25 07/15/22 3,158,700
- ----------- ---------------
48,125 47,645,036
- ----------- ---------------
Water & Sewer Revenue (12.8%)
20,000 Central Lake County Joint Action Water Agency, Illinois, Refg
Ser 1993 (FGIC) ............................................... 5.375 05/01/20 18,819,200
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky, Ser 1993 (MBIA) ..................................... 5.30 05/15/19 9,532,200
3,000 Detroit, Michigan, Sewage Refg Ser 1993 A (FGIC) ............... 5.70 07/01/13 3,016,830
15,000 Houston, Texas, Water & Sewer 1992 Ser C (MBIA) ................ 5.75 12/01/15 15,037,500
5,000 Loudoun County Sanitation Authority, Virginia, Refg Ser 1992
(FGIC) ........................................................ 6.25 01/01/30 5,235,950
Seattle, Washington,
10,000 Sewer, Refg Ser Y (FGIC) ...................................... 5.70 01/01/15 9,843,600
10,000 Sewer, Refg Ser X (FGIC) ...................................... 5.50 01/01/16 9,654,800
5,000 West Virginia Water Development Authority, Loan Program II
Refg Ser A-11 (FSA) ........................................... 5.50 11/01/23 4,842,950
- ----------- ---------------
78,000 75,983,030
- ----------- ---------------
Other Revenue (2.6%)
5,000 Indianapolis, Indiana, Gas Utility Ser 1994 A (AMBAC) .......... 5.875 06/01/24 5,023,350
10,000 Rhode Island Depositors Economic Protection Corporation, Refg
1992 Ser B (MBIA) ............................................. 6.00 08/01/17 10,141,500
- ----------- ---------------
15,000 15,164,850
- ----------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Refunded (1.6%)
$ 4,360 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) (ETM) .................................................. 5.375% 01/01/25 $ 4,227,456
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 5,006,000
- ----------- ---------------
9,360 9,233,456
- ----------- ---------------
590,065 TOTAL MUNICIPAL BONDS (Identified Cost $579,390,494) ............................... 580,344,688
- ----------- ---------------
SHORT-TERM MUNICIPAL OBLIGATIONS (0.6%)
1,700 Valdez, Alaska, Marine Terminal Exxon Pipeline Co 1993 Ser C
(Demand 11/01/96) ............................................. 3.50* 12/01/33 1,700,000
1,900 Maricopa County, Arizona, Arizona Public Service Co -Palo Verde
Ser 1994 A (Demand 11/01/96) .................................. 3.60* 05/01/19 1,900,000
- ----------- ---------------
3,600 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $3,600,000) ................ 3,600,000
- ----------- ---------------
$593,665 TOTAL INVESTMENTS (Identified Cost $582,990,494) (a) .................... 98.8% 583,944,688
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.2 7,071,105
------ ---------------
NET ASSETS .............................................................. 100.0% $591,015,793
====== ===============
</TABLE>
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed 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 approximates
identified cost. The aggregate gross unrealized appreciation was
$5,233,878 and the aggregate gross unrealized depreciation was
$4,279,684, resulting in net unrealized appreciation of $954,194.
Bond Insurance:
---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Alabama 0.7%
Alaska 0.8
Arizona 1.2
California 4.2
Colorado 1.3
Connecticut 2.9
District of Columbia 2.2
Florida 1.5
Georgia 1.3
Illinois 11.9
Indiana 6.5
Iowa 0.8%
Kentucky 3.0
Louisiana 2.0
Maine 1.8
Massachusetts 3.7
Michigan 6.0
Montana 0.9
Nevada 3.7
New Jersey 2.2
New York 1.7
North Carolina 3.2
Pennsylvania 6.1%
Rhode Island 2.5
South Carolina 4.1
Tennessee 1.5
Texas 7.4
Utah 0.7
Virginia 3.1
Washington 5.0
West Virginia 2.3
Wisconsin 2.6
-------
Total 98.8%
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $582,990,494) ....................................... $583,944,688
Cash .................................................................. 382,731
Interest receivable ................................................... 11,246,196
Deferred organizational expenses ...................................... 9,516
Prepaid expenses ...................................................... 65,828
--------------
TOTAL ASSETS ........................................................ 595,648,959
--------------
LIABILITIES:
Payable for:
Investments purchased ............................................... 4,013,056
Investment management fee ........................................... 192,429
Common shares of beneficial interest repurchased .................... 159,048
Dividends to preferred shareholders ................................. 125,444
Accrued expenses ...................................................... 143,189
--------------
TOTAL LIABILITIES ................................................... 4,633,166
--------------
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, 31,465,813 shares outstanding) ....................... 447,488,612
Net unrealized appreciation ........................................... 954,194
Accumulated undistributed net investment income ....................... 2,784,090
Accumulated net realized loss ......................................... (15,211,103)
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................ 436,015,793
--------------
TOTAL NET ASSETS .................................................... $591,015,793
==============
NET ASSET VALUE PER COMMON SHARE
($436,015,793 divided by 31,465,813 common shares outstanding) ...... $13.86
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ........................ $34,404,385
-------------
EXPENSES
Investment management fee .............. 2,103,311
Auction commission fees ................ 381,034
Transfer agent fees and expenses ...... 179,397
Professional fees ...................... 117,862
Shareholder reports and notices ....... 61,244
Auction agent fees ..................... 43,872
Registration fees ...................... 32,792
Custodian fees ......................... 27,803
Trustees' fees and expenses ............ 20,542
Organizational expenses ................ 7,217
Other .................................. 45,908
-------------
TOTAL EXPENSES BEFORE EXPENSE OFFSET 3,020,982
LESS: EXPENSE OFFSET ................ (27,484)
-------------
TOTAL EXPENSES AFTER EXPENSE OFFSET . 2,993,498
-------------
NET INVESTMENT INCOME ................ 31,410,887
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ...................... (620,558)
Net change in unrealized appreciation . 440,974
-------------
NET LOSS ............................. (179,584)
-------------
NET INCREASE ........................... $31,231,303
=============
</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 ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
- -------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 31,410,887 $ 32,518,057
Net realized loss ................................. (620,558) (4,412,338)
Net change in unrealized appreciation/depreciation 440,974 80,924,580
---------------- ----------------
NET INCREASE .................................... 31,231,303 109,030,299
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ......................................... (5,551,293) (5,967,188)
Common ............................................ (24,369,679) (27,342,089)
---------------- ----------------
TOTAL ........................................... (29,920,972) (33,309,277)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred ......................................... -- (40,000,000)
Common ............................................ (23,133,162) (15,641,169)
---------------- ----------------
TOTAL ........................................... (23,133,162) (55,641,169)
---------------- ----------------
NET INCREASE (DECREASE) ......................... (21,822,831) 20,079,853
NET ASSETS:
Beginning of period ............................... 612,838,624 592,758,771
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$2,784,090 and $1,294,175, respectively) ....... $591,015,793 $612,838,624
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Insured Municipal Income 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 March 12, 1992 and commenced
operations on February 26, 1993.
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 INCOME 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 $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 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, 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 $4,733,973 and $26,118,874, 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 $29,000.
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
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME 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 $5,715. At October 31, 1996, the Trust had an accrued pension
liability of $26,239 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 Series 1 through 5 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>
AMOUNT IN RESET RANGE OF DIVIDEND
SERIES SHARES* THOUSANDS* RATE* DATE RATES**
- -------- --------- --------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
1 400 $20,000 3.685% 12/27/96 3.00% - 5.125%
2 900 45,000 3.39 11/01/96 2.93 - 4.625
3 1,000 50,000 3.40 11/01/96 2.945 - 4.30
4 400 20,000 3.70 01/03/97 3.25 - 5.00
5 400 20,000 3.37 11/01/96 3.00 - 5.125
</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 to each of the Series 1 through 5 at rates ranging from 3.15%
to 3.70% in the aggregate amount of $695,309.
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, 1996, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID
PAR IN EXCESS OF
SHARES VALUE PAR VALUE
------------- ---------- --------------
<S> <C> <C> <C>
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
Treasury shares purchased and retired (weighted average discount 14.91%)* (1,989,500) (19,895) (23,113,267)
------------- ---------- --------------
Balance, October 31, 1996 ................................................ 31,465,813 $314,658 $447,173,954
============= ========== ==============
</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 $15,211,000 to offset future capital gains to the extent
provided by regulations, which will be available through October 31 of the
following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -------------------------------------------------------------------
2002 2003 2004 TOTAL
- --------- -------- ------ --------
<S> <C> <C> <C>
$10,178 $4,412 $621 $15,211
========= ======== ====== ========
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
AMOUNT
PER
DECLARATIONDATE SHARE RECORD DATE PAYABLE DATE
- ----------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
October 30, 1996 $0.065 November 8, 1996 November 22, 1996
November 26, 1996 $0.065 December 6, 1996 December 20, 1996
</TABLE>
<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 PERIOD
FOR THE YEAR ENDED OCTOBER 31** FEBRUARY 26, 1993*
---------------------------------- THROUGH
1996 1995 1994++ OCTOBER 31, 1993**
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............................... $ 13.69 $11.41 $ 14.95 $14.06
---------- ---------- ---------- -------------
Net investment income .............................................. 0.97 0.96 1.10 0.63
Net realized and unrealized gain (loss) ............................ (0.01) 2.22 (3.53) 0.96
---------- ---------- ---------- -------------
Total from investment operations ................................... 0.96 3.18 (2.43) 1.59
---------- ---------- ---------- -------------
Less dividends from:
Net investment income ............................................. (0.75) (0.80) (0.90) (0.45)
Common share equivalent of dividends paid to preferred
shareholders ...................................................... (0.17) (0.16) (0.21) (0.11)
---------- ---------- ---------- -------------
Total dividends .................................................... (0.92) (0.96) (1.11) (0.56)
Anti-dilutive effect of acquiring treasury shares .................. 0.13 0.06 0.01 --
Offering costs charged against capital ............................. -- -- (0.01) (0.14)
---------- ---------- ---------- -------------
Net asset value, end of period ..................................... $ 13.86 $13.69 $ 11.41 $14.95
========== ========== ========== =============
Market value, end of period ........................................ $11.625 $11.50 $10.375 $15.00
========== ========== ========== =============
TOTAL INVESTMENT RETURN+ .......................................... 7.81% 19.11% (25.81)% 3.05% (1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses before expense offset ............................... 0.68%(4) 0.71%(3) 0.80% 0.63%(2)
Net investment income before preferred stock dividends ............ 7.06% 7.51%(3) 8.23% 6.49%(2)
Preferred stock dividends .......................................... 1.25% 1.38% 1.55% 1.14%(2)
Net investment income available to common shareholders ............ 5.81% 6.13% 6.68% 5.35%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............................ $591,016 $612,839 $592,759 $783,879
Asset coverage on preferred shares at end of period ................ 381% 395% 304% 313%
Portfolio turnover rate ............................................ 1% 1% 7% 3%(1)
- ------------
* 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, after expense offset, which reflect
0.01% effect for custody cash credits.
(4) The above expense ratio would have been 0.67% after expense offset,
which reflects 0.01% effect for custody cash credits.
</TABLE>
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, 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 the three 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, 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: $0.75 to common shareholders, $1,660
to Series 1 preferred shareholders, $1,772 to Series 2 preferred
shareholders, $1,772 to Series 3 preferred shareholders, $1,699 to Series 4
preferred shareholders and $1,788 to Series 5 preferred shareholders.
<PAGE>
TRUSTEES
Michael Bozic INTERCAPITAL
Charles A. Fiumefreddo INSURED
Edwin J. Garn MUNICIPAL
John R. Haire INCOME TRUST
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
ANNUAL REPORT
OCTOBER 31, 1996
