<PAGE> 1
Two World Trade Center, New York, New York 10048
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1995
DEAR SHAREHOLDER:
Bonds have rallied significantly since late last year. Progressive tightening of
monetary policy by the Federal Reserve Board over the 12 months through February
1995 led to slower economic growth and caused bonds to advance. The trend toward
lower long-term interest rates this year was also aided in July by a 25 basis
point reduction in the federal-funds rate (the interest rate banks charge each
other for overnight loans).
MUNICIPAL MARKET CONDITIONS
Long-term municipal bond yields declined from a high of 7.37 percent in November
1994 to 6.02 percent at the end of October 1995, as tracked by The Bond Buyer
Revenue Bond Index*. This 135 basis point decline in yield corresponded to an 11
percent price increase for callable municipal bonds with 30-year maturities.
Similarly, yields on 1-year municipal notes moved from 4.51 percent to 3.82
percent. The yield pickup for extending maturity from 1-to 30- years was 220
basis points.
Tax-exempt bonds began the year by outperforming U.S. Treasury bonds, but then
deteriorated on a relative basis. The ratio of the Revenue Bond Index yield to
the 30-year U.S. Treasury bond yield moved from 89 percent in December 1994 to
84 percent by the end of February 1995. A declining ratio means that municipal
bond prices have been stronger than U.S. Treasury prices. In the spring the
municipal market began to discount the risk of comprehensive changes in the tax
code created by flat tax rhetoric from Washington. This caused the yield ratio
to reach a high of 95 percent during the summer. Over the past 10 years, long
municipal yields have averaged 89 percent of U.S. Treasury yields.
- ---------------
*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 Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
The municipal market continued to experience consolidation in 1995. Municipal
underwriting in the first 10 months of the year was down 16 percent from the
same period in 1994. This change followed a 44 percent drop in volume for all of
1994. The effect of lower volume and profitability was also apparent in the
decisions of several major dealers to withdraw from the municipal business.
TAX REFORM
Flat-tax advocates have generated increased publicity for their proposals and
have affected the municipal market since early 1995. Most of the discussion on
proposed tax-reform measures is based on theoretical concepts, containing broad
assumptions and lacking specific details. Basically, the various plans raise
questions about the fairness of changing from a progressive to a regressive tax
structure. Low flat-tax rate plans call for the elimination of deductions of
mortgage interest, charitable contributions, property taxes, and state and local
income taxes. Should politicians make tax reform a central issue in the 1996
elections, media coverage will expand from the financial page to the front page.
If that happens, municipal bonds could come under further pressure. For example,
when major tax reform turmoil occurred in 1986, municipal yields briefly
exceeded taxable yields.
In addition to the market risk associated with the flat-tax proposals, municipal
credits would also be negatively affected. If mortgage interest and property tax
deductions were eliminated, municipalities would experience a decline in their
property tax base. The loss of state and local income tax deductions would
increase the relative economic disadvantage that high-tax states already face.
The flat tax represents a shift in tax accountability from the federal to local
governments. Taxpayer recognition of the extent of changes under consideration
may impede the passage of comprehensive tax reform.
FUND PERFORMANCE
The net asset value (NAV) of InterCapital Insured Municipal Securities (IMS)
rose from $13.20 to $14.91 per share during the fiscal year ended October 31,
1995. Based on this NAV change plus reinvestment of tax-free dividends totaling
$0.75 per share, the Trust's total return was 20.05 percent. Over the same
period, IMS's market price on the New York Stock Exchange appreciated 13.5
percent from $11.125 to $12.625 per share. Based on this market price change and
reinvestment of tax-free dividends, the Trust's total return was 20.61 percent.
IMS began the fiscal year trading at a 16 percent discount to NAV and closed at
a 15 percent discount. Undistributed net investment income totaled $0.099 per
share on October 31, 1995 versus $0.058 per share a year ago. Since the amount
of IMS's undistributed net investment income continued to increase during the
year, the Trustees voted to raise
<PAGE> 3
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
the monthly dividend from $0.0625 to $0.0675 per share beginning with the
November 1995 payment. This revised dividend rate more accurately reflects the
Trust's current earnings.
PORTFOLIO STRUCTURE
On October 31, 1995, IMS's long-term portfolio was diversified among 9 specific
long-term municipal sectors and 36 credits. The three largest
sectors -- electric, transportation facilities revenue and general obligation
bonds -- represented 57 percent of the portfolio. The average maturity and call
protection of the Trust's long-term holdings were 25 and 9 years, respectively.
Net assets exceeded $141 million.
Each position in the portfolio was backed by triple "A" rated bond insurers.
This is to ensure the timely payment of principal and interest. The distribution
of credit enhancements is illustrated on the right.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1995
(% OF TOTAL LONG-TERM INVESTMENTS)
MBIA 49%
AMBAC 34%
FGIC 15%
CONNIE LEE 2%
LOOKING AHEAD
The slower pace of economic growth in 1995 and the Federal Reserve Board's
previous interest rate moves have improved bond-market expectations. The
decreasing supply of new issues, combined with significant maturities and calls
for redemption, should continue to be positive for the municipal market.
However, tax-reduction proposals are likely to continue to receive publicity and
may cloud the outlook for tax-exempt bonds. With long-term municipal securities
yielding more than 90 percent of the yield on U.S. Treasuries, the market has
already begun the process of discounting the risk that a flat tax might
eventually become law.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust, when
appropriate, may purchase shares in the open market or in privately negotiated
transactions at a
<PAGE> 4
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
price not above market value or net asset value, whichever is lower at the time
of purchase. During the fiscal year ended October 31, 1995, the Trust purchased
and retired 520,300 shares of common stock at a weighted average market discount
of 12.16 percent.
We appreciate your ongoing support of InterCapital Insured Municipal Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 5
INTERCAPITAL INSURED MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 22, 1995, an annual meeting of the Trust's shareholders was held for the
purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Jack F. Bennett
For........................... 7,058,328
Withheld...................... 117,439
Michael Bozic
For........................... 7,059,343
Withheld...................... 116,424
Charles A. Fiumefreddo
For........................... 7,057,969
Withheld...................... 117,798
Edwin J. Garn
For........................... 7,062,124
Withheld...................... 113,643
John R. Haire
For........................... 7,056,008
Withheld...................... 119,759
Dr. Manuel H. Johnson
For........................... 7,059,191
Withheld...................... 116,576
Paul Kolton
For........................... 7,055,640
Withheld...................... 120,127
Michael E. Nugent
For........................... 7,060,079
Withheld...................... 115,688
Philip J. Purcell
For........................... 7,056,858
Withheld...................... 118,909
John L. Schroeder
For........................... 7,059,663
Withheld...................... 116,104
</TABLE>
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT:
<TABLE>
<S> <C>
For............................................................ 6,706,683
Against........................................................ 109,197
Abstain........................................................ 359,887
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For............................................................ 6,873,345
Against........................................................ 47,026
Abstain........................................................ 255,396
</TABLE>
<PAGE> 6
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.0%)
General Obligation (13.5%)
$ 3,920 Kodiak Island Borough, Alaska, Ser 1994 A (AMBAC)......................... 5.50 % 02/15/14 $ 3,839,993
5,000 Moulton-Niguel Water District, California, 1993 Refg (MBIA)............... 5.00 09/01/19 4,534,350
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC)................................ 5.125 01/01/22 2,751,450
8,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A (MBIA)...... 5.75 06/01/13 8,043,680
- --------
----------
19,920 19,169,473
- -------- ----------
Educational Facilities Revenue (6.6%)
2,000 Chicago State University, Illinois, Ser 1994 (MBIA)....................... 6.15 12/01/23 2,043,400
2,350 New York State Dormitory Authority, Fordham University Ser 1994 (FGIC).... 5.50 07/01/23 2,294,352
2,000 Rhode Island Health & Educational Building Corporation, Providence College
Ser 1993 (MBIA).......................................................... 5.60 11/01/22 1,927,300
3,000 Wisconsin Health & Educational Facilities Authority, Marquette University
Ser 1994 (FGIC).......................................................... 6.50 12/01/19 3,149,520
- --------
----------
9,350 9,414,572
- -------- ----------
Electric Revenue (24.4%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA)................................... 6.20 12/01/13 4,148,880
5,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I
(MBIA)................................................................... 6.00 01/01/24 5,048,750
3,000 Municipal Electric Authority of Georgia, Power Ser EE (AMBAC)............. 6.00 01/01/22 3,033,840
5,000 Kansas City, Kansas Utility Refg & Impr Ser 1994 (FGIC)................... 6.375 09/01/23 5,336,200
5,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA)..... 5.375 01/01/25 4,797,250
4,730 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC)....................... 5.25 07/01/18 4,415,076
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC)................................. 5.25 06/01/25 4,700,200
3,000 Tacoma, Washington, Refg 1994 (FGIC)...................................... 6.25 01/01/15 3,106,980
- -------- ----------
34,730 34,587,176
- -------- ----------
Hospital Revenue (12.4%)
3,000 Morgan County Health Care Authority, Alabama, Decatur General Hospital Ser
1994 (Connie Lee)........................................................ 6.375 03/01/24 3,094,710
4,000 California Statewide Communities Development Authority, Sharp Health Care
dtd 03/15/94 COPs (MBIA)................................................. 6.00 08/15/24 4,021,640
3,000 Volusia County Health Facilities Authority, Florida, Memorial Health Refg
& Impr Ser 1994 (AMBAC).................................................. 5.75 11/15/20 2,976,300
1,500 Illinois Health Facilities Authority, University of Chicago Hospital Ser
1994 (MBIA).............................................................. 6.125 08/15/21 1,525,290
3,105 Massachusetts Health & Educational Facilities Authority, Lahey Clinic
Medical Center Ser B (MBIA).............................................. 5.375 07/01/23 2,928,077
3,000 New Hampshire Higher Educational & Health Facilities Authority, The
Hitchcock Clinic Ser 1994 (MBIA)......................................... 6.00 07/01/24 3,011,430
- -------- ----------
17,605 17,557,447
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Development/Pollution Control Revenue (5.1%)
$ 5,550 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc Ser 1992
(AMT) (MBIA)............................................................. 6.55 % 12/01/22 $ 5,848,368
1,500 Pennsylvania Industrial Development Authority, Ser 1994 (AMBAC)........... 5.50 01/01/14 1,479,540
- -------- ----------
7,050 7,327,908
- -------- ----------
Mortgage Revenue - Multi-Family (2.2%)
3,000 Los Angeles Community Redevelopment Agency, California, Refg Ser 1994 A
- -------- (AMBAC).................................................................. 6.55 01/01/27 3,097,260
----------
Public Facilities Revenue (2.2%)
1,000 Hillsborough County School Board, Florida, Ser 1994 COPs (MBIA)........... 6.00 07/01/14 1,025,250
2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC)...................... 6.00 12/01/13 2,056,960
- -------- ----------
3,000 3,082,210
- -------- ----------
Transportation Facilities Revenue (19.1%)
5,225 San Francisco Airports Commission, San Francisco Intl Airport Second Ser
Refg (MBIA).............................................................. 6.75 05/01/20 5,715,210
3,000 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC)........................ 6.00 01/01/21 3,015,570
2,875 Hawaii, Airports Third Refg Ser of 1994 (AMT) (AMBAC)..................... 5.75 07/01/09 2,939,170
Chicago Midway Airport, Illinois,
3,000 1994 Ser A (AMT) (MBIA).................................................. 6.25 01/01/14 3,102,300
4,000 1994 Ser A (AMT) (MBIA).................................................. 6.25 01/01/24 4,081,000
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC)........... 6.25 06/01/24 5,159,850
3,000 Pennsylvania Turnpike Commission, Oil Franchise Tax Ser A of 1994
(AMBAC).................................................................. 6.00 12/01/19 3,058,200
- -------- ----------
26,100 27,071,300
- -------- ----------
Water & Sewer Revenue (7.3%)
5,000 Central Coast Water Authority, California, Ser 1992 (AMBAC)............... 6.60 10/01/22 5,357,800
5,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA)................ 5.70 06/01/20 4,921,800
- -------- ----------
10,000 10,279,600
- -------- ----------
Other Revenue (4.2%)
Indianapolis, Indiana, Gas Utility
1,000 Refg Ser 1993 A (FGIC)................................................... 5.375 06/01/21 946,190
5,000 Refg Ser 1994 A (AMBAC).................................................. 5.875 06/01/24 5,001,650
- -------- ----------
6,000 5,947,840
- -------- ----------
136,755 TOTAL MUNICIPAL BONDS (Identified Cost $131,379,257)............................................. 137,534,786
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (1.0%)
$ 1,400 Harris County Health Facilities Development Corporation, Texas, Methodist
- -------- Hospital 1994 (Demand 11/01/95) (Identified Cost $1,400,000)............. 4.00%* 12/01/25 $ 1,400,000
----------
$138,155 TOTAL INVESTMENTS (Identified Cost $132,779,257) (a).................................... 98.0% 138,934,786
- --------
- --------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 2.0 2,802,780
---- ----------
NET ASSETS............................................................................... 100.0% $141,737,566
====== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes is
$132,779,257; the aggregate gross and net unrealized
appreciation is $6,155,529.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1995
<TABLE>
<S> <C>
Alabama............ 2.2%
Alaska............. 5.6
California......... 23.0
Florida............ 2.8
Georgia............ 4.3
Hawaii............. 6.2
Illinois........... 13.2
Indiana............ 4.2
Kansas............. 3.8%
Massachusetts...... 2.1
Michigan........... 1.5
Nevada............. 5.7
New Hampshire...... 2.1
New York........... 1.6
Pennsylvania....... 3.2
Rhode Island....... 1.4
South Carolina..... 3.4%
Texas.............. 0.9
Utah............... 3.1
Virginia........... 3.3
Washington......... 2.2
Wisconsin.......... 2.2
---
Total.............. 98.0%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
ASSETS:
Investments in securities, at value
(identified cost $132,779,257)....................................... $138,934,786
Cash.................................................................. 81,911
Interest receivable................................................... 2,779,674
Deferred organizational expenses...................................... 29,299
Prepaid expenses...................................................... 4,810
------------
TOTAL ASSETS...................................................... 141,830,480
------------
LIABILITIES:
Investment management fee payable..................................... 43,271
Accrued expenses...................................................... 49,643
------------
TOTAL LIABILITIES................................................. 92,914
------------
NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized
of non-participating $.01 par value, none issued).................... --
------------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 9,505,013 shares outstanding)........................ 135,108,251
Net unrealized appreciation........................................... 6,155,529
Accumulated undistributed net investment income....................... 942,769
Accumulated net realized loss......................................... (468,983)
------------
NET ASSETS........................................................ $141,737,566
============
NET ASSET VALUE PER COMMON SHARE
($141,737,566 divided by 9,505,013 common shares outstanding)........ $14.91
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1995
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $ 8,323,717
-----------
EXPENSES
Investment management fee.............................................. 477,449
Professional fees...................................................... 93,477
Transfer agent fees and expenses....................................... 54,675
Shareholder reports and notices........................................ 48,901
Trustees' fees and expenses............................................ 19,318
Registration fees...................................................... 18,450
Organizational expenses................................................ 8,796
Custodian fees......................................................... 8,014
Other.................................................................. 10,977
-----------
TOTAL EXPENSES BEFORE EXPENSE OFFSET............................... 740,057
LESS: EXPENSE OFFSET............................................... (7,976)
-----------
TOTAL EXPENSES AFTER EXPENSE OFFSET................................ 732,081
-----------
NET INVESTMENT INCOME.............................................. 7,591,636
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss...................................................... (468,983)
Net change in unrealized depreciation.................................. 15,582,145
-----------
NET GAIN........................................................... 15,113,162
-----------
NET INCREASE........................................................... $22,704,798
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE PERIOD
FOR THE YEAR FEBRUARY 28, 1994*
ENDED THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 7,591,636 $ 4,436,941
Net realized loss................................. (468,983) --
Net change in unrealized depreciation............. 15,582,145 (9,426,616)
------------ -------------
NET INCREASE (DECREASE)....................... 22,704,798 (4,989,675)
Dividends to common shareholders from net
investment income................................ (7,234,457) (3,851,351)
Increase (decrease) from transactions in shares of
beneficial interest.............................. (6,109,822) 141,118,064
------------ -------------
TOTAL INCREASE................................ 9,360,519 132,277,038
NET ASSETS:
Beginning of period............................... 132,377,047 100,009
------------ -------------
END OF PERIOD
(Including undistributed net investment income
of $942,769 and $585,590, respectively)....... $141,737,566 $132,377,047
============ =============
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1995
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 based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax
<PAGE> 13
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
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 AND OFFERING COSTS -- The Investment Manager paid the
organizational expenses and offering costs of the Trust's common shares in the
amounts of $44,000 and $416,290, respectively. The organizational expenses which
have been reimbursed for the full amount thereof 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. Offering costs were charged to
capital at the time of issuance of the Trust's common shares.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays 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 year ended October 31, 1995 aggregated $-0- and
$5,786,195, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1995, the Trust had transfer agent fees
and expenses payable of approximately $1,600.
<PAGE> 14
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The preferred shares have a liquidation value of $50,000
per share plus the redemption premium, if any, plus accumulated but unpaid
dividends, whether or not
declared, thereon to the date of distribution. The Trust may redeem such shares,
in whole or in part, at the original purchase price of $50,000 per share plus
accumulated but unpaid dividends, whether or not declared, thereon to the date
of redemption.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at liquidation
value.
The preferred shares, 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
PAR EXCESS OF
SHARES 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
Treasury shares purchased and retired (weighted average discount 12.16%)**...... (520,300) (5,203) (6,104,619)
---------- -------- ------------
Balance, October 31, 1995....................................................... 9,505,013 $ 95,050 $135,013,201
========== ======== ============
</TABLE>
- ---------------------
* Net of offering costs of $416,290.
** The Trustees have voted to retire the shares purchased.
<PAGE> 15
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
6. FEDERAL INCOME TAX STATUS
At October 31, 1995, the Trust had a net capital loss carryover of approximately
$469,000 which will be available through October 31, 2003 to offset future
capital gains to the extent provided by regulations.
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust has declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------ --------- ------------------ ------------------
<S> <C> <C> <C>
October 31, 1995 $0.0675 November 10, 1995 November 24, 1995
November 28, 1995 $0.0675 December 8, 1995 December 22, 1995
</TABLE>
8. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------
10/31/95 7/31/95 4/30/95 1/31/95
---------------- ------------------ ---------------- ------------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
------ ----- ------- ------ ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income................... $2,076 $0.22 $ 2,091 $ 0.22 $2,038 $0.21 $ 2,119 $ 0.22
Net investment income..................... 1,883 0.20 1,894 0.20 1,859 0.19 1,956 0.20
Net realized and unrealized gain.......... 4,337 0.46 2,075 0.22 3,534 0.38 5,167 0.61
<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 realized and unrealized gain (loss)....................... (9,838) (0.92) 2,422 0.24 (2,011) (0.20)
</TABLE>
- ---------------------
* Amounts in thousands.
+ For the period February 28, 1994 through April 30, 1994.
<PAGE> 16
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 28, 1994*
FOR THE YEAR THROUGH
ENDED OCTOBER 31,
OCTOBER 31, 1995** 1994**++
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................................... $ 13.20 $ 14.06
-------- --------
Net investment income.............................................................. 0.79 0.44
Net realized and unrealized gain (loss)............................................ 1.58 (0.93)
-------- --------
Total from investment operations................................................... 2.37 (0.49)
-------- --------
Less dividends from net investment income.......................................... (0.75) (0.38)
Anti-dilutive effect of acquiring treasury shares.................................. 0.09 0.05
Offering costs charged against capital............................................. -- (0.04)
-------- --------
Net asset value, end of period..................................................... $ 14.91 $ 13.20
======== ========
Market value, end of period........................................................ $ 12.625 $ 11.125
======== ========
TOTAL INVESTMENT RETURN+........................................................... 20.61% (23.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses before expense offset............................................... 0.54%(3) 0.51%(2)
Net investment income.............................................................. 5.51%(3) 4.69%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................................ $141,738 $132,377
Portfolio turnover rate............................................................ -- % -- %
</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.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) The above expense and net investment income ratios would have been 0.53%
and 5.52%, respectively, which reflects 0.01% effect for custody cash
credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
INTERCAPITAL INSURED MUNICIPAL SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1995, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year then ended and 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
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, 1995 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 7, 1995
--------------------------------------------------------------------
1995 Federal Tax Notice (unaudited)
During the year ended October 31, 1995, the Trust paid to the
common shareholders $0.75 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.
<PAGE> 18
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<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
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
[PHOTO]
ANNUAL REPORT
OCTOBER 31, 1995
