<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS April 30, 1998 New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of
InterCapital Insured Municipal Income Trust (IIM) 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.]
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>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1998, continued
[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.]
LARGEST SECTORS as of April 30, 1998
(% of Net Assets)
Electric 18%
IDR/PCR* 12%
Water & Sewer 11%
Hospital 10%
Mortgage 9%
General Obligation 8%
Refunded 8%
All Other 24%
*Industrial Development/Pollution Control Revenue.
Portfolio Structure is subject to change.
CREDIT ENHANCEMENTS as of April 30, 1998
(% of Total Long-Term Portfolio)
MBIA 40%
AMBAC 24%
FGIC A 22%
FSA 14%
Portfolio Structure is subject to change.
- -------------------------------------------------------------------------------
CALL STRUCTURE as of April 30, 1998 Weighted Average
(% of Total Long-Term Portfolio) Call Protection: 6 Years
Year Percent
Callable Callable
1998 0%
1999 0%
2000 2%
2001 0%
2002 15%
2003 69%
2004 1%
2005 3%
2006 1%
2007 1%
2008 1%
2009+ 7%
Portfolio structure is subject to change.
- -------------------------------------------------------------------------------
2
<PAGE>
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 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 nearly one-third of the total.
Performance
During the six-month period ended April 30, 1998, the Trust's net asset value
(NAV) improved from $14.69 to $14.87. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.39 per share, the Trust's
total NAV return was 4.11 percent. IIM's price on the New York Stock Exchange
moved from $13.25 to $13.375 per share. Based on this change in market price
plus reinvestment of dividends, the Trust's total market return was 3.82
percent. On April 30, 1998 IIM was trading at a 10 percent discount to NAV.
This means that the market price of the common stock was lower than the NAV.
Monthly dividends payable in the second quarter of 1998 were declared in
March and remained unchanged at $0.065 per share. The level of undistributed
net investment income increased from $0.122 to $0.134 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, IIM purchased and retired 638,700 shares of common stock at a
weighted average market discount of 8.72 percent. The Trust may also utilize
procedures to reduce or eliminate the amount of outstanding Auction Rate
Preferred Shares (ARPS), including their purchase in the open market or in
privately negotiated transactions.
3
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1998, continued
Portfolio Structure
The Trust remained fully invested in long-term municipal bonds during the
period. Investments were diversified among 13 long-term sectors and 70
individual 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 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 is the amount of
ARPS outstanding, the second 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 six-month period, ARPS leverage contributed approximately $0.04
per share to common share earnings. Weekly ARPS yields ranged between 2.99
and 5.125 percent. IIM's five ARPS series totaled $155 million and
represented 26 percent of net assets.
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 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
4
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
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 (96.5%)
General Obligation (7.6%)
District of Columbia,
$5,000 Refg Ser 1993 B (AMBAC) ........................................ 5.50 % 06/01/09 $5,227,900
6,000 Refg Ser 1993 B (FSA) .......................................... 5.50 06/01/10 6,258,300
10,000 Cook County, Illinois, Ser B (FGIC) ............................. 5.50 11/15/22 10,081,600
5,000 River Rouge School District, Michigan, 1993 Bldg & Site Unltd
Tax (FSA) ..................................................... 5.625 05/01/22 5,109,300
3,000 Vicksburg Community Schools, Michigan, 1993 Refg (MBIA) ......... 5.625 05/01/20 3,049,410
6,000 Clark County Sanitation District, Nevada, Refg 1993 (FGIC) ..... 5.70 07/01/12 6,288,300
8,000 Washoe County, Nevada, Reno -Sparks Convention Ltd Tax Ser 1993
A (FGIC) ....................................................... 5.75 07/01/22 8,245,440
- ----------- --------------
43,000 44,260,250
- ----------- --------------
Educational Facilities Revenue (5.2%)
4,000 Alabama State University, General Tuition & Fee Ser 1993 (MBIA) 5.70 05/01/15 4,149,360
3,000 District of Columbia, American Association for the Advancement
of Science Ser 1997 (AMBAC) .................................... 5.125 01/01/27 2,892,870
4,000 Illinois Educational Facilities Authority, DePaul University
Refg Ser 1997 (AMBAC) .......................................... 5.50 10/01/19 4,050,600
4,000 Indiana University, Student Fee Ser J (FGIC) .................... 5.00 08/01/18 3,837,360
10,000 Wayne State University, Michigan, Ser 1993 (AMBAC) .............. 5.50 11/15/18 10,114,600
Rhode Island Health & Educational Building Corporation,
2,500 Providence College Ser 1993 (MBIA) ............................. 5.60 11/01/15 2,548,100
2,500 Providence College Ser 1993 (MBIA) ............................. 5.60 11/01/22 2,541,300
- ----------- --------------
30,000 30,134,190
- ----------- --------------
Electric Revenue (18.1%)
16,000 Redding, California, Ser 1993 A COPs (FGIC) ..................... 5.684 06/01/19 16,395,680
Massachusetts Municipal Wholesale Electric Company,
6,000 1993 Ser A (AMBAC) ............................................. 5.00 07/01/10 5,999,580
10,000 1993 Ser A (AMBAC) ............................................. 5.45 07/01/18 10,035,000
20,000 North Carolina Municipal Power Agency #1, Catawba Ser 1993
(MBIA) ........................................................ 5.60 01/01/20 20,264,200
4,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA)** ...................................................... 5.375 01/01/25 4,076,800
15,000 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) 5.50 07/01/21 15,123,600
6,000 Lower Colorado River Authority, Texas, Jr Lien Refg 4th Ser
(FSA) ......................................................... 5.625 01/01/17 6,117,420
8,000 Texas Municipal Power Agency, Refg Ser 1993 (MBIA) .............. 5.25 09/01/12 8,062,320
10,000 Washington Public Power Supply System, Nuclear Proj #1 Refg Ser
1993 A (MBIA) .................................................. 5.70 07/01/17 10,216,100
10,000 Wisconsin Public Power Incorporated, Refg Ser 1993 A (AMBAC) ... 5.25 07/01/21 9,763,500
- ----------- --------------
105,000 106,054,200
- ----------- --------------
Hospital Revenue (10.4%)
2,100 District of Columbia, Children's Hospital Refg Ser 1992 A (FGIC) 6.25 07/15/10 2,254,749
8,000 Fulton-DeKalb Hospital Authority, Georgia, Grady Memorial
Hospital Refg Ser 1993 (MBIA) .................................. 5.50 01/01/20 8,055,840
4,000 Indiana Health Facilities Financing Authority, Deaconess
Hospital Inc Refg Ser 1993 (MBIA) .............................. 5.75 03/01/15 4,117,960
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
$5,000 Kentucky Economic Development Finance Authority, St Elizabeth
Medical Center Inc Ser 1993 A (FGIC) ........................... 6.00 % 12/01/22 $5,334,400
12,000 Louisiana Public Facilities Authority, Our Lady of the Lake
Regional Medical Center Ser 1993 D & E (FSA) ................... 5.90 12/03/21 12,429,120
3,935 Maine Health & Higher Educational Facilities Authority, Ser 1993
A (FSA) ....................................................... 5.50 07/01/23 3,955,501
5,000 Massachusetts Health & Educational Facilities Authority, Lahey
Clinic Medical Center Ser B (MBIA) ............................. 5.625 07/01/15 5,104,450
5,000 Missouri Health & Educational Facilities Authority, SSM Health
Care
Ser 1998 A (MBIA)(WI) .......................................... 5.00 06/01/22 4,744,900
5,000 Washington County Hospital Authority, Pennsylvania, Washington
Hospital Ser 1993 (AMBAC) ...................................... 5.625 07/01/23 5,065,750
4,000 Chattanooga-Hamilton County Hospital Authority, Tennessee,
Erlanger Medical Center Refg Ser 1993 (FSA) .................... 5.50 10/01/13 4,097,640
5,500 Wisconsin Health & Educational Facilities Authority, Sisters of
the Sorrowful Mother Health Care Ser AA (MBIA) ................. 6.25 06/01/20 5,883,075
- ----------- --------------
59,535 61,043,385
- ----------- --------------
Industrial Development/Pollution Control Revenue (11.9%)
7,500 Adams County, Colorado, Public Service Co of Colorado Refg 1993
Ser A (MBIA) ................................................... 5.875 04/01/14 7,945,800
4,000 St Johns County Industrial Development Authority, Florida,
Professional Golf Hall of Fame Ser 1996 (MBIA) ................. 5.875 09/01/23 4,188,320
15,000 Indiana Development Finance Authority, PSI Energy Inc Ser 1993 B
(AMT)(MBIA) .................................................... 5.75 02/15/28 15,268,200
4,900 Monroe County, Michigan, Detroit Edison Co Ser CC (AMT)(MBIA) .. 6.55 06/01/24 5,308,758
5,400 Forsyth, Montana, Puget Sound Power & Light Co Ser 1993 (MBIA) . 5.875 04/01/20 5,609,304
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1990
(AMT)(MBIA) ................................................... 6.65 06/01/17 5,433,150
New York State Energy Research & Development Authority,
6,000 Brooklyn Union Gas Co Ser D-1 & 2 (AMT)(MBIA) .................. 5.635 07/08/26 6,039,840
4,000 New York State Electric & Gas Corp 1987 Ser A (AMT)(MBIA) ..... 6.15 07/01/26 4,253,000
15,000 Brazos River Authority, Texas, Texas Utilities Electric Co Ser
1993 A (AMT)(AMBAC) ............................................ 6.05 04/01/25 15,759,000
- ----------- --------------
66,800 69,805,372
- ----------- --------------
Mortgage Revenue -Multi-Family (1.5%)
8,675 West Virginia Housing Development Fund, Ser A (AMBAC) ........... 5.65 11/01/21 8,839,478
- ----------- --------------
Mortgage Revenue -Single Family (7.7%)
3,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A
(MBIA) ........................................................ 5.875 12/01/24 3,114,480
16,360 Connecticut Housing Finance Authority, 1992 Ser A-2 (AMT)
(Secondary FSA) ................................................ 6.05 11/15/25 16,866,342
1,195 Maine Housing Authority, Mortgage Purchase 1990 Ser A-6
(AMT)(Secondary MBIA) .......................................... 6.35 11/15/22 1,248,644
13,000 New Jersey Housing & Mortgage Finance Agency, Home Buyer
1990 Ser F-3 (AMT)(MBIA) ....................................... 5.95 04/01/25 13,256,620
10,000 Virginia Housing Development Authority, 1992 Ser B (AMT)
(Secondary FSA) ................................................ 6.30 01/01/27 10,399,000
- ----------- --------------
43,555 44,885,086
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Public Facilities Revenue (4.3%)
$10,000 California Public Works Board, Corrections Refg 1993 Ser A
(AMBAC) ........................................................ 5.00 % 12/01/19 $9,754,600
5,000 Florida Department of Management Services, Pool Refg Ser 1992
(AMBAC) ........................................................ 5.40 09/01/14 5,060,550
10,000 Marion County Convention & Recreational Facilities Authority,
Indiana, Excise Tax Refg Ser 1993 A (AMBAC) .................... 5.50 06/01/21 10,065,500
- ----------- --------------
25,000 24,880,650
- ----------- --------------
Student Loan Revenue (3.2%)
18,000 Pennsylvania Higher Education Assistance Agency, 1988 Ser D
(AMT)(AMBAC) ................................................... 6.05 01/01/19 18,893,520
- ----------- --------------
Transportation Facilities Revenue (5.1%)
5,000 Tucson, Arizona, Street & Highway Jr Lien Refg Ser 1993 (MBIA) .. 5.50 07/01/12 5,139,600
5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Second Lien Refg
1993 Ser A (AMT)(MBIA) ......................................... 5.60 01/01/18 5,057,750
3,000 Kentucky Turnpike Authority, Econ Dev Road Revitalization Refg
Ser 1993 (AMBAC) ............................................... 5.50 07/01/11 3,094,680
10,000 Pennsylvania Turnpike Commission, Refg Ser O 1992 (FGIC) ........ 5.50 12/01/17 10,115,000
4,000 Salt Lake City, Utah, Airport Refg Ser 1993 B (FGIC) ............ 5.875 12/01/18 4,139,400
2,000 Richmond Metropolitan Authority, Virginia, Expressway 1992 Ser B
(FGIC) ........................................................ 6.25 07/15/22 2,153,840
- ----------- --------------
29,000 29,700,270
- ----------- --------------
Water & Sewer Revenue (10.9%)
15,000 Central Lake County Joint Action Water Agency, Illinois, Refg
Ser 1993 (FGIC) ................................................ 5.375 05/01/20 14,952,000
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky,
Ser 1993 (MBIA) ................................................ 5.30 05/15/19 9,937,000
3,000 Detroit, Michigan, Sewage Refg Ser 1993 A (FGIC) ................ 5.70 07/01/13 3,128,670
15,000 Houston, Texas, Water & Sewer 1992 Ser C (MBIA) ................. 5.75 12/01/15 15,530,400
Seattle, Washington,
10,000 Sewer, Refg Ser Y (FGIC) ....................................... 5.70 01/01/15 10,321,100
5,000 Sewer, Refg Ser X (FGIC) ....................................... 5.50 01/01/16 5,049,600
5,000 West Virginia Water Development Authority, Loan Program II
Refg Ser A-11 (FSA) ............................................ 5.50 11/01/23 5,048,900
- ----------- --------------
63,000 63,967,670
- ----------- --------------
Other Revenue (2.7%)
5,000 Indianapolis, Indiana, Gas Utility Ser 1994 A (AMBAC) ........... 5.875 06/01/24 5,220,250
10,000 Rhode Island Depositors Economic Protection Corporation, Refg
1992 Ser B (MBIA) .............................................. 6.00 08/01/17 10,805,800
- ----------- --------------
15,000 16,026,050
- ----------- --------------
Refunded (7.9%)
13,000 Regional Transportation Authority, Illinois, Ser 1993 B (FGIC) . 5.85 06/01/03+ 14,068,990
5,000 Cedar Rapids, Iowa, St Lukes-Methodist Hospital Refg Ser 1993
(FGIC) ........................................................ 5.75 08/15/03+ 5,387,250
6,065 Maine Health & Higher Educational Facilities Authority, Ser 1993
A (FSA)(ETM) .................................................. 5.50 07/01/23 6,203,949
5,000 Allegheny County Hospital Development Authority, Pennsylvania,
Pittsburgh Mercy Health Ser 1996 (AMBAC)(ETM) .................. 5.625 08/15/18 5,276,950
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
$4,360 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA)(ETM)** .................................................. 5.375% 01/01/25 $4,511,379
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 5,257,550
5,000 Loudoun County Sanitation Authority, Virginia, Refg Ser 1992
(FGIC) ........................................................ 6.25 01/01/03+ 5,392,800
- ----------- --------------
43,425 46,098,868
- ----------- --------------
549,990 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $539,713,826) ..................... 564,588,989
- ----------- --------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.6%)
5,500 Chattanooga-Hamilton County Hospital Authority, Tennessee,
Erlanger Medical Center Ser 1987 (Demand 05/01/98) ............. 4.25 * 10/01/17 5,500,000
9,800 Metropolitan Nashville Airport Authority, Tennessee, American
Airlines Inc Refg Ser 1995 A (Demand 05/01/98) ................. 4.25 * 10/01/12 9,800,000
- ----------- --------------
15,300 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- -----------
(Identified Cost $15,300,000) ........................................................ 15,300,000
--------------
$565,290 TOTAL INVESTMENTS (Identified Cost $555,013,826)(a) ......................99.1% 579,888,989
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ...........................0.9 5,468,152
--------------
NET ASSETS ...............................................................100.0% $585,357,141
=========== ==============
</TABLE>
- -----------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Security purchased on a "when-issued" basis.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
** Some or all of these securities are segregated in connection with
the purchase of "when-issued" securities.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$24,908,013 and the aggregate gross unrealized depreciation is
$32,850, resulting in net unrealized appreciation of $24,875,163.
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
8
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
- -----------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Alabama 0.7%
Alaska 0.5
Arizona 0.9
California 4.5
Colorado 1.4
Connecticut 2.9
District of Columbia 2.8
Florida 1.6
Georgia 1.4
Illinois 8.2
Indiana 6.6
Iowa 0.9
Kentucky 3.1%
Louisiana 2.1
Maine 1.9
Massachusetts 3.6
Michigan 4.6
Missouri 0.8
Montana 1.0
Nevada 3.4
New Jersey 2.3
New York 1.8
North Carolina 3.5
Pennsylvania 5.8
Rhode Island 2.7%
South Carolina 4.0
Tennessee 4.2
Texas 7.8
Utah 0.7
Virginia 3.1
Washington 5.2
West Virginia 2.4
Wisconsin 2.7
------
Total 99.1%
======
</TABLE>
- -----------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $555,013,826)........................................ $579,888,989
Cash................................................................... 721,520
Interest receivable.................................................... 10,063,822
Prepaid expenses ...................................................... 131,769
--------------
TOTAL ASSETS ........................................................ 590,806,100
--------------
LIABILITIES:
Payable for:
Investments purchased................................................ 4,777,750
Dividends to preferred shareholders.................................. 300,307
Investment management fee............................................ 193,335
Common shares of beneficial interest repurchased..................... 93,210
Accrued expenses ...................................................... 84,357
--------------
TOTAL LIABILITIES ................................................... 5,448,959
--------------
NET ASSETS .......................................................... $585,357,141
==============
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, 28,944,813 shares outstanding)........................ 415,374,167
Net unrealized appreciation ........................................... 24,875,163
Accumulated undistributed net investment income........................ 3,878,673
Accumulated net realized loss.......................................... (13,770,862)
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................ 430,357,141
--------------
TOTAL NET ASSETS .................................................... $585,357,141
==============
NET ASSET VALUE PER COMMON SHARE
($430,357,141 divided by 28,944,813 common shares outstanding) ....... $ 14.87
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $16,057,131
-------------
EXPENSES
Investment management fee.............. 1,034,342
Auction commission fees................ 251,108
Transfer agent fees and expenses ...... 78,214
Professional fees ..................... 45,495
Auction agent fees..................... 19,634
Shareholder reports and notices ...... 16,735
Registration fees ..................... 16,529
Custodian fees......................... 13,800
Trustees' fees and expenses............ 8,436
Organizational expenses ............... 2,324
Other.................................. 21,470
-------------
TOTAL EXPENSES ...................... 1,508,087
Less: expense offset .................. (13,722)
-------------
NET EXPENSES ........................ 1,494,365
-------------
NET INVESTMENT INCOME ............... 14,562,766
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain...................... 1,211,387
Net change in unrealized appreciation 2,895,454
-------------
NET GAIN ............................ 4,106,841
-------------
NET INCREASE .......................... $18,669,607
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
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 ............................ $ 14,562,766 $ 30,175,414
Net realized gain................................. 1,211,387 228,854
Net change in unrealized appreciation............. 2,895,454 21,025,515
-------------- ----------------
NET INCREASE ................................... 18,669,607 51,429,783
-------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ........................................ (2,850,482) (5,619,615)
Common............................................ (11,438,041) (23,735,459)
-------------- ----------------
TOTAL .......................................... (14,288,523) (29,355,074)
-------------- ----------------
Decrease from transactions in common shares of
beneficial interest.............................. (8,752,385) (23,362,060)
-------------- ----------------
NET DECREASE ................................... (4,371,301) (1,287,351)
NET ASSETS:
Beginning of period............................... 589,728,442 591,015,793
-------------- ----------------
END OF PERIOD
(Including undistributed net investment income
of $3,878,673 and $3,604,430, respectively) .... $585,357,141 $589,728,442
============== ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited)
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
13
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) 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 were deferred and fully amortized as of February 26, 1998.
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 six months ended April 30, 1998
aggregated $4,777,750 and $22,592,667, respectively.
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 $2,500.
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
14
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
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 $2,343. At April 30, 1998, the Trust had an accrued pension
liability of $31,941 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 3.85% 05/04/98 2.99% - 5.125%
2 900 45,000 3.80 09/08/98 3.80
3 1,000 50,000 3.84 07/13/98 3.84
4 400 20,000 4.40 05/04/98 3.30 - 5.125
5 400 20,000 3.69 05/04/98 3.32 - 5.00
</TABLE>
- ------------
* As of April 30, 1998.
** For the six months ended April 30, 1998.
Subsequent to April 30, 1998 and up through June 5, 1998, the Trust paid
dividends to each of the Series 1 through 5 at rates ranging from 3.645% to
4.40%, respectively, in the aggregate amount of
$826,374.
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.
15
<PAGE>
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) continued
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.
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 ................................................ 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
Treasury shares purchased and retired (weighted average discount 8.72%)* (638,700) (6,387) (8,745,998)
------------- ----------- --------------
Balance, April 30, 1998 .................................................. 28,944,813 $289,448 $415,084,719
============= =========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Trust had a net capital loss carryover of
approximately $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 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>
$0.065 May 8, 1998 May 22, 1998
$0.065 June 5, 1998 June 19, 1998
</TABLE>
16
<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 SIX
MONTHS ENDED FOR THE YEAR ENDED OCTOBER 31**
APRIL 30, 1998**
-----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ---------------------------------------------------- ---------------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................ $ 14.69 $13.86 $ 13.69 $11.41 $ 14.95
---------------- ---------- ---------- ---------- ----------
Net investment income ............................... 0.50 1.00 0.97 0.96 1.10
Net realized and unrealized gain (loss) ............. 0.14 0.70 (0.01) 2.22 (3.53)
---------------- ---------- ---------- ---------- ----------
Total from investment operations .................... 0.64 1.70 0.96 3.18 (2.43)
---------------- ---------- ---------- ---------- ----------
Less dividends from:
Net investment income .............................. (0.39) (0.78) (0.75) (0.80) (0.90)
Common share equivalent of dividends paid to
preferred shareholders ............................ (0.10) (0.19) (0.17) (0.16) (0.21)
---------------- ---------- ---------- ---------- ----------
Total dividends ..................................... (0.49) (0.97) (0.92) (0.96) (1.11)
---------------- ---------- ---------- ---------- ----------
Anti-dilutive effect of acquiring treasury shares .. 0.03 0.10 0.13 0.06 0.01
---------------- ---------- ---------- ---------- ----------
Offering costs charged against capital .............. -- -- -- -- (0.01)
---------------- ---------- ---------- ---------- ----------
Net asset value, end of period ...................... $ 14.87 $14.69 $ 13.86 $13.69 $ 11.41
================ ========== ========== ========== ==========
Market value, end of period ......................... $13.375 $13.25 $11.625 $11.50 $10.375
================ ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ............................ 3.82% (1) 21.21% 7.81% 19.11% (25.81)%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ...................................... 0.69%(2)(3) 0.68%(3) 0.68%(3) 0.71%(3) 0.80 %
Net investment income before preferred stock
dividends .......................................... 6.66%(2) 7.04% 7.06% 7.51% 8.23 %
Preferred stock dividends ........................... 1.30%(2) 1.31% 1.25% 1.38% 1.55 %
Net investment income available to common
shareholders ....................................... 5.36%(2) 5.73% 5.81% 6.13% 6.68 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............. $585,357 $589,728 $591,016 $612,839 $592,759
Asset coverage on preferred shares at end of period 377% 380% 381% 395% 304 %
Portfolio turnover rate ............................. 1%(1) 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
17
<PAGE>
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<PAGE>
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<PAGE>
Trustees
Michael Bozic
Charles A. Fiumefreddo INTERCAPITAL
Edwin J. Garn INSURED
John R. Haire MUNICIPAL
Wayne E. Hedien INCOME
Dr. Manuel H. Johnson TRUST
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 therein.
Semiannual Report
April 30, 1998
