<PAGE> 1
Two World Trade Center, New York, New York 10048
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME 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 Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
The municipal market continued to experience consolidation in 1995. Municipal
underwriting in the first 10 months of the year was down 16 percent from the
same period in 1994. This change followed a 44 percent drop in volume for all of
1994. The effect of lower volume and profitability was also apparent in the
decisions of several major dealers to withdraw from the municipal business.
TAX REFORM
Flat-tax advocates have generated increased publicity for their proposals and
have affected the municipal market since early 1995. Most of the discussion on
proposed tax-reform measures is based on theoretical concepts, containing broad
assumptions and lacking specific details. Basically, the various plans raise
questions about the fairness of changing from a progressive to a regressive tax
structure. Low flat-tax rate plans call for the elimination of deductions of
mortgage interest, charitable contributions, property taxes, and state and local
income taxes. Should politicians make tax reform a central issue in the 1996
elections, media coverage will expand from the financial page to the front page.
If that happens, municipal bonds could come under further pressure. For example,
when major tax reform turmoil occurred in 1986, municipal yields briefly
exceeded taxable yields.
In addition to the market risk associated with the flat-tax proposals, municipal
credits would also be negatively affected. If mortgage interest and property tax
deductions were eliminated, municipalities would experience a decline in their
property tax base. The loss of state and local income tax deductions would
increase the relative economic disadvantage that high-tax states already face.
The flat tax represents a shift in tax accountability from the federal to local
governments. Taxpayer recognition of the extent of changes under consideration
may impede the passage of comprehensive tax reform.
FUND PERFORMANCE
The net asset value (NAV) of InterCapital California Insured Municipal Income
Trust (IIC) rose from $11.29 to $13.40 per share during the fiscal year ended
October 31, 1995. Based on this NAV change plus reinvestment of tax-free
dividends totaling $0.77 per share, the Trust's total return was 26.90 percent.
Over the same period, IIC's market price on the New York Stock Exchange
appreciated 5.62 percent from $11.125 to $11.75 per share. Based on this market
price change and reinvestment of tax-free dividends, the Trust's total return
was 12.93 percent. IIC began the fiscal year trading at a 1.5 percent discount
to NAV and closed at a 12 percent discount. Undistributed net investment income
totaled $0.040 per share on October 31, 1995 versus $0.069 per share a year ago.
Since the amount of IIC's undistributed net investment income continued to
shrink during the summer, the Trustees voted to reduce the monthly dividend from
$0.0625 to $0.06 per share beginning with the November 1995 payment. This
revised dividend rate more accurately reflects the Trust's current earnings.
<PAGE> 3
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
PORTFOLIO STRUCTURE
On October 31, 1995, IIC's long-term portfolio was diversified among 7 specific
long-term municipal sectors and 38 credits. The three largest sectors -- water
and sewer revenue, electric revenue and tax allocation bonds -- represented 56
percent of the portfolio. The average maturity and call protection of the
Trust's long-term holdings were 23 and 7 years, respectively. Net assets
exceeded $249 million.
Each position in the portfolio was backed by triple "A" rated bond insurers.
This is to ensure the timely payment of principal and interest. The distribution
of credit enhancements is illustrated on the right.
<TABLE>
<CAPTION>
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1995
(% OF TOTAL LONG-TERM INVESTMENTS)
<S> <C>
MBIA 52%
AMBAC 24%
FGIC 21%
FSA 3%
</TABLE>
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, $65 million in ARPS are outstanding. This
represents 26 percent of net assets.
<PAGE> 4
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME 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 332,600 shares of common stock at a weighted
average market discount of 9 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 California Insured Municipal
Income Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 5
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME 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:
<TABLE>
<S> <C>
Jack F. Bennett
For................................................................................................ 10,277,145
Withheld........................................................................................... 264,994
Michael Bozic
For................................................................................................ 10,280,313
Withheld........................................................................................... 261,826
</TABLE>
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
<TABLE>
<S> <C>
Charles A. Fiumefreddo
For................................................................................................ 858
Withheld........................................................................................... 1
</TABLE>
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:
<TABLE>
<S> <C>
For................................................................................................ 9,909,460
Against............................................................................................ 136,755
Abstain............................................................................................ 495,924
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................................................ 10,093,366
Against............................................................................................ 66,098
Abstain............................................................................................ 382,675
</TABLE>
<PAGE> 6
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA EXEMPT MUNICIPAL BONDS (97.9%)
General Obligation (6.6%)
$ 9,000 California, Various Purpose 04/01/93 (FSA)............................... 5.50 % 04/01/19 $ 8,656,020
Industry,
3,000 Refg Issue of 1993 (MBIA)................................................ 5.50 07/01/13 2,964,390
4,900 Refg Issue of 1993 (MBIA)................................................ 5.50 07/01/16 4,804,793
- -------- ----------
16,900 16,425,203
- -------- ----------
Electric Revenue (17.1%)
5,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary MBIA)........................................................ 5.875 09/01/30 4,995,850
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (AMBAC)................... 6.00 07/01/20 8,116,400
7,000 Northern California Transmission Agency, California - Oregon Transmission
Refg Ser 1993 A (MBIA).................................................. 5.25 05/01/20 6,604,430
Sacramento Municipal Utility District,
3,500 Refg 1993 Ser D (FGIC).................................................. 5.25 11/15/12 3,396,400
8,000 Refg 1993 Ser D (MBIA).................................................. 5.625 11/15/15 7,835,200
12,000 Southern California Public Power Authority, Power 1993 Sub Refg Ser A
- -------- (FGIC).................................................................. 5.45 07/01/17 11,527,560
----------
43,500 42,475,840
- -------- ----------
Hospital Revenue (7.4%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA)....................... 5.50 03/01/19 3,976,198
3,000 California Health Facilities Financing Authority, Children's
Hospital - San Diego
Ser 1993 (MBIA)......................................................... 5.75 07/01/23 2,934,720
California Statewide Communities Development Authority,
5,000 Motion Picture & Television Fund COPs (AMBAC)........................... 5.375 01/01/20 4,700,500
5,000 UniHealth America 1993 Ser A COPs (AMBAC)............................... 5.50 10/01/14 4,862,350
2,000 Marysville, Fremont - Rideout Health Group Refg Ser 1993-A (AMBAC)....... 5.55 01/01/13 1,990,860
- -------- ----------
19,150 18,464,628
- -------- ----------
Public Facilities Revenue (14.9%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA).................... 5.70 12/01/14 10,004,800
14,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA)......... 5.65 06/01/15 13,627,600
9,000 California Public Works Board, Corrections Refg 1993 Ser B (MBIA)........ 5.50 12/01/12 8,979,750
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC)................... 5.00 11/01/23 4,462,100
- -------- ----------
38,000 37,074,250
- -------- ----------
Tax Allocation (16.6%)
7,000 Long Beach Financing Authority, Ser 1992 (AMBAC)......................... 5.50 11/01/22 6,761,510
7,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A (AMBAC)...... 5.70 10/01/23 6,827,800
7,500 Port Hueneme Redevelopment Agency, Central Community 1993 Refg (AMBAC)... 5.50 05/01/23 7,272,675
6,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC).............. 5.50 12/15/23 5,775,480
6,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA)............ 5.625 08/01/23 5,863,500
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg (AMBAC)....... 5.75 07/01/14 4,999,550
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA)................. 5.50 09/01/15 3,923,960
- -------- ----------
42,500 41,424,475
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation Facilities Revenue (9.1%)
$ 8,000 Los Angeles County Metropolitan Transportation Authority, Sales Tax Refg
Ser 1993-A (MBIA)....................................................... 5.625% 07/01/18 $ 7,883,440
7,000 Los Angeles County Transportation Commission, Second Sr Ser 1992 A
(MBIA).................................................................. 6.00 07/01/23 7,060,480
5,000 San Francisco Airports Commission, San Francisco Intl Airport Second Ser
Refg Issue 2 (MBIA)..................................................... 6.75 05/01/20 5,469,100
2,300 San Francisco Bay Area Rapid Transit District, Sales Tax Ser 1995
- -------- (FGIC).................................................................. 5.50 07/01/20 2,245,214
----------
22,300 22,658,234
- -------- ----------
Water & Sewer Revenue (21.8%)
10,000 California Department of Water Resources, Central Valley Ser L
(Secondary MBIA)........................................................ 5.75 12/01/19 9,935,000
7,000 Eastern Municipal Water District, Ser 1993-A COPs (FGIC)................. 5.25 07/01/23 6,508,460
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA)........................... 5.80 06/01/21 9,986,200
3,000 Oceanside, Water Refg COPs (AMBAC)....................................... 5.70 08/01/14 2,979,210
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992 Ser A
(FGIC).................................................................. 6.00 12/01/11 3,626,140
3,100 San Elijo Joint Powers Authority, 1993 Refg (FGIC)....................... 5.00 03/01/20 2,797,192
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC)..................... 5.50 08/01/21 4,793,800
9,000 South County Regional Wastewater Authority, Morgan Hill Ser 1992 B
(FGIC).................................................................. 5.50 08/01/22 8,693,730
5,000 West & Central Basin Financing Authority, Water Ser 1992 (AMBAC)......... 6.125 08/01/22 5,127,000
- -------- ----------
55,600 54,446,732
- -------- ----------
Other Revenue (4.4%)
1,250 Sacramento Area Flood Control Agency Cap Assess Dist #2 Ser 1995
(FGIC)................................................................... 5.375 10/01/25 1,188,488
10,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA)....................... 5.45 01/16/15 9,893,500
- -------- ----------
11,250 11,081,988
- -------- ----------
249,200 TOTAL CALIFORNIA EXEMPT MUNICIPAL BONDS (Identified Cost $245,692,518)........................... 244,051,350
- -------- ----------
CALIFORNIA EXEMPT SHORT-TERM MUNICIPAL OBLIGATION (0.3%)
700 California Health Facilities Financing Authority, St Joseph Health 1991
- -------- Ser B (Demand 11/01/95) (Identified Cost $700,000)...................... 3.80 * 07/01/09 700,000
----------
$249,900 TOTAL INVESTMENTS (Identified Cost $246,392,518) (a).................................... 98.2% 244,751,350
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 1.8 4,481,093
---- ----------
NET ASSETS............................................................................... 100.0% $249,232,443
==== ==========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
COPs Certificates of Participation.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes is $246,392,518; the aggregate gross unrealized
appreciation is $919,699 and the aggregate gross unrealized depreciation is $2,560,867, resulting in net
unrealized depreciation of $1,641,168.
</TABLE>
Bond Insurance:
<TABLE>
<C> <S>
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
ASSETS:
Investments in securities, at value
(identified cost $246,392,518)....................................... $244,751,350
Cash.................................................................. 70,886
Interest receivable................................................... 4,595,056
Deferred organizational expenses...................................... 16,733
Prepaid expenses...................................................... 16,570
-----------
TOTAL ASSETS...................................................... 249,450,595
-----------
LIABILITIES:
Payable for:
Investment management fee......................................... 75,718
Common shares of beneficial interest purchased.................... 49,476
Accrued expenses...................................................... 92,958
-----------
TOTAL LIABILITIES................................................. 218,152
-----------
NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized
of non-participating $.01 par value, 1,300 shares outstanding)....... 65,000,000
-----------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 13,750,013 shares outstanding)....................... 192,051,258
Net unrealized depreciation........................................... (1,641,168)
Accumulated undistributed net investment income....................... 554,981
Accumulated net realized loss......................................... (6,732,628)
-----------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS...................... 184,232,443
-----------
TOTAL NET ASSETS.................................................. $249,232,443
===========
NET ASSET VALUE PER COMMON SHARE
($184,232,443 divided by 13,750,013 common shares outstanding)....... $13.40
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1995
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $14,185,520
---------
EXPENSES
Investment management fee.............................................. 838,577
Auction commission fees................................................ 178,610
Professional fees...................................................... 107,176
Transfer agent fees and expenses....................................... 65,869
Auction agent fees..................................................... 59,996
Shareholder reports and notices........................................ 46,818
Trustees' fees and expenses............................................ 26,147
Registration fees...................................................... 24,331
Custodian fees......................................................... 12,151
Organizational expenses................................................ 7,198
Other.................................................................. 35,759
---------
TOTAL EXPENSES BEFORE EXPENSE OFFSET............................... 1,402,632
LESS: EXPENSE OFFSET............................................... (12,067)
---------
TOTAL EXPENSES AFTER EXPENSE OFFSET................................ 1,390,565
---------
NET INVESTMENT INCOME.............................................. 12,794,955
---------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss...................................................... (1,937,406)
Net change in unrealized depreciation.................................. 31,391,341
---------
NET GAIN........................................................... 29,453,935
---------
NET INCREASE........................................................... $42,248,890
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 12,794,955 $ 15,040,502
Net realized loss................................. (1,937,406) (4,795,222)
Net change in unrealized
appreciation/depreciation........................ 31,391,341 (45,557,371)
---------- ----------
NET INCREASE (DECREASE)....................... 42,248,890 (35,312,091)
---------- ----------
DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET
INVESTMENT INCOME............................... (2,483,266) (2,851,151)
---------- ----------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income............................. (10,726,273) (12,253,231)
Net realized gain................................. -- (75,016)
---------- ----------
TOTAL......................................... (10,726,273) (12,328,247)
---------- ----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred......................................... (19,750,000) (15,250,000)
Common............................................ (3,733,282) (341,173)
---------- ----------
TOTAL......................................... (23,483,282) (15,591,173)
---------- ----------
TOTAL INCREASE (DECREASE)..................... 5,556,069 (66,082,662)
NET ASSETS:
Beginning of period............................... 243,676,374 309,759,036
---------- ----------
END OF PERIOD
(Including undistributed net investment income
of $554,981 and $969,565, respectively)....... $249,232,443 $243,676,374
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995
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 commenced
operations on February 26, 1993.
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
<PAGE> 12
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME 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 $36,000 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 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
$3,382,206 and $13,943,688, 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 $5,700.
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,
<PAGE> 13
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
the Trust had an accrued pension liability of $16,889 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 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. 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.
For the year ended October 31, 1995, the Trust purchased and retired preferred
shares as follows:
<TABLE>
<CAPTION>
SERIES SHARES AMOUNT
- -------- -------- -----------
<S> <C> <C>
1 295 $14,750,000
4 100 5,000,000
</TABLE>
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
RANGE OF
SHARES* SERIES RATE* RESET DATE DIVIDEND RATES**
- -------- ------- ------ ----------- -----------------
<S> <C> <C> <C> <C>
200 1 3.85% 11/03/95 1.50% - 4.625%
400 2 3.40 11/03/95 3.10 - 4.40
500 3 3.65 11/03/95 3.25 - 4.60
200 4 3.85 11/03/95 2.59 - 5.875
</TABLE>
- ---------------------
* 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 to each of the Series 1 through 4 at rates ranging from 3.40% to 4.05%
in the aggregate amount of $233,099.
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
<PAGE> 14
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
purchasing common shares and/or could trigger the mandatory redemption of
preferred shares at liquidation value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR EXCESS OF
SHARES VALUE PAR VALUE
---------- -------- ------------
<S> <C> <C> <C>
Balance, 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
Treasury shares purchased and retired (weighted average discount
8.92%)*................................................................ (332,600) (3,326) (3,729,956)
-------- ------- ----------
Balance, October 31, 1995............................................... 13,750,013 $137,500 $191,913,758
======== ======= ==========
</TABLE>
- ---------------------
* 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
$6,733,000 of which $4,795,000 will be available through October 31, 2002 and
$1,938,000 will be available through October 31, 2003 to offset future capital
gains to the extent provided by regulations.
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust has declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------ ---------- ----------------- -----------------
<S> <C> <C> <C>
October 31, 1995 $ 0.06 November 10, 1995 November 24, 1995
November 28, 1995 $ 0.06 December 8, 1995 December 22, 1995
</TABLE>
<PAGE> 15
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
8. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------
10/31/95 7/31/95 4/30/95 1/31/95
------------------- ---------------- ------------------- ----------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
-------- ------ ------ ----- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income................. $ 3,532 $ 0.26 $3,569 $0.26 $ 3,470 $ 0.24 $3,615 $0.26
Net investment income................... 3,188 0.23 3,217 0.23 3,130 0.23 3,260 0.23
Net realized and unrealized gain........ 9,359 0.69 2,809 0.21 7,687 0.55 9,599 0.69
</TABLE>
<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)................................. (19,272) (1.36) 3,068 0.22 (36,281) (2.58) 2,133 0.15
</TABLE>
- ---------------------
* Amounts in thousands.
<PAGE> 16
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
FEBRUARY
FOR THE FOR THE 26,
YEAR YEAR 1993*
ENDED ENDED THROUGH
OCTOBER OCTOBER OCTOBER
31, 31, 31,
1995** 1994** 1993**
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................... $ 11.29 $ 14.87 $ 14.06
------ ------ ------
Net investment income.......................................................... 0.92 1.07 0.62
Net realized and unrealized gain (loss)........................................ 2.14 (3.57) 0.89
------ ------ ------
Total from investment operations............................................... 3.06 (2.50) 1.51
------ ------ ------
Less dividends and distributions from:
Net investment income....................................................... (0.77) (0.87) (0.43)
Common share equivalent of dividends paid to preferred shareholders......... (0.18) (0.20) (0.11)
Net realized gain........................................................... -- (0.01) --
------ ------ ------
Total dividends and distributions.............................................. (0.95) (1.08) (0.54)
Offering costs charged against capital......................................... -- -- (0.16)
------ ------ ------
Net asset value, end of period................................................. $ 13.40 $ 11.29 $ 14.87
====== ====== ======
Market value, end of period.................................................... $ 11.75 $11.125 $15.375
====== ====== ======
TOTAL INVESTMENT RETURN+....................................................... 12.93% (22.82)% 5.39%(1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses before expense offset........................................... 0.81%(3) 0.89% 0.73%(2)
Net investment income before preferred stock dividends......................... 7.39%(3) 8.12% 6.39%(2)
Preferred stock dividends...................................................... 1.44% 1.54% 1.11%(2)
Net investment income available to common shareholders......................... 5.95% 6.58% 5.28%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................................ $249,232 $243,676 $309,759
Asset coverage on preferred shares at end of period............................ 383% 287% 309%
Portfolio turnover rate........................................................ 1% 12% 2%(1)
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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 0.80% and 7.40%, respectively, which reflects 0.01%
effect for custody cash credits.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
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, 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 the two
years in the period 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 at October 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 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: $0.77 to
common shareholders, $1,774 to Series 1 preferred
shareholders, $2,015 to Series 2 preferred shareholders,
$2,033 to Series 3 preferred shareholders and $1,952 to Series
4 preferred shareholders.
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- ------------------------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ------------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ------------------------------------------------------
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ------------------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
CALIFORNIA
INSURED
MUNICIPAL
INCOME
TRUST
ANNUAL REPORT
OCTOBER 31, 1995
