<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1998
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of
InterCapital Insured Municipal Securities (IMS) for the period ended April
30, 1998.
Since last fall domestic economic growth has been tempered by the
deflationary impact of the Asian financial crisis. U.S. employment conditions
strengthened and the unemployment rate declined to its lowest level since
1970. Inflation remained subdued despite the robust economy. In part this was
the result of productivity gains and the lower costs of oil and other
imports. Foreign currency turmoil strengthened the value of the U.S. dollar
and created demand for U.S. Treasury securities. Municipal bonds followed the
trend of Treasuries and yields declined to levels last seen 20 years ago. The
bond market rally was also aided by prospects of the first federal budget
surplus in more than two decades.
MUNICIPAL MARKET CONDITIONS
Long-term insured index yields ended April 1998 at 5.35 percent after
reaching a low of 5.15 percent in December and January. Over the past
12 months the insured index yield has declined from 5.75 percent.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[LINE CHART]
MMD 30 YEAR AAA INSURED AND TREASURY YIELD
DATE AAA INS TSY % RELATIONSHIP
- ---- ------- --- --------------
12/31/93 5.40% 6.34% 85.17%
01/31/94 5.40 6.24 86.54%
02/28/94 5.80 6.66 87.09%
03/31/94 6.40 7.09 90.27%
04/29/94 6.35 7.32 86.75%
05/31/94 6.25 7.43 84.12%
06/30/94 6.50 7.61 85.41%
07/29/94 6.25 7.39 84.57%
08/31/94 6.30 7.45 84.56%
09/30/94 6.55 7.81 83.87%
10/31/94 6.75 7.96 84.80%
11/30/94 7.00 8.00 87.50%
12/30/94 6.75 7.88 85.66%
01/31/95 6.40 7.70 83.12%
02/28/95 6.15 7.44 82.66%
03/31/95 6.15 7.43 82.77%
04/28/95 6.20 7.34 84.47%
05/31/95 5.80 6.66 87.09%
06/30/95 6.10 6.62 92.15%
07/31/95 6.10 6.86 88.92%
08/31/95 6.00 6.66 90.09%
09/29/95 5.95 6.48 91.82%
10/31/95 5.75 6.33 90.84%
11/30/95 5.50 6.14 89.58%
12/29/95 5.35 5.94 90.07%
01/31/96 5.40 6.03 89.55%
02/29/96 5.60 6.46 86.69%
03/29/96 5.85 6.66 87.84%
04/30/96 5.95 6.89 86.36%
05/31/96 6.05 6.99 86.55%
06/28/96 5.90 6.89 85.63%
07/31/96 5.85 6.97 83.93%
08/30/96 5.90 7.11 82.98%
09/30/96 5.70 6.93 82.25%
10/31/96 5.65 6.64 85.09%
11/29/96 5.50 6.35 86.61%
12/31/96 5.60 6.63 84.46%
01/31/97 5.70 6.79 83.95%
02/28/97 5.65 6.80 83.09%
03/31/97 5.90 7.10 83.10%
04/30/97 5.75 6.94 82.85%
05/30/97 5.65 6.91 81.77%
06/30/97 5.60 6.78 82.60%
07/30/97 5.30 6.30 84.13%
08/31/97 5.50 6.61 83.21%
09/30/97 5.40 6.40 84.38%
10/31/97 5.35 6.15 86.99%
11/30/97 5.30 6.05 87.60%
12/31/97 5.15 5.92 86.99%
01/31/98 5.15 5.80 88.79%
02/28/98 5.20 5.92 87.84%
03/31/98 5.25 5.93 88.53%
04/30/98 5.35 5.95 89.92%
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PIE CHART] [PIE CHART]
LARGEST SECTORS as of April 30, 1998 CREDIT ENHANCEMENTS as of April 30, 1998
(% of Net Assets) (% of Total Long-Term Portfolio)
Transportation 19% MBIA 48%
General Obligation 13% AMBAC 34%
Hospital 13% FGIC 15%
Education 7% CONNIE LEE 3%
Refunded 6%
All Other 18%
Electric 24%
Portfolio structure is subject Portfolio structure is subject
to change. to change.
[BAR GRAPH]
CALL STRUCTURE as of April 30, 1998
(% of Total Long-Term Portfolio) Weighted Average
Percent Callable Call Protection: 7 Years
1998 0%
1999 0%
2000 0%
2001 0%
2002 8%
2003 19%
2004 67%
2005 0%
2006 0%
2007 0%
2008 0%
2009+ 6%
100.00%
Year Callable
Portfolio structure is subject to change.
2
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1998, continued
The yield on one-year notes was 3.75 percent at the end of April 1998. Thus,
the yield pickup for extending maturities from 1 to 30 years was 160 basis
points.
The overall decline in interest rates led to an increase in new-issue municipal
volume. In contrast, the U.S. Treasury's borrowing needs have declined with the
reduction in the deficit. Under these conditions, the municipal rally lagged
the rally in Treasuries. The ratio of municipal yields to Treasury yields
improved from 87 percent in October to almost 90 percent in April. A year ago
the ratio was a relatively rich 83 percent. A rising ratio means that
municipals have underperformed Treasuries but have become relatively more
attractive.
Total municipal volume increased 20 percent in 1997. New-issue supply totaled
$220 billion last year, with half the underwritings enhanced with bond
insurance. Refundings represented one-quarter of total new issues. For the
year-to-date, municipal underwriting is up 60 percent with refunding issues
comprising one-third of the total.
PERFORMANCE
During the six-month period ended April 30, 1998, the Trust's net asset value
(NAV) moved from $15.54 to $15.61. Based on this NAV change plus reinvestment
of tax-free dividends totaling $0.41 per share, the Trust's total NAV return
was 3.23 percent. IMS's price on the New York Stock Exchange moved from
$14.375 to $14.50 per share. Based on this change in market price plus
reinvestment of dividends, the Trust's total market return was 3.67 percent.
On April 30, 1998, IMS was trading at a 7.11 percent discount to NAV. This
means that the market price of the common stock was lower than the NAV.
Monthly dividends for the second quarter of 1998 were declared in March and
remained unchanged at $0.0675 per share. The level of undistributed net
investment income declined from $0.083 to $0.077 per share over the past six
months.
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 may,
when appropriate, 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 six-month period ended
April 30, 1998, IMS purchased and retired 54,300 shares of common stock at a
weighted average market discount of 6.27 percent.
3
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1998, continued
PORTFOLIO STRUCTURE
IMS remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 11 long-term sectors and 36 individual
credits. The Trust's weighted average maturity and call protection were 22
and 7 years, respectively. To assure timely payment of principal and
interest, each position in the portfolio was backed by triple "A" rated bond
insurance.
LOOKING AHEAD
The economic fundamentals are in place for another year of solid, albeit less
spectacular, domestic growth in 1998. Events in Asia have strengthened the
U.S. dollar and contributed to lower interest rates. The Asian financial
crisis seems likely to moderate U.S. economic growth and inflationary
pressures. While this outlook is favorable for municipal bonds it is possible
that the Federal Reserve Board may begin to tighten monetary policy if
capacity and labor constraints cause cost pressures to mount.
We appreciate your ongoing support of InterCapital Insured Municipal
Securities and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
4
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.4%)
General Obligation (13.2%)
$ 3,920 Kodiak Island Borough, Alaska, Ser 1994 A (AMBAC) ............... 5.50 % 02/15/14 $ 3,977,820
3,000 Moulton-Niguel Water District, California, 1993 Refg (MBIA) ..... 5.00 09/01/19 2,889,300
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC) ...................... 5.125 01/01/22 2,943,330
8,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A
(MBIA) ........................................................ 5.75 06/01/13 8,478,320
------- -----------
17,920 18,288,770
------- -----------
Educational Facilities Revenue (6.8%)
2,000 Chicago State University, Illinois, Ser 1994 (MBIA) ............. 6.15 12/01/23 2,139,700
2,000 New York State Dormitory Authority, Fordham University Ser 1994
(FGIC) ........................................................ 5.50 07/01/23 2,020,800
2,000 Rhode Island Health & Educational Building Corporation,
Providence College Ser 1993 (MBIA) ............................. 5.60 11/01/22 2,033,040
3,000 Wisconsin Health & Educational Facilities Authority, Marquette
University Ser 1994 (FGIC) ..................................... 6.45 12/01/19 3,289,590
------- -----------
9,000 9,483,130
------- -----------
Electric Revenue (23.9%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA) ......................... 6.20 12/01/13 4,312,720
5,000 Sacramento Municipal Utility District, California, Refg 1994 Ser
I (MBIA) ...................................................... 6.00 01/01/24 5,292,050
3,000 Municipal Electric Authority of Georgia, Power Ser EE (AMBAC) ... 6.00 01/01/22 3,163,530
5,000 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC) ........ 6.375 09/01/23 5,526,150
2,745 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) ........................................................ 5.375 01/01/25 2,797,704
4,000 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC) ............. 5.25 07/01/18 3,941,000
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC) ....................... 5.25 06/01/25 4,914,600
3,000 Tacoma, Washington, Refg 1994 (FGIC) ............................ 6.25 01/01/15 3,243,720
------- -----------
31,745 33,191,474
------- -----------
Hospital Revenue (13.2%)
3,000 Morgan County-Decatur Health Care Authority, Alabama, Decatur
General Hospital Ser 1994 (Connie Lee) ......................... 6.375 03/01/24 3,273,960
4,000 California Statewide Communities Development Authority, Sharp
Health Care COPs (MBIA) ........................................ 6.00 08/15/24 4,221,240
3,000 Volusia County Health Facilities Authority, Florida, Memorial
Health Refg & Impr Ser 1994 (AMBAC) ............................ 5.75 11/15/20 3,091,710
1,500 Illinois Health Facilities Authority, University of Chicago
Hospital Ser 1994 (MBIA) ....................................... 6.125 08/15/21 1,597,545
3,000 Massachusetts Health & Educational Facilities Authority, Lahey
Clinic Medical Center Ser B (MBIA) ............................. 5.375 07/01/23 2,969,130
3,000 New Hampshire Higher Educational & Health Facilities Authority,
The Hitchcock Clinic Ser 1994 (MBIA) ........................... 6.00 07/01/24 3,145,620
------- -----------
17,500 18,299,205
------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development/Pollution Control Revenue (5.4%)
$ 5,550 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc
Ser 1992 (AMT)(MBIA) ........................................... 6.55 % 12/01/22 $ 6,027,411
1,500 Pennsylvania Industrial Development Authority, Ser 1994 (AMBAC) . 5.50 01/01/14 1,523,310
-------- ------------
7,050 7,550,721
-------- ------------
Mortgage Revenue-Multi-Family (2.3%)
3,000 Los Angeles Community Redevelopment Agency, California,
-------- Refg Ser 1994 A (AMBAC) ......................................... 6.55 01/01/27 3,170,430
------------
Public Facilities Revenue (1.5%)
2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC) ............ 6.00 12/01/13 2,139,580
-------- ------------
Transportation Facilities Revenue (18.6%)
5,000 San Francisco Airports Commission, California, San Francisco
Int'l Airport Second Ser Refg (MBIA) ........................... 6.75 05/01/20 5,522,050
3,000 Atlanta, Georgia, Airport Ser 1994 B (AMT)(AMBAC) ............... 6.00 01/01/21 3,142,230
2,000 Hawaii, Airports Third Refg Ser of 1994 (AMT)(AMBAC) ............ 5.75 07/01/09 2,088,520
Chicago Midway Airport, Illinois,
3,000 1994 Ser A (AMT)(MBIA) ......................................... 6.25 01/01/14 3,208,260
3,000 1994 Ser A (AMT)(MBIA) ......................................... 6.25 01/01/24 3,198,840
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC) . 6.25 06/01/24 5,425,750
3,000 Pennsylvania Turnpike Commission, Oil Franchise Tax Ser A of
1994 (AMBAC) ................................................... 6.00 12/01/19 3,189,990
-------- ------------
24,000 25,775,640
-------- ------------
Water & Sewer Revenue (3.0%)
4,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA) ...... 5.70 06/01/20 4,109,920
-------- ------------
Other Revenue (3.8%)
5,000 Indianapolis, Indiana, Gas Utility Refg Ser 1994 A (AMBAC) ...... 5.875 06/01/24 5,220,250
-------- ------------
Refunded (5.7%)
4,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) ..... 6.60 10/01/02+ 4,438,800
1,000 Hillsborough County School Board, Florida, Ser 1994 COPs (MBIA) . 6.00 07/01/04+ 1,099,710
2,255 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA)(ETM) ................................................... 5.375 01/01/25 2,333,294
-------- ------------
7,255 7,871,804
-------- ------------
128,470 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $123,716,558) . 135,100,924
-------- ------------
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (0.7%)
$ 1,000 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1989
- ----------- (Demand 05/01/98) (Identified Cost $1,000,000) ................. 4.20*% 11/01/19 $ 1,000,000
------------
$129,470 TOTAL INVESTMENTS (Identified Cost $124,716,558)(a) ...................... 98.1% 136,100,924
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.9 2,634,729
----- ------------
NET ASSETS ............................................................... 100.0% $138,735,653
===== ============
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
* Current coupon of variable rate demand obligation.
+ Prerefunded to call date shown.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross and net unrealized
appreciation is $11,384,366.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1998
<S> <C> <C> <C> <C> <C>
Alabama 2.4% Kansas 4.0% Rhode Island 1.5%
Alaska 6.0 Louisiana 0.7 South Carolina 3.7
California 21.4 Massachusetts 2.1 Utah 2.8
Florida 3.0 Michigan 1.5 Virginia 3.5
Georgia 4.6 Nevada 6.1 Washington 2.3
Hawaii 5.8 New Hampshire 2.3 Wisconsin 2.4
Illinois 13.3 New York 1.5 ----
Indiana 3.8 Pennsylvania 3.4 Total 98.1%
====
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $124,716,558)........................................ $136,100,924
Cash................................................................... 77,618
Interest receivable ................................................... 2,622,076
Deferred organizational expenses ...................................... 7,324
Prepaid expenses and other assets ..................................... 14,706
------------
TOTAL ASSETS ........................................................ 138,822,648
------------
LIABILITIES:
Investment management fee payable ..................................... 45,800
Accrued expenses ...................................................... 41,195
------------
TOTAL LIABILITIES ................................................... 86,995
------------
NET ASSETS .......................................................... $138,735,653
============
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized
of non-participating $.01 par value, none issued) .................... --
------------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 8,885,713 shares outstanding) ........................ $126,725,194
Net unrealized appreciation ........................................... 11,384,366
Accumulated undistributed net investment income ....................... 681,414
Accumulated net realized loss ......................................... (55,321)
------------
TOTAL NET ASSETS .................................................... $138,735,653
============
NET ASSET VALUE PER COMMON SHARE
($138,735,653 divided by 8,885,713 common shares outstanding) ....... $ 15.61
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $3,864,093
----------
EXPENSES
Investment management fee ............. 244,491
Professional fees ..................... 23,675
Transfer agent fees and expenses ..... 14,058
Shareholder reports and notices ...... 8,532
Trustees' fees and expenses ........... 8,371
Registration fees ..................... 8,084
Organizational expenses ............... 4,360
Custodian fees ........................ 3,587
Other ................................. 4,355
----------
TOTAL EXPENSES ...................... 319,513
Less: expense offset .................. (3,573)
----------
NET EXPENSES ........................ 315,940
----------
NET INVESTMENT INCOME ............... 3,548,153
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ..................... 102,353
Net change in unrealized appreciation 558,895
----------
NET GAIN ............................ 661,248
----------
NET INCREASE .......................... $4,209,401
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1998 OCTOBER 31, 1997
- --------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .............................. $ 3,548,153 $ 7,239,473
Net realized gain .................................. 102,353 131,121
Net change in unrealized appreciation .............. 558,895 3,794,121
------------ ------------
NET INCREASE ..................................... 4,209,401 11,164,715
Dividends to common shareholders from net
investment income ................................. (3,609,700) (7,321,738)
Decrease from transactions in common shares of
beneficial interest ............................... (804,704) (3,143,148)
------------ ------------
NET INCREASE (DECREASE) .......................... (205,003) 699,829
NET ASSETS:
Beginning of period ................................ 138,940,656 138,240,827
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$681,414 and $742,961, respectively) ............. $138,735,653 $138,940,656
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Insured Municipal Securities (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 October 14, 1993 and commenced
operations on February 28, 1994.
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 income and net realized
capital gains are determined in accordance with federal income tax
regulations
11
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) continued
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 $44,000 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 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 proceeds from sales of portfolio securities, excluding short-term
investments, for the six months ended April 30, 1998 aggregated $1,128,460.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At April 30, 1998, the Trust had transfer
agent fees and expenses payable of approximately $2,700.
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
12
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) continued
years of service. Aggregate pension costs for the six months ended April 30,
1998 included in Trustees' fees and expenses in the Statement of Operations
amounted to $2,078. At April 30, 1998, the Trust had an accrued pension
liability of $2,078 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 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.
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, 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.
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, 1996 .............. 9,168,013 $91,680 $130,577,794
Treasury shares purchased and retired
(weighted average discount 9.37%)* ... (228,000) (2,280) (3,137,296)
--------- ------- ------------
Balance, October 31, 1997 .............. 8,940,013 89,400 127,440,498
Treasury shares purchased and retired
(weighted average discount 6.27%)* ... (54,300) (543) (804,161)
--------- ------- ------------
Balance, April 30, 1998 ................ 8,885,713 $88,857 $126,636,337
========= ======= ============
</TABLE>
- --------------
* The Trustees have voted to retire the shares purchased.
13
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Trust had a net capital loss carryover of
approximately $158,000, which may be used through October 31, 2003 to offset
future capital gains to the extent provided by regulations.
7. DIVIDENDS TO COMMON SHAREHOLDERS
On March 24, 1998, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ---- ----
<S> <C> <C>
$0.0675 May 8, 1998 May 22, 1998
$0.0675 June 5, 1998 June 19, 1998
</TABLE>
14
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
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 SIX FOR THE YEAR ENDED OCTOBER 31** FEBRUARY 28, 1994*
MONTHS ENDED ------------------------------- THROUGH
APRIL 30, 1998** 1997 1996 1995 OCTOBER 31, 1994**
- ----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $15.54 $ 15.08 $ 14.91 $ 13.20 $ 14.06
------ ------- ------- ------- --------
Net investment income ............................. 0.40 0.80 0.80 0.79 0.44
Net realized and unrealized gain (loss) .......... 0.07 0.43 0.11 1.58 (0.93)
------ ------- ------- ------- --------
Total from investment operations .................. 0.47 1.23 0.91 2.37 (0.49)
------ ------- ------- ------- --------
Less dividends from net investment income ........ (0.41) (0.81) (0.81) (0.75) (0.38)
------ ------- ------- ------- --------
Anti-dilutive effect of acquiring treasury shares 0.01 0.04 0.07 0.09 0.05
------ ------- ------- ------- --------
Offering costs charged against capital ............ -- -- -- -- (0.04)
------ ------- ------- ------- --------
Net asset value, end of period .................... $15.61 $ 15.54 $ 15.08 $ 14.91 $ 13.20
====== ======= ======= ======= ========
Market value, end of period ....................... $14.50 $14.375 $13.125 $12.625 $ 11.125
====== ======= ======= ======= ========
TOTAL INVESTMENT RETURN+ .......................... 3.67% (1) 16.12% 10.52% 20.61% (23.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses .................................... 0.46%(2)(3) 0.47% 0.49%(3) 0.54%(3) 0.51%(2)
Net investment income ............................. 5.08%(2) 5.27% 5.32% 5.51% 4.69%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .......... $138,736 $138,941 $138,241 $141,738 $132,377
Portfolio turnover rate ........................... -- -- 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.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
INTERCAPITAL
INSURED
MUNICIPAL
SECURITIES
SEMIANNUAL REPORT
APRIL 30, 1998
