<PAGE> 1
INTERCAPITAL INSURED MUNICIPAL SECURITIES
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
Strong economic growth in the fourth quarter of 1993 and a shift in Federal
Reserve Board monetary policy in February of 1994 caused the fixed-income
markets to reverse direction and led to the sharpest increase in interest rates
in more than six years. At the beginning of the year, market concerns about
inflation developed as the economy approached full employment and commodity
prices moved upward. The Federal Reserve Board responded by tightening monetary
policy. Since early February, the central bank has raised the federal-funds
rate -- the interest rate banks charge each other for overnight loans -- 250
basis points from 3.00 percent to 5.50 percent in six separate moves through
November. Between May and November, the discount rate -- the interest rate the
Federal Reserve charges member banks for loans -- increased 175 basis points to
4.75 percent.
During InterCapital Insured Municipal Securities' (NYSE symbol: IMS) fiscal
year ended October 31, 1994, long-term municipal bond yields, as measured by
The Bond Buyer Revenue Bond Index,(*) rose 139 basis points from 5.56 percent
to 6.95 percent. In February and March yields jumped 89 basis points from
5.50 percent to 6.39 percent in response to the Federal Reserve Board's initial
tightening and subsequent municipal bond selling pressure. A semblance of
stability returned to the market between June and August. After Labor Day,
however, continued economic growth, aggressive tax-loss selling, heavy
mutual-fund redemptions and excessive dealer inventory led to further municipal
market deterioration. The total yield increase of 139 basis points during the
fiscal year was equivalent to a 17 percent price decline for a 30-year
municipal bond. One-third of this price decline occurred in September and
October.
The municipal market was also influenced by supply and demand conditions.
New-issue underwriting totaled a record $290 billion in 1993. The pace of
new-issue activity over the first 10 months of 1994, however, slowed 44 percent.
The estimated issuance for 1994 is $160 billion. By way of comparison, bond
maturities and calls for redemption are expected to reach $190 billion this year
resulting in a reduction in the amount of municipal debt outstanding. This
scarcity would normally be expected to improve the relative performance of
municipal bonds under stable-to-improving interest rate conditions.
PERFORMANCE
Since its inception on February 28, 1994, through October 31, 1994, the
Trust's net asset value (NAV), adjusted for offering costs, declined from $14.02
to $13.20 per share. Based on this change and reinvestment of tax-free dividends
totaling $0.375 per share, the Trust's total return since inception was -3.24
percent. Concurrently, the Trust's market price on the New York Exchange
declined from $15.00 to $11.125 per share. Based on this market change and
reinvestment of dividends, the Trust's total return since inception was -23.56
percent. At inception, the Trust was trading at a 7.0 percent premium to NAV and
closed at a 15.72 percent discount on October 31, 1994. Undistributed net
investment income of $0.058 per share was available on October 31, 1994 to help
sustain the Trust's current dividend.
PORTFOLIO STRUCTURE
As of October 31, 1994, the portfolio's long-term investments were
diversified among 10 municipal sectors and 36 credits. The three largest sectors
were electric revenue, transportation revenue, and general
- ---------------
(*) The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of
25 selected municipal revenue bonds with 30-year maturities. Credit ratings
of these bonds range from Aa1 to Baa1 by Moody's and AA+ to A- by Standard &
Poor's.
<PAGE> 2
obligation bonds, representing 57 percent of net assets. The average maturity
and call protection of the Trust's long-term holdings was 26 years and 10 years,
respectively. Bonds subject to the alternative minimum tax (AMT) represented
approximately 15 percent of net assets. At the end of the period, the Trust had
net assets in excess of $132 million.
Each position in the portfolio was backed either by bond insurers that are
rated Aaa by Moody's Investors Service, Inc. and/or AAA by Standard & Poor's
Corp. This is to ensure the timely payment of principal and interest. As of
October 31, 1994, the distribution of long-term credit enhancements was:
<TABLE>
<CAPTION>
Municipal Bond Insurance Percent
------------------------------------------------------------------------ ---
<S> <C>
AMBAC Indemnity Corporation (AMBAC)..................................... 29%
Connie Lee Insurance Company (Connie Lee)............................... 2
Financial Guaranty Insurance Company (FGIC)............................. 20
Municipal Bond Investors Assurance Corporation (MBIA)................... 49
</TABLE>
On December 6, 1994, Orange County, California filed for protection under
federal bankruptcy law as the result of market losses in its pooled investment
fund. Only one of the Trust's holdings representing 3.0 percent of net assets
has been identified as a possible participant in the pool. This triple-A rated
bond is insured by MBIA as to principal and interest in the event that the
issuer experiences difficulty in meeting debt service payments.
LEVERAGING POSTPONED
Proceeds from the Trust's common stock offering were invested over a
four-month period through June 1994. Under normal market conditions the Trust
would have issued Auction Rate Preferred Shares (ARPS) in April and become fully
invested within two months. However, the preferred offering was canceled because
of the volatile market environment. The institution of a leveraged portfolio
structure will be reviewed in the future.
LOOKING AHEAD
The overall direction of interest rates will primarily be determined by the
strength of the economy, the trend of inflation and the Federal Reserve Board's
responses. These conditions may continue to move interest rates higher through
mid-1995. Investor demand for municipal securities should be sustained by
significant bond maturities, calls for redemption and diminished new-issue
supply.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is by purchase in the open market. This method helps to support
the market value of the Trust's shares. In addition, the Trustees have approved
a procedure whereby the Trust, when appropriate, purchases shares in the open
market or in privately negotiated transactions at a price not above market value
or net asset value, whichever is lower at the time of purchase. Over the fiscal
year, the Trust purchased 306,800 shares of common stock at a weighted average
discount of 13.83 percent.
We appreciate your ongoing support of InterCapital Insured Municipal
Securities Trust and look forward to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------ --------- -------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (96.8%)
GENERAL OBLIGATION (13.3%)
$ 3,920 Kodiak Island Borough, Alaska, Ser 1994 A (AMBAC
Insured)............................................. 5.50 % 2/15/14 $ 3,380,098
5,000 Moulton Niguel Water District, California, 1993 Refg
(MBIA Insured)....................................... 5.00 9/ 1/19 3,873,100
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC Insured)..... 5.125 1/ 1/22 2,331,930
8,860 Washoe County School District, Nevada, Ltd Tax School
Bldg Ser 4/1/94 A (MBIA Insured)..................... 5.75 6/ 1/13 7,963,191
--------- -------------
20,780 17,548,319
--------- -------------
EDUCATIONAL FACILITIES REVENUE (6.3%)
2,000 Chicago State University, Illinois, Ser 1994 (MBIA
Insured)............................................. 6.15 12/ 1/23 1,828,900
2,350 New York State Dormitory Authority, Fordham University
Ser 1994 (FGIC Insured).............................. 5.50 7/ 1/23 1,987,184
2,000 Rhode Island Health & Educational Building Corporation,
Providence College Ser 1993 (MBIA Insured)........... 5.60 11/ 1/22 1,660,360
3,000 Wisconsin Health & Educational Facilities Authority,
Marquette University Ser 1994 (FGIC Insured)......... 6.45 12/ 1/19 2,826,150
--------- -------------
9,350 8,302,594
--------- -------------
ELECTRIC REVENUE (23.8%)
4,000 Anchorage, Alaska, Electric Refg Ser 1993 (MBIA
Insured)............................................. 6.20 12/ 1/13 3,810,760
5,000 Sacramento Municipal Utility District, California, Refg
1994 Ser I (MBIA Insured)............................ 6.00 1/ 1/24 4,529,850
3,000 Municipal Electric Authority of Georgia, Power Ser EE
(AMBAC Insured)...................................... 6.00 1/ 1/22 2,724,600
6,000 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC
Insured)............................................. 6.375 9/ 1/23 5,796,240
5,000 Piedmont Municipal Power Agency, South Carolina, Refg
Ser 1993 (MBIA Insured).............................. 5.375 1/ 1/25 4,026,350
4,730 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC
Insured)............................................. 5.25 7/ 1/18 3,806,657
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC Insured)...... 5.25 6/ 1/25 3,954,200
3,000 Tacoma, Washington, Electric Refg 1994 (FGIC
Insured)............................................. 6.25 1/ 1/15 2,835,600
--------- -------------
35,730 31,484,257
--------- -------------
HOSPITAL REVENUE (11.8%)
3,000 Morgan County Health Care Authority, Alabama, Decatur
General Hospital Ser 1994 (Connie Lee Insured)....... 6.375 3/ 1/24 2,802,570
4,000 California Statewide Communities Development Authority,
Sharp Health Care Obligated Group COPs (MBIA
Insured)............................................. 6.00 8/15/24 3,621,280
3,000 Volusia County Health Facilities Authority, Florida,
Memorial Health Refg & Impr Ser 1994 (AMBAC
Insured)............................................. 5.75 11/15/20 2,634,270
1,500 Illinois Health Facilities Authority, University of
Chicago Hospital Ser 1994 (MBIA Insured)............. 6.125 8/15/22 1,356,990
</TABLE>
<PAGE> 4
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------ --------- -------------
<C> <S> <C> <C> <C>
$ 3,105 Massachusetts Health & Educational Facilities
Authority, Lahey Clinic Medical Center Ser B (MBIA
Insured)............................................. 5.375% 7/ 1/23 $ 2,496,948
3,000 New Hampshire Higher Educational & Health Facilities
Authority, The Hitchcock Clinic Ser 1994 (MBIA
Insured)............................................. 6.00 7/ 1/24 2,669,190
--------- -------------
17,605 15,581,248
--------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (5.0%)
5,550 Hawaii Department Budget & Finance, Hawaiian
Electric Co Inc Ser 1992 (AMT) (MBIA Insured)........ 6.55 12/ 1/22 5,369,903
1,500 Pennsylvania Industrial Development Authority, Ser 1994
(AMBAC Insured)...................................... 5.50 1/ 1/14 1,295,475
--------- -------------
7,050 6,665,378
--------- -------------
MORTGAGE REVENUE - MULTI-FAMILY (2.2%)
3,000 Los Angeles Community Redevelopment Agency, California,
--------- Refg Ser 1994 A (AMBAC Insured)...................... 6.55 1/ 1/27 2,857,140
-------------
PUBLIC FACILITIES REVENUE (2.1%)
1,000 Hillsborough County School Board, Florida, Ser 1994
COPs (MBIA Insured).................................. 6.00 7/ 1/14 947,980
2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC
Insured)............................................. 6.00 12/ 1/13 1,878,880
--------- -------------
3,000 2,826,860
--------- -------------
TRANSPORTATION FACILITIES REVENUE (20.2%)
5,225 San Francisco Airports Commission, San Francisco Intl
Airport Second Ser Refg Issue (MBIA Insured)......... 6.75 5/ 1/20 5,240,518
3,000 Atlanta, Georgia, Airport
Ser 1994 B (AMT) (AMBAC Insured)..................... 6.00 1/ 1/21 2,648,310
2,875 Hawaii Airports System, Third Refg Ser of 1994 (AMT)
(AMBAC Insured)...................................... 5.75 7/ 1/09 2,680,391
Chicago Midway Airport, Illinois,
3,000 1994 Ser A (AMT) (MBIA Insured)...................... 6.25 1/ 1/14 2,812,080
6,665 1994 Ser A (AMT) (MBIA Insured)...................... 6.25 1/ 1/24 6,107,405
5,000 Regional Transportation Authority, Illinois, Ser 1994 A
(AMBAC Insured)...................................... 6.25 6/ 1/24 4,606,500
3,000 Pennsylvania Turnpike Commission, Oil Franchise Tax
Ser A of 1994 (AMBAC Insured)........................ 6.00 12/ 1/19 2,766,750
--------- -------------
28,765 26,861,954
--------- -------------
WATER & SEWER REVENUE (7.0%)
5,000 Central Coast Water Authority, California, Ser 1992
(AMBAC Insured)...................................... 6.60 10/ 1/22 4,943,050
5,000 Los Angeles, California, Wastewater Refg Ser 1993 A
(MBIA Insured)....................................... 5.70 6/ 1/20 4,315,250
--------- -------------
10,000 9,258,300
--------- -------------
</TABLE>
<PAGE> 5
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------ --------- -------------
<C> <S> <C> <C> <C>
OTHER REVENUE (5.1%)
Indianapolis, Indiana, Gas Utility,
$ 3,000 Refg Ser 1993 A (FGIC Insured)......................... 5.375% 6/ 1/21 $ 2,433,450
5,000 Refg Ser 1994 A (FGIC Insured)......................... 5.875 6/ 1/24 4,339,700
--------- -------------
8,000 6,773,150
--------- -------------
143,280 TOTAL MUNICIPAL BONDS (IDENTIFIED COST $137,585,816)........................ 128,159,200
--------- -------------
SHORT-TERM MUNICIPAL OBLIGATION (0.8%)
1,100 Schuylkill County Industrial Development Authority,
--------- Pennsylvania, Northeastern Power Co Ser 1985
(Tender 11/1/94) (Identified Cost $1,100,000)........ 3.70* 12/ 1/11 1,100,000
-------------
$ 144,380 TOTAL INVESTMENTS (IDENTIFIED COST $138,685,816)(a)...........
======== 97.6% 129,259,200
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES................ 2.4 3,117,847
----- -------------
NET ASSETS.................................................... 100.0% $ 132,377,047
===== =============
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Variable or floating rate security. Coupon rate shown reflects current
rate.
(a) The aggregate cost for federal income tax purposes is $138,685,816; the
aggregate gross and net unrealized depreciation is $9,426,616.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Alabama............ 2.1%
Alaska............. 5.4
California......... 22.2
Florida............ 2.7
Georgia............ 4.1
Hawaii............. 6.1
Illinois........... 14.4%
Indiana............ 5.1
Kansas............. 4.4
Massachusetts...... 1.9
Michigan........... 1.4
Nevada............. 6.0
New Hampshire...... 2.0%
New York........... 1.5
Pennsylvania....... 3.9
Rhode Island....... 1.3
South Carolina..... 3.0
Utah............... 2.9
Virginia........... 3.0%
Washington......... 2.1
Wisconsin.......... 2.1
----
Total.............. 97.6%
====
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 6
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994
- -----------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $138,685,816)
(Note 1)............................... $ 129,259,200
Cash..................................... 143,823
Interest receivable...................... 3,276,833
Deferred organizational expenses
(Note 1)............................... 38,095
Prepaid expenses......................... 5,411
-------------
TOTAL ASSETS..................... 132,723,362
-------------
LIABILITIES:
Payable for:
Common shares of beneficial interest
purchased............................ 250,504
Investment management fee (Note 2)..... 40,546
Accrued expenses (Note 3)................ 55,265
-------------
TOTAL LIABILITIES................ 346,315
-------------
NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of non-
participating $.01 par value, none
issued) (Note 4)....................... --
-------------
Common shares of beneficial interest
(unlimited shares authorized of $.01
par value, 10,025,313 shares
outstanding) (Note 5).................. 141,218,073
Unrealized depreciation on investments... (9,426,616)
Accumulated undistributed net investment
income................................. 585,590
-------------
TOTAL NET ASSETS................. $ 132,377,047
=============
NET ASSET VALUE PER COMMON SHARE,
($132,377,047 divided by 10,025,313
common shares outstanding)............. $13.20
======
STATEMENT OF OPERATIONS For the period
February 28, 1994 through October 31,
1994 (Note 1)
- -----------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................ $ 4,915,657
----------
EXPENSES
Investment management fee (Note 2)... 331,312
Professional fees.................... 56,849
Transfer agent fees and expenses
(Note 3)........................... 31,909
Shareholder reports and notices...... 25,626
Registration fees.................... 11,655
Trustees' fees and expenses.......... 11,368
Organizational expenses (Note 1)..... 5,905
Other................................ 4,092
----------
TOTAL EXPENSES................... 478,716
----------
NET INVESTMENT INCOME.......... 4,436,941
----------
UNREALIZED LOSS ON INVESTMENTS (Note 1).. (9,426,616)
----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $(4,989,675)
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
period
February 28,
1994
through
October 31,
1994 (Note 1)
-------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................................... $ 4,436,941
Unrealized depreciation on investments.................................................. (9,426,616)
-------------
Net decrease in net assets resulting from operations.................................. (4,989,675)
Dividends to common shareholders from net investment income............................... (3,851,351)
Net increase from transactions in common shares of beneficial interest (Note 5)........... 141,118,064
-------------
Total increase........................................................................ 132,277,038
NET ASSETS:
Beginning of period....................................................................... 100,009
-------------
END OF PERIOD (including undistributed net investment income of $585,590)................. $ 132,377,047
=============
</TABLE>
See Notes to Financial Statements
<PAGE> 7
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- InterCapital Insured Municipal
Securities (the "Trust") is registered under the Investment Company Act of 1940,
as amended, as a diversified, closed-end management investment company. The
Trust was organized as a Massachusetts business trust on October 14, 1993 and
had no operations other than those relating to organizational matters and the
issuance of 7,113 common shares of beneficial interest to Dean Witter
InterCapital Inc. (the "Investment Manager") for $100,009. The Trust commenced
operations on February 28, 1994.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- Portfolio securities are valued for the
Trust by an outside independent pricing service approved by the Trustees.
The pricing service has informed the Trust that in valuing the Trust's
portfolio securities, it uses both a computerized matrix of tax-exempt
securities and evaluations by its staff, in each case based on information
concerning market transactions and quotations from dealers which reflect
the bid side of the market each day. The Trust's portfolio securities are
thus valued by reference to a combination of transactions and quotations
for the same or other securities believed to be comparable in quality,
coupon, maturity, type of issue, call provisions, trading characteristics
and other features deemed to be relevant. Short-term debt securities having
a maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost. 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 on the identified cost
method. The Trust amortizes premiums and discounts on securities purchased
over the life of the respective securities. Interest income is accrued
daily.
C. Federal Income Tax Status -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
D. Dividends and Distributions to Shareholders -- The Trust records
dividends and distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; 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 and Offering Expenses -- The Investment Manager paid the
organizational and offering expenses of the Trust's common shares in the
amounts of approximately $44,000 and
<PAGE> 8
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
$416,300, respectively. The organizational expenses have been reimbursed by
the Trust for the full amount thereof. Such expenses are being amortized by
the straight-line method over a period not to exceed five years from the
commencement of operations. Offering expenses have been reimbursed by the
Trust and were charged to capital at the time of issuance of the Trust's
shares.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement, the Trust pays its Investment Manager a management fee, calculated
weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's
average weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
Investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities, excluding short-term
investments, for the period February 28, 1994 (commencement of operations)
through October 31, 1994 aggregated $137,559,814 and $-0-, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1994, the Trust had transfer agent fees
and expenses payable of approximately $4,100.
Dean Witter Distributors Inc., the Trust's principal underwriter and an
affiliate of the Investment Manager, has informed the Trust that it received
approximately $9,471,000 in underwriting discounts and commissions in connection
with the initial offering of the Trust's common shares.
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 the approval of the common shareholders. The preferred
shares have a liquidation value of $50,000 per share plus the redemption
premium, if any, plus accumulated but unpaid dividends (whether or not declared)
thereon to the date of distribution. The Trust may redeem such shares, in whole
or in part, at the original purchase price of $50,000 per share plus accumulated
but unpaid dividends (whether or not declared) thereon to the date of
redemption.
Upon issuance, the Trust will be 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 will be entitled to one vote per share, will
generally vote with the common shares but will vote separately as a class to
elect two Trustees and on any matters affecting the rights of the preferred
shares.
<PAGE> 9
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS (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 (Note 1).................................. 7,113 $ 71 $ 99,938
Shares issued at close of public offering on
February 28, 1994*.............................. 9,500,000 95,000 133,058,710
Shares issued on April 7, 1994 to cover
over-allotment.................................. 825,000 8,250 11,591,250
Treasury shares purchased and retired (weighted
average discount 13.83%)**...................... (306,800) (3,068) (3,632,078)
----------- --------- -------------
Balance, October 31, 1994......................... 10,025,313 $ 100,253 $ 141,117,820
========== ========= =============
</TABLE>
- ---------------
* Net of offering costs of $416,290.
** The Trustees have voted to retire the shares purchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS -- The Trust has declared the following
dividends from net investment income:
<TABLE>
<CAPTION>
Amount
Declaration Date per Share Record Date Payable Date
- ------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C>
November 1, 1994 $ 0.0625 November 11, 1994 November 25, 1994
November 24, 1994 $ 0.0625 December 9, 1994 December 23, 1994
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
Quarters Ended*
--------------------------------------------------------------------
10/31/94 7/31/94 4/30/94**
-------------------- ------------------ --------------------
Per Per Per
Total Share Total Share Total Share
-------- ------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Total investment income....... $ 2,208 $ 0.22 $ 2,002 $ 0.20 $ 705 $ 0.07
Net investment income......... 2,035 0.20 1,821 0.18 581 0.06
Net unrealized gain (loss) on
investments................. (9,838) (0.92) 2,422 0.24 (2,011) (0.20)
</TABLE>
- ---------------
* Totals expressed in thousands of dollars.
** For the period February 28, 1994 (commencement of operations) through April
30, 1994.
<PAGE> 10
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
For the
period
February
28, 1994*
through
October
31,
1994**
---------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................... $14.06
---------
Net investment income.................................................... 0.44
Net unrealized loss on investments....................................... (0.88)
---------
Total from investment operations......................................... (0.44)
---------
Less dividends and other charges:
Dividends from net investment income................................... (0.38)
Offering costs charged against capital................................. (0.04)
---------
Total dividends and other charges........................................ (0.42)
---------
Net asset value, end of period........................................... $13.20
=========
Market value, end of period.............................................. $11.125
=========
TOTAL INVESTMENT RETURN+................................................. (23.56)%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................................. $132,377
Ratios to average net assets:
Total expenses......................................................... 0.51%(2)
Net investment income.................................................. 4.69%(2)
Portfolio turnover rate.................................................. 0%(1)
</TABLE>
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* 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 the period reported. Dividends and distributions, if any, are assumed
to be reinvested at the prices obtained under the Trust's dividend
reinvestment plan. Total investment return does not reflect sales charges or
brokerage commissions.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE> 11
INTERCAPITAL INSURED MUNICIPAL SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders and Trustees of InterCapital Insured Municipal Securities
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
Securities (the "Trust") at October 31, 1994, and the results of its operations,
the changes in its net assets and the financial highlights for the period
February 28, 1994 (commencement of operations) through October 31, 1994, 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 audit. We conducted our audit 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 audit, which included confirmation of securities owned at
October 31, 1994 by correspondence with the custodian, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 12, 1994
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1994 FEDERAL TAX NOTICE (unaudited)
During the period ended October 31, 1994, the Trust paid to the common
shareholders $0.375 per share from net investment income. All of the
Trust's dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax purposes.
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<PAGE> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
INSURED
MUNICIPAL
SECURITIES
Annual Report
October 31, 1994
