<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1998
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of
InterCapital California Insured Municipal Income Trust (IIC) for the period
ended April 30, 1998.
Since last fall domestic economic growth has been tempered by the deflationary
impact of the Asian financial crisis. U.S. employment conditions strengthened
and the unemployment rate declined to its lowest level since 1970. Inflation
remained subdued despite the robust economy. In part this was the result of
productivity gains and the lower costs of oil and other imports. Foreign
currency turmoil strengthened the value of the U.S. dollar and created demand
for U.S. Treasury securities. Municipal bonds followed the trend of Treasuries
and yields declined to levels last seen 20 years ago. The bond market rally was
also aided by prospects of the first federal budget surplus in more than two
decades.
Municipal Market Conditions
Long-term insured index yields ended April 1998 at 5.35 percent after
reaching a low of 5.15 percent in December and January. Over the past
12 months the insured index yield has declined from 5.75 percent.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
MMD 30 YEAR AAA INSURED AND TREASURY YIELD
DATE AAA INS TSY % RELATIONSHIP
- ---- ------- --- --------------
12/31/93 5.40% 6.34% 85.17%
01/31/94 5.40 6.24 86.54%
02/28/94 5.80 6.66 87.09%
03/31/94 6.40 7.09 90.27%
04/29/94 6.35 7.32 86.75%
05/31/94 6.25 7.43 84.12%
06/30/94 6.50 7.61 85.41%
07/29/94 6.25 7.39 84.57%
08/31/94 6.30 7.45 84.56%
09/30/94 6.55 7.81 83.87%
10/31/94 6.75 7.96 84.80%
11/30/94 7.00 8.00 87.50%
12/30/94 6.75 7.88 85.66%
01/31/95 6.40 7.70 83.12%
02/28/95 6.15 7.44 82.66%
03/31/95 6.15 7.43 82.77%
04/28/95 6.20 7.34 84.47%
05/31/95 5.80 6.66 87.09%
06/30/95 6.10 6.62 92.15%
07/31/95 6.10 6.86 88.92%
08/31/95 6.00 6.66 90.09%
09/29/95 5.95 6.48 91.82%
10/31/95 5.75 6.33 90.84%
11/30/95 5.50 6.14 89.58%
12/29/95 5.35 5.94 90.07%
01/31/96 5.40 6.03 89.55%
02/29/96 5.60 6.46 86.69%
03/29/96 5.85 6.66 87.84%
04/30/96 5.95 6.89 86.36%
05/31/96 6.05 6.99 86.55%
06/28/96 5.90 6.89 85.63%
07/31/96 5.85 6.97 83.93%
08/30/96 5.90 7.11 82.98%
09/30/96 5.70 6.93 82.25%
10/31/96 5.65 6.64 85.09%
11/29/96 5.50 6.35 86.61%
12/31/96 5.60 6.63 84.46%
01/31/97 5.70 6.79 83.95%
02/28/97 5.65 6.80 83.09%
03/31/97 5.90 7.10 83.10%
04/30/97 5.75 6.94 82.85%
05/30/97 5.65 6.91 81.77%
06/30/97 5.60 6.78 82.60%
07/30/97 5.30 6.30 84.13%
08/31/97 5.50 6.61 83.21%
09/30/97 5.40 6.40 84.38%
10/31/97 5.35 6.15 86.99%
11/30/97 5.30 6.05 87.60%
12/31/97 5.15 5.92 86.99%
01/31/98 5.15 5.80 88.79%
02/28/98 5.20 5.92 87.84%
03/31/98 5.25 5.93 88.53%
04/30/98 5.35 5.95 89.92%
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1998, continued
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
LARGEST SECTORS AS OF APRIL 30, 1998 CREDIT ENHANCEMENTS AS OF APRIL 30, 1998
(% OF NET ASSETS) (% OF TOTAL LONG-TERM PORTFOLIO)
TAX ALLOCATION 14% AMBAC 23%
ELECTRIC 12% FGIC 19%
GENERAL OBLIGATION 9% FSA 4%
TRANSPORTATION 9% MBIA 54%
ALL OTHER 20%
WATER & SEWER 19%
PUBLIC FACILITIES 17%
PORTFOLIO STRUCTURE IS PORTFOLIO STRUCTURE IS
SUBJECT TO CHANGE SUBJECT TO CHANGE
CALL STRUCTURE AS OF APRIL 30, 1998
(% OF TOTAL LONG-TERM PORTFOLIO) WEIGHTED AVERAGE
PERCENT CALLABLE CALL PROTECTION: 6 YEARS
0% 0% 2% 0% 20% 65% 1% 1% 1% 2% 1% 7%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009+
YEAR CALLABLE
PORTFOLIO STRUCTURE IS
SUBJECT TO CHANGE
2
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1998, continued
The yield on one-year notes was 3.75 percent at the end of April 1998. Thus,
the yield pickup for extending maturities from 1 to 30 years was 160 basis
points.
The overall decline in interest rates led to an increase in new-issue municipal
volume. In contrast, the U.S. Treasury's borrowing needs declined with the
reduction in the deficit. Under these conditions, the municipal rally lagged
the rally in Treasuries. The ratio of municipal yields to Treasury yields
improved from 87 percent in October to almost 90 percent in April. A year ago
the ratio was a relatively rich 83 percent. A rising ratio means that
municipals have underperformed Treasuries but have become relatively more
attractive.
Total municipal volume increased 20 percent in 1997. New-issue supply totaled
$220 billion last year, with half the underwritings enhanced with bond
insurance. Refundings represented one-quarter of total new issues. California
new-issue underwriting represented 13 percent of national volume. For the
year-to-date, municipal underwriting is up 60 percent with refunding issues
comprising one-third of the total.
Performance
During the six-month period ended April 30, 1998, the Trust's net asset value
(NAV) improved from $14.27 to $14.38. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.38 per share, the Trust's
total NAV return was 3.52 percent. IIC's price on the New York Stock Exchange
declined from $13.375 to $13.1875 per share. Based on this change in market
price plus reinvestment of dividends, the Trust's total market return was
1.29 percent. On April 30, 1998 IIC was trading at a 8.29 percent discount to
NAV. This means that the market price of the common stock was lower than the
NAV.
Monthly dividends payable in the second quarter of 1998 were declared in
March and remained unchanged at $0.0625 per share. The level of undistributed
net investment income was $0.100 per share essentially unchanged versus
six-months ago.
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 Fund's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust may,
when appropriate, 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. The Trust may also utilize
procedures to reduce or eliminate the amount of outstanding Auction Rate
Preferred Shares (ARPS), including their purchase in the open market or in
privately negotiated transactions.
3
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1998, continued
Portfolio Structure
The Trust remained fully invested in long-term municipal bonds during the
period. Investments were diversified among 10 long-term sectors and 37
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 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 is the amount of
ARPS outstanding, the second 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 six-month period, ARPS leverage contributed approximately $0.03
per share to common share earnings. Weekly ARPS yields ranged between 2.65
and 5.00 percent. IIC's four ARPS series totaled $65 million and represented
26 percent of net assets.
Looking Ahead
The economic fundamentals are in place for another year of solid, albeit less
spectacular, domestic growth in 1998. Events in Asia have strengthened the
U.S. dollar and contributed to lower interest rates. The Asian financial
crisis seems likely to moderate U.S. economic growth and inflationary
pressures. While this outlook is favorable for municipal bonds it is possible
that the Federal Reserve Board may begin to tighten monetary policy if
capacity and labor constraints cause cost pressures to mount.
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
4
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.8%)
General Obligation (8.5%)
California,
$ 9,000 Various Purpose 04/01/93 (FSA) ................................. 5.50 % 04/01/19 $9,092,340
4,000 Veterans Ser BD, BE & BF (AMT)(AMBAC) .......................... 6.375 02/01/27 4,086,360
Industry,
3,000 Refg Issue of 1993 (MBIA) ...................................... 5.50 07/01/13 3,082,590
4,900 Refg Issue of 1993 (MBIA) ...................................... 5.50 07/01/16 5,024,313
- ----------- --------------
20,900 21,285,603
- ----------- --------------
Electric Revenue (12.3%)
5,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary MBIA) ............................................... 5.875 09/01/30 5,194,000
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (AMBAC) .......... 6.00 07/01/20 8,456,640
7,000 Northern California Transmission Agency, California-Oregon
Transmission Refg Ser 1993 A (MBIA) ............................ 5.25 05/01/20 6,910,120
Sacramento Municipal Utility District,
3,000 Refg 1993 Ser D (FGIC) ......................................... 5.25 11/15/12 3,044,700
7,000 Refg 1993 Ser D (MBIA) ......................................... 5.625 11/15/15 7,187,600
- ----------- --------------
30,000 30,793,060
- ----------- --------------
Hospital Revenue (6.9%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA) .............. 5.50 03/01/19 4,180,212
California Health Facilities Financing Authority,
3,000 Cedars-Sinai Medical Center Ser 1997 A (MBIA) .................. 5.25 08/01/27 2,925,330
3,000 Children's Hospital-San Diego Ser 1993 (MBIA) .................. 5.75 07/01/23 3,081,210
5,000 California Statewide Communities Development Authority,
UniHealth America 1993 Ser A COPs (AMBAC) ...................... 5.50 10/01/14 5,097,300
2,000 Marysville, Fremont-Rideout Health Refg Ser 1993-A (AMBAC) ..... 5.55 01/01/13 2,054,080
- ----------- --------------
17,150 17,338,132
- ----------- --------------
Mortgage Revenue-Single Family (1.3%)
3,000 California Housing Financing Agency, Home 1996 Ser E (AMT)(MBIA) 6.05 08/01/15 3,157,680
- ----------- --------------
Public Facilities Revenue (16.8%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA) ........... 5.70 12/01/14 10,488,400
14,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA) 5.65 06/01/15 14,368,200
9,000 California Public Works Board, Corrections Refg 1993 Ser B
(MBIA) ........................................................ 5.50 12/01/12 9,280,800
3,000 Irvine Unified School District-Community Facilities District
#86-1, Special Tax Ser 1998 (AMBAC) ............................ 5.00 11/01/19 2,892,780
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC) .......... 5.00 11/01/23 4,832,200
- ----------- --------------
41,000 41,862,380
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Tax Allocation Revenue (14.3%)
$ 7,000 Long Beach Financing Authority, Ser 1992 (AMBAC) ................ 5.50 % 11/01/22 $ 7,044,310
5,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A
(AMBAC) ....................................................... 5.70 10/01/23 5,154,700
6,000 Port Hueneme Redevelopment Agency, Central Community 1993 Refg
(AMBAC) ........................................................ 5.50 05/01/23 6,055,440
5,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC) ..... 5.50 12/15/23 5,049,250
3,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA) .. 5.625 08/01/23 3,044,670
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg
(AMBAC) ....................................................... 5.75 07/01/14 5,253,400
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA) ........ 5.50 09/01/15 4,065,920
- ----------- --------------
35,000 35,667,690
- ----------- --------------
Transportation Facilities Revenue (8.9%)
6,000 Los Angeles County Metropolitan Transportation Authority, Sales
Tax Refg Ser 1993-A (MBIA) ..................................... 5.625 07/01/18 6,150,540
6,000 Los Angeles County Transportation Commission, Second Sr Ser 1992
A (MBIA) ....................................................... 6.00 07/01/23 6,495,240
5,000 San Francisco Airports Commission, San Francisco Int'l Airport
Second Ser Refg Issue 2 (MBIA) ................................. 6.75 05/01/20 5,522,050
San Francisco Bay Area Rapid Transit District, .................
1,255 Sales Tax Ser 1995 (FGIC) ...................................... 5.50 07/01/20 1,268,880
1,000 Sales Tax Ser 1998 (AMBAC) ..................................... 4.75 07/01/23 918,770
2,000 San Joaquin Hills Transportation Corridor Agency, Toll Road
Refg Ser 1997 A (MBIA) ........................................ 5.25 01/15/30 1,960,480
- ----------- --------------
21,255 22,315,960
- ----------- --------------
Water & Sewer Revenue (19.4%)
10,000 California Department of Water Resources, Central Valley Ser L
(Secondary MBIA) ............................................... 5.75 12/01/19 10,297,300
7,000 Eastern Municipal Water District, Ser 1993-A COPs (FGIC) ........ 5.25 07/01/23 6,865,320
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA) .................. 5.80 06/01/21 10,351,300
3,000 Oceanside, Water 1993 Refg COPs (AMBAC) ......................... 5.70 08/01/14 3,141,030
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992
Ser A (FGIC) ................................................... 6.00 12/01/11 3,740,660
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC) ............ 5.50 08/01/21 5,036,300
9,000 South County Regional Wastewater Authority, Morgan Hill Ser
1992 B (FGIC) .................................................. 5.50 08/01/22 9,074,880
- ----------- --------------
47,500 48,506,790
- ----------- --------------
Other Revenue (4.1%)
10,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA) .............. 5.45 01/16/15 10,205,500
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Refunded (5.3%)
$ 1,045 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1995 (FGIC) .................................................... 5.50% 07/01/05+ $ 1,117,283
12,000 Southern California Public Power Authority, Power 1993 Sub Refg
Ser A (FGIC)(ETM) .............................................. 5.45 07/01/17 12,233,880
- ----------- --------------
13,045 13,351,163
- ----------- --------------
238,850 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $235,573,118) ........... 244,483,958
- ----------- --------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATION (0.4%)
1,000 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
(Demand 05/01/98) (Identified Cost $1,000,000) ................. 4.20* 10/01/22 1,000,000
- ----------- --------------
$239,850 TOTAL INVESTMENTS (Identified Cost $236,573,118) (a) ..................... 98.2% 245,483,958
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.8 4,373,068
------- --------------
NET ASSETS ............................................................... 100.0% $249,857,026
======= ==============
</TABLE>
- --------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
* Current coupon of variable rate demand obligation.
+ Prerefunded to call date shown.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$8,974,919 and the aggregate gross unrealized depreciation is
$64,079, resulting in net unrealized appreciation of $8,910,840.
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
7
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $236,573,118).......................................... $245,483,958
Cash..................................................................... 249,132
Interest receivable...................................................... 4,372,965
Prepaid expenses ........................................................ 69,351
------------
TOTAL ASSETS .......................................................... 250,175,406
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders ................................... 142,442
Investment management fee ............................................. 82,505
Accrued expenses ........................................................ 93,433
------------
TOTAL LIABILITIES ..................................................... 318,380
------------
NET ASSETS ............................................................ $249,857,026
============
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, 12,857,713 shares outstanding).......................... 181,185,834
Net unrealized appreciation ............................................. 8,910,840
Accumulated undistributed net investment income.......................... 1,285,205
Accumulated net realized loss ........................................... (6,524,853)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS .......................... 184,857,026
------------
TOTAL NET ASSETS ...................................................... $249,857,026
============
NET ASSET VALUE PER COMMON SHARE
($184,857,026 divided by 12,857,713 common shares outstanding) ......... $14.38
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended April 30, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ...................... $6,689,178
----------
EXPENSES
Investment management fee............. 439,058
Auction commission fees............... 108,497
Professional fees .................... 51,830
Transfer agent fees and expenses ..... 30,817
Auction agent fees.................... 17,580
Registration fees .................... 12,741
Shareholder reports and notices ..... 10,277
Trustees' fees and expenses........... 9,317
Custodian fees ....................... 5,802
Organizational expenses .............. 2,324
Other................................. 14,451
----------
TOTAL EXPENSES ..................... 702,694
Less: expense offset ................. (5,745)
----------
NET EXPENSES ....................... 696,949
----------
NET INVESTMENT INCOME .............. 5,992,229
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain..................... 216,449
Net change in unrealized
appreciation......................... 1,205,079
----------
NET GAIN ........................... 1,421,528
----------
NET INCREASE ......................... $7,413,757
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1998 OCTOBER 31, 1997
- -------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 5,992,229 $ 12,275,923
Net realized gain.................................. 216,449 270,892
Net change in unrealized
appreciation/depreciation......................... 1,205,079 8,532,314
------------ ------------
NET INCREASE .................................... 7,413,757 21,079,129
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ......................................... (1,184,578) (2,315,881)
Common ............................................ (4,829,624) (9,783,367)
------------ ------------
TOTAL ........................................... (6,014,202) (12,099,248)
------------ ------------
Decrease from transactions in common shares of
beneficial interest............................... (668,273) (4,063,806)
------------ ------------
NET INCREASE .................................... 731,282 4,916,075
NET ASSETS:
Beginning of period................................ 249,125,744 244,209,669
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $1,285,205 and $1,307,178, respectively) ..... $249,857,026 $249,125,744
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited)
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
11
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) 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 were deferred and fully amortized as of February 26, 1998.
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 six months ended April 30, 1998
aggregated $3,875,430 and $3,519,160, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At April 30, 1998, the Trust had transfer
agent fees and expenses payable of approximately $2,500.
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
12
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) 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 six months ended April 30, 1998 included in Trustees' fees and
expenses in the Statement of Operations amounted to $2,373. At April 30,
1998, the Trust had an accrued pension liability of $31,643 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 DIVIDEND RATES**
------ ------- ---------- ----- ---- ----------------
<S> <C> <C> <C> <C> <C>
1 200 $10,000 4.25 % 05/04/98 2.90%-5.00%
2 400 20,000 3.80 09/08/98 3.80
3 500 25,000 3.85 07/13/98 3.85
4 200 10,000 4.299 05/04/98 2.65-4.299
</TABLE>
- ------------
* As of April 30, 1998.
** For the six months ended April 30, 1998.
Subsequent to April 30, 1998 and up through June 5, 1998 the Trust paid
dividends to Series 1 through 4 at rates ranging from 3.26% to 4.299%,
respectively, in the aggregate amount of $360,849.
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.
13
<PAGE>
INTERCAPITAL CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) continued
The preferred shares, which are entitled to one vote per share, generally
vote with the common shares but vote separately as a class to elect two
Trustees and on any matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
------ --------- ---------
<S> <C> <C> <C>
Balance, 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
Treasury shares purchased and retired (weighted average discount 5.95%)* (48,700) (487) (667,786)
---------- -------- ------------
Balance, April 30, 1998 ................................................. 12,857,713 $128,577 $181,057,257
========== ======== ============
</TABLE>
- --------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
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 March 24, 1998, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ---- ----
<S> <C> <C>
$0.0625 May 8, 1998 May 22, 1998
$0.0625 June 5, 1998 June 19, 1998
</TABLE>
14
<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 SIX FOR THE YEAR ENDED OCTOBER 31** FEBRUARY 26, 1993*
MONTHS ENDED -------------------------------------------- THROUGH
APRIL 30, 1998** 1997 1996 1995 1994 OCTOBER 31, 1993**
- --------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 14.27 $ 13.55 $13.40 $11.29 $ 14.87 $ 14.06
------- ------- ------ ------ ------- --------
Net investment income ..................... 0.47 0.94 0.93 0.92 1.07 0.62
Net realized and unrealized gain (loss) ... 0.11 0.68 0.05 2.12 (3.57) 0.89
------- ------- ------ ------ ------- --------
Total from investment operations .......... 0.58 1.62 0.98 3.04 (2.50) 1.51
------- ------- ------ ------ ------- --------
Less dividends and distributions from:
Net investment income .................... (0.38) (0.75) (0.72) (0.77) (0.87) (0.43)
Common share equivalent of dividends paid
to preferred shareholders................. (0.09) (0.18) (0.17) (0.18) (0.20) (0.11)
Net realized gain ........................ -- -- -- -- (0.01) --
------- ------- ------ ------ ------- --------
Total dividends and distributions ........ (0.47) (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 ............ $ 14.38 $ 14.27 $13.55 $13.40 $ 11.29 $ 14.87
======= ======= ====== ====== ======= ========
Market value, end of period ............... $13.188 $13.375 $12.00 $11.75 $11.125 $ 15.375
======= ======= ====== ====== ======= ========
TOTAL INVESTMENT RETURN+ .................. 1.29% (1) 18.22% 8.54% 12.93% (22.82)% 5.39%(1)
RAIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:
Total expenses ............................ 0.75% (2) 0.74% 0.76% 0.81%(3) 0.89% 0.73%(2)
Net investment income before preferred
stock dividends........................... 6.43%(2) 6.85% 6.93% 7.39% 8.12% 6.39%(2)
Preferred stock dividends ................. 1.27%(2) 1.29% 1.24% 1.44% 1.54% 1.11%(2)
Net investment income available to common
shareholders.............................. 5.16%(2) 5.56% 5.69% 5.95% 6.58% 5.28%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $249,857 $249,126 $244,210 $249,232 $243,676 $309,759
Asset coverage on preferred shares at end
of period................................. 384% 382% 375% 383% 287% 309%
Portfolio turnover rate ................... 1%(1) 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
15
<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
Morgan Stanley 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
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
INTERCAPITAL
CALIFORNIA
INSURED
MUNICIPAL
INCOME
TRUST
SEMIANNUAL REPORT
APRIL 30, 1998
