<PAGE> 1
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
Strong economic growth in the fourth quarter of 1993 and a shift in Federal
Reserve Board monetary policy in February of 1994 caused the fixed-income
markets to reverse direction and led to the sharpest increase in interest rates
in more than six years. At the beginning of the year, market concerns about
inflation developed as the economy approached full employment and commodity
prices moved upward. The Federal Reserve Board responded by tightening monetary
policy. Since early February, the central bank has raised the federal-funds
rate -- the interest rate banks charge each other for overnight loans -- 250
basis points from 3.00 percent to 5.50 percent in six separate moves through
November. Between May and November, the discount rate -- the interest rate the
Federal Reserve charges member banks for loans -- increased 175 basis points to
4.75 percent.
During InterCapital California Insured Municipal Income Trust's (NYSE
symbol: IIC) fiscal year ended October 31, 1994, long-term municipal bond
yields, as measured by The Bond Buyer Revenue Bond Index,* rose 139 basis points
from 5.56 percent to 6.95 percent. In February and March yields jumped 89 basis
points from 5.50 percent to 6.39 percent in response to the Federal Reserve
Board's initial tightening and subsequent municipal bond selling pressure. A
semblance of stability returned to the market between June and August. After
Labor Day, however, continued economic growth, aggressive tax-loss selling,
heavy mutual-fund redemptions and excessive dealer inventory led to further
municipal market deterioration. The total yield increase of 139 basis points
during the fiscal year was equivalent to a 17 percent price decline for a
30-year municipal bond. One-third of this price decline occurred in September
and October.
The municipal market was also influenced by supply and demand conditions.
New-issue underwriting totaled a record $290 billion in 1993. The pace of
new-issue activity over the first 10 months of 1994, however, slowed 44 percent.
The estimated issuance for 1994 is $160 billion. By way of comparison, bond
maturities and calls for redemption are expected to reach $190 billion this year
resulting in a reduction in the amount of municipal debt outstanding. This
scarcity would normally be expected to improve the relative performance of
municipal bonds under stable-to-improving interest rate conditions.
PERFORMANCE
The Trust's net asset value (NAV) declined from $14.87 to $11.29 per share
during the fiscal year ended October 31, 1994. Based on this change and
reinvestment of tax-free dividends totaling $0.87 per share, the Trust's total
return for the fiscal year was -18.96 percent. Concurrently, the Trust's market
price on the New York Exchange declined from $15.375 to $11.125 per share. Based
on this market change and reinvestment of dividends, the Trust's total return
for the fiscal year was -22.82 percent. The Trust began the fiscal year trading
at a 3.40 percent premium to NAV and closed at a 1.46 percent discount to NAV.
- ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's and AA+ to A- by Standard &
Poor's.
<PAGE> 2
PORTFOLIO STRUCTURE
As of October 31, 1994, the portfolio's long-term investments were
diversified among 8 municipal sectors and 36 credits. The three largest sectors
were water and sewer, tax allocation, and electric revenue bonds, representing
55 percent of net assets. The average maturity and call protection of the
Trust's long-term holdings was 24 years and 9 years, respectively. At the end of
the period, the Trust had net assets in excess of $243 million.
Each position in the portfolio was backed either by bond insurers that are
rated Aaa by Moody's Investors Service, Inc. and by Standard & Poor's Corp. As
of October 31, 1994, the distribution of long-term credit enhancements was:
<TABLE>
<CAPTION>
Municipal Bond Insurance Percent
------------------------------------------------------------------ ------
<S> <C>
AMBAC Indemnity Corporation (AMBAC)............................... 25%
Financial Guaranty Insurance Company (FGIC)....................... 19
Financial Security Assurance Inc. (FSA)........................... 4
Municipal Bond Investors Assurance Corporation (MBIA)............. 52
</TABLE>
On December 6, 1994, Orange County, California filed for protection under
federal bankruptcy law as the result of market losses in its pooled investment
fund. Only one of the Trust's holdings representing 3.0 percent of net assets
has been identified as a possible participant in the pool. This triple -A rated
bond is insured by AMBAC as to principal and interest in the event that the
issuer experiences difficulty in meeting debt service payments.
THE IMPACT OF LEVERAGING
As reported previously, the Trust's common shares are leveraged. Leverage
was created through the issuance of auction rate preferred shares (ARPS). The
ARPS's auction periods normally range between one week and one year. Proceeds
from ARPS underwritings were used to purchase additional long-term municipal
bonds. Following the payment of ARPS dividends, the common shares earn
incremental income when the portfolio yield is higher than the costs of the ARPS
(yield plus operating and remarketing expenses). Although rising short-term
interest rates have narrowed the yield spread this year, ARPS continue to
provide positive incremental income to common shareholders.
The leveraged capital structure of closed-end municipal bond funds
additionally impacts NAV. ARPS normally account for one-third of a fund's
underwritten capital structure. This produces a volatility factor for common
shares of 1.5 times the price change of bonds held in the portfolio. The common
stock's NAV per share reflects the full price change of the portfolio's
investments since the value of the preferred shares does not fluctuate.
As the bond market has eroded, the degree of leverage and volatility has
increased. The purchase and retirement of ARPS counteracts this trend. During
the fiscal year, IIC purchased and retired $15 million in par amount of ARPS so
that $85 million in ARPS remain outstanding. Additional ARPS purchases may occur
if the degree of leverage increases or ARPS profitability (spread) declines
significantly.
DIVIDEND RESERVES
At the end of the fiscal year, IIC had undistributed net investment income
of $0.069 per share available for future distributions. This dividend reserve or
"cushion" helped sustain the Trust's current
<PAGE> 3
monthly dividend. Higher yields in future ARPS auctions and ARPS retirements may
further erode the cushion. Declines in the dividend reserve may cause the Trust
to adjust the common share dividend.
LOOKING AHEAD
The overall direction of interest rates will primarily be determined by the
strength of the economy, the trend of inflation and the Federal Reserve Board's
responses. These conditions may continue to move interest rates higher through
mid-1995. Investor demand for municipal securities should be sustained by
significant bond maturities, calls for redemption and diminished new-issue
supply. Changing market conditions and the profitability of ARPS are among the
factors that will determine the Trust's future level of income and influence the
direction of the common stock market price.
The Trust's procedure for reinvestment of all dividends and distributions
on common shares is by purchase in the open market. This method helps to support
the market value of the Trust's shares. In addition, the Trustees have approved
a procedure whereby the Trust, when appropriate, purchases shares in the open
market or in privately negotiated transactions at a price not above market value
or net asset value, whichever is lower at the time of purchase. 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 California Insured
Municipal Income Trust and look forward to continuing to serve your investment
needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 4
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
CALIFORNIA EXEMPT MUNICIPAL BONDS (92.4%)
GENERAL OBLIGATION (6.2%)
$ 10,000 California, Various Purpose 4/1/93 (FSA Insured)....... 5.50 % 4/ 1/19 $ 8,419,200
Industry,
3,000 Refg Issue of 1993 (MBIA Insured).................... 5.50 7/ 1/13 2,593,500
4,900 Refg Issue of 1993 (MBIA Insured).................... 5.50 7/ 1/16 4,167,793
- ---------- ------------
17,900 15,180,493
- ---------- ------------
ELECTRIC REVENUE (16.5%)
8,000 Los Angeles Department of Water & Power, Refg
Issue of 1993 (Secondary MBIA Insured)............... 5.875 9/ 1/30 6,924,560
8,000 M-S-R Public Power Agency, San Juan Refg Ser F
(AMBAC Insured)...................................... 6.00 7/ 1/20 7,280,960
7,000 Northern California Transmission Agency,
California-Oregon Transmission Refg Ser 1993 A (MBIA
Insured)............................................. 5.25 5/ 1/20 5,615,540
Sacramento Municipal Utility District,
3,500 Refg 1993 Ser D (FGIC Insured)....................... 5.25 11/15/12 2,916,795
8,000 Refg 1993 Ser D (MBIA Insured)....................... 5.485 11/15/15 7,326,240
12,000 Southern California Public Power Authority, Power
1993 Sub Refg Ser A (FGIC Insured)................... 5.31 7/ 1/17 10,043,640
- ---------- ------------
46,500 40,107,735
- ---------- ------------
HOSPITAL REVENUE (6.6%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA
Insured)............................................. 5.50 3/ 1/19 3,494,632
3,000 California Health Facilities Financing Authority,
Children's
Hospital-San Diego Ser 1993 (MBIA Insured)........... 5.75 7/ 1/23 2,591,070
California Statewide Communities Development Authority,
5,000 Motion Picture & Television Fund COPs (AMBAC Insured) 5.375 1/ 1/20 4,089,600
5,000 UniHealth America 1993 Ser A COPs (AMBAC Insured).... 5.50 10/ 1/14 4,286,250
2,000 Marysville, Fremont-Rideout Health Group Refg
Ser 1993-A (AMBAC Insured)........................... 5.55 1/ 1/13 1,739,280
- ---------- ------------
19,150 16,200,832
- ---------- ------------
PUBLIC FACILITIES REVENUE (13.4%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs
(MBIA Insured)....................................... 5.70 12/ 1/14 8,793,600
14,000 Beverly Hills Public Financing Authority, Lease 1993
Refg Ser A (MBIA Insured)............................ 5.51 6/ 1/15 12,257,980
9,000 California Public Works Board, Dept of Corrections Refg
1993 Ser B (MBIA Insured)............................ 5.50 12/ 1/12 7,825,590
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC
Insured)............................................. 5.00 11/ 1/23 3,820,600
- ---------- ------------
38,000 32,697,770
- ---------- ------------
</TABLE>
<PAGE> 5
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
TAX ALLOCATION (17.2%)
$ 10,000 Long Beach Financing Authority, Ser 1992 (AMBAC
Insured)............................................. 5.50 % 11/ 1/22 $ 8,338,400
10,000 Orange Redevelopment Agency, Southwest Refg
Issue of 1993 A (AMBAC Insured)...................... 5.70 10/ 1/23 8,570,800
7,500 Port Hueneme Redevelopment Agency, Central Community
1993 Refg (AMBAC Insured)............................ 5.50 5/ 1/23 6,246,525
7,000 Poway Redevelopment Agency, Paguay Redev Sub Refg Ser
1993 (FGIC Insured).................................. 5.50 12/15/23 5,821,200
6,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A
(MBIA Insured)....................................... 5.625 8/ 1/23 5,087,520
5,000 Santa Clara Redevelopment Agency, Bayshore North
1992 Refg (AMBAC Insured)............................ 5.75 7/ 1/14 4,424,600
4,000 Simi Valley Public Financing Authority, 1993 Refg
(MBIA Insured)....................................... 5.50 9/ 1/15 3,412,760
- ---------- ------------
49,500 41,901,805
- ---------- ------------
TRANSPORTATION FACILITIES REVENUE (7.5%)
8,000 Los Angeles County Metropolitan Transportation
Authority, Sales Tax Refg Ser 1993-A (MBIA
Insured)............................................. 5.625 7/ 1/18 6,867,120
7,000 Los Angeles County Transportation Commission,
Second Sr Ser 1992-A (MBIA Insured).................. 6.00 7/ 1/23 6,345,570
5,000 San Francisco Airports Commission, San Francisco Intl
Airport Second Ser Refg Issue 2 (MBIA Insured)....... 6.75 5/ 1/20 5,014,850
- ---------- ------------
20,000 18,227,540
- ---------- ------------
WATER & SEWER REVENUE (21.4%)
10,000 California Department of Water Resources, Central
Valley Ser L (Secondary MBIA Insured)................ 5.75 12/ 1/19 8,700,300
2,805 Contra Costa Water Authority, Water Treatment
Refg 1993 Ser A (FGIC Insured)....................... 5.75 10/ 1/14 2,483,154
7,000 Eastern Municipal Water District, Ser 1993 A COPs
(FGIC Insured)....................................... 5.25 7/ 1/23 5,557,370
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA
Insured)............................................. 5.80 6/ 1/21 8,744,200
3,000 Oceanside, Water Refg COPs (AMBAC Insured)............. 5.70 8/ 1/14 2,637,870
2,250 Palmdale Water District, Little Rock Dam Ser 1993 A
COPs (MBIA Insured).................................. 5.75 10/ 1/23 1,942,538
3,500 Redding Joint Powers Financing Authority, Wastewater
Refg 1992 Ser A (FGIC Insured)....................... 6.00 12/ 1/11 3,306,905
3,100 San Elijo Joint Powers Authority, 1993 Refg (FGIC
Insured)............................................. 5.00 3/ 1/20 2,396,021
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs
(FGIC Insured)....................................... 5.50 8/ 1/21 4,181,800
9,000 South County Regional Wastewater Authority, Wastewater
& Cap Impr Morgan Hill Ser 1992-B Reg 1 (FGIC
Insured)............................................. 5.50 8/ 1/22 7,508,250
5,000 West & Central Basin Financing Authority, Water Ser
1992 (AMBAC Insured)................................. 6.125 8/ 1/22 4,615,600
- ---------- ------------
60,655 52,074,008
- ---------- ------------
</TABLE>
<PAGE> 6
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
OTHER REVENUE (3.6%)
$ 10,000 Puerto Rico Telephone Authority, Refg Ser M
- ---------- (MBIA Insured)......................................... 5.45 % 1/16/15 $ 8,746,300
------------
261,705 TOTAL CALIFORNIA EXEMPT MUNICIPAL BONDS
- ---------- (IDENTIFIED COST $258,168,992)......................... 225,136,483
------------
CALIFORNIA EXEMPT SHORT-TERM MUNICIPAL
OBLIGATIONS (5.6%)
8,900 California Health Facilities Financing Authority, St
Joseph Health Ser B (Tender 11/1/94)................. 3.45* 7/ 1/09 8,900,000
4,800 Irvine Ranch Water District, 1986 Impr (Tender
11/1/94)............................................. 3.20* 8/ 1/09 4,800,000
- ---------- ------------
13,700 TOTAL CALIFORNIA EXEMPT SHORT-TERM MUNICIPAL
- ---------- OBLIGATIONS (IDENTIFIED COST $13,700,000)...................... 13,700,000
------------
$275,405 TOTAL INVESTMENTS (IDENTIFIED COST $271,868,992) (a)............. 98.0% 238,836,483
=========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES................... 2.0 4,839,891
----- ------------
NET ASSETS....................................................... 100.0% $243,676,374
===== ============
</TABLE>
- ---------------
COPs Certificates of Participation.
* Variable or floating rate securities. Coupon rate shown reflects current
rate.
(a) The aggregate cost for federal income tax purposes is $271,868,992; the
aggregate gross and net unrealized depreciation is $33,032,509.
See Notes to Financial Statements
<PAGE> 7
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994
- --------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $271,868,992) (Note 1)... $ 238,836,483
Cash........................................ 130,005
Interest receivable......................... 4,750,759
Deferred organizational expenses (Note 1)... 23,931
Prepaid expenses............................ 89,529
-------------
TOTAL ASSETS.......................... 243,830,707
-------------
LIABILITIES:
Investment management fee payable
(Note 2)................................... 77,272
Accrued expenses (Note 3)................... 77,061
-------------
TOTAL LIABILITIES..................... 154,333
-------------
NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of non-
participating $.01 par value, 1,695 shares
outstanding) (Note 4)..................... 84,750,000
-------------
Common shares of beneficial interest
(unlimited shares authorized of $.01 par
value, 14,082,613 shares outstanding)
(Note 5).................................. 195,784,540
Unrealized depreciation on investments...... (33,032,509)
Accumulated undistributed net investment
income.................................... 969,565
Accumulated net realized loss on
investments............................... (4,795,222)
-------------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS................ 158,926,374
-------------
TOTAL NET ASSETS.................... $ 243,676,374
=============
NET ASSET VALUE PER COMMON SHARE,
($158,926,374 divided by 14,082,613
common shares outstanding)................ $11.29
======
STATEMENT OF OPERATIONS
For the year ended October 31, 1994
- --------------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................... $ 16,695,899
-------------
EXPENSES
Investment management fee (Note 2)...... 995,112
Auction commission fees................. 310,682
Professional fees....................... 104,148
Auction agent fees...................... 64,639
Transfer agent fees and expenses
(Note 3).............................. 62,873
Trustees' fees and expenses (Note 3).... 29,415
Registration fees....................... 28,371
Shareholder reports and notices......... 27,132
Organizational expenses (Note 1)........ 7,198
Other................................... 25,827
-------------
TOTAL EXPENSES...................... 1,655,397
-------------
NET INVESTMENT INCOME............. 15,040,502
-------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (Note 1):
Net realized loss on investments........ (4,795,222)
Net change in unrealized appreciation on
investments........................... (45,557,371)
-------------
NET LOSS ON INVESTMENTS............. (50,352,593)
-------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $ (35,312,091)
=============
</TABLE>
See Notes to Financial Statements
<PAGE> 8
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INVESTMENT TRUST
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
period
For the year February 26,
ended 1993 through
October 31, October 31,
1994 1993 (Note 1)
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income........................................................ $ 15,040,502 $ 8,675,744
Net realized gain (loss) on investments...................................... (4,795,222) 75,016
Net change in unrealized appreciation on investments......................... (45,557,371) 12,524,862
------------- -------------
Net increase (decrease) in net assets resulting from operations.......... (35,312,091) 21,275,622
------------- -------------
Dividends to preferred shareholders from net investment income................. (2,851,151) (1,505,835)
Dividends and distributions to common shareholders from:
Net investment income........................................................ (12,253,231) (6,136,464)
Net realized gain on investments............................................. (75,016) --
------------- -------------
Total dividends and distributions........................................ (15,179,398) (7,642,299)
------------- -------------
Increase (decrease) from transactions in shares of beneficial interest (Notes 4
& 5):
Common....................................................................... (341,173) 196,025,704
Preferred.................................................................... (15,250,000) 100,000,000
------------- -------------
Total transactions....................................................... (15,591,173) 296,025,704
------------- -------------
Total increase (decrease)................................................ (66,082,662) 309,659,027
NET ASSETS:
Beginning of period............................................................ 309,759,036 100,009
------------- -------------
END OF PERIOD (including undistributed net investment income of $969,565 and
$1,033,445, respectively).................................................... $ 243,676,374 $ 309,759,036
============= =============
</TABLE>
See Notes to Financial Statements
<PAGE> 9
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- InterCapital California Insured
Municipal Income Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, closed-end management investment
company. The Trust was organized as a Massachusetts business trust on November
2, 1992 and had no operations until February 26, 1993 other than matters related
to the sale and issuance of 7,113 common shares of beneficial interest to Dean
Witter InterCapital Inc. (the "Investment Manager") for $100,009.
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 on the identified cost
method. The Trust amortizes premiums and discounts on securities purchased
over the life of the respective securities. Interest income is accrued
daily.
C. Federal Income Tax Status -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
D. Dividends and Distributions to Shareholders -- The Trust records
dividends and distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. To the
extent they exceed net investment income and net realized capital gains for
tax purposes, they are reported as distributions of paid-in-capital.
E. Organizational and Offering Expenses -- The Investment Manager paid the
organizational and offering expenses of the Trust's common shares in the
amounts of $36,000 and $395,438, respectively, and paid $293,608 in
offering expenses of the Trust's preferred shares. Organizational expenses
have been reimbursed by the Trust for the full amount thereof. Such
expenses are being
<PAGE> 10
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
amortized by the straight-line method over a period not to exceed five
years from the commencement of operations. Offering expenses have been
reimbursed by the Trust and were charged to capital at the time of issuance
of the Trust's respective shares.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement, the Trust pays its Investment Manager a management fee, calculated
weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's
average weekly net assets.
Under the terms of the Agreement, 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, 1994 aggregated $31,647,750 and
$59,004,995, respectively.
On January 1, 1994, the Trust adopted an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Trust who will
have served as an independent Trustee 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, 1994, included in Trustees' fees and expenses in the
Statement of Operations amounted to $9,946. At October 31, 1994, the Trust has
an accrued pension liability of $9,883 which is included in accrued expenses in
the Statement of Assets and Liabilities.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1994, the Trust had transfer agent fees
and expenses payable of approximately $6,100.
Dean Witter Distributors Inc., the Trust's principal underwriter and an
affiliate of the Investment Manager, has informed the Trust that it received
approximately $1,531,000 in underwriting discounts and commissions in connection
with the offering of the preferred shares.
4. PREFERRED SHARES OF BENEFICIAL INTEREST -- The Trust is authorized to issue
up to 1,000,000 non-participating preferred shares of beneficial interest having
a par value of $.01 per share, in one or more series, with rights as determined
by the Trustees, without approval of the common shareholders. On April 15, 1993,
the Trust issued 2,000 shares of Auction Rate Preferred Shares ("Preferred
Shares") consisting of 500 shares each of Series One through Four for gross
total proceeds of $100,000,000. Underwriting discounts and commissions were
charged to capital at the time of issuance. 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, the Trust purchased and retired preferred
shares as follows:
<TABLE>
<CAPTION>
Series Shares Amount
----- ---- ------------
<S> <C> <C>
1 5 $ 250,000
2 100 5,000,000
4 200 10,000,000
---- ------------
Total 305 $ 15,250,000
==== ============
</TABLE>
<PAGE> 11
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
Reset Ranges of
Shares* Series Rate* Date Dividend Rates**
---- ------ ------ --------- ----------------
<S> <C> <C> <C> <C>
495 1 3.239% 11/4/94 1.80 % - 3.39%
400 2 3.30 1/6/95 3.04 - 3.30
500 3 3.51 3/3/95 2.875 - 3.51
300 4 3.20 11/4/94 3.00 - 3.55
</TABLE>
- ---------------
* As of October 31, 1994
** For the year ended October 31, 1994
Subsequent to October 31, 1994 and up through December 13, 1994, the Trust
paid dividends to Series 1 and 4 at rates ranging from 1.50% to 3.239% and 2.59%
to 3.85%, respectively, and to Series 2 and 3 at a rate of 3.30% and 3.51%,
respectively, in the aggregate amount of $352,048.
The Trust is subject to certain restrictions relating to the preferred
shares. Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at liquidation
value.
The preferred shares, which are entitled to one vote per share, generally
vote with the common shares but vote separately as a class to elect two Trustees
and on any matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST -- Transactions in common shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
Capital Paid
in Excess of
Shares Par Value Par Value
----------- --------- -------------
<S> <C> <C> <C>
Balance (Note 1)...................................... 7,113 $ 71 $ 99,938
Shares issued at close of public offering on February
26, 1993*........................................... 13,000,000 130,000 182,254,562
Shares issued on March 25, 1993 to cover
over-allotment...................................... 1,100,000 11,000 15,455,000
Offering costs and underwriting discounts associated
with the issuance of preferred shares............... (1,824,858)
----------- --------- -------------
Balance, October 31, 1993............................. 14,107,113 141,071 195,984,642
Treasury shares purchased and retired (weighted
average discount 2.07%)**........................... (24,500) (245) (340,928)
----------- --------- -------------
Balance, October 31, 1994............................. 14,082,613 $ 140,826 $ 195,643,714
========== ========= =============
</TABLE>
- ---------------
* Net of offering costs of $395,438.
** The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS -- At October 31, 1994, the Trust had a net
capital loss carryover of approximately $4,795,000 which will be available
through October 31, 2002, to offset future capital gains, to the extent provided
by regulations.
<PAGE> 12
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
7. DIVIDENDS TO COMMON SHAREHOLDERS -- The Trust has declared the following
dividends from net investment income:
<TABLE>
<CAPTION>
Declaration Date Amount per Share Record Date Payable Date
- ------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C>
November 1, 1994 $ 0.0725 November 11, 1994 November 25, 1994
November 29, 1994 $ 0.0725 December 9, 1994 December 23, 1994
</TABLE>
8. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
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
--------- ------- ------- ------ --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income..... $ 4,114 $ 0.29 $ 4,082 $ 0.29 $ 4,168 $ 0.30 $ 4,332 $ 0.31
Net investment income....... 3,695 0.26 3,674 0.26 3,756 0.27 3,915 0.28
Net realized and unrealized
gain (loss) on
investments............... (19,272) (1.36) 3,068 0.22 (36,281) (2.58) 2,133 0.15
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
----------------------------------------------------------
10/31/93 7/31/93 4/30/93**
------------------ ----------------- -----------------
Per Per Per
Total Share Total Share Total Share
-------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Total investment income.......................... $ 4,366 $ 0.31 $ 4,106 $ 0.29 $ 1,194 $ 0.08
Net investment income............................ 3,942 0.28 3,721 0.27 1,013 0.07
Net realized and unrealized gain on
investments.................................... 11,919 0.84 667 0.05 14 --
</TABLE>
- ---------------
* Totals expressed in thousands of dollars.
** For the period February 26, 1993 (commencement of operations) through April
30, 1993.
<PAGE> 13
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
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 February
year 26, 1993*
ended through
October October
31, 31,
1994** 1993**
--------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 14.87 $ 14.06
--------- ---------
Net investment income................................ 1.07 0.62
Net realized and unrealized gain (loss) on
investments........................................ (3.57) 0.89
--------- ---------
Total from investment operations..................... (2.50) 1.51
--------- ---------
Less dividends, distributions and other charges:
Dividends from net investment income............... (0.87) (0.43)
Common share equivalent of dividends paid to
preferred shareholders.......................... (0.20) (0.11)
Distributions from net realized gains on
investments..................................... (0.01) --
Offering costs charged against capital............. -- (0.16)
--------- ---------
Total dividends, distributions and other charges..... (1.08) (0.70)
--------- ---------
Net asset value, end of period....................... $ 11.29 $ 14.87
========= =========
Market value, end of period.......................... $ 11.125 $ 15.375
========= =========
TOTAL INVESTMENT RETURN+............................. (22.82)% 5.39%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 243,676 $ 309,759
Ratios to average net assets of common shareholders:
Total expenses..................................... 0.89% 0.73%(2)
Net investment income before preferred stock
dividends....................................... 8.12% 6.39%(2)
Preferred stock dividends.......................... 1.54% 1.11%(2)
Net investment income available to common
shareholders.................................... 6.58% 5.28%(2)
Asset coverage on preferred shares at end of
period............................................. 287% 309%
Portfolio turnover rate.............................. 12% 2%(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 and distributions are assumed to be
reinvested at the prices obtained under the Trust's dividend reinvestment
plan. Total investment return does not reflect sales charges or brokerage
commissions.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE> 14
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of InterCapital California Insured Municipal
Income 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 California Insured
Municipal Income Trust (the "Trust") at October 31, 1994, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period February 26,
1993 (commencement of operations) through October 31, 1993, 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 owned at October 31, 1994 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 13, 1994
1994 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1994, the Trust paid the following per
share amounts from tax-exempt income: $0.87 to common shareholders, $1,236
to series 1 preferred shareholders, $1,558 to series 2 preferred
shareholders, $1,562 to series 3 preferred shareholders, and $1,424 to
series 4 preferred shareholders.
<PAGE> 15
(This Page Intentionally Left Blank)
<PAGE> 16
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
CALIFORNIA
INSURED
MUNICIPAL
INCOME
TRUST
Annual Report
October 31, 1994
