<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1997
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,
1997.
Stimulated by a resurgence of consumer spending in late 1996, the economy
grew at a rapid pace in the first quarter of 1997. This prompted the Federal
Reserve Board to tighten its monetary policy in March in a preemptive move
against a possible increase in the rate of inflation. Economic growth slowed
in the second quarter and the bond market rallied. In addition to more
moderate economic growth, low inflation and stable monetary policy, the bond
rally through July was supported by a shrinking federal budget deficit and a
strong dollar. However, by August the bond market retreated on fears that
stronger employment conditions might prompt the Federal Reserve Board to
tighten further. Yields declined in October when turmoil in the global stock
markets precipitated "flight-to-quality" demand for U.S. Treasuries.
BOND YIELDS 1994-1997
INSURED MUNICIPAL
30-YEAR INSURED 30-YEAR U.S. REVENUE YIELDS
MUNICIPAL TREASURY AS A PERCENTAGE OF U.S.
REVENUE YIELDS YIELDS TREASURY YIELDS
-------------- ------ ---------------
December 1993 5.4 % 6.34% 85.17%
January 1994 5.4 6.24 86.54
February 1994 5.8 6.66 87.09
March 1994 6.4 7.09 90.27
April 1994 6.35 7.32 86.75
May 1994 6.25 7.43 84.12
June 1994 6.5 7.61 85.41
July 1994 6.25 7.39 84.57
August 1994 6.3 7.45 84.56
September 1994 6.55 7.81 83.87
October 1994 6.75 7.96 84.8
November 1994 7 8 87.5
December 1994 6.75 7.88 85.66
January 1995 6.4 7.7 83.12
February 1995 6.15 7.44 82.66
March 1995 6.15 7.43 82.77
April 1995 6.2 7.34 84.47
May 1995 5.8 6.66 87.09
June 1995 6.1 6.62 92.15
July 1995 6.1 6.86 88.92
August 1995 6 6.66 90.09
September 1995 5.95 6.48 91.82
October 1995 5.75 6.33 90.84
November 1995 5.5 6.14 89.58
December 1995 5.35 5.94 90.07
January 1996 5.4 6.03 89.55
February 1996 5.6 6.46 86.69
March 1996 5.85 6.66 87.84
April 1996 5.95 6.89 86.36
May 1996 6.05 6.99 86.55
June 1996 5.9 6.89 85.63
July 1996 5.85 6.97 83.93
August 1996 5.9 7.11 82.98
September 1996 5.7 6.93 82.25
October 1996 5.65 6.64 85.09
November 1996 5.5 6.35 86.61
December 1996 5.6 6.63 84.46
January 1997 5.7 6.79 83.95
February 1997 5.65 6.8 83.09
March 1997 5.9 7.1 83.1
April 1997 5.75 6.94 82.85
May 1997 5.65 6.91 81.77
June 1997 5.6 6.78 82.6
July 1997 5.3 6.3 84
August 1997 5.5 6.61 83
September 1997 5.4 6.4 84.4
October 1997 5.35% 6.15% 86.9 %
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields but with less
volatility. Long-term insured revenue index yields increased from 5.65
percent to 5.90 percent between October 1996 and March 1997. The bond rally
over the past seven months pushed 30-year yields down to 5.35 percent by the
end of October 1997. Yields on one-year notes were little changed at 3.75
percent over the 12-month period. Consequently, the yield pickup for
extending maturities from 1 to 30 years narrowed from 190 basis points to 160
basis points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury
yields rose from 83 percent at the end of March 1997 to 87 percent in
October. A rising ratio means that municipals have underperformed Treasuries
and have become relatively more attractive. Over the past four years, this
ratio has annually ranged from an average low of 83 percent to an average
high of 90 percent.
New-issue underwriting volume was slightly ahead in the first half of 1997.
The decline in interest rates subsequently led to a surge in refunding
activity. As a result, new-issue municipal volume was up 17 percent during
the first 10 months of 1997. Refundings accounted for more than 25 percent
of total volume.
PERFORMANCE
During the fiscal year ended October 31, 1997, the Trust's net asset value
(NAV) improved from $15.08 to $15.54. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.81 per share, the Trust's
total NAV return was 9.25 percent. IMS's market price on the New York Stock
Exchange increased from $13.125 to $14.375 per share.
LARGEST SECTORS AS OF OCTOBER 31, 1997
(% OF NET ASSETS)
Electric ......................... 24%
Transportation ................... 19%
General Obligation ............... 13%
Hospital ......................... 13%
Education......................... 7%
All Others ....................... 24%
Portfolio Structure is subject to change.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
AMBAC ............................. 35%
Connie Lee ........................ 2%
FGIC .............................. 15%
MBIA .............................. 43%
Portfolio structure is subject to change.
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
Based on this change in market price plus reinvestment of tax-free dividends,
the Trust's total market return was 16.12 percent. On October 31, 1997, IMS
traded at a 7 percent discount to NAV.
Monthly dividends for the fourth quarter of 1997 declared in September
remained unchanged at $0.0675 per share. Over the past twelve months the
level of undistributed net investment income decreased from $0.090 per share
to $0.083 per share.
PORTFOLIO STRUCTURE
IMS remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 11 long-term sectors and 36 credits. The
Trust's weighted average maturity and call protection were 22 and 7 years,
respectively. To assure the timely payment of principal and interest, each
position in the portfolio was backed by triple "A" rated bond insurance or
U.S. government-guaranteed securities.
LOOKING AHEAD
So far this year, long-term municipal bonds have followed the trend of
Treasuries toward lower yields. The recent enactment of the Taxpayer Relief
Act of 1997 did not impact municipals directly and the long-term benefits of
tax-exempt income have remained intact.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust,
when appropriate, may purchase shares in the open market or in privately
negotiated transactions at a price not above market value or net asset value,
whichever is lower at the time of purchase. During the 12-month period ended
October 31, 1997, the Trust purchased and retired 228,000 shares of common
stock at a weighted average market discount of 9.37 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 May 20, 1997, 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:
Wayne E. Hedien
For......... 7,268,822
Withheld .. 161,643
Dr. Manuel H. Johnson
For......... 7,260,523
Withheld .. 169,942
John L. Schroeder
For......... 7,267,110
Withheld .. 163,355
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael
E. Nugent and
Philip J. Purcell.
(2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND
DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN
STANLEY GROUP INC. WITH DEAN WITTER,
DISCOVER & CO.:
For........ 7,029,304
Against .. 84,973
Abstain .. 316,188
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
For........ 7,153,213
Against .. 30,408
Abstain .. 246,844
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.6%)
General Obligation (13.0%)
$ 3,920 Kodiak Island Borough, Alaska, Ser 1994 A (AMBAC) ............... 5.50 % 02/15/14 $ 3,969,470
3,000 Moulton-Niguel Water District, California, 1993 Refg (MBIA) .... 5.00 09/01/19 2,876,670
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC) ...................... 5.125 01/01/22 2,897,010
8,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A
(MBIA) ........................................................ 5.75 06/01/13 8,317,440
- ----------- --------------
17,920 18,060,590
- ----------- --------------
Educational Facilities Revenue (6.8%)
2,000 Chicago State University, Illinois, Ser 1994 (MBIA) ............. 6.15 12/01/23 2,124,160
2,000 New York State Dormitory Authority, Fordham University Ser 1994
(FGIC) ......................................................... 5.50 07/01/23 2,010,780
2,000 Rhode Island Health & Educational Building Corporation,
Providence College Ser 1993 (MBIA) ............................. 5.60 11/01/22 2,019,240
3,000 Wisconsin Health & Educational Facilities Authority, Marquette
University Ser 1994 (FGIC) ..................................... 6.45 12/01/19 3,272,160
- ----------- --------------
9,000 9,426,340
- ----------- --------------
Electric Revenue (23.8%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA) ......................... 6.20 12/01/13 4,260,200
5,000 Sacramento Municipal Utility District, California, Refg 1994 Ser
I (MBIA) ....................................................... 6.00 01/01/24 5,283,450
3,000 Municipal Electric Authority of Georgia, Power Ser EE (AMBAC) ... 6.00 01/01/22 3,165,960
5,000 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC) ........ 6.375 09/01/23 5,516,850
2,745 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) ......................................................... 5.375 01/01/25 2,790,155
4,000 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC) ............. 5.25 07/01/18 3,886,720
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC) ....................... 5.25 06/01/25 4,878,800
3,000 Tacoma, Washington, Refg 1994 (FGIC) ............................ 6.25 01/01/15 3,244,230
- ----------- --------------
31,745 33,026,365
- ----------- --------------
Hospital Revenue (13.1%)
3,000 Morgan County Health Care Authority, Alabama, Decatur General
Hospital Ser 1994 (Connie Lee) ................................. 6.375 03/01/24 3,239,670
4,000 California Statewide Communities Development Authority, Sharp
Health Care COPs (MBIA) ........................................ 6.00 08/15/24 4,211,560
3,000 Volusia County Health Facilities Authority, Florida, Memorial
Health Refg & Impr Ser 1994 (AMBAC) ............................ 5.75 11/15/20 3,078,540
1,500 Illinois Health Facilities Authority, University of Chicago
Hospital Ser 1994 (MBIA) ....................................... 6.125 08/15/21 1,577,295
3,000 Massachusetts Health & Educational Facilities Authority, Lahey
Clinic Medical Center Ser B (MBIA) ............................. 5.375 07/01/23 2,908,410
3,000 New Hampshire Higher Educational & Health Facilities Authority,
The Hitchcock Clinic Ser 1994 (MBIA) ........................... 6.00 07/01/24 3,127,230
- ----------- --------------
17,500 18,142,705
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
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 $ 6,033,683
1,500 Pennsylvania Industrial Development Authority, Ser 1994 (AMBAC) . 5.50 01/01/14 1,524,525
- ----------- --------------
7,050 7,558,208
- ----------- --------------
Mortgage Revenue -Multi-Family (2.3%)
3,000 Los Angeles Community Redevelopment Agency, California,
Refg Ser 1994 A (AMBAC) ........................................ 6.55 01/01/27 3,170,100
- ----------- --------------
Public Facilities Revenue (2.3%)
1,000 Hillsborough County School Board, Florida, Ser 1994 COPs (MBIA) . 6.00 07/01/14 1,068,110
2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC) ............ 6.00 12/01/13 2,133,960
- ----------- --------------
3,000 3,202,070
- ----------- --------------
Transportation Facilities Revenue (18.6%)
5,000 San Francisco Airports Commission, California, San Francisco
Int'l Airport Second Ser Refg (MBIA) ........................... 6.75 05/01/20 5,595,050
3,000 Atlanta, Georgia, Airport Ser 1994 B (AMT)(AMBAC) ............... 6.00 01/01/21 3,127,410
2,000 Hawaii, Airports Third Refg Ser of 1994 (AMT)(AMBAC) ............ 5.75 07/01/09 2,111,500
Chicago Midway Airport, Illinois,
3,000 1994 Ser A (AMT)(MBIA) ......................................... 6.25 01/01/14 3,201,000
3,000 1994 Ser A (AMT)(MBIA) ......................................... 6.25 01/01/24 3,176,490
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC) . 6.25 06/01/24 5,380,900
3,000 Pennsylvania Turnpike Commission, Oil Franchise Tax Ser A of
1994 (AMBAC) ................................................... 6.00 12/01/19 3,183,000
- ----------- --------------
24,000 25,775,350
- ----------- --------------
Water & Sewer Revenue (2.9%)
4,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA) ...... 5.70 06/01/20 4,091,120
- ----------- --------------
Other Revenue (3.7%)
5,000 Indianapolis, Indiana, Gas Utility Refg Ser 1994 A (AMBAC) ...... 5.875 06/01/24 5,171,550
- ----------- --------------
Refunded (5.7%)
5,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) ..... 6.60 10/01/02++ 5,621,250
2,255 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA)(ETM) .................................................... 5.375 01/01/25 2,298,341
- ----------- --------------
7,255 7,919,591
- ----------- --------------
129,470 TOTAL MUNICIPAL BONDS (Identified Cost $124,718,518) ................................. 135,543,989
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION (0.5%)
$ 700 St Charles Parish, Louisiana, Shell Oil Co Refg Ser 1995 (Demand
11/03/97) (Identified Cost $700,000) ........................... 4.00*% 10/01/25 $ 700,000
- ----------- --------------
$130,170 TOTAL INVESTMENTS (Identified Cost $125,418,518) (a) ..................... 98.1% 136,243,989
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.9 2,696,667
----------- --------------
NET ASSETS ............................................................... 100.0% $138,940,656
=========== ==============
</TABLE>
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
* Current coupon of variable rate demand obligation.
++ Prerefunded to call date shown.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross and net unrealized
appreciation is $10,825,471.
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, 1997
<TABLE>
<CAPTION>
<S> <C>
Alabama 2.3%
Alaska 5.9
California 22.2
Florida 3.0
Georgia 4.5
Hawaii 5.9
Illinois 13.2
Indiana 3.7
Kansas 4.0%
Louisiana 0.5
Massachusetts 2.1
Michigan 1.5
Nevada 6.0
New Hampshire 2.3
New York 1.4
Pennsylvania 3.4
Rhode Island 1.5%
South Carolina 3.7
Utah 2.8
Virginia 3.5
Washington 2.3
Wisconsin 2.4
------
Total 98.1%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $125,418,518) ....................................... $136,243,989
Cash .................................................................. 130,874
Interest receivable ................................................... 2,648,646
Deferred organizational expenses ...................................... 11,684
Prepaid expenses ...................................................... 4,389
--------------
TOTAL ASSETS ........................................................ 139,039,582
--------------
LIABILITIES:
Investment management fee payable ..................................... 46,456
Accrued expenses ...................................................... 52,470
--------------
TOTAL LIABILITIES ................................................... 98,926
--------------
NET ASSETS .......................................................... $138,940,656
==============
COMPOSITION OF 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, 8,940,013 shares outstanding) ........................ $127,529,898
Net unrealized appreciation ........................................... 10,825,471
Accumulated undistributed net investment income ....................... 742,961
Accumulated net realized loss ......................................... (157,674)
--------------
TOTAL NET ASSETS .................................................... $138,940,656
==============
NET ASSET VALUE PER COMMON SHARE
($138,940,656 divided by 8,940,013 common shares outstanding) ....... $ 15.54
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $ 7,879,890
------------
EXPENSES
Investment management fee ............. 480,886
Professional fees ..................... 51,765
Transfer agent fees and expenses ..... 33,389
Shareholder reports and notices ...... 23,740
Registration fees ..................... 16,639
Trustees' fees and expenses ........... 14,301
Organizational expenses ............... 8,794
Custodian fees ........................ 6,990
Other ................................. 10,865
------------
TOTAL EXPENSES ...................... 647,369
Less: expense offset .................. (6,952)
------------
NET EXPENSES ........................ 640,417
------------
NET INVESTMENT INCOME ............... 7,239,473
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ..................... 131,121
Net change in unrealized appreciation 3,794,121
------------
NET GAIN ............................ 3,925,242
------------
NET INCREASE .......................... $11,164,715
============
</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, 1997 OCTOBER 31, 1996
- ---------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................... $ 7,239,473 $ 7,424,778
Net realized gain ................................... 131,121 180,188
Net change in unrealized appreciation ............... 3,794,121 875,821
---------------- ----------------
NET INCREASE ...................................... 11,164,715 8,480,787
Dividends to common shareholders from net investment
income ............................................. (7,321,738) (7,538,749)
Decrease from transactions in common shares of
beneficial interest ................................ (3,143,148) (4,438,777)
---------------- ----------------
NET INCREASE (DECREASE) ........................... 699,829 (3,496,739)
NET ASSETS:
Beginning of period ................................. 138,240,827 141,737,566
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$742,961 and $828,798, respectively) .............. $138,940,656 $138,240,827
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1997
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, 1997, 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 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 proceeds from sales of portfolio securities, excluding short-term
investments, for the year ended October 31, 1997 aggregated $1,912,962.
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $1,400.
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,
<PAGE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
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, 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
Treasury shares purchased and retired (weighted average discount 9.37%)*....... (228,000) (2,280) (3,140,868)
----------- ----------- --------------
Balance, October 31, 1997 ..................................................... 8,940,013 $89,400 $127,436,926
=========== =========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1997, the Trust utilized approximately
$131,000 of its net capital loss carryover. At October 31, 1997, the Trust
had a net capital loss carryover of approximately $158,000, which may be used
through October 31, 2003 to offset future capital gains to the extent
provided by regulations.
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 23, 1997, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- ------------- -------------------- ---------------------
<S> <C> <C>
$0.0675 November 7, 1997 November 21, 1997
$0.0675 December 5, 1997 December 19, 1997
</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
FOR THE YEAR ENDED OCTOBER 31** FEBRUARY 28, 1994*
---------------------------------- THROUGH
1997 1996 1995 OCTOBER 31, 1994**
- ------------------------------------------------- ---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 15.08 $ 14.91 $ 13.20 $ 14.06
---------- ---------- ---------- ------------------
Net investment income............................. 0.80 0.80 0.79 0.44
Net realized and unrealized gain (loss)........... 0.43 0.11 1.58 (0.93)
---------- ---------- ---------- ------------------
Total from investment operations.................. 1.23 0.91 2.37 (0.49)
---------- ---------- ---------- ------------------
Less dividends from net investment income ........ (0.81) (0.81) (0.75) (0.38)
---------- ---------- ---------- ------------------
Anti-dilutive effect of acquiring treasury
shares........................................... 0.04 0.07 0.09 0.05
---------- ---------- ---------- ------------------
Offering costs charged against capital............ -- -- -- (0.04)
---------- ---------- ---------- ------------------
Net asset value, end of period.................... $ 15.54 $ 15.08 $ 14.91 $ 13.20
========== ========== ========== ==================
Market value, end of period....................... $14.375 $13.125 $12.625 $11.125
========== ========== ========== ==================
TOTAL INVESTMENT RETURN+.......................... 16.12% 10.52% 20.61% (23.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses ................................... 0.47% 0.49%(3) 0.54%(3) 0.51%(2)
Net investment income............................. 5.27% 5.32% 5.51% 4.69%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $138,941 $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.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect effect of expense offset of 0.01%.
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, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for each of the three 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, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 12, 1997
- -------------------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1997, 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
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------------------
Dean Witter Trust FSB
Harborside Financial Center -Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
INSURED
MUNICIPAL
SECURITIES
ANNUAL REPORT
OCTOBER 31, 1997
