-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PooBXY1fIEyqfiu7q2V+BOYm27r2TPK6e+ElG6LEZ9B4SMbDNbTad7WvGi9FnwEa diSI2ECJk7vVbt/iNVs/oQ== 0000950123-95-003762.txt : 19951221 0000950123-95-003762.hdr.sgml : 19951221 ACCESSION NUMBER: 0000950123-95-003762 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951220 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCAPITAL INSURED MUNICIPAL BOND TRUST CENTRAL INDEX KEY: 0000861185 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06053 FILM NUMBER: 95602915 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CTR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE MUNICIPAL PREMIUM INCOME TRUST II DATE OF NAME CHANGE: 19901202 N-30D 1 ANNUAL REPORT 1 Two World Trade Center, New York, New York 10048 INTERCAPITAL INSURED MUNICIPAL BOND TRUST 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 municipal market continued to experience consolidation in 1995. Municipal underwriting in the first 10 months of the year was down - --------------- *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. 2 INTERCAPITAL INSURED MUNICIPAL BOND TRUST LETTER TO THE SHAREHOLDERS October 31, 1995, continued 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 Bond Trust (IMB) rose from $14.16 to $15.41 per share during the fiscal year ended October 31, 1995. Based on this NAV change plus reinvestment of tax-free dividends totaling $1.04 per share, the Trust's total return was 16.98 percent. Over the same period, IMB's market price on the New York Stock Exchange appreciated 13.6 percent from $12.875 to $14.625 per share. Based on this market price change and reinvestment of tax-free dividends, the Trust's total return was 22.10 percent. IMB began the fiscal year trading at a 9 percent discount to NAV and closed at a 5 percent discount. Undistributed net investment income totaled $0.026 per share on October 31, 1995 versus $0.074 per share a year ago. Since the amount of IMB's undistributed net investment income continued to shrink during the summer, the Trustees voted to reduce the monthly dividend from $0.085 to $0.075 per share beginning with the November 1995 payment. This revised dividend rate more accurately reflects the Trust's current earnings. 3 INTERCAPITAL INSURED MUNICIPAL BOND TRUST LETTER TO THE SHAREHOLDERS October 31, 1995, continued PORTFOLIO STRUCTURE On October 31, 1995, IMB's long-term portfolio was diversified among 11 long-term municipal sectors and 37 credits. The three largest sectors -- mortgage - single family, transportation and industrial development/pollution control revenue bonds -- represented 53 percent of the portfolio. The average maturity and call protection of the Trust's long-term holdings were 23 and 6 years, respectively. Net assets exceeded $110 million. Each position in the portfolio was backed by triple "A" rated bond insurers or U.S. government-guaranteed securities. 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) FGIC 24% AMBAC 6% MBIA 41% GNMA 11% FSA 18%
THE IMPACT OF LEVERAGING As discussed in previous reports, the total income available for distribution to common shareholders includes incremental income provided by Auction Rate Preferred Share (ARPS) leverage. ARPS dividends reflect prevailing short-term interest rates on maturities normally ranging from one week to one year. Incremental income to common shares depends on two factors: first, the spread between the interest earned on the long-term bonds in the established portfolio of investments and the ARPS auction rate plus ARPS expenses; second, the amount of ARPS outstanding. The greater the amount of ARPS outstanding, the greater the amount of incremental income available for distribution to common shareholders. The profitability of ARPS declined in 1994 and the first half of 1995. ARPS yields have moved somewhat lower since the Federal Reserve Board's initial easing in July 1995. A reduction in the amount of ARPS outstanding -- to control the portfolio's price volatility last year -- also diminished incremental income to common shares. Currently, $30 million in ARPS are outstanding. This represents 27 percent of net assets. 4 INTERCAPITAL INSURED MUNICIPAL BOND TRUST LETTER TO THE SHAREHOLDERS October 31, 1995, continued 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 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 13,000 shares of common stock at a weighted average market discount of 9.49 percent. The Trust may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including their purchase in the open market or in privately negotiated transactions. We appreciate your ongoing support of InterCapital Insured Municipal Bond Trust and look forward to continuing to serve your investment needs. Very truly yours, /s/ C. FIUMEFREDDO - ---------------------- CHARLES A. FIUMEFREDDO Chairman of the Board 5 INTERCAPITAL INSURED MUNICIPAL BOND TRUST RESULTS OF ANNUAL MEETING (unaudited) * * * On October 31, 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 BY ALL SHAREHOLDERS: Jack F. Bennett For............................................................................................ 3,770,196 Withheld....................................................................................... 103,905 Michael Bozic For............................................................................................ 3,767,658 Withheld....................................................................................... 106,443
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS: Charles A. Fiumefreddo For............................................................................................ 348 Withheld....................................................................................... --
The following Trustees were not standing for reelection at this meeting: Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Paul Kolton, Michael E. Nugent, Philip J. Purcell and John L. Schroeder. (2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT: For............................................................................................ 3,622,155 Against........................................................................................ 64,790 Abstain........................................................................................ 187,156
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS: For............................................................................................ 3,714,516 Against........................................................................................ 19,568 Abstain........................................................................................ 140,017
6 INTERCAPITAL INSURED MUNICIPAL BOND TRUST PORTFOLIO OF INVESTMENTS October 31, 1995
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (97.9%) General Obligation (4.8%) $ 5,000 Cook County, Illinios, Ser 1992 A (MBIA)................................. 6.60 % 11/15/22 $ 5,325,200 - -------- ---------- Educational Facilities Revenue (6.7%) 6,000 Massachusetts Health & Educational Facilities Authority, Boston University 1991 Ser K & L (MBIA)................................................... 6.66 10/01/31 6,346,740 1,000 Pennsylvania Higher Educational Facilities Authority, Duquesne University Refg Ser A of 1991 (MBIA)............................................... 6.75 04/01/20 1,084,060 - -------- ---------- 7,000 7,430,800 - -------- ---------- Electric Revenue (4.7%) 3,000 Piedmont Municipal Power Agency, South Carolina, 1991 Refg Ser (FGIC).... 6.50 01/01/11 3,210,600 2,000 Snohomish County Public Utility District #1, Washington, 1993 Ser (FGIC).................................................................. 6.00 01/01/18 2,013,820 - -------- ---------- 5,000 5,224,420 - -------- ---------- Hospital Revenue (8.9%) 2,000 Connecticut Health & Educational Facilities Authority, Yale-New Haven Hospital Ser F (MBIA)................................................... 7.10 07/01/25 2,207,120 3,000 Jacksonville Health Facilities Authority, Florida, New Children's Hospital at Baptist Medical Center Ser 1991 (MBIA)...................... 7.00 06/01/21 3,325,230 3,000 Illinois Health Facilities Authority, Memorial Medical Center Ser 1989 (MBIA).................................................................. 6.75 10/01/11 3,218,850 1,000 Nebraska Investment Finance Authority, Methodist Health System Inc Ser 1991 (MBIA)......................................................... 7.00 03/01/06 1,126,960 - -------- ---------- 9,000 9,878,160 - -------- ---------- Industrial Development/Pollution Control (10.5%) 2,500 Jasper County, Indiana, Northern Indiana Public Service Co Collateralized Ser 1991 (MBIA)......................................................... 7.10 07/01/17 2,772,900 1,000 Rockport, Indiana, Indiana & Michigan Power Co Ser B (Secondary FGIC).... 7.60 03/01/16 1,144,790 1,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA)............. 7.00 06/01/31 1,111,000 3,000 New Hampshire Industrial Development Authority, Canal Electric Co (AMT) (FGIC)............................................................ 7.375 12/01/20 3,339,930 3,000 New York State Environmental Facilities Corporation, Jamaica Water Supply Co Ser 1989 (AMT) (Secondary AMBAC)..................................... 7.625 04/01/29 3,295,020 - -------- ---------- 10,500 11,663,640 - -------- ---------- Mortgage Revenue - Single Family (30.6%) 1,790 District of Columbia Housing Finance Agency, GNMA Collateralized Ser 1988 E (AMT) (MBIA)................................................. 7.70 12/01/22 1,894,697 285 Hawaii Housing Finance & Development Corporation, Ser 1989 A (AMT) (Bifurcated FSA)........................................................ 7.70 07/01/29 303,930 1,175 Sedgwick & Shawnee County, Kansas, GNMA Collateralized 1990 Ser B (AMT) (AMBAC)........................................................... 7.80 06/01/22 1,261,386 5,000 Maine Housing Authority, Ser 1991 A (Bifurcated FSA)..................... 7.40 11/15/22 5,339,100 4,955 Massachusetts Housing Finance Agency, Ser 14 (Bifurcated FSA)............ 7.60 12/01/14 5,331,431
SEE NOTES TO FINANCIAL STATEMENTS 7 INTERCAPITAL INSURED MUNICIPAL BOND TRUST PORTFOLIO OF INVESTMENTS October 31, 1995, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------------- $ 1,580 Michigan Housing Development Authority, Ser 1990 D (AMT) (Bifurcated FSA).................................................................... 7.65 % 12/01/19 $ 1,677,470 2,075 Minnesota Housing Finance Agency, Ser 1990 A (AMT) (Bifurcated FSA)...... 7.85 07/01/22 2,218,445 1,885 Missouri Housing Development Commission, GNMA-Backed 1991 Ser A (AMT).... 7.375 08/01/23 1,992,257 6,400 Nebraska Investment Finance Authority, GNMA-Backed 1990 Ser 1 & 2 (AMT).. 7.631 09/10/30 6,888,064 620 New Jersey Housing & Mortgage Finance Agency, Home Buyer Ser E (MBIA).... 7.65 10/01/16 667,560 1,910 Tennessee Housing Development Agency, Homeownership Issue S (AMT) (Secondary MBIA)........................................................ 7.625 07/01/22 2,049,124 3,935 Wisconsin Housing & Economic Development Authority, Homeownership 1991 Ser A (Bifurcated FSA)............................................. 7.50 09/01/17 4,228,079 - -------- ---------- 31,610 33,851,543 - -------- ---------- Resource Recovery Revenue (2.2%) 2,200 Connecticut Resource Recovery Authority, Mid-Connecticut 1985 Ser B (MBIA).................................................................. 7.875 11/15/12 2,347,554 - -------- ---------- Transportation Facilities Revenue (11.4%) 3,000 Hawaii, Airports Second Ser 1990 (AMT) (FGIC)............................ 7.50 07/01/20 3,344,130 2,000 Wayne County, Michigan, Detroit Metropolitan Wayne County Airport Sub Lien Ser 1991 B (AMT) (MBIA)............................................ 6.75 12/01/21 2,139,240 5,000 New Hampshire, Turnpike 1991 Refg Ser B & C (FGIC)....................... 6.805 11/01/17 5,513,750 1,500 Port of Portland, Oregon, Portland International Airport Ser Seven B (AMT) (MBIA)............................................................ 7.10 07/01/21 1,654,830 - -------- ---------- 11,500 12,651,950 - -------- ---------- Water & Sewer Revenue (5.7%) 2,250 Broward County, Florida, Utility Ser 1991 (FGIC)......................... 6.00 10/01/20 2,281,117 4,000 Norfolk, Virginia, Water Ser 1995 (MBIA)................................. 5.875 11/01/20 4,032,560 - -------- ---------- 6,250 6,313,677 - -------- ---------- Other Revenue (2.2%) 2,500 Las Cruces, New Mexico, Ser 1995 (AMT) (MBIA) (WI)....................... 5.50 12/01/15 2,389,025 - -------- ---------- Refunded (10.2%) 2,000 Castaic Lake Water Agency, California, Ser 1990 COPs (MBIA).............. 7.125 08/01/16 2,271,980 5,000 Eastern Municipal Water District, California, Water & Sewer Ser 1991 COPs (FGIC).................................................................. 6.50 07/01/20 5,604,700 3,000 Bucks County Industrial Development Authority, Pennsylvania, Grand View Hospital Ser of 1991 (AMBAC)............................................ 7.00 07/01/11 3,425,970 - -------- ---------- 10,000 11,302,650 - -------- ---------- 100,560 TOTAL MUNICIPAL BONDS (Identified Cost $99,940,464).............................................. 108,378,619 - -------- ----------
SEE NOTES TO FINANCIAL STATEMENTS 8 INTERCAPITAL INSURED MUNICIPAL BOND TRUST PORTFOLIO OF INVESTMENTS October 31, 1995, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATIONS (2.5%) $ 1,700 Massachusetts, Dedicated Income Tax Ser 1990 B (Demand 11/01/95)......... 3.70 %* 12/01/97 $ 1,700,000 1,100 Washington Health Care Facilities Authority, Sisters of Providence Ser 1985 B (Demand 11/01/95)................................................ 3.90* 10/01/05 1,100,000 - -------- ---------- 2,800 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $2,800,000).............................. 2,800,000 - -------- ---------- $103,360 TOTAL INVESTMENTS (Identified Cost $102,740,464) (a)..................................... 100.4% 111,178,619 ======== LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS........................................... (0.4) (460,880) ---- ---------- NET ASSETS............................................................................... 100.0% $110,717,739 ====== ============
- --------------------- AMT Alternative Minimum Tax. COPs Certificates of Participation. WI Security purchased on a when issued basis. * Current coupon of variable rate security. (a) The aggregate cost for federal income tax purposes is $102,740,464; the aggregate gross and net unrealized appreciation is $8,438,155.
Bond Insurance: AMBAC AMBAC Indemnity Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation.
------------------------------------------------------------------------------ GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets October 31, 1995 California........ 7.1% Connecticut....... 4.1 District of Columbia......... 1.7 Florida........... 5.1 Hawaii............ 3.3 Illinois.......... 7.7 Indiana........... 3.5 Kansas............ 2.1 Maine............. 4.8 Massachusetts..... 12.1% Michigan.......... 3.4 Minnesota......... 2.0 Missouri.......... 1.8 Nebraska.......... 7.2 New Hampshire..... 8.0 New Jersey........ 0.6 New Mexico........ 2.2 New York.......... 3.0 Oregon............ 1.5% Pennsylvania...... 4.1 South Carolina.... 2.9 Tennessee......... 1.9 Virginia.......... 3.7 Washington........ 2.8 Wisconsin......... 3.8 ------ Total............. 100.4% ======
SEE NOTES TO FINANCIAL STATEMENTS 9 INTERCAPITAL INSURED MUNICIPAL BOND TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES October 31, 1995 ASSETS: Investments in securities, at value (identified cost $102,740,464)....................................... $111,178,619 Cash.................................................................. 135,324 Interest receivable................................................... 1,902,890 Deferred organizational expenses...................................... 2,669 Prepaid expenses...................................................... 8,868 ---------- TOTAL ASSETS...................................................... 113,228,370 ---------- LIABILITIES: Payable for: Investments purchased............................................. 2,391,424 Investment management fee......................................... 34,965 Accrued expenses...................................................... 84,242 ---------- TOTAL LIABILITIES................................................. 2,510,631 ---------- NET ASSETS: Preferred shares of beneficial interest (1,000,000 shares authorized of non-participating $.01 par value, 600 shares outstanding)......... 30,000,000 ---------- Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 5,238,113 shares outstanding)........................ 72,351,481 Net unrealized appreciation........................................... 8,438,155 Accumulated undistributed net investment income....................... 136,919 Accumulated net realized loss......................................... (208,816) ---------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS...................... 80,717,739 ---------- TOTAL NET ASSETS.................................................. $110,717,739 ========== NET ASSET VALUE PER COMMON SHARE ($80,717,739 divided by 5,238,113 common shares outstanding)......... $15.41 ======
SEE NOTES TO FINANCIAL STATEMENTS 10 INTERCAPITAL INSURED MUNICIPAL BOND TRUST FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the year ended October 31, 1995 NET INVESTMENT INCOME: INTEREST INCOME........................................................ $ 7,069,881 --------- EXPENSES Investment management fee.............................................. 378,608 Professional fees...................................................... 106,647 Auction commission fees................................................ 76,822 Transfer agent fees and expenses....................................... 30,486 Trustees' fees and expenses............................................ 26,385 Shareholder reports and notices........................................ 24,211 Registration fees...................................................... 18,292 Auction agent fees..................................................... 17,241 Organizational expenses................................................ 8,067 Custodian fees......................................................... 6,067 Other.................................................................. 15,937 --------- TOTAL EXPENSES BEFORE EXPENSE OFFSET............................... 708,763 LESS: EXPENSE OFFSET............................................... (6,028) --------- TOTAL EXPENSES AFTER EXPENSE OFFSET................................ 702,735 --------- NET INVESTMENT INCOME.............................................. 6,367,146 --------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized loss...................................................... (62,197) Net change in unrealized appreciation.................................. 6,819,075 --------- NET GAIN........................................................... 6,756,878 --------- NET INCREASE........................................................... $13,124,024 =========
SEE NOTES TO FINANCIAL STATEMENTS 11 INTERCAPITAL INSURED MUNICIPAL BOND TRUST FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 1995 1994 ------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income............................. $ 6,367,146 $ 7,028,394 Net realized loss................................. (62,197) (67,514) Net change in unrealized appreciation............. 6,819,075 (12,965,757) ---------- ---------- NET INCREASE (DECREASE)....................... 13,124,024 (6,004,877) ---------- ---------- DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Preferred......................................... (1,196,552) (1,207,800) Common............................................ (5,423,197) (6,360,938) ---------- ---------- TOTAL......................................... (6,619,749) (7,568,738) ---------- ---------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Preferred......................................... (5,000,000) (5,000,000) Common............................................ (163,890) (79,556) ---------- ---------- TOTAL......................................... (5,163,890) (5,079,556) ---------- ---------- TOTAL INCREASE (DECREASE)..................... 1,340,385 (18,653,171) NET ASSETS: Beginning of period............................... 109,377,354 128,030,525 ---------- ---------- END OF PERIOD (Including undistributed net investment income of $136,919 and $389,522, respectively)....... $110,717,739 $109,377,354 ========== ==========
SEE NOTES TO FINANCIAL STATEMENTS 12 INTERCAPITAL INSURED MUNICIPAL BOND TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1995 1. ORGANIZATION AND ACCOUNTING POLICIES InterCapital Insured Municipal Bond Trust (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 February 27, 1990 and commenced operations on February 28, 1991. 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 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 13 INTERCAPITAL INSURED MUNICIPAL BOND TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued 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 $40,281 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 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 $6,234,800 and $6,103,190, 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 $2,300. The Trust has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Trust who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended October 31, 1995 included in Trustees' fees and expenses in the Statement of Operations amounted to $7,391. At October 31, 1995, 14 INTERCAPITAL INSURED MUNICIPAL BOND TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued the Trust had an accrued pension liability of $16,414 which is included in accrued expenses in the Statement of Assets and Liabilities. 4. PREFERRED SHARES OF BENEFICIAL INTEREST The Trust is authorized to issue up to 1,000,000 non-participating preferred shares of beneficial interest having a par value of $.01 per share, in one or more series, with rights as determined by the Trustees, without approval of the common shareholders. On April 11, 1991, the Trust issued 800 shares of Auction Rate Preferred Shares ("Preferred Shares") for gross total proceeds of $40,000,000. 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. During the year ended October 31, 1995, the Trust purchased and retired 100 shares in the amount of $5,000,000. Dividends, which are cumulative, are reset through auction procedures.
RANGE OF SHARES* RATE* RESET DATE DIVIDEND RATES** - ------- ----- ---------- ---------------- 600 3.77% 11/01/95 3.55% - 6.25%
- --------------------- * As of October 31, 1995. ** For the year ended October 31, 1995. Subsequent to October 31, 1995 and up through December 5, 1995, the Trust paid dividends at rates ranging from 3.73% to 4.125% in the aggregate amount of $108,918. 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. 15 INTERCAPITAL INSURED MUNICIPAL BOND TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued 5. COMMON SHARES OF BENEFICIAL INTEREST Transactions in common shares of beneficial interest were as follows:
CAPITAL PAID IN PAR EXCESS OF SHARES VALUE PAR VALUE --------- ------- ----------- Balance, October 31, 1993.................................................. 5,257,113 $52,571 $72,542,356 Treasury shares purchased and retired (weighted average discount 7.34%)*... (6,000) (60) (79,496) --------- ------- ----------- Balance, October 31, 1994.................................................. 5,251,113 52,511 72,462,860 Treasury shares purchased and retired (weighted average discount 9.49%)*... (13,000) (130) (163,760) --------- ------- ----------- Balance, October 31, 1995.................................................. 5,238,113 $52,381 $72,299,100 ======= ====== =========
- --------------------- * The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS At October 31, 1995, the Trust had a net capital loss carryover of approximately $209,000, to offset future capital gains to the extent provided by regulations, which are available through October 31 in the following years:
AMOUNTS IN THOUSANDS ------------------------------------------------------------------------- 2001 2002 2003 TOTAL ----- ----- ----- ------- $79 $68 $62 $209 === === === ====
7. DIVIDENDS TO COMMON SHAREHOLDERS The Trust has declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - ------------------ ---------- ----------------- ----------------- October 31, 1995 $0.075 November 10, 1995 November 24, 1995 November 28, 1995 $0.075 December 8, 1995 December 22, 1995
16 INTERCAPITAL INSURED MUNICIPAL BOND TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued 8. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
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 ------- ------ ------ ----- ------- ------ ------ ------ Total investment income.................. $ 1,767 $ 0.34 $1,778 $0.34 $ 1,734 $ 0.33 $1,791 $ 0.34 Net investment income.................... 1,589 0.30 1,600 0.31 1,562 0.30 1,616 0.31 Net realized and unrealized gain......... 1,238 0.24 1,292 0.25 1,948 0.37 2,279 0.44
QUARTERS ENDED ------------------------------------------------------------------------------------ 10/31/94 7/31/94 4/30/94 1/31/94 ------------------ ---------------- ------------------ ----------------- PER PER PER PER TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE ------- ------ ------ ----- ------- ------ ------ ------ Total investment income.................. $ 1,952 $ 0.37 $1,909 $0.36 $ 1,951 $ 0.37 $2,047 $ 0.39 Net investment income.................... 1,742 0.33 1,706 0.33 1,748 0.33 1,832 0.35 Net realized and unrealized gain (loss).................................. (4,332) (0.83) 368 0.06 (9,010) (1.71) (59) (0.01)
- --------------------- * Amounts in thousands.
17 INTERCAPITAL INSURED MUNICIPAL BOND TRUST FINANCIAL HIGHLIGHTS Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
FOR THE PERIOD FEBRUARY 28, 1991* THROUGH FOR THE YEAR ENDED OCTOBER 31 OCTOBER --------------------------------------- 31, 1995** 1994** 1993** 1992** 1991** --------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period........................ $ 14.16 $ 16.75 $ 14.84 $ 14.66 $14.06 ------ ------ ------ ------ ----- Net investment income....................................... 1.22 1.34 1.41 1.45 0.86 Net realized and unrealized gain (loss)..................... 1.30 (2.49) 2.04 0.09 0.70 ------ ------ ------ ------ ----- Total from investment operations............................ 2.52 (1.15) 3.45 1.54 1.56 ------ ------ ------ ------ ----- Less dividends and distributions from: Net investment income...................................... (1.04) (1.21) (1.26) (1.08) (0.52) Common share equivalent of dividends paid to preferred shareholders............................................. (0.23) (0.23) (0.24) (0.26) (0.19) Net realized gain.......................................... -- -- (0.04) (0.02) -- ------ ------ ------ ------ ----- Total dividends and distributions........................... (1.27) (1.44) (1.54) (1.36) (0.71) Offering costs charged against capital...................... -- -- -- -- (0.25) ------ ------ ------ ------ ----- Net asset value, end of period.............................. $ 15.41 $ 14.16 $ 16.75 $ 14.84 $14.66 ====== ====== ====== ====== ===== Market value, end of period................................. $14.625 $12.875 $17.875 $16.375 $15.50 ====== ====== ====== ====== ===== TOTAL INVESTMENT RETURN+.................................... 22.10% (22.37)% 17.74% 13.05% 6.89%(1) RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS: Total expenses before expense offset........................ 0.91%(3) 1.03% 1.01% 0.99% 1.00%(2) Net investment income before preferred stock dividends...... 8.16%(3) 8.68% 8.86% 9.61% 9.16%(2) Preferred stock dividends................................... 1.53% 1.49% 1.49% 1.70% 1.97%(2) Net investment income available to common shareholders...... 6.63% 7.19% 7.37% 7.91% 7.19%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands..................... $110,718 $109,377 $128,031 $117,998 $117,071 Asset coverage on preferred shares at end of period......... 369% 312% 319% 295% 293% Portfolio turnover rate..................................... 6% 12% 6% 7% 16%(1)
- --------------------- * 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 and distributions 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) The above expense and net investment income ratios would have been 0.90% and 8.17%, respectively, which reflects 0.01% effect for custody cash credits. SEE NOTES TO FINANCIAL STATEMENTS 18 INTERCAPITAL INSURED MUNICIPAL BOND TRUST REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND TRUSTEES OF INTERCAPITAL INSURED MUNICIPAL BOND TRUST 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 Bond Trust (the "Trust") at October 31, 1995, 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 four years in the period then ended and for the period February 28, 1991 (commencement of operations) through October 31, 1991, 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, 1995, by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 December 5, 1995 -------------------------------------------------------------------- 1995 Federal Tax Notice (unaudited) During the year ended October 31, 1995, the Trust paid the following per share amounts from tax-exempt income: $1.04 to common shareholders and $1,985 to preferred shareholders. 19 (This Page Intentionally Left Blank) 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 BOND TRUST ANNUAL REPORT OCTOBER 31, 1995 -----END PRIVACY-ENHANCED MESSAGE-----