<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST Two World Trade Center,
New York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1996
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of InterCapital
California Insured Municipal Income Trust (IIC) for the fiscal year ended
October 31, 1996.
Stronger economic growth and the potential threat of inflation shifted the
tone of the fixed-income markets from bullish to bearish in early 1996. This
change in market psychology was confirmed in March by a surprisingly large
increase in payroll employment. The rise in interest rates between February
and July may be attributed to market weakness on the days that strong monthly
employment figures were reported. The bond market sporadically pushed
long-term yields higher, anticipating that the Federal Reserve Board might
raise the federal-funds rate. However, with slower growth in employment and
overall economic activity between August and October, the central bank left
monetary policy unchanged. As a result, by the end of October the
fixed-income markets had regained an optimistic outlook and rallied to levels
not seen since February.
MUNICIPAL MARKET CONDITIONS
Between February and July, 30-year insured revenue bond yields rose 75 basis
points from 5.40 percent to reach 6.15 percent in April and again in
mid-June. Subsequently, demand for municipal bonds improved and followed the
trend of U.S. Treasury securities toward lower yields. Insured bond yields
reached 5.60 percent by the end of October. One-year municipal note yields
declined marginally from 3.80 percent to 3.70 percent over the past 12
months. In October, the yield curve pickup for extending maturities from 1 to
30 years was 190 basis points.
The ratio of insured revenue bond yields to 30-year U.S. Treasury yields,
moved from 91 percent to 84 percent over the course of the fiscal year. A
declining ratio means that municipal bond prices outperformed U.S. Treasury
prices. The relative improvement in municipals occurred as flat tax proposals
failed to gain public support.
The municipal market also benefited from steady demand. In addition to
regular maturities and calls for redemption this year, it has been estimated
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
that investors also faced the retirement of over $60 billion of debt that has
been previously refinanced. On the supply side, new issues increased 20
percent to $147 billion over the calendar year to date.
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
(The chart below represents information which appears as a
graphic in the printed report)
A pie chart reflecting the credit quality of the portfolio ratings of
the Five Largest Sectors as of October 31, 1996.
SECTORS PERCENT
------- -------
All others 22%
Water & Sewer 22%
Electric 17%
Public Facilities 15%
Tax Allociation 15%
Transportation 9%
CREDIT ENHANCEMENTS PERCENT
------------------- -------
MBIA (Municipal Bond Investor
Assurance Corp.) 52%
AMBAC (AMBAC Indemnity Corp) 24%
FGIC (Financial Guaranty Ins. Co.) 20%
FSA (Financial Security Assurance Inc.) 4%
PERFORMANCE
The Trust's net asset value (NAV) increased from $13.40 to $13.55 per share
during the fiscal year ended October 31, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.72 per share, the Trust's
total return was 7.47 percent. Over the same period, the IIC's market price
on the New York Stock Exchange increased from $11.75 to $12.00 per share.
Based on this market price change and reinvestment of tax-free dividends, the
Trust's total return was 8.54 percent.
IIC began the fiscal year trading at a 12 percent discount to NAV and closed
at an 11 percent discount. Undistributed net investment income available for
dividends improved $0.045 per share during the year to $0.085 per share. As a
result, the Trust's monthly dividend was increased from $0.06 to $0.0625 per
share beginning with the November 1996 payment.
PORTFOLIO STRUCTURE
On October 31, 1996, the Trust's net assets of $244 million were diversified
among 9 long-term municipal sectors and 39 credits. The average maturity and
call protection of IIC's long-term portfolio were 23 and 7 years,
respectively. To assure the timely payment of principal and interest, each
position in the portfolio was backed by triple "A" rated bond insurance.
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution
to common shareholders includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). 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 interest earned on the long-term bonds in the
established portfolio of
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
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.
Weekly ARPS yields ranged between 2.20 and 5.00 percent during the fiscal
year. Leverage contributed approximately $0.08 per share to common share
earnings during the fiscal year. Four ARPS series totaling $65 million and
representing 27 percent of net assets were outstanding.
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities
is expected to remain positive for the municipal market. Long-term insured
municipal securities currently yield 84 percent of U.S. Treasury securities
and may be expected to move in tandem with the Treasury market. Although
municipal performance relative to U.S. Treasury securities has improved,
tax-exempts could again be affected by market uncertainty if new tax
reduction proposals were to resurface.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust,
when appropriate, may purchase shares in the open market or in privately
negotiated transactions at a price not above market value or net asset value,
whichever is lower at the time of purchase. Over the past fiscal year IIC
purchased and retired 520,300 shares of common stock at a weighted average
market discount of 11.69 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>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 29, 1996, an annual meeting of the Trust's shareholders was held
for the purpose of voting on three separate matters, the results of which
were as follows:
(1) ELECTION OF TRUSTEES:
Dr. Manuel H. Johnson
<TABLE>
<CAPTION>
<S> <C>
For .................... 9,935,407
Withheld ............... 320,787
</TABLE>
John L. Schroeder
<TABLE>
<CAPTION>
<S> <C>
For .................... 9,957,651
Withheld ............... 298,543
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael
E. Nugent and Philip J. Purcell.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT
WITH DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<CAPTION>
<S> <C>
For .................... 9,598,727
Against ................ 184,884
Abstain ................ 472,583
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For .................... 9,865,015
Against ................ 116,249
Abstain ................ 274,930
</TABLE>
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.9%)
General Obligation (6.8%)
$ 9,000 California, Various Purpose 04/01/93 (FSA) ..................... 5.50 % 04/01/19 $ 8,718,030
Industry,
3,000 Refg Issue of 1993 (MBIA) ..................................... 5.50 07/01/13 3,009,510
4,900 Refg Issue of 1993 (MBIA) ..................................... 5.50 07/01/16 4,893,777
- ----------- ---------------
16,900 16,621,317
- ----------- ---------------
Electric Revenue (17.2%)
5,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary MBIA) .............................................. 5.875 09/01/30 5,035,450
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (AMBAC) ......... 6.00 07/01/20 8,183,520
7,000 Northern California Transmission Agency, California -Oregon
Transmission Refg Ser 1993 A (MBIA) ........................... 5.25 05/01/20 6,551,930
Sacramento Municipal Utility District,
3,000 Refg 1993 Ser D (FGIC) ........................................ 5.25 11/15/12 2,920,680
8,000 Refg 1993 Ser D (MBIA) ........................................ 5.625 11/15/15 7,819,840
12,000 Southern California Public Power Authority, Power 1993 Sub Refg
Ser A (FGIC) ................................................. 5.45 07/01/17 11,369,400
- ----------- ---------------
43,000 41,880,820
- ----------- ---------------
Hospital Revenue (7.7%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA) ............. 5.50 03/01/19 3,994,831
3,000 California Health Facilities Financing Authority, Children's
Hospital - San Diego Ser 1993 (MBIA) .......................... 5.75 07/01/23 2,975,460
California Statewide Communities Development Authority,
5,000 Motion Picture & Television Fund COPs (AMBAC) ................. 5.375 01/01/20 4,792,050
5,000 UniHealth America 1993 Ser A COPs (AMBAC) ..................... 5.50 10/01/14 4,932,500
2,000 Marysville, Fremont -Rideout Health Group Refg Ser 1993-A
(AMBAC) ....................................................... 5.55 01/01/13 1,971,740
- ----------- ---------------
19,150 18,666,581
- ----------- ---------------
Mortgage Revenue -Single Family (1.3%)
3,000 California Housing Finance Agency, Home 1996 Ser E (AMT) (MBIA) 6.05 08/01/15 3,026,460
- ----------- ---------------
Public Facilities Revenue (15.2%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA) .......... 5.70 12/01/14 10,079,800
14,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA) 5.65 06/01/15 13,467,860
9,000 California Public Works Board, Corrections Refg 1993 Ser B
(MBIA) ........................................................ 5.50 12/01/12 9,044,280
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC) ......... 5.00 11/01/23 4,624,100
- ----------- ---------------
38,000 37,216,040
- ----------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Tax Allocation (14.6%)
$ 7,000 Long Beach Financing Authority, Ser 1992 (AMBAC) ............... 5.50 % 11/01/22 $ 6,756,190
5,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A
(AMBAC) ....................................................... 5.70 10/01/23 4,952,200
7,500 Port Hueneme Redevelopment Agency, Central Community 1993 Refg
(AMBAC) ....................................................... 5.50 05/01/23 7,226,775
5,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC) .... 5.50 12/15/23 4,815,700
3,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA) .. 5.625 08/01/23 2,948,790
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg
(AMBAC) ....................................................... 5.75 07/01/14 5,048,900
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA) ....... 5.50 09/01/15 3,899,000
- ----------- ---------------
36,500 35,647,555
- ----------- ---------------
Transportation Facilities Revenue (8.5%)
6,000 Los Angeles County Metropolitan Transportation Authority, Sales
Tax Refg
Ser 1993-A (MBIA) ............................................. 5.625 07/01/18 5,914,560
7,000 Los Angeles County Transportation Commission, Second Sr Ser 1992
A (MBIA) ...................................................... 6.00 07/01/23 7,145,740
5,000 San Francisco Airports Commission, San Francisco Int'l Airport
Second Ser Refg Issue 2 (MBIA) ................................ 6.75 05/01/20 5,532,450
2,300 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1995 (FGIC) ................................................... 5.50 07/01/20 2,237,532
- ----------- ---------------
20,300 20,830,282
- ----------- ---------------
Water & Sewer Revenue (22.1%)
10,000 California Department of Water Resources, Central Valley Ser L
(Secondary MBIA) .............................................. 5.75 12/01/19 9,974,100
7,000 Eastern Municipal Water District, Ser 1993-A COPs (FGIC) ....... 5.25 07/01/23 6,515,950
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA) ................. 5.80 06/01/21 10,019,500
3,000 Oceanside, Water 1993 Refg COPs (AMBAC) ........................ 5.70 08/01/14 3,023,130
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992
Ser A (FGIC) .................................................. 6.00 12/01/11 3,647,525
2,500 San Elijo Joint Powers Authority, 1993 Refg (FGIC) ............. 5.00 03/01/20 2,260,575
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC) ........... 5.50 08/01/21 4,810,050
9,000 South County Regional Wastewater Authority, Morgan Hill
Ser 1992 B (FGIC) ............................................. 5.50 08/01/22 8,686,980
5,000 West & Central Basin Financing Authority, Water Ser 1992 (AMBAC) 6.125 08/01/22 5,143,700
- ----------- ---------------
55,000 54,081,510
- ----------- ---------------
Other Revenue (4.5%)
1,250 Sacramento Area Flood Control Agency, Capital Assessment
District #2
Ser 1995 (FGIC) ............................................... 5.375 10/01/25 1,202,963
10,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA) ............. 5.45 01/16/15 9,792,400
- ----------- ---------------
11,250 10,995,363
- ----------- ---------------
243,100 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $239,792,481) ......... 238,965,928
- ----------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (0.3%)
$ 300 California Pollution Control Financing Authority, Pacific Gas &
Electric Co
Ser 1996 F (Demand 11/01/96) .................................. 3.60*% 11/01/26 $ 300,000
500 California Statewide Communities Development Authority, St
Joseph Health
COPs (Demand 11/01/96) ........................................ 3.50* 07/01/24 500,000
- ----------- ---------------
800 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
(Identified Cost $800,000) ........................................................ 800,000
- ----------- ---------------
$243,900 TOTAL INVESTMENTS (Identified Cost $240,592,481) (a) .................... 98.2% 239,765,928
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.8 4,443,741
---------------
NET ASSETS .............................................................. 100.0% $244,209,669
===============
</TABLE>
[FN]
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation was
$1,778,997 and the aggregate gross unrealized depreciation was
$2,605,550, resulting in net unrealized depreciation of $826,553.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $240,592,481) ........$ 239,765,928
Cash .................................... 134,104
Interest receivable ..................... 4,522,082
Deferred organizational expenses ....... 9,516
Prepaid expenses and other assets ...... 45,196
--------------
TOTAL ASSETS .......................... 244,476,826
--------------
LIABILITIES:
Payable for:
Investment management fee .............. 79,376
Dividends to preferred shareholders ... 57,752
Common shares of beneficial interest
repurchased ........................... 12,155
Accrued expenses ........................ 117,874
--------------
TOTAL LIABILITIES ..................... 267,157
--------------
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
$.01 par value, 13,229,713 shares
outstanding) ........................... 185,917,913
Net unrealized depreciation ............. (826,553 )
Accumulated undistributed net investment
income ................................. 1,130,503
Accumulated net realized loss ........... (7,012,194 )
--------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS .......................... 179,209,669
--------------
TOTAL NET ASSETS ......................$ 244,209,669
==============
NET ASSET VALUE PER COMMON SHARE
($179,209,669 divided by 13,229,713
common shares outstanding) .............$ 13.55
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $13,880,028
-------------
EXPENSES
Investment management fee ............. 860,635
Auction commission fees ............... 160,847
Professional fees ..................... 117,082
Transfer agent fees and expenses ..... 63,380
Auction agent fees .................... 35,448
Shareholder reports and notices ...... 35,059
Trustees' fees and expenses ........... 24,817
Registration fees ..................... 24,740
Custodian fees ........................ 12,530
Organizational expenses ............... 7,217
Other ................................. 34,682
-------------
TOTAL EXPENSES BEFORE EXPENSE OFFSET 1,376,437
LESS: EXPENSE OFFSET ............... (12,334)
-------------
TOTAL EXPENSES AFTER EXPENSE OFFSET 1,364,103
-------------
NET INVESTMENT INCOME ............... 12,515,925
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss ..................... (279,566)
Net change in unrealized depreciation 814,615
-------------
NET GAIN ............................ 535,049
-------------
NET INCREASE .......................... $13,050,974
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED OCTOBER ENDED OCTOBER
31, 1996 31, 1995
- ----------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................... $ 12,515,925 $ 12,794,955
Net realized loss .............................. (279,566) (1,937,406)
Net change in unrealized depreciation ......... 814,615 31,391,341
---------------- ----------------
NET INCREASE ................................. 13,050,974 42,248,890
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ...................................... (2,233,731) (2,483,266)
Common ......................................... (9,706,672) (10,726,273)
---------------- ----------------
TOTAL ........................................ (11,940,403) (13,209,539)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred ...................................... -- (19,750,000)
Common ......................................... (6,133,345) (3,733,282)
---------------- ----------------
TOTAL ........................................ (6,133,345) (23,483,282)
---------------- ----------------
NET INCREASE (DECREASE) ...................... (5,022,774) 5,556,069
NET ASSETS:
Beginning of period ............................ 249,232,443 243,676,374
---------------- ----------------
END OF PERIOD
(Including undistributed net investment
income
of $1,130,503 and $554,981, respectively) ... $244,209,669 $249,232,443
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996
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's
investment objective is to provide current income which is exempt from both
federal and California income taxes. The Trust was organized as a
Massachusetts business trust on November 2, 1992 and commenced operations on
February 26, 1993.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts over the life of
the respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
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 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 the Investment
Manager a management fee, calculated weekly and payable monthly, by applying
the annual rate of 0.35% to the Trust's average weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books
and records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Trust who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended October 31, 1996
aggregated $3,000,000 and $8,642,366, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1996, the Trust had transfer agent
fees and expenses payable of approximately $12,000.
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
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
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, 1996 included in Trustees' fees and expenses
in the Statement of Operations amounted to $9,963. At October 31, 1996, the
Trust had an accrued pension liability of $25,880 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. The Trust has issued Series 1 through 4 Auction Rate
Preferred Shares ("Preferred Shares") which 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.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
AMOUNT IN RESET RANGE OF DIVIDEND
SERIES SHARES* THOUSANDS* RATE* DATE RATES**
- -------- --------- ------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
1 200 $10,000 3.40 % 12/27/96 2.50% -- 3.982%
2 400 20,000 2.80 11/01/96 2.75 -- 5.00
3 500 25,000 3.177 11/01/96 2.75 -- 5.00
4 200 10,000 3.40 01/03/97 2.20 -- 5.00
</TABLE>
- ------------
* As of October 31, 1996.
** For the year ended October 31, 1996.
Subsequent to October 31, 1996 and up through December 9, 1996 the Trust paid
dividends to Series 1 through 4 at rates ranging from 2.80% to 3.50% in the
aggregate amount of $280,774.
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.
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID
IN EXCESS OF
SHARES PAR VALUE PAR VALUE
------------ ------------- --------------
<S> <C> <C> <C>
Balance, October 31, 1994 ................................................ 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
Treasury shares purchased and retired (weighted average discount 11.69%)* (520,300) (5,203) (6,128,142)
------------ ------------- --------------
Balance, October 31, 1996 ................................................ 13,229,713 $132,297 $185,785,616
============ ============= ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Trust had a net capital loss carryover of
approximately $7,012,000 to offset future capital gains to the extent
provided by regulations, which will be available through October 31 of the
following years:
AMOUNT IN
THOUSANDS
2002 2003 2004 TOTAL
---------- ---------- -------- ---------
$4,795 $1,938 $279 $7,012
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
AMOUNT PER
DECLARATIONDATE SHARE RECORD DATE PAYABLE DATE
- ----------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
October 30, 1996 $0.0625 November 8, 1996 November 22, 1996
November 26, 1996 $0.0625 December 6, 1996 December 20, 1996
</TABLE>
<PAGE>
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 YEAR ENDED OCTOBER 31**
FEBRUARY 26, 1993*
----------------------------------- THROUGH
1996 1995++ 1994 OCTOBER 31, 1993**
- ------------------------------------------------------- ---------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................. $13.40 $11.29 $ 14.87 $ 14.06
---------- ----------- ---------- ------------------
Net investment income ................................. 0.93 0.92 1.07 0.62
Net realized and unrealized gain (loss) ............... 0.05 2.12 (3.57) 0.89
---------- ----------- ---------- ------------------
Total from investment operations ...................... 0.98 3.04 (2.50) 1.51
---------- ----------- ---------- ------------------
Less dividends and distributions from:
Net investment income ................................ (0.72) (0.77) (0.87) (0.43)
Common share equivalent of dividends paid to preferred
shareholders ......................................... (0.17) (0.18) (0.20) (0.11)
Net realized gain .................................... -- -- (0.01) --
---------- ----------- ---------- ------------------
Total dividends and distributions ..................... (0.89) (0.95) (1.08) (0.54)
Anti-dilutive effect of acquiring treasury shares ..... 0.06 0.02 -- --
Offering costs charged against capital ................ -- -- -- (0.16)
---------- ----------- ---------- ------------------
Net asset value, end of period ........................ $13.55 $13.40 $ 11.29 $ 14.87
========== =========== ========== ==================
Market value, end of period ........................... $12.00 $11.75 $11.125 $15.375
========== =========== ========== ==================
TOTAL INVESTMENT RETURN+ .............................. 8.54% 12.93% (22.82)% 5.39% (1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses before expense offset .................. 0.76% 0.81% (3) 0.89% 0.73%(2)
Net investment income before preferred stock dividends 6.93% 7.39% (3) 8.12% 6.39%(2)
Preferred stock dividends ............................. 1.24% 1.44% 1.54% 1.11%(2)
Net investment income available to common shareholders 5.69% 5.95% 6.58% 5.28%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............... $244,210 $249,232 $243,676 $309,759
Asset coverage on preferred shares at end of period ... 375% 383% 287% 309%
Portfolio turnover rate ............................... 1% 1% 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
brokerage commissions.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) The above expense and net investment income ratios would have been
0.80% and 7.40%, respectively, after expense offset, which reflect
0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
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, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for the three 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, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 9, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1996, the Trust paid the following
per share amounts from tax-exempt income: $0.72 to common shareholders,
$1,538 to Series 1 preferred shareholders, $1,711 to Series 2 preferred
shareholders, $1,720 to Series 3 preferred shareholders and $1,619 to
Series 4 preferred shareholders.
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
CALIFORNIA
INSURED
MUNICIPAL
INCOME
TRUST
ANNUAL REPORT
OCTOBER 31, 1996
