<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of InterCapital
California Insured Municipal Income Trust (IIC) for the fiscal year ended
October 31, 1997.
Stimulated by a resurgence of consumer spending in late 1996, the economy
grew at a rapid pace in the first quarter of 1997. This prompted the Federal
Reserve Board to tighten its monetary policy in March in a preemptive move
against a possible increase in the rate of inflation. Economic growth slowed
in the second quarter and the bond market rallied. In addition to more
moderate economic growth, low inflation and stable monetary policy, the bond
rally through July was supported by a shrinking federal budget deficit and a
strong dollar. However, by August the bond market retreated on fears that
stronger employment conditions might prompt the Federal Reserve Board to
tighten further. Yields declined in October when turmoil in the global stock
markets precipitated "flight-to-quality" demand for U.S. Treasuries.
BOND YIELDS 1994-1997
INSURED MUNICIPAL
30-YEAR INSURED 30-YEAR U.S. REVENUE YIELDS
MUNICIPAL TREASURY AS A PERCENTAGE OF U.S.
` REVENUE YIELDS YIELDS TREASURY YIELDS
-------------- ------ ---------------
December 1993 5.4 % 6.34% 85.17%
January 1994 5.4 6.24 86.54
February 1994 5.8 6.66 87.09
March 1994 6.4 7.09 90.27
April 1994 6.35 7.32 86.75
May 1994 6.25 7.43 84.12
June 1994 6.5 7.61 85.41
July 1994 6.25 7.39 84.57
August 1994 6.3 7.45 84.56
September 1994 6.55 7.81 83.87
October 1994 6.75 7.96 84.8
November 1994 7 8 87.5
December 1994 6.75 7.88 85.66
January 1995 6.4 7.7 83.12
February 1995 6.15 7.44 82.66
March 1995 6.15 7.43 82.77
April 1995 6.2 7.34 84.47
May 1995 5.8 6.66 87.09
June 1995 6.1 6.62 92.15
July 1995 6.1 6.86 88.92
August 1995 6 6.66 90.09
September 1995 5.95 6.48 91.82
October 1995 5.75 6.33 90.84
November 1995 5.5 6.14 89.58
December 1996 5.35 5.94 90.07
January 1996 5.4 6.03 89.55
February 1996 5.60 6.46 86.69
March 1996 5.85 6.66 87.84
April 1996 5.95 6.89 86.36
May 1996 6.05 6.99 86.55
June 1996 5.9 6.89 85.63
July 1996 5.85 6.97 83.93
August 1996 5.9 7.11 82.98
September 1996 5.7 6.93 82.25
October 1996 5.65 6.64 85.09
November 1996 5.5 6.35 86.61
December 1997 5.6 6.63 84.46
January 1997 5.7 6.79 83.95
February 1997 5.65 6.8 83.09
March 1997 5.9 7.1 83.1
April 1997 5.75 6.94 82.85
May 1997 5.65 6.91 81.77
June 1997 5.6 6.78 82.6
July 1997 5.3 6.3 84
August 1997 5.5 6.61 83
September 1997 5.4 6.4 84.4
October 1997 5.35% 6.15% 86.9 %
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields but with less
volatility. Long-term insured revenue index yields increased from 5.65 percent
to 5.90 percent between October 1996 and March 1997. The bond rally over the
past seven months pushed 30-year yields down to 5.35 percent by the end of
October 1997. Yields on one-year notes were little changed at 3.75 percent
over the 12-month period. Consequently, the yield pickup for extending
maturities from 1 to 30 years narrowed from 190 basis points to 160 basis
points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury
yields rose from 83 percent at the end of March 1997 to 87 percent in October.
A rising ratio means that municipals have underperformed Treasuries and have
become relatively more attractive. Over the past four years, this ratio has
annually ranged from an average low of 83 percent to an average high of 90
percent.
New-issue underwriting volume was slightly ahead in the first half of 1997.
The decline in interest rates subsequently led to a surge in refunding
activity. As a result, new-issue municipal volume was up 17 percent during
the first 10 months of 1997. Refundings accounted for more than 25 percent of
total volume.
PERFORMANCE
During the fiscal year ended October 31, 1997, the Trust's net asset value
(NAV) improved from $13.55 to $14.27. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.75 per share, the Trust's
total NAV return was 11.70 percent. IIC's market price on the New York Stock
Exchange moved from $12.00 to $13.375 per share. Based on
LARGEST SECTORS AS OF OCTOBER 31, 1997
(% OF NET ASSETS)
Water & Sewer .................... 20%
Public Facilities ................ 16%
Tax Allocation ................... 14%
Electric ......................... 12%
General Obligation ............... 9%
Transportation ................... 9%
All Others ....................... 20%
Portfolio structure is subject to change.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
MBIA ............................. 55%
AMBAC ............................ 21%
FGIC ............................. 20%
FSA .............................. 4%
Portfolio structure is subject to change.
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
this change in market price plus reinvestment of tax-free dividends, the
Trust's total market return was 18.22 percent. On October 31, 1997, IIC
traded at a 6 percent discount to NAV.
Monthly dividends for the fourth quarter of 1997 declared in September
remained unchanged at $0.0625 per share. Over the past 12 months the level
of undistributed net investment income increased from $0.085 per share to
$0.101 per share.
PORTFOLIO STRUCTURE
IIC remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 10 long-term sectors and 39 credits. The
Trust's weighted average maturity and call protection were 21 and 6 years,
respectively. To assure 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 shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second
is the spread between the portfolio's cost yield and ARPS expenses (ARPS
auction rate and expenses). The greater the spread and the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders. The level of net investment income
available for distribution to common shareholders varies with the level of
short-term interest rates.
During the fiscal year, ARPS leverage contributed approximately $0.07 per
share to common share earnings. Weekly ARPS yields ranged between 2.50 and
5.125 percent during the period. Four ARPS series totaling $65 million and
representing 26 percent of net assets were outstanding.
LOOKING AHEAD
So far this year, long-term municipal bonds have followed the trend of
Treasuries toward lower yields. The recent enactment of the Taxpayer Relief
Act of 1997 did not impact municipals directly and the long-term benefits of
tax-exempt income have remained intact.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust,
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
when appropriate, may purchase shares in the open market or in privately
negotiated transactions at a price not above market value or net asset value,
whichever is lower at the time of purchase. During the 12-month period ended
October 31, 1997, the Trust purchased and retired 323,300 shares of common
stock at a weighted average market discount of 7.81 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 MEETINGS (unaudited)
* * *
On May 20, 1997, a special meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEE:
Wayne E. Hedien
For......... 10,177,831
Withheld .. 322,495
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire,
Dr. Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and
John L. Schroeder.
(2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND
DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN
STANLEY GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
For........ 9,862,214
Against .. 133,627
Abstain .. 504,485
On October 24, 1997, an annual meeting of the Trust's shareholders was held
for the purpose of voting on two separate matters, the results of which were
as follows:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
Edwin J. Garn
For......... 10,360,557
Withheld .. 284,833
Michael E. Nugent
For......... 10,365,085
Withheld .. 280,305
Philip J. Purcell
For......... 10,369,327
Withheld .. 276,063
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
RESULTS OF MEETINGS (unaudited) continued
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
John R. Haire
For......... 792
Withheld .. 0
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr.
Manuel H. Johnson and John L. Schroeder.
(2) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
For........ 10,227,953
Against .. 62,952
Abstain .. 354,485
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.4%)
General Obligation (8.5%)
$ 9,000 California, Various Purpose 04/01/93 (FSA) ...................... 5.50 % 04/01/19 $ 9,053,910
4,000 California, Veterans Ser BD, BE & BF (AMT)(AMBAC) ............... 6.375 02/01/27 4,098,480
Industry,
3,000 Refg Issue of 1993 (MBIA) ...................................... 5.50 07/01/13 3,081,900
4,900 Refg Issue of 1993 (MBIA) ...................................... 5.50 07/01/16 5,015,934
- ----------- ---------------
20,900 21,250,224
- ----------- ---------------
Electric Revenue (12.3%)
5,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary MBIA) ............................................... 5.875 09/01/30 5,185,200
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (AMBAC) .......... 6.00 07/01/20 8,435,920
7,000 Northern California Transmission Agency, California -Oregon
Transmission Refg Ser 1993 A (MBIA) ............................ 5.25 05/01/20 6,864,200
Sacramento Municipal Utility District,
3,000 Refg 1993 Ser D (FGIC) ......................................... 5.25 11/15/12 3,045,120
7,000 Refg 1993 Ser D (MBIA) ......................................... 5.625 11/15/15 7,110,530
- ----------- ---------------
30,000 30,640,970
- ----------- ---------------
Hospital Revenue (7.0%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA) ............. 5.50 03/01/19 4,149,668
California Health Facilities Financing Authority,
3,000 Cedars -Sinai Medical Center Ser 1997 A (MBIA) ................. 5.25 08/01/27 2,937,840
3,000 Children's Hospital -San Diego Ser 1993 (MBIA) ................. 5.75 07/01/23 3,068,730
5,000 California Statewide Communities Development Authority,
UniHealth America 1993 Ser A COPs (AMBAC) ..................... 5.50 10/01/14 5,083,100
2,000 Marysville, Fremont -Rideout Health Group Refg Ser 1993-A
(AMBAC) ........................................................ 5.55 01/01/13 2,049,140
- ----------- ---------------
17,150 17,288,478
- ----------- ---------------
Mortgage Revenue -Single Family (1.2%)
3,000 California Housing Financing Agency, Home 1996 Ser E (AMT)
(MBIA) ......................................................... 6.05 08/01/15 3,113,370
- ----------- ---------------
Public Facilities Revenue (15.5%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA) ........... 5.70 12/01/14 10,352,100
14,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A
(MBIA) ......................................................... 5.65 06/01/15 14,258,160
9,000 California Public Works Board, Corrections Refg 1993 Ser B
(MBIA) ......................................................... 5.50 12/01/12 9,271,710
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC) .......... 5.00 11/01/23 4,816,950
- ----------- ---------------
38,000 38,698,920
- ----------- ---------------
Tax Allocation (14.2%)
7,000 Long Beach Financing Authority, Ser 1992 (AMBAC) ................ 5.50 11/01/22 7,024,220
5,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A
(AMBAC) ........................................................ 5.70 10/01/23 5,129,700
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
$ 6,000 Port Hueneme Redevelopment Agency, Central Community 1993 Refg
(AMBAC) ....................................................... 5.50 % 05/01/23 $ 6,029,280
5,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC) ..... 5.50 12/15/23 5,025,650
3,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA) ... 5.625 08/01/23 3,045,960
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg
(AMBAC) ........................................................ 5.75 07/01/14 5,169,900
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA) ........ 5.50 09/01/15 4,061,080
- ----------- ---------------
35,000 35,485,790
- ----------- ---------------
Transportation Facilities Revenue (9.4%)
6,000 Los Angeles County Metropolitan Transportation Authority, Sales
Tax Refg Ser 1993-A (MBIA) ..................................... 5.625 07/01/18 6,117,300
7,000 Los Angeles County Transportation Commission, Second Sr Ser 1992
A (MBIA) ....................................................... 6.00 07/01/23 7,339,640
5,000 San Francisco Airports Commission, San Francisco Int'l Airport
Second Ser Refg Issue 2 (MBIA) ................................. 6.75 05/01/20 5,595,050
2,300 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1995 (FGIC) .................................................... 5.50 07/01/20 2,315,571
2,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refg
Ser 1997 A (MBIA) .............................................. 5.25 01/15/30 1,963,240
- ----------- ---------------
22,300 23,330,801
- ----------- ---------------
Water & Sewer Revenue (20.3%)
10,000 California Department of Water Resources, Central Valley Ser L
(Secondary MBIA) ............................................... 5.75 12/01/19 10,256,400
7,000 Eastern Municipal Water District, Ser 1993-A COPs (FGIC) ........ 5.25 07/01/23 6,779,010
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA) .................. 5.80 06/01/21 10,308,400
3,000 Oceanside, Water 1993 Refg COPs (AMBAC) ......................... 5.70 08/01/14 3,102,720
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992
Ser A
(FGIC) ......................................................... 6.00 12/01/11 3,735,760
2,500 San Elijo Joint Powers Authority, 1993 Refg (FGIC) .............. 5.00 03/01/20 2,377,200
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC) ............ 5.50 08/01/21 4,992,950
9,000 South County Regional Wastewater Authority, Morgan Hill Ser 1992
B (FGIC) ....................................................... 5.50 08/01/22 9,039,420
- ----------- ---------------
50,000 50,591,860
- ----------- ---------------
Other Revenue (4.1%)
10,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA) .............. 5.45 01/16/15 10,140,500
- ----------- ---------------
Refunded (4.9%)
12,000 Southern California Public Power Authority, Power 1993 Sub Refg
Ser A (FGIC)(ETM) .............................................. 5.45 07/01/17 12,171,480
- ----------- ---------------
238,350 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $235,006,632) .......... 242,712,393
- ----------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATION (0.8%)
$ 2,000 California Pollution Control Financing Authority, Pacific Gas &
Electric Co Ser 1996 F (Demand 11/03/97) (Identified Cost
$2,000,000) .................................................... 3.90*% 11/01/26 $ 2,000,000
- ----------- ---------------
$240,350 TOTAL INVESTMENTS (Identified Cost $237,006,632) (a) ..................... 98.2% 244,712,393
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.8 4,413,351
---------------
NET ASSETS ............................................................... 100.0% $249,125,744
========== ===============
</TABLE>
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross and net unrealized
appreciation is $7,705,761.
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, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $237,006,632) ....................................... $244,712,393
Cash .................................................................. 240,412
Interest receivable ................................................... 4,358,966
Deferred organizational expenses ...................................... 2,324
Prepaid expenses ...................................................... 163,342
--------------
TOTAL ASSETS ........................................................ 249,477,437
--------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders ................................. 162,880
Investment management fee ........................................... 83,320
Accrued expenses ...................................................... 105,493
--------------
TOTAL LIABILITIES ................................................... 351,693
--------------
NET ASSETS .......................................................... $249,125,744
==============
COMPOSITION OF 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, 12,906,413 shares outstanding) ....................... 181,854,107
Net unrealized appreciation ........................................... 7,705,761
Accumulated undistributed net investment income ....................... 1,307,178
Accumulated net realized loss ......................................... (6,741,302)
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................ 184,125,744
--------------
TOTAL NET ASSETS .................................................... $249,125,744
==============
NET ASSET VALUE PER COMMON SHARE
($184,125,744 divided by 12,906,413 common shares outstanding) ...... $ 14.27
==============
</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, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $13,596,636
-------------
EXPENSES
Investment management fee ............. 855,171
Auction commission fees ............... 175,685
Professional fees ..................... 101,876
Transfer agent fees and expenses ..... 40,790
Auction agent fees .................... 33,335
Shareholder reports and notices ...... 26,079
Registration fees ..................... 25,003
Trustees' fees and expenses ........... 19,443
Custodian fees ........................ 11,816
Organizational expenses ............... 7,192
Other ................................. 36,044
-------------
TOTAL EXPENSES ...................... 1,332,434
Less: expense offset ................. (11,721)
-------------
NET EXPENSES ........................ 1,320,713
-------------
NET INVESTMENT INCOME ............... 12,275,923
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ..................... 270,892
Net change in unrealized depreciation 8,532,314
-------------
NET GAIN ............................ 8,803,206
-------------
NET INCREASE .......................... $21,079,129
=============
</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 ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
- ---------------------------------------------- ---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ......................... $ 12,275,923 $ 12,515,925
Net realized gain (loss) ...................... 270,892 (279,566)
Net change in unrealized depreciation ........ 8,532,314 814,615
---------------- ----------------
NET INCREASE ................................ 21,079,129 13,050,974
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ..................................... (2,315,881) (2,233,731)
Common ........................................ (9,783,367) (9,706,672)
---------------- ----------------
TOTAL ....................................... (12,099,248) (11,940,403)
---------------- ----------------
Decrease from transactions in common shares of
beneficial interest .......................... (4,063,806) (6,133,345)
---------------- ----------------
NET INCREASE (DECREASE) ..................... 4,916,075 (5,022,774)
NET ASSETS:
Beginning of period ........................... 244,209,669 249,232,443
---------------- ----------------
END OF PERIOD
(Including undistributed net investment
income of $1,307,178 and $1,130,503,
respectively)................................ $249,125,744 $244,209,669
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997
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, 1997, 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 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, 1997
aggregated $8,927,750 and $14,004,423, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $1,000.
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, 1997, 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, 1997 included in Trustees' fees and expenses
in the Statement of Operations amounted to $5,269. At October 31, 1997, the
Trust had an accrued pension liability of $29,897 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
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDENDRATES**
- -------- --------- ------------ --------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
1 200 $10,000 3.266% 11/03/97 3.00% -3.74 %
2 400 20,000 3.80 09/08/98 2.50 -5.125
3 500 25,000 3.85 07/13/98 2.60 -5.125
4 200 10,000 3.266 11/03/97 2.90 -3.72
</TABLE>
- ------------
* As of October 31, 1997.
** For the year ended October 31, 1997.
Subsequent to October 31, 1997 and up through December 5, 1997 the Trust paid
dividends to Series 1 through 4 at rates ranging from 2.93% to 3.85%,
respectively, in the aggregate amount of $353,243.
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, 1997, 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, 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
Treasury shares purchased and retired (weighted average discount 7.81%)* (323,300) (3,233) (4,060,573)
------------ ----------- --------------
Balance, October 31, 1997 ................................................ 12,906,413 $129,064 $181,725,043
============ =========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1997, the Trust utilized approximately
$271,000 of its net capital loss carryover.
At October 31, 1997, the Trust had a net capital loss carryover of
approximately $6,741,000, which may be used to offset future capital gains to
the extent provided by regulations, which is available through October 31 in
the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- --------------------------
2002 2003 2004
- -------- -------- ------
<S> <C> <C>
$4,524 $1,938 $279
======== ======== ======
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 23, 1997, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- ------------- -------------------- ---------------------
<S> <C> <C>
$0.0625 November 7, 1997 November 21, 1997
$0.0625 December 5, 1997 December 19, 1997
</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 YEAR ENDED OCTOBER 31** FOR THE PERIOD
FEBRUARY 26, 1993*
-------------------------------------------- THROUGH
1997 1996 1995 1994 OCTOBER 31, 1993**
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $ 13.55 $13.40 $11.29 $14.87 $ 14.06
---------- ---------- ---------- ---------- ------------------
Net investment income.................................. 0.94 0.93 0.92 1.07 0.62
Net realized and unrealized gain (loss)................ 0.68 0.05 2.12 (3.57) 0.89
---------- ---------- ---------- ---------- ------------------
Total from investment operations....................... 1.62 0.98 3.04 (2.50) 1.51
---------- ---------- ---------- ---------- ------------------
Less dividends and distributions from:
Net investment income................................. (0.75) (0.72) (0.77) (0.87) (0.43)
Common share equivalent of dividends paid to
preferred shareholders............................... (0.18) (0.17) (0.18) (0.20) (0.11)
Net realized gain..................................... -- -- -- (0.01) --
---------- ---------- ---------- ---------- ------------------
Total dividends and distributions...................... (0.93) (0.89) (0.95) (1.08) (0.54)
---------- ---------- ---------- ---------- ------------------
Anti-dilutive effect of acquiring treasury shares ..... 0.03 0.06 0.02 -- --
---------- ---------- ---------- ---------- ------------------
Offering costs charged against capital................. -- -- -- -- (0.16)
---------- ---------- ---------- ---------- ------------------
Net asset value, end of period......................... $ 14.27 $13.55 $13.40 $11.29 $ 14.87
========== ========== ========== ========== ==================
Market value, end of period............................ $13.375 $12.00 $11.75 $11.125 $15.375
========== ========== ========== ========== ==================
TOTAL INVESTMENT RETURN+............................... 18.22% 8.54% 12.93% (22.82)% 5.39%(1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses......................................... 0.74% 0.76% 0.81%(3) 0.89% 0.73%(2)
Net investment income before preferred stock
dividends............................................. 6.85% 6.93% 7.39% 8.12% 6.39%(2)
Preferred stock dividends.............................. 1.29% 1.24% 1.44% 1.54% 1.11%(2)
Net investment income available to common
shareholders.......................................... 5.56% 5.69% 5.95% 6.58% 5.28%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............... $249,126 $244,210 $249,232 $243,676 $309,759
Asset coverage on preferred shares at end of period ... 382% 375% 383% 287% 309%
Portfolio turnover rate................................ 4% 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.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
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, 1997,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the four 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, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 5, 1997
- -------------------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1997, all of the Trust's dividends from net
investment income received by both common and preferred shareholder classes
were exempt interest dividends, excludable from gross income for Federal income
tax purposes.
- -------------------------------------------------------------------------------
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
- ----------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------------------
Dean Witter Trust FSB
Harborside Financial Center -Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
CALIFORNIA
INSURED
MUNICIPAL
INCOME
TRUST
ANNUAL REPORT
OCTOBER 31, 1997
