<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES Two World Trade Center, New York,
New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1996
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of InterCapital
Insured Municipal Securities (IMS) for the fiscal year ended October 31,
1996.
Stronger economic growth and the potential threat of inflation shifted the
tone of the fixed-income markets from bullish to bearish in early 1996. This
change in market psychology was confirmed in March by a surprisingly large
increase in payroll employment. The rise in interest rates between February
and July may be attributed to market weakness on the days that strong monthly
employment figures were reported. The bond market sporadically pushed
long-term yields higher, anticipating that the Federal Reserve Board might
raise the federal-funds rate. However, with slower growth in employment and
overall economic activity between August and October, the central bank left
monetary policy unchanged. As a result, by the end of October the
fixed-income markets had regained an optimistic outlook and rallied to levels
not seen since February.
MUNICIPAL MARKET CONDITIONS
Between February and July, 30-year insured revenue bond yields rose 75 basis
points from 5.40 percent to reach 6.15 percent in April and again in
mid-June. Subsequently, demand for municipal bonds improved and followed the
trend of U.S. Treasury securities toward lower yields. Insured bond yields
reached 5.60 percent by the end of October. One-year municipal note yields
declined marginally from 3.80 percent to 3.70 percent over the past 12
months. In October, the yield curve pickup for extending maturities from 1 to
30 years was 190 basis points.
The ratio of insured revenue bond yields to 30-year U.S. Treasury yields,
moved from 91 percent to 84 percent over the course for the fiscal year. A
declining ratio means that municipal bond prices outperformed U.S. Treasury
prices. The relative improvement in municipals occurred as flat tax proposals
failed to gain public support.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
The municipal market also benefited from steady demand. In addition to
regular maturities and calls for redemption this year, it has been estimated
that investors also faced the retirement of over $60 billion of debt that has
been previously refinanced. On the supply side, new issues increased 20
percent to $147 billion over the calendar year to date.
INTERCAPITAL INSURED MUNICIPAL SECURITIES
(The chart below represents information which appears as a
graphic in the printed report)
A pie chart reflecting the Five Largest Sectors and Credit Enhancement
as of October 31, 1996.
FIVE LARGEST SECTORS PERCENT
-------------------- -------
All others 25%
Electric 23%
Transportation 19%
General Obligation 13%
Hospital 13%
Water & Sewer 7%
CREDIT ENHANCEMENT PERCENT
------------------ -------
MBIA (Municipal Bond Investors
Assurance Corp.) 48%
AMBAC (AMBAC Indemnity Corp.) 35%
FGIC (Financial Guaranty Ins. Co.) 15%
Connie Lee (Connie Lee Ins. Co.) 2%
PERFORMANCE
The Trust's net asset value (NAV) increased from $14.91 to $15.08 per share
during the fiscal year ended October 31, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.81 per share, the Trust's
total return was 7.52 percent. Over the same period, IMS's market price on
the New York Stock Exchange increased from $12.625 to $13.125 per share.
Based on this market price change and reinvestment of tax-free dividends, the
Trust's total return was 10.52 percent.
IMS began the fiscal year trading at a 15 percent discount to NAV and closed
at a 13 percent discount. Undistributed net investment income totaled $0.090
per share versus $0.099 per share a year ago.
PORTFOLIO STRUCTURE
On October 31, 1996, the Trust's net assets of $138 million were diversified
among 10 long-term municipal sectors and 36 credits. The average maturity and
call protection of IMS's long-term portfolio were 24 and
8 years, respectively. To assure the timely payment of principal and
interest, each position in the portfolio is backed by triple "A" rated bond
insurance.
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities
is expected to remain positive for the municipal market. Long-term insured
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
municipal securities currently yield 84 percent of U.S. Treasury securities
and may be expected to move in tandem with the Treasury market. Although
municipal performance relative to U.S. Treasury securities has improved,
tax-exempts could again be affected by market uncertainty if new tax
reduction proposals were to resurface.
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 price not above market value or net asset value,
whichever is lower at the time of purchase. Over the past fiscal year IMS
purchased and retired 337,000 shares of common stock at a weighted average
market discount of 12.28 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>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 27, 1996, 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>
<CAPTION>
<S> <C>
Michael Bozic
For ............................ 6,760,975
Withheld ...................... 124,363
Charles A. Fiumefreddo
For ............................ 6,765,002
Withheld ...................... 120,336
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Michael E. Nugent,
Philip J. Purcell and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT
WITH DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<CAPTION>
<S> <C>
For ............................ 6,565,618
Against ....................... 39,565
Abstain ....................... 280,155
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ............................ 6,671,354
Against ....................... 20,101
Abstain ....................... 193,883
</TABLE>
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (96.6%)
General Obligation (13.3%)
$ 3,920 Kodiak Island Borough, Alaska, Ser 1994 A (AMBAC) .............. 5.50 % 02/15/14 $ 3,859,515
4,000 Moulton-Niguel Water District, California, 1993 Refg (MBIA) .... 5.00 09/01/19 3,620,920
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC) ..................... 5.125 01/01/22 2,774,460
8,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A
(MBIA) ........................................................ 5.75 06/01/13 8,064,000
- ----------- --------------
18,920 18,318,895
- ----------- --------------
Educational Facilities Revenue (6.6%)
2,000 Chicago State University, Illinois, Ser 1994 (MBIA) ............ 6.15 12/01/23 2,045,100
2,000 New York State Dormitory Authority, Fordham University Ser 1994
(FGIC) ........................................................ 5.50 07/01/23 1,942,660
2,000 Rhode Island Health & Educational Building Corporation,
Providence College Ser 1993 (MBIA) ............................ 5.60 11/01/22 1,920,720
3,000 Wisconsin Health & Educational Facilities Authority, Marquette
University Ser 1994 (FGIC) .................................... 6.50 12/01/19 3,221,430
- ----------- --------------
9,000 9,129,910
- ----------- --------------
Electric Revenue (23.2%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA) ........................ 6.20 12/01/13 4,228,520
5,000 Sacramento Municipal Utility District, California, Refg 1994 Ser
I (MBIA) ...................................................... 6.00 01/01/24 5,119,800
3,000 Municipal Electric Authority of Georgia, Power Ser EE (AMBAC) .. 6.00 01/01/22 3,076,200
5,000 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC) ....... 6.375 09/01/23 5,344,100
2,745 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) ........................................................ 5.375 01/01/25 2,661,552
4,000 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC) ............ 5.25 07/01/18 3,711,640
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC) ...................... 5.25 06/01/25 4,724,500
3,000 Tacoma, Washington, Refg 1994 (FGIC) ........................... 6.25 01/01/15 3,168,870
- ----------- --------------
31,745 32,035,182
- ----------- --------------
Hospital Revenue (12.8%)
3,000 Morgan County Health Care Authority, Alabama, Decatur General
Hospital Ser 1994 (Connie Lee) ................................ 6.375 03/01/24 3,142,500
4,000 California Statewide Communities Development Authority, Sharp
Health Care COPs (MBIA) ....................................... 6.00 08/15/24 4,094,680
3,000 Volusia County Health Facilities Authority, Florida, Memorial
Health Refg & Impr Ser 1994 (AMBAC) ........................... 5.75 11/15/20 2,976,750
1,500 Illinois Health Facilities Authority, University of Chicago
Hospital Ser 1994 (MBIA) ...................................... 6.125 08/15/21 1,521,330
3,105 Massachusetts Health & Educational Facilities Authority, Lahey
Clinic Medical Center Ser B (MBIA) ............................ 5.375 07/01/23 2,930,747
3,000 New Hampshire Higher Educational & Health Facilities Authority,
The Hitchcock Clinic Ser 1994 (MBIA) .......................... 6.00 07/01/24 3,015,000
- ----------- --------------
17,605 17,681,007
- ----------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development/Pollution Control Revenue (5.4%)
$ 5,550 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc
Ser 1992 (AMT) (MBIA) ......................................... 6.55 % 12/01/22 $ 5,933,283
1,500 Pennsylvania Industrial Development Authority, Ser 1994 (AMBAC) 5.50 01/01/14 1,494,930
- ----------- --------------
7,050 7,428,213
- ----------- --------------
Mortgage Revenue - Multi-Family (2.3%)
3,000 Los Angeles Community Redevelopment Agency, California, Refg Ser
- ----------- 1994 A (AMBAC) ................................................ 6.55 01/01/27 3,123,840
--------------
Public Facilities Revenue (2.2%)
1,000 Hillsborough County School Board, Florida, Ser 1994 COPs (MBIA) 6.00 07/01/14 1,033,980
2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC) ........... 6.00 12/01/13 2,076,500
- ----------- --------------
3,000 3,110,480
- ----------- --------------
Transportation Facilities Revenue (18.8%)
5,225 San Francisco Airports Commission, California, San Francisco
Int'l Airport Second Ser Refg (MBIA) .......................... 6.75 05/01/20 5,781,410
3,000 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC) ............. 6.00 01/01/21 3,022,830
2,600 Hawaii, Airports Third Refg Ser of 1994 (AMT) (AMBAC) .......... 5.75 07/01/09 2,644,122
Chicago Midway Airport, Illinois,
3,000 1994 Ser A (AMT) (MBIA) ....................................... 6.25 01/01/14 3,135,870
3,000 1994 Ser A (AMT) (MBIA) ....................................... 6.25 01/01/24 3,103,260
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC) 6.25 06/01/24 5,219,350
3,000 Pennsylvania Turnpike Commission, Oil Franchise Tax Ser A of
1994 (AMBAC) .................................................. 6.00 12/01/19 3,077,400
- ----------- --------------
24,825 25,984,242
- ----------- --------------
Water & Sewer Revenue (6.8%)
5,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) .... 6.60 10/01/22 5,498,700
4,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA) ..... 5.70 06/01/20 3,963,920
- ----------- --------------
9,000 9,462,620
- ----------- --------------
Other Revenue (3.6%)
5,000 Indianapolis, Indiana, Gas Utility Refg Ser 1994 A (AMBAC) ..... 5.875 06/01/24 5,023,350
- ----------- --------------
Refunded (1.6%)
2,255 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) (ETM) .................................................. 5.375 01/01/25 2,186,448
- ----------- --------------
131,400 TOTAL MUNICIPAL BONDS (Identified Cost $126,452,837) ............................... 133,484,187
- ----------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (1.5%)
$ 2,100 Guadalupe-Blanco River Authority, Texas, Refg Central Power &
- ----------- Light Co Ser 1995 (Demand 11/01/96) (Identified Cost
$2,100,000) ................................................... 3.60*% 11/01/15 $ 2,100,000
--------------
$133,500 TOTAL INVESTMENTS (Identified Cost $128,552,837) (a) .................... 98.1% 135,584,187
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.9 2,656,640
----- --------------
NET ASSETS .............................................................. 100.0% $138,240,827
===== ==============
</TABLE>
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross and net unrealized
appreciation was $7,031,350.
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, 1996
<TABLE>
<CAPTION>
<S> <C>
Alabama .......... 2.3%
Alaska ........... 5.9
California ....... 22.6
Florida .......... 2.9
Georgia .......... 4.4
Hawaii ........... 6.2
Illinois ......... 12.9
Indiana .......... 3.6
Kansas ........... 3.9
Massachusetts .... 2.1
Michigan ......... 1.5
Nevada ........... 5.8
New Hamphshire ... 2.2
New York ......... 1.4
Pennsylvania ..... 3.3
Rhode Island ..... 1.4
South Carolina ... 3.5
Texas ............ 1.5
Utah ............. 2.7
Virginia ......... 3.4
Washington ....... 2.3
Wisconsin ........ 2.3
------
Total ............ 98.1%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $128,552,837) ......... $135,584,187
Cash .................................... 48,180
Interest receivable ..................... 2,681,997
Deferred organizational expenses ....... 20,478
Prepaid expenses and other assets ...... 4,904
--------------
TOTAL ASSETS .......................... 138,339,746
--------------
LIABILITIES:
Investment management fee payable ...... 44,976
Accrued expenses ........................ 53,943
--------------
TOTAL LIABILITIES ..................... 98,919
--------------
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, 9,168,013 shares
outstanding) ........................... 130,669,474
Net unrealized appreciation ............. 7,031,350
Accumulated undistributed net investment
income ................................. 828,798
Accumulated net realized loss ........... (288,795)
--------------
NET ASSETS ............................ $138,240,827
==============
NET ASSET VALUE PER COMMON SHARE
($138,240,827 divided by 9,168,013
common shares outstanding) ............. $ 15.08
==============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $8,101,725
------------
EXPENSES
Investment management fee ............. 488,577
Transfer agent fees and expenses ..... 54,101
Professional fees ..................... 49,423
Shareholder reports and notices ...... 34,745
Registration fees ..................... 16,686
Trustees' fees and expenses ........... 14,696
Organizational expenses ............... 8,821
Custodian fees ........................ 7,401
Other ................................. 9,874
------------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET .............................. 684,324
LESS: EXPENSE OFFSET ............... (7,377)
------------
TOTAL EXPENSES AFTER EXPENSE
OFFSET .............................. 676,947
------------
NET INVESTMENT INCOME ............... 7,424,778
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ..................... 180,188
Net change in unrealized appreciation.. 875,821
------------
NET GAIN ............................ 1,056,009
------------
NET INCREASE ......................... $8,480,787
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
- ---------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................... $ 7,424,778 $ 7,591,636
Net realized gain (loss) ............................ 180,188 (468,983)
Net change in unrealized appreciation/depreciation . 875,821 15,582,145
---------------- ----------------
NET INCREASE ...................................... 8,480,787 22,704,798
Dividends to common shareholders from net investment
income ............................................. (7,538,749) (7,234,457)
Decrease from transactions in shares of beneficial
interest ........................................... (4,438,777) (6,109,822)
---------------- ----------------
NET INCREASE (DECREASE) ........................... (3,496,739) 9,360,519
NET ASSETS:
Beginning of period ................................. 141,737,566 132,377,047
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$828,798 and $942,769, respectively) .............. $138,240,827 $141,737,566
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Insured Municipal Securities (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust's investment objective is to provide
current income which is exempt from federal income tax. The Trust was
organized as a Massachusetts business trust on October 14, 1993 and commenced
operations on February 28, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts over the life of
the respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
which may differ from generally accepted accounting principles. These
"book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Trust's common shares in
the amount of $44,000 which have been reimbursed for the full amount thereof.
Such expenses have been deferred and are being amortized by the straight-line
method over a period not to exceed five years from the commencement of
operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays the Investment
Manager a management fee, calculated weekly and payable monthly, by applying
the annual rate of 0.35% to the Trust's 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, 1996
aggregated $985,440 and $6,143,090, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1996, the Trust had transfer agent
fees and expenses payable of approximately $3,900.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1996, 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, 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, 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
Treasury shares purchased and retired (weighted average discount 12.28%)* .. (337,000) (3,370) (4,435,407)
---------- ----------- --------------
Balance, October 31, 1996 .................................................. 9,168,013 $ 91,680 $130,577,794
========== =========== ==============
</TABLE>
- ---------
* The Trustees have voted to retire the shares purchased.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Trust had a net capital loss carryover of
approximately $289,000 which will be available through October 31, 2003 to
offset future capital gains to the extent provided by regulations. During the
year ended October 31, 1996, the Trust utilized net capital loss carryovers
of approximately $180,000.
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
AMOUNT PER RECORD PAYABLE
DECLARATION DATE SHARE DATE DATE
- ----------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
October 30, 1996 $0.0675 November 8, 1996 November 22, 1996
November 26, 1996 $0.0675 December 6, 1996 December 20, 1996
</TABLE>
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 28, 1994*
FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH OCTOBER 31,
OCTOBER 31, 1996** OCTOBER 31, 1995** 1994**++
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 14.91 $ 13.20 $ 14.06
------------------ ------------------ -------------------
Net investment income ........................... 0.80 0.79 0.44
Net realized and unrealized gain (loss) ........ 0.11 1.58 (0.93)
------------------ ------------------ -------------------
Total from investment operations ................ 0.91 2.37 (0.49)
------------------ ------------------ -------------------
Less dividends from net investment income ...... (0.81) (0.75) (0.38)
Anti-dilutive effect of acquiring treasury
shares ......................................... 0.07 0.09 0.05
Offering costs charged against capital ......... -- -- (0.04)
------------------ ------------------ -------------------
Net asset value, end of period .................. $ 15.08 $ 14.91 $ 13.20
================== ================== ===================
Market value, end of period ..................... $ 13.125 $ 12.625 $ 11.125
================== ================== ===================
TOTAL INVESTMENT RETURN+ ....................... 10.52% 20.61% (23.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses before expense offset ............ 0.49%(4) 0.54%(3) 0.51 %(2)
Net investment income ........................... 5.32% 5.51%(3) 4.69 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........ $138,241 $141,738 $132,377
Portfolio turnover rate ......................... 1% -- --
</TABLE>
- ------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on the
last day of each period reported. Dividends are assumed to be
reinvested at the prices obtained under the Trust's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions.
++ 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, after expense offset, which reflect
0.01% effect for custody cash credits.
(4) The above expense ratio would have been 0.48% after expense offset,
which reflects 0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
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, 1996, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for the two years in the period 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 audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996 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 9, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1996, the Trust paid to the common
shareholders $0.81 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>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo InterCapital
Edwin J. Garn Insured
John R. Haire Municipal
Dr. Manuel H. Johnson Securities
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
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
Annual Report
October 31, 1996
