<PAGE> 1
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES 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
Insured California Municipal Securities (ICS) 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
<TABLE>
<CAPTION>
Insured Municipal Revenue
30-Year U.S. 30-Year Insured Yields as a Percentage
Treasury Yields Municipal Revenue Yields of U.S. Treasury Yields
<S> <C> <C>
Dec '93 6.34 5.4 85.17%
6.24 5.4 86.54%
6.66 5.8 87.09%
7.09 6.4 90.27%
7.32 6.35 86.75%
7.43 6.25 84.12%
Jun '94 7.61 6.5 85.41%
7.39 6.25 84.57%
7.45 6.3 84.56%
7.81 6.55 83.87%
7.96 6.75 84.80%
8 7 87.50%
Dec '94 7.88 6.75 85.66%
7.7 6.4 83.12%
7.44 6.15 82.66%
7.43 6.15 82.77%
7.34 6.2 84.47%
6.66 5.8 87.09%
Jun '95 6.62 6.1 92.15%
6.86 6.1 88.92%
6.66 6 90.08%
6.48 5.95 91.82%
6.33 5.75 90.84%
6.14 5.5 89.56%
Dec '95 5.94 5.35 90.07%
6.03 5.4 89.55%
6.46 5.8 86.69%
6.66 5.85 87.84%
6.89 5.95 86.36%
6.99 6.05 86.55%
Jun '96 6.89 5.9 85.63%
6.97 5.85 83.93%
7.11 5.9 82.98%
6.93 5.7 82.25%
6.64 5.65 85.09%
6.35 5.5 86.61%
Dec '96 6.63 5.6 84.46%
6.79 5.7 83.95%
6.8 5.65 83.08%
7.1 5.9 83.10%
6.94 5.75 82.85%
6.91 5.65 81.77%
Jun '97 6.78 5.6 82.60%
6.3 5.3 84.00%
6.61 5.5 83.00%
6.4 5.4 84.40%
Oct '97 6.15 5.35 86.90%
</TABLE>
Source: Municipal Market Data
<PAGE> 2
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
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 one 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
relative to the same period last year. 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
LARGEST SECTORS AS OF OCTOBER 31, 1997
(% OF NET ASSETS)
<TABLE>
<S> <C>
TAX ALLOCATION 25%
HOSPITAL 15%
TRANSPORTATION 12%
REFUNDED 10%
GENERAL OBLIGATION 9%
MORTGAGE 8%
WATER & SEWER 8%
ALL OTHERS 13%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT ENHANCEMENTS AS OF DECEMBER 31, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
MBIA 42%
AMBAC 31%
FSA 13%
FGIC 11%
CONNIE LEE 3%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT CHANGE.
<PAGE> 3
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
from $15.02 to $15.50. Based on this NAV change plus reinvestment of tax-free
dividends totaling $0.81 per share, the Trust's total NAV return was 9.16
percent. ICS's market price on the New York Stock Exchange moved from $13.50 to
$14.375 per share. Based on this change in market price plus reinvestment of
tax-free dividends, the Trust's total market return was 12.64 percent. On
October 31, 1997, ICS traded at a 7 percent discount to NAV.
Monthly dividends for the fourth quarter of 1997 were declared in September.
Over the past 12 months the level of undistributed net investment income
declined from $0.116 per share to $0.086 per share. Beginning with the October
1997 payment, the monthly dividend was reduced from $0.0675 per share to $0.065
per share to more closely reflect the Trust's anticipated income.
PORTFOLIO STRUCTURE
ICS remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 12 long-term sectors and 25 credits. The
Trust's weighted average maturity and call protection were 21 and 6 years,
respectively. To assure the timely payment of principal and interest, each
position in the portfolio was backed by triple "A" rated bond insurance.
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, 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 twelve-month period ended October 31,
1997, the Trust purchased and retired 44,700 shares of common stock at a
weighted average market discount of 6.99 percent.
We appreciate your ongoing support of InterCapital Insured California Municipal
Securities 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> 4
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On May 20, 1997, 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:
<TABLE>
<S> <C>
Wayne E. Hedien
For............................................................ 3,401,537
Withheld....................................................... 69,128
Dr. Manuel H. Johnson
For............................................................ 3,400,873
Withheld....................................................... 69,792
John L. Schroeder
For............................................................ 3,400,871
Withheld....................................................... 69,794
</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) 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.:
<TABLE>
<S> <C>
For............................................................ 3,218,968
Against........................................................ 42,227
Abstain........................................................ 209,470
</TABLE>
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For............................................................ 3,311,099
Against........................................................ 21,591
Abstain........................................................ 137,975
</TABLE>
<PAGE> 5
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.4%)
General Obligation (9.0%)
$ 3,000 California, Various Purpose 03/01/94 (FSA)............................... 5.50% 03/01/20 $ 3,015,690
3,000 Moulton-Niguel Water District, 1993 Refg (MBIA).......................... 5.00 09/01/19 2,876,670
------- -----------
6,000 5,892,360
------- -----------
Educational Facilities Revenue (2.4%)
1,500 California Educational Facilities Authority, National University Ser 1994
------- (Connie Lee)............................................................ 6.20 05/01/21 1,589,325
-----------
Electric Revenue (1.6%)
1,000 Anaheim Public Financing Authority, San Juan 2nd Ser (FGIC).............. 5.75 10/01/22 1,025,400
------- -----------
Hospital Revenue (15.3%)
2,000 Anaheim, Anaheim Memorial Hospital Association COPs (AMBAC).............. 5.125 05/15/20 1,931,280
3,000 California Health Facilities Financing Authority, Catholic Healthcare
West Ser 1994 B (AMBAC)................................................. 5.00 07/01/21 2,832,870
3,000 California Statewide Communities Development Authority, Sharp Health Care
COPs (MBIA)............................................................. 6.00 08/15/24 3,158,670
2,000 San Mateo County Joint Powers Financing Authority, San Mateo County
Health Center 1994 Ser A (FSA).......................................... 5.75 07/15/22 2,057,720
------- -----------
10,000 9,980,540
------- -----------
Mortgage Revenue - Multi-Family (4.9%)
3,000 Los Angeles Community Redevelopment Agency, 1994 Ser A (AMBAC)........... 6.45 07/01/17 3,179,250
------- -----------
Mortgage Revenue - Single Family (3.1%)
1,970 California Housing Finance Agency, 1995 Ser B (AMT) (AMBAC).............. 6.25 08/01/14 2,033,020
------- -----------
Public Facilities Revenue (3.2%)
1,000 Glendale Unified School District, 1994 Ser A COPs (AMBAC)................ 6.00 03/01/19 1,050,700
1,000 Los Angeles Convention & Exhibition Center Authority, 1993 Refg Ser A
(MBIA).................................................................. 5.375 08/15/18 1,000,860
------- -----------
2,000 2,051,560
------- -----------
Tax Allocation (25.3%)
3,000 Bay Area Government Association, Pool 1994 Ser A (FSA)................... 6.00 12/15/24 3,181,320
2,000 Brea Redevelopment Agency, 1993 Refg Ser AB (MBIA)....................... 5.75 08/01/23 2,052,580
2,000 Cerritos Public Finance Authority, Los Coyotes Redev Ser 1993 A
(AMBAC)................................................................. 5.75 11/01/22 2,054,140
3,000 Corona Redevelopment Agency, Area A 1994 Refg Ser A (FGIC)............... 6.25 09/01/13 3,303,270
3,000 Pittsburg Redevelopment Agency, Los Medanos Refg Ser 1993 A (AMBAC)...... 5.00 08/01/17 2,904,660
3,000 Yorba Linda Redevelopment Agency, Ser 1993 A (MBIA)...................... 5.25 09/01/23 2,937,480
------- -----------
16,000 16,433,450
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation Facilities Revenue (11.5%)
$ 3,000 Los Angeles County Transportation Commission, Second Sr Ser 1992 A
(MBIA).................................................................. 6.00% 07/01/23 $ 3,145,560
San Francisco Airports Commission, San Francisco Int'l Airport
2,000 Second Ser Refg Issue 4 (MBIA).......................................... 6.00 05/01/20 2,107,200
2,000 Second Ser Refg Issue 2 (MBIA).......................................... 6.75 05/01/20 2,238,020
------- -----------
7,000 7,490,780
------- -----------
Water & Sewer Revenue (7.6%)
2,900 Garden Grove Public Financing Authority, Water Ser 1993 (FGIC)........... 5.50 12/15/23 2,914,877
2,000 Los Angeles, Wastewater Refg Ser 1993 A (MBIA)........................... 5.70 06/01/20 2,045,560
------- -----------
4,900 4,960,437
------- -----------
Other Revenue (3.2%)
2,000 South Orange County Public Financing District #88-1, 1994 Ser A (MBIA)... 6.00 09/01/18 2,106,960
------- -----------
Refunded (10.3%)
3,000 Central Coast Water Authority, Ser 1992 (AMBAC).......................... 6.60 10/01/02 3,372,750
3,000 Sacramento Municipal Utility District, 1992 Ser B (MBIA)................. 6.375 08/15/02++ 3,336,270
------- -----------
6,000 6,709,020
------- -----------
61,370 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $58,060,374)....................... 63,452,102
------- -----------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (1.1%)
California Pollution Control Financing Authority,
400 Pacific Gas & Electric Co Ser 1996 F (Demand 11/03/97).................. 3.90* 11/01/26 400,000
300 Southern California Edison Co Ser 1986 B (Demand 11/03/97).............. 3.75* 02/28/08 300,000
------- -----------
700 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
------- (Identified Cost $700,000)..................................................................... 700,000
-----------
$62,070 TOTAL INVESTMENTS (Identified Cost $58,760,374) (a).................................... 98.5%
======= 64,152,102
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................... 1.5 958,554
----- -----------
NET ASSETS.............................................................................. 100.0% $65,110,656
===== ===========
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
++ Prerefunded to call date shown.
* 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 $5,391,728.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
ASSETS:
Investments in securities, at value
(identified cost $58,760,374)......................................... $64,152,102
Cash................................................................... 14,159
Interest receivable.................................................... 1,016,902
Deferred organizational expenses....................................... 10,619
Prepaid expenses and other assets...................................... 2,900
-----------
TOTAL ASSETS....................................................... 65,196,682
-----------
LIABILITIES:
Payable for:
Investment management fee.......................................... 21,742
Common shares of beneficial interest repurchased................... 14,405
Accrued expenses and other payables.................................... 49,879
-----------
TOTAL LIABILITIES.................................................. 86,026
-----------
NET ASSETS......................................................... $65,110,656
===========
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized of
non-participating $.01 par value, none issued)........................ --
-----------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 4,200,513 shares outstanding)......................... $59,385,070
Net unrealized appreciation............................................ 5,391,728
Accumulated undistributed net investment income........................ 361,014
Accumulated net realized loss.......................................... (27,156)
-----------
TOTAL NET ASSETS................................................... $65,110,656
===========
NET ASSET VALUE PER COMMON SHARE $15.50
($65,110,656 divided by 4,200,513 common shares outstanding).......... ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $3,624,927
----------
EXPENSES
Investment management fee............................................... 223,318
Professional fees....................................................... 51,931
Shareholder reports and notices......................................... 20,454
Registration fees....................................................... 16,559
Transfer agent fees and expenses........................................ 13,860
Trustees' fees and expenses............................................. 11,364
Organizational expenses................................................. 7,997
Custodian fees.......................................................... 3,607
Other................................................................... 7,456
----------
TOTAL EXPENSES...................................................... 356,546
Less: expense offset.................................................... (3,599)
----------
NET EXPENSES........................................................ 352,947
----------
NET INVESTMENT INCOME............................................... 3,271,980
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss....................................................... (377)
Net change in unrealized appreciation................................... 2,115,361
----------
NET GAIN............................................................ 2,114,984
----------
NET INCREASE............................................................ $5,386,964
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
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................................ $ 3,271,980 $ 3,333,747
Net realized loss.................................... (377) (25,529)
Net change in unrealized appreciation................ 2,115,361 555,060
------------ ------------
NET INCREASE..................................... 5,386,964 3,863,278
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income................................ (3,402,772) (3,230,079)
Net realized gain.................................... -- (38,327)
------------ ------------
TOTAL............................................ (3,402,772) (3,268,406)
------------ ------------
Decrease from transactions in common shares of
beneficial interest................................. (626,777) (1,310,404)
------------ ------------
NET INCREASE (DECREASE).......................... 1,357,415 (715,532)
NET ASSETS:
Beginning of period.................................. 63,753,241 64,468,773
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$361,014 and $491,806, respectively)............. $ 65,110,656 $ 63,753,241
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Insured California Municipal Securities (the "Trust") is registered
under the Investment Company Act of 1940, as amended, as a 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 October 14,
1993 and commenced operations on February 28, 1994.
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 for the Trust 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
<PAGE> 11
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
investment income and net realized capital gains are determined in accordance
with federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Trust's common shares in the
amount of $40,000 which have been reimbursed by the Trust 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 proceeds from sales of portfolio securities, excluding short-term
investments, for the year ended October 31, 1997 aggregated $520,750.
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 $1,430.
<PAGE> 12
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
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 preferred shares have a liquidation value of $50,000
per share plus the redemption premium, if any, plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of distribution. The
Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or not
declared, thereon to the date of redemption.
Upon issuance, the Trust will be 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, 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, 1995......................................................... 4,343,213 $43,432 $61,278,819
Treasury shares purchased and retired (weighted average discount 10.42%)*......... (98,000) (980) (1,309,424)
--------- ------- -----------
Balance, October 31, 1996......................................................... 4,245,213 42,452 59,969,395
Treasury shares purchased and retired (weighted average discount 6.99%)*.......... (44,700) (447) (626,330)
--------- ------- -----------
Balance, October 31, 1997......................................................... 4,200,513 $42,005 $59,343,065
========= ======= ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
<PAGE> 13
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
6. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Trust had a net capital loss carryover of approximately
$25,900 of which $25,500 will be available through October 31, 2004 and $400
will be available through October 31, 2005, to offset future capital gains to
the extent provided by regulations.
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>
$ 0.065 November 7, 1997............. November 21, 1997
$ 0.065 December 5, 1997............. December 19, 1997
</TABLE>
<PAGE> 14
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
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 28, 1994*
-------------------------------------- THROUGH
1997 1996 1995 OCTOBER 31, 1994**
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 15.02 $ 14.84 $ 13.15 $ 14.06
------- ------- ------- --------
Net investment income............................................ 0.78 0.78 0.76 0.41
Net realized and unrealized gain (loss).......................... 0.50 0.12 1.59 (0.92)
------- ------- ------- --------
Total from investment operations................................. 1.28 0.90 2.35 (0.51)
------- ------- ------- --------
Less dividends and distributions from:
Net investment income......................................... (0.81) (0.75) (0.72) (0.36)
Net realized gain............................................. -- (0.01) -- --
------- ------- ------- --------
Total dividends and distributions................................ (0.81) (0.76) (0.72) (0.36)
------- ------- ------- --------
Anti-dilutive effect of acquiring treasury shares................ 0.01 0.04 0.04 0.04
------- ------- ------- --------
Offering costs charged against capital........................... -- -- 0.02 (0.08)
------- ------- ------- --------
Net asset value, end of period................................... $ 15.50 $ 15.02 $ 14.84 $ 13.15
======= ======= ======= ========
Market value, end of period...................................... $14.375 $ 13.50 $ 12.50 $ 11.00
======= ======= ======= ========
TOTAL INVESTMENT RETURN+......................................... 12.64% 14.33% 20.51% (24.55)%(1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses................................................... 0.56%(3) 0.58%(3) 0.72%(3) 0.65%(2)
Net investment income............................................ 5.14% 5.22% 5.35% 4.45%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................... $65,111 $63,753 $64,469 $58,822
Portfolio turnover rate.......................................... -- -- 3% --
</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 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> 15
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF INTERCAPITAL INSURED CALIFORNIA MUNICIPAL SECURITIES
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 Insured California
Municipal Securities (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 three years in the period then ended and for the period February 28, 1994
(commencement of operations) through October 31, 1994, 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 were exempt interest
dividends, excludable from gross income for Federal income tax
purposes.
--------------------------------------------------------------------
<PAGE> 16
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
INSURED
CALIFORNIA
MUNICIPAL
SECURITIES
Annual Report
October 31,1997
