<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS October 31, 1997 New York, New York 10048
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,
1997.
Stimulated by a resurgence of consumer spending in late 1996, the economy
grew at a rapid pace in the first quarter of 1997. This prompted the Federal
Reserve Board to tighten its monetary policy in March in a preemptive move
against a possible increase in the rate of inflation. Economic growth slowed
in the second quarter and the bond market rallied. In addition to more
moderate economic growth, low inflation and stable monetary policy, the bond
rally through July was supported by a shrinking federal budget deficit and a
strong dollar. However, by August the bond market retreated on fears that
stronger employment conditions might prompt the Federal Reserve Board to
tighten further. Yields declined in October when turmoil in the global stock
markets precipitated "flight-to-quality" demand for U.S. Treasuries.
BOND YIELDS 1994-1997
INSURED MUNICIPAL
30-YEAR INSURED 30-YEAR U.S. REVENUE YIELDS
MUNICIPAL TREASURY AS A PERCENTAGE OF U.S.
` REVENUE YIELDS YIELDS TREASURY YIELDS
-------------- ------ ---------------
December 1993 5.4 % 6.34% 85.17%
January 1994 5.4 6.24 86.54
February 1994 5.8 6.66 87.09
March 1994 6.4 7.09 90.27
April 1994 6.35 7.32 86.75
May 1994 6.25 7.43 84.12
June 1994 6.5 7.61 85.41
July 1994 6.25 7.39 84.57
August 1994 6.3 7.45 84.56
September 1994 6.55 7.81 83.87
October 1994 6.75 7.96 84.8
November 1994 7 8 87.5
December 1994 6.75 7.88 85.66
January 1995 6.4 7.7 83.12
February 1995 6.15 7.44 82.66
March 1995 6.15 7.43 82.77
April 1995 6.2 7.34 84.47
May 1995 5.8 6.66 87.09
June 1995 6.1 6.62 92.15
July 1995 6.1 6.86 88.92
August 1995 6 6.66 90.09
September 1995 5.95 6.48 91.82
October 1995 5.75 6.33 90.84
November 1995 5.5 6.14 89.58
December 1996 5.35 5.94 90.07
January 1996 5.4 6.03 89.55
February 1996 5.60 6.46 86.69
March 1996 5.85 6.66 87.84
April 1996 5.95 6.89 86.36
May 1996 6.05 6.99 86.55
June 1996 5.9 6.89 85.63
July 1996 5.85 6.97 83.93
August 1996 5.9 7.11 82.98
September 1996 5.7 6.93 82.25
October 1996 5.65 6.64 85.09
November 1996 5.5 6.35 86.61
December 1997 5.6 6.63 84.46
January 1997 5.7 6.79 83.95
February 1997 5.65 6.8 83.09
March 1997 5.9 7.1 83.1
April 1997 5.75 6.94 82.85
May 1997 5.65 6.91 81.77
June 1997 5.6 6.78 82.6
July 1997 5.3 6.3 84
August 1997 5.5 6.61 83
September 1997 5.4 6.4 84.4
October 1997 5.35% 6.15% 86.9 %
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields but with less
volatility. Long-term insured revenue index yields increased from 5.65
percent to 5.90 percent between October 1996 and March 1997. The bond rally
over the past seven months pushed 30-year yields down to 5.35 percent by the
end of October 1997. Yields on one-year notes were little changed at 3.75
percent over the 12-month period. Consequently, the yield pickup for extending
maturities from 1 to 30 years narrowed from 190 basis points to 160 basis
points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury
yields rose from 83 percent at the end of March 1997 to 87 percent in October.
A rising ratio means that municipals have underperformed Treasuries and have
become relatively more attractive. Over the past four years, this ratio has
annually ranged from an average low of 83 percent to an average high of 90
percent.
New-issue underwriting volume was slightly ahead in the first half of 1997.
The decline in interest rates subsequently led to a surge in refunding
activity. As a result, new-issue municipal volume was up 17 percent during
the first 10 months of 1997. Refundings accounted for more than 25 percent of
total volume.
PERFORMANCE
During the fiscal year ended October 31, 1997, the Trust's net asset value
(NAV) improved from $13.86 to $14.69. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.78 per share, the Trust's
total NAV return was 12.71 percent. IIM's market price on the New York Stock
Exchange moved from $11.625 to $13.25 per share. Based on
LARGEST SECTORS AS OF OCTOBER 31, 1997
(% OF NET ASSETS)
Mortgage ................................. 9%
Water & Sewer ............................ 11%
Electric ................................. 18%
Hopsital ................................. 14%
General Obligation ....................... 8%
*IDR/PCR ................................. 12%
All Others ............................... 28%
* Industrial Development/Pollution Control Revenue.
Portfolio Structure is subject to change.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
AMBAC .................................... 25%
MBIA ..................................... 38%
FSA ...................................... 13%
FGIC ..................................... 24%
Portfolio structure is subject to change.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
this change in market price plus reinvestment of tax-free dividends, the
Trust's total market return was 21.21 percent. On October 31, 1997, IIM traded
at a 10 percent discount to NAV.
Monthly dividends for the fourth quarter of 1997 declared in September
remained unchanged at $0.065 per share. Over the past 12 months the level of
undistributed net investment income increased from $0.088 per share to $0.122
per share.
PORTFOLIO STRUCTURE
IIM remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 13 long-term sectors and 71 credits. The
Trust's weighted average maturity and call protection were 21 and 6 years,
respectively. To assure timely payment of principal and interest, each position
in the portfolio was 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 shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second
is the spread between the portfolio's cost yield and ARPS expenses (ARPS
auction rate and expenses). The greater the spread and the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders. The level of net investment income
available for distribution to common shareholders varies with the level of
short-term interest rates.
During the fiscal year, ARPS leverage contributed approximately $0.08 per share
to common share earnings. Weekly ARPS yields ranged between 2.90 and 5.125
percent. Five ARPS series totaling $155 million and representing 26 percent of
net assets were outstanding.
LOOKING AHEAD
So far this year, long-term municipal bonds have followed the trend of
Treasuries toward lower yields. The recent enactment of the Taxpayer Relief Act
of 1997 did not impact municipals directly and the long-term benefits of
tax-exempt income have remained intact.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust,
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
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 twelve-month period
ended October 31, 1997, the Trust purchased and retired 1,882,300 shares of
common stock at a weighted average market discount of 11.49 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 MEETINGS (unaudited)
* * *
On May 20, 1997, a special meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEE:
Wayne E. Hedien
For......... 23,093,638
Withheld .. 681,945
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Dr.
Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and John L. Schroeder.
(2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND
DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN
STANLEY GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
For........ 22,319,316
Against .. 464,898
Abstain .. 991,369
On October 24, 1997, an annual meeting of the Trust's shareholders was held
for the purpose of voting on two separate matters, the results of which were
as follows:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
Edwin J. Garn
For......... 22,803,539
Withheld .. 479,157
Michael E. Nugent
For......... 22,821,178
Withheld .. 461,518
Philip J. Purcell
For......... 22,805,641
Withheld .. 477,055
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
RESULTS OF MEETINGS (unaudited) continued
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
John R. Haire
For......... 1,741
Withheld .. 1
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H. Johnson
and John L. Schroeder.
(2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
For........ 22,479,897
Against .. 161,623
Abstain .. 641,176
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.1%)
General Obligation (7.5%)
District of Columbia,
$5,000 Refg Ser 1993 B (AMBAC) ....................................... 5.50 % 06/01/09 $5,244,500
6,000 Refg Ser 1993 B (FSA) .......................................... 5.50 06/01/10 6,260,280
10,000 Cook County, Illinois, Ser B (FGIC) ............................. 5.50 11/15/22 10,034,400
5,000 River Rouge School District, Michigan, 1993 Bldg & Site Unltd
Tax (FSA) ..................................................... 5.625 05/01/22 5,105,350
3,000 Vicksburg Community Schools, Michigan, 1993 Refg (MBIA) ......... 5.625 05/01/20 3,048,570
6,000 Clark County Sanitation District, Nevada, Refg 1993 (FGIC) ..... 5.70 07/01/12 6,210,900
8,000 Washoe County, Nevada, Reno--Sparks Convention Ltd Tax
Ser 1993 A (FGIC) .............................................. 5.75 07/01/22 8,198,400
- ----------- --------------
43,000 44,102,400
- ----------- --------------
Educational Facilities Revenue (5.1%)
4,000 Alabama State University, General Tuition & Fee Ser 1993 (MBIA) 5.70 05/01/15 4,117,400
3,000 District of Columbia, American Association Advancement of
Science
Ser 1997 (AMBAC) ............................................... 5.125 01/01/27 2,883,540
4,000 Illinois Educational Facilities Authority, DePaul University
Refg Ser 1997 (AMBAC) .......................................... 5.50 10/01/19 4,034,600
4,000 Indiana University, Student Fee Ser J (FGIC) .................... 5.00 08/01/18 3,811,040
10,000 Wayne State University, Michigan, Ser 1993 (AMBAC) .............. 5.50 11/15/18 10,080,900
Rhode Island Health & Educational Building Corporation, ........
2,500 Providence College Ser 1993 (MBIA) ............................. 5.60 11/01/15 2,531,800
2,500 Providence College Ser 1993 (MBIA) ............................. 5.60 11/01/22 2,524,050
- ----------- --------------
30,000 29,983,330
- ----------- --------------
Electric Revenue (17.9%)
16,000 Redding, California, Ser 1993 A COPs (FGIC) ..................... 5.684 06/01/19 16,219,200
Massachusetts Municipal Wholesale Electric Company,
6,000 1993 Ser A (AMBAC) ............................................. 5.00 07/01/10 5,966,220
10,000 1993 Ser A (AMBAC) ............................................. 5.45 07/01/18 9,999,200
20,000 North Carolina Municipal Power Agency #1, Catawba Ser 1993
(MBIA) ........................................................ 5.60 01/01/20 20,139,000
4,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) ........................................................ 5.375 01/01/25 4,065,800
15,000 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) 5.50 07/01/21 15,069,300
6,000 Lower Colorado River Authority, Texas, Jr Lien Refg 4th Ser
(FSA) ......................................................... 5.625 01/01/17 6,100,980
8,000 Texas Municipal Power Agency, Refg Ser 1993 (MBIA) .............. 5.25 09/01/12 8,043,280
10,000 Washington Public Power Supply System, Nuclear Proj #1 Refg
Ser 1993 A (MBIA) .............................................. 5.70 07/01/17 10,155,400
10,000 Wisconsin Public Power Incorporated, Refg Ser 1993 A (AMBAC) .... 5.25 07/01/21 9,709,200
- ----------- --------------
105,000 105,467,580
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Hospital Revenue (13.9%)
$2,100 District of Columbia, Children's Hospital Refg Ser 1992 A (FGIC) 6.25 % 07/15/10 $2,268,630
8,000 Fulton-DeKalb Hospital Authority, Georgia, Grady Memorial
Hospital Refg Ser 1993 (MBIA) .................................. 5.50 01/01/20 7,989,200
4,000 Indiana Health Facilities Financing Authority, Deaconess
Hospital Inc Refg Ser 1993 (MBIA) .............................. 5.75 03/01/15 4,100,560
5,000 Cedar Rapids, Iowa, St Lukes-Methodist Hospital Refg Ser 1993
(FGIC) ........................................................ 5.75 08/15/22 5,112,800
5,000 Kentucky Economic Development Finance Authority, St Elizabeth
Medical Center Inc Ser 1993 A (FGIC) ........................... 6.00 12/01/22 5,252,450
12,000 Louisiana Public Facilities Authority, Our Lady of the Lake
Regional Medical Center Ser 1993 D & E (FSA) ................... 5.90 12/03/21 12,301,320
10,000 Maine Health & Higher Educational Facilities Authority, Ser 1993
A (FSA) ....................................................... 5.50 07/01/23 9,931,200
5,000 Massachusetts Health & Educational Facilities Authority, Lahey
Clinic Medical Center Ser B (MBIA) ............................. 5.625 07/01/15 5,072,600
10,000 Michigan Hospital Finance Authority, Oakwood Hospital Refg Ser
1993 A (FGIC) .................................................. 5.625 11/01/18 10,157,600
5,000 Allegheny County Hospital Development Authority, Pennsylvania,
Pittsburgh Mercy Health Ser 1996 (AMBAC) ....................... 5.625 08/15/18 5,098,850
5,000 Washington County Hospital Authority, Pennsylvania, Washington
Hospital Ser 1993 (AMBAC) ...................................... 5.625 07/01/23 5,041,350
4,000 Chattanooga-Hamilton County Hospital Authority, Tennessee,
Erlanger Medical Center Refg Ser 1993 (FSA) .................... 5.50 10/01/13 4,089,880
5,500 Wisconsin Health & Educational Facilities Authority, Sisters of
the Sorrowful Mother Health Care Ser AA (MBIA) ................. 6.25 06/01/20 5,828,735
- ----------- --------------
80,600 82,245,175
- ----------- --------------
Industrial Development/Pollution Control Revenue (11.8%)
7,500 Adams County, Colorado, Public Service Co of Colorado Refg 1993
Ser A (MBIA) ................................................... 5.875 04/01/14 7,835,175
4,000 St Johns County Industrial Development Authority, Florida,
Professional Golf Hall of Fame Ser 1996 (MBIA) ................. 5.875 09/01/23 4,192,920
15,000 Indiana Development Finance Authority, PSI Energy Inc Ser 1993 B
(AMT)(MBIA) .................................................... 5.75 02/15/28 15,149,550
4,900 Monroe County, Michigan, Detroit Edison Co Ser CC (AMT) (MBIA) .. 6.55 06/01/24 5,330,171
5,400 Forsyth, Montana, Puget Sound Power & Light Co Ser 1993 (MBIA) .. 5.875 04/01/20 5,598,126
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1990 (AMT)
(MBIA) ......................................................... 6.65 06/01/17 5,455,600
New York State Energy Research & Development Authority,
6,000 Brooklyn Union Gas Co Ser D-1 & 2 (AMT)(MBIA) ................. 5.635 07/08/26 6,075,720
4,000 New York State Electric & Gas Corp 1987 Ser A (AMT)(MBIA) ..... 6.15 07/01/26 4,226,360
15,000 Brazos River Authority, Texas, Texas Utilities Electric Co Ser
1993 A (AMT)(AMBAC) ............................................ 6.05 04/01/25 15,570,000
- ----------- --------------
66,800 69,433,622
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Mortgage Revenue -Multi-Family (1.5%)
$8,675 West Virginia Housing Development Fund, Ser A (AMBAC) ........... 5.65 % 11/01/21 $8,741,537
- ----------- --------------
Mortgage Revenue -Single Family (7.6%)
3,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A
(MBIA) ........................................................ 5.875 12/01/24 3,062,730
16,720 Connecticut Housing Finance Authority, 1992 Ser A-2 (AMT)
(Secondary FSA) ................................................ 6.05 11/15/25 17,152,212
1,195 Maine Housing Authority, Mortgage Purchase 1990 Ser A-6
(AMT)(Secondary MBIA) .......................................... 6.35 11/15/22 1,245,740
13,000 New Jersey Housing & Mortgage Finance Agency, Home Buyer 1990
Ser F-3 (AMT)(MBIA) ............................................ 5.95 04/01/25 13,192,530
10,000 Virginia Housing Development Authority, 1992 Ser B (AMT)
(Secondary FSA) ................................................ 6.30 01/01/27 10,375,700
- ----------- --------------
43,915 45,028,912
- ----------- --------------
Public Facilities Revenue (4.2%)
10,000 California Public Works Board, Corrections Refg 1993 Ser A
(AMBAC) ....................................................... 5.00 12/01/19 9,738,700
5,000 Florida Department of Management Services, Pool Refg Ser 1992
(AMBAC) ........................................................ 5.40 09/01/14 5,063,400
10,000 Marion County Convention & Recreational Facilities Authority,
Indiana, Excise Tax Refg Ser 1993 A (AMBAC) ................... 5.50 06/01/21 10,013,800
- ----------- --------------
25,000 24,815,900
- ----------- --------------
Student Loan Revenue (3.2%)
18,000 Pennsylvania Higher Education Assistance Agency, 1988 Ser D
(AMT)(AMBAC) ................................................... 6.05 01/01/19 18,656,460
- ----------- --------------
Transportation Facilities Revenue (5.0%)
5,000 Tucson, Arizona, Street & Highway Jr Lien Refg Ser 1993 (MBIA) .. 5.50 07/01/12 5,134,800
5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Second Lien Refg
1993 Ser A (AMT)(MBIA) ......................................... 5.60 01/01/18 4,975,650
3,000 Kentucky Turnpike Authority, Econ Dev Road Revitalization Refg
Ser 1993 (AMBAC) ............................................... 5.50 07/01/11 3,077,040
10,000 Pennsylvania Turnpike Commission, Refg Ser O 1992 (FGIC) ....... 5.50 12/01/17 10,104,600
4,000 Salt Lake City, Utah, Airport Refg Ser 1993 B (FGIC) ........... 5.875 12/01/18 4,101,840
2,000 Richmond Metropolitan Authority, Virginia, Expressway 1992 Ser B
(FGIC). ........................................................ 6.25 07/15/22 2,154,440
- ----------- --------------
29,000 29,548,370
- ----------- --------------
Water & Sewer Revenue (10.7%)
15,000 Central Lake County Joint Action Water Agency, Illinois, Refg
Ser 1993 (FGIC) ................................................ 5.375 05/01/20 14,608,650
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky,
Ser 1993 (MBIA) ................................................ 5.30 05/15/19 9,823,400
3,000 Detroit, Michigan, Sewage Refg Ser 1993 A (FGIC) ................ 5.70 07/01/13 3,183,690
15,000 Houston, Texas, Water & Sewer 1992 Ser C (MBIA) ................. 5.75 12/01/15 15,447,900
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Seattle, Washington,
$10,000 Sewer, Refg Ser Y (FGIC) ....................................... 5.70 % 01/01/15 $10,263,900
5,000 Sewer, Refg Ser X (FGIC) ....................................... 5.50 01/01/16 5,017,200
5,000 West Virginia Water Development Authority, Loan Program II
Refg Ser A-11 (FSA) ............................................ 5.50 11/01/23 5,016,050
- ----------- --------------
63,000 63,360,790
- ----------- --------------
Other Revenue (2.7%)
5,000 Indianapolis, Indiana, Gas Utility Ser 1994 A (AMBAC) ........... 5.875 06/01/24 5,171,550
10,000 Rhode Island Depositors Economic Protection Corporation, Refg
1992 Ser B (MBIA) .............................................. 6.00 08/01/17 10,484,500
- ----------- --------------
15,000 15,656,050
- ----------- --------------
Refunded (7.0%)
9,700 Metropolitan Pier & Exposition Authority, Illinois, McCormick
Place
Ser 1992 A (Secondary AMBAC) .................................. 6.50 06/15/03++ 10,881,945
14,000 Regional Transportation Authority, Illinois, Ser 1993 B (FGIC) .. 5.85 06/01/03++ 15,250,620
4,360 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA)(ETM) .................................................... 5.375 01/01/25 4,443,799
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 5,187,150
5,000 Loudoun County Sanitation Authority, Virginia, Refg Ser 1992
(FGIC) ........................................................ 6.25 01/01/03++ 5,439,800
- ----------- --------------
38,060 41,203,314
- ----------- --------------
566,050 TOTAL MUNICIPAL BONDS (Identified Cost $556,263,731) ................................. 578,243,440
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION (0.1%)
$800 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1989 (Demand
11/03/97)
- -----------
(Identified Cost $800,000)..................................... 3.95*% 11/01/19 $800,000
--------------
$566,850 TOTAL INVESTMENTS (Identified Cost $557,063,731) (a) ..................... 98.2% 579,043,440
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.8 10,685,002
----------- --------------
NET ASSETS ............................................................... 100.0% $589,728,442
=========== ==============
</TABLE>
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
++ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$21,980,509 and the aggregate gross unrealized depreciation is
$800, resulting in net unrealized appreciation of $21,979,709.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Alabama 0.7%
Alaska 0.5
Arizona 0.9
California 4.4
Colorado 1.3
Connecticut 2.9
District of Columbia 2.8
Florida 1.6
Georgia 1.4
Illinois 10.1
Indiana 6.5
Iowa 0.9%
Kentucky 3.1
Louisiana 2.2
Maine 1.9
Massachusetts 3.6
Michigan 6.3
Montana 1.0
Nevada 3.4
New Jersey 2.2
New York 1.7
North Carolina 3.4
Pennsylvania 6.6%
Rhode Island 2.6
South Carolina 4.0
Tennessee 1.6
Texas 7.7
Utah 0.7
Virginia 3.0
Washington 4.3
West Virginia 2.3
Wisconsin 2.6
------
Total 98.2%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $557,063,731) ......... $579,043,440
Cash .................................... 494,138
Interest receivable ..................... 10,705,574
Deferred organizational expenses ....... 2,324
Prepaid expenses ........................ 317,778
---------------
TOTAL ASSETS .......................... 590,563,254
---------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders .. 357,739
Investment management fee ............. 197,390
Common shares of beneficial interest
repurchased .......................... 162,891
Accrued expenses ........................ 116,792
---------------
TOTAL LIABILITIES ..................... 834,812
---------------
NET ASSETS ............................ $589,728,442
===============
COMPOSITION OF 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, 29,583,513 shares
outstanding) ........................... 424,126,552
Net unrealized appreciation ............. 21,979,709
Accumulated undistributed net investment
income ................................. 3,604,430
Accumulated net realized loss ........... (14,982,249)
---------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS ......................... 434,728,442
---------------
TOTAL NET ASSETS ...................... $589,728,442
===============
NET ASSET VALUE PER COMMON SHARE
($434,728,442 divided by 29,583,513
common shares outstanding) ............. $ 14.69
===============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ......................... $ 33,057,122
---------------
EXPENSES
Investment management fee ............... 2,044,850
Auction commission fees ................. 414,790
Transfer agent fees and expenses ....... 122,166
Professional fees ....................... 102,412
Shareholder reports and notices ........ 46,866
Auction agent fees ...................... 41,194
Registration fees ....................... 33,707
Custodian fees .......................... 27,225
Trustees' fees and expenses ............. 19,531
Organizational expenses ................. 7,192
Other ................................... 48,852
---------------
TOTAL EXPENSES ........................ 2,908,785
Less: expense offset .................... (27,077)
---------------
NET EXPENSES .......................... 2,881,708
---------------
NET INVESTMENT INCOME ................. 30,175,414
---------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ....................... 228,854
Net change in unrealized appreciation 21,025,515
---------------
NET GAIN .............................. 21,254,369
---------------
NET INCREASE ............................ $51,429,783
===============
</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, 1997 OCTOBER 31, 1996
- ------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................ $ 30,175,414 $ 31,410,887
Net realized gain (loss) ......................... 228,854 (620,558)
Net change in unrealized appreciation ............ 21,025,515 440,974
---------------- ----------------
NET INCREASE ................................... 51,429,783 31,231,303
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ........................................ (5,619,615) (5,551,293)
Common ........................................... (23,735,459) (24,369,679)
---------------- ----------------
TOTAL .......................................... (29,355,074) (29,920,972)
---------------- ----------------
Decrease from transactions in common shares of
beneficial interest ............................. (23,362,060) (23,133,162)
---------------- ----------------
NET DECREASE ................................... (1,287,351) (21,822,831)
NET ASSETS:
Beginning of period .............................. 591,015,793 612,838,624
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income
of $3,604,430 and $2,784,090, respectively) .... $589,728,442 $591,015,793
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997
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, 1997, continued
income and net realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital
accounts based on their federal tax-basis treatment; temporary differences do
not require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized capital gains.
To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of
paid-in-capital.
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 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, 1997
aggregated $12,182,125 and $35,637,698, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $3,800.
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, 1997, continued
years of service. Aggregate pension costs for the year ended October 31, 1997
included in Trustees' fees and expenses in the Statement of Operations
amounted to $5,237. At October 31, 1997, the Trust had an accrued pension
liability of $30,224 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
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES**
- -------- --------- ------------ ------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
1 400 $20,000 3.50% 11/03/97 3.50% -3.90%
2 900 45,000 3.80 09/08/98 2.90 -4.05
3 1,000 50,000 3.84 07/13/98 3.24 -4.20
4 400 20,000 3.69 11/03/97 3.40 -3.90
5 400 20,000 3.67 11/03/97 3.00 -5.125
</TABLE>
- ------------
* As of October 31, 1997.
** For the year ended October 31, 1997.
Subsequent to October 31, 1997 and up through December 5, 1997, the Trust
paid dividends to each of the Series 1 through 5 at rates ranging from 3.40%
to 3.84%, respectively, in the aggregate amount of $815,102.
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, 1997, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
------------- ----------- --------------
<S> <C> <C> <C>
Balance, October 31, 1995 ............................................... 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
Treasury shares purchased and retired (weighted average discount
11.49%)*................................................................ (1,882,300) (18,823) (23,343,237)
------------- ----------- --------------
Balance, October 31, 1997 ............................................... 29,583,513 $295,835 $423,830,717
============= =========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1997, the Trust utilized approximately
$229,000 of its net capital loss carryover.
At October 31, 1997, the Trust had a net capital loss carryover of
approximately $14,982,000, which may be used to offset future capital gains
to the extent provided by regulations, which is available through October 31
of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- --------------------------
2002 2003 2004
- -------- -------- ------
<S> <C> <C>
$9,949 $4,412 $621
======== ======== ======
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 23, 1997, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- ------------- -------------------- ---------------------
<S> <C> <C>
$0.065 November 7, 1997 November 21, 1997
$0.065 December 5, 1997 December 19, 1997
</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 YEAR ENDED OCTOBER 31**
---------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............................... $13.86 $ 13.69 $11.41 $ 14.95
---------- ---------- ---------- ----------
Net investment income .............................................. 1.00 0.97 0.96 1.10
Net realized and unrealized gain (loss) ............................ 0.70 (0.01) 2.22 (3.53)
---------- ---------- ---------- ----------
Total from investment operations ................................... 1.70 0.96 3.18 (2.43)
---------- ---------- ---------- ----------
Less dividends from:
Net investment income ............................................. (0.78) (0.75) (0.80) (0.90)
Common share equivalent of dividends paid to preferred
shareholders ..................................................... (0.19) (0.17) (0.16) (0.21)
---------- ---------- ---------- ----------
Total dividends .................................................... (0.97) (0.92) (0.96) (1.11)
---------- ---------- ---------- ----------
Anti-dilutive effect of acquiring treasury shares .................. 0.10 0.13 0.06 0.01
---------- ---------- ---------- ----------
Offering costs charged against capital ............................. -- -- -- (0.01)
---------- ---------- ---------- ----------
Net asset value, end of period ..................................... $14.69 $ 13.86 $13.69 $ 11.41
========== ========== ========== ==========
Market value, end of period ........................................ $13.25 $11.625 $11.50 $10.375
========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ........................................... 21.21% 7.81% 19.11% (25.81)%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ..................................................... 0.68%(3) 0.68%(3) 0.71%(3) 0.80%
Net investment income before preferred stock dividends ............ 7.04% 7.06% 7.51% 8.23%
Preferred stock dividends .......................................... 1.31% 1.25% 1.38% 1.55%
Net investment income available to common shareholders ............ 5.73% 5.81% 6.13% 6.68%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............................ $589,728 $591,016 $612,839 $592,759
Asset coverage on preferred shares at end of period ................ 380% 381% 395% 304%
Portfolio turnover rate ............................................ 2% 1% 1% 7%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 26, 1993*
THROUGH
OCTOBER 31, 1993**
------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............................... $14.06
------------------
Net investment income .............................................. 0.63
Net realized and unrealized gain (loss) ............................ 0.96
------------------
Total from investment operations ................................... 1.59
------------------
Less dividends from:
Net investment income ............................................. (0.45)
Common share equivalent of dividends paid to preferred
shareholders ..................................................... (0.11)
------------------
Total dividends .................................................... (0.56)
------------------
Anti-dilutive effect of acquiring treasury shares .................. --
------------------
Offering costs charged against capital ............................. (0.14)
------------------
Net asset value, end of period ..................................... $14.95
==================
Market value, end of period ........................................ $15.00
==================
TOTAL INVESTMENT RETURN+ ........................................... 3.05%(1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ..................................................... 0.63%(2)
Net investment income before preferred stock dividends ............ 6.49%(2)
Preferred stock dividends .......................................... 1.14%(2)
Net investment income available to common shareholders ............ 5.35%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............................ $783,879
Asset coverage on preferred shares at end of period ................ 313%
Portfolio turnover rate ............................................ 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.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
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, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for each of the four 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, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 11, 1997
- -------------------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1997, all of the Trust's dividends
from net investment income received by both common and preferred
shareholder classes were exempt interest dividends, excludable from
gross income for Federal income tax purposes.
- -------------------------------------------------------------------------------
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
ANNUAL REPORT
OCTOBER 31, 1997
