<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
Two World Trade Center,
LETTER TO THE SHAREHOLDERS October 31, 1998 New York, New York 10048
Dear Shareholder:
We are pleased to present the annual report on the operations of Morgan
Stanley Dean Witter California Insured Municipal Income Trust (IIC) for the
fiscal year ended October 31, 1998.
On December 21, 1998, after the close of the period under review, the Trust
changed its name from InterCapital California Insured Municipal Income Trust
to Morgan Stanley Dean Witter California Insured Municipal Income Trust.
Information on the name change was mailed to shareholders in mid-December
under separate cover.
Since our last report six months ago, global financial turmoil, including the
Russian currency crisis, has continued to affect the securities markets. This
led to a flight-to-quality rally for U.S. Treasury bonds, with yields falling
to 30-year lows. Municipal bond yields declined but lagged the downward trend
of Treasury yields.
The deflationary impact of the international financial crisis began to temper
U.S. economic growth prior to the summer's tumultuous market activity. Lower
commodity prices, cheaper imports and improved productivity offset the
potential inflationary impact of strong domestic employment. With inflation
held in check the Federal Reserve Board provided liquidity to the markets by
lowering short-term interest rates. Since the end of September, the Federal
Reserve Open Market Committee cut the federal funds rate 75 basis points from
5.50 percent to 4.75 percent in three separate moves.
[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.]
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%
05/29/98 5.20 5.80 89.66%
06/30/98 5.20 5.65 92.04%
07/31/98 5.18 5.71 90.72%
08/31/98 5.03 5.27 95.45%
09/30/98 4.95 5.00 99.00%
10/31/98 5.05 5.16 97.87%
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
MUNICIPAL MARKET CONDITIONS
Municipal bond yields followed the downward trend of Treasury yields at a
more moderate pace. At the end of October, long-term insured municipal index
yields stood at 5.05 percent, index yields declined 30 basis points over the
last 12 months. In contrast, 30-year U.S. Treasury yields fell 100 basis
points during the same period.
As municipals lagged the rally in Treasuries, the ratio of municipal yields
to Treasury yields rose sharply to 98 percent. (A rising ratio means that
municipals have underperformed Treasuries and have become more attractive on
a relative basis.) This increase was similar to the jump witnessed in 1986,
when tax-reform proposals threatened the favorable tax advantage of municipal
bonds.
The overall decline in interest rates has led to a substantial increase in
new-issue municipal volume. Municipal issuance is on a pace to challenge
1993's underwriting record of $292 billion. Year-to-date, total municipal
volume of $234 billion is up 32 percent. Half the underwriting volume was
enhanced with bond insurance. Refundings represented 30 percent of new
issuance. California new issue underwriting accounted for 12 percent of
national volume.
PERFORMANCE
The Trust's net asset value (NAV) increased from $14.27 to $15.00 per share
during the fiscal year ended October 31, 1998. Based on this NAV change plus
reinvestment of tax-free dividends of $0.75 per share, the Trust's total NAV
return was 10.90 percent. IIC's price on the New York Stock Exchange moved
from $13.375 to $14.4375 per share. Based on this change in market price plus
reinvestment of dividends, the Trust's total market return was 13.88 percent.
On October 31, 1998, the Trust traded at a 3.75 percent discount to NAV.
Monthly dividends for the fourth quarter of 1998 were declared in September.
The October 1998 monthly dividend was $0.0625. The level of undistributed net
investment income increased from $0.101 to $0.105 per share.
PORTFOLIO STRUCTURE
The Trust remained fully invested in long-term municipal bonds during the
fiscal year. Investments were diversified among 10 long-term sectors and 40
credits. As illustrated in the accompanying chart, the distribution of call
dates in the portfolio produced 6 years of weighted average call protection.
2
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 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.]
CATEGORY
- --------
TRANSPORTATION -
GENERAL OBLIGATION 9%
ELECTRIC 14%
REFUNDED -
WATER & SEWER 20%
MORTGAGE -
HOSPITAL -
PUBLIC FAC. 17%
TAX ALLOCATION 14%
IDR/PCR -
EDUCATION -
ALL OTHER 26%
[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.]
CREDIT ENHANCEMENTS
- -------------------
AMBAC 23%
CONNIE LEE -
FGIC 19%
FSA 4%
GNMA -
MBIA 54%
UNINSURED -
100%
[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.]
CALL DATES
- ----------
1998 0%
1999 0%
2000 2%
2001 0%
2002 17%
2003 65%
2004 1%
2005 1%
2006 1%
2007 2%
2008 4%
2009+ 7%
100%
Wghtd Avg Call Protec: 6
3
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
The Trust's weighted average maturity was 21 years. Average duration (a
measure of price volatility to interest rate changes) was 6 years. To assure
the timely payment of principal and interest, each position in the portfolio
was backed by triple "A" rated bond insurance.
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution
to common shareholders includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common 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 12-month period, ARPS leverage contributed approximately $0.06 per
share to common share earnings. Weekly ARPS yields ranged between 2.55 and
5.00 percent. Four ARPS series totaling $65 million represented 25 percent of
net assets.
LOOKING AHEAD
Global economic conditions seem likely to keep inflationary pressures under
control and have contributed to lower interest rates. The fixed-income
markets have also begun to anticipate the possibility of additional monetary
easing by the Fed. With the municipal relationship to Treasuries more
favorable than it has been in the last 10 years, the outlook for municipal
bonds is positive.
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 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 ARPS, including
their purchase in the open market or in privately negotiated transactions.
During the fiscal year, the Trust purchased and retired 90,700 shares of
common stock at a weighted average market discount of 6.02 percent.
4
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
We appreciate your ongoing support of Morgan Stanley Dean Witter 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
5
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 20, 1998, 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 TRUSTEE BY ALL SHAREHOLDERS:
Michael Bozic
<TABLE>
<CAPTION>
<S> <C>
For ........ 8,316,834
Withheld ... 217,704
</TABLE>
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
Charles A. Fiumefreddo
<TABLE>
<CAPTION>
<S> <C>
For ........ 891
Withheld ... 0
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael
E. Nugent, Philip J. Purcell and John L. Schroeder.
(3) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE
TRUST'S INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ........ 8,171,899
Against .... 35,420
Abstain .... 327,219
</TABLE>
6
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.9%)
General Obligation (9.2%)
California,
$2,000 Refg Dtd 10/01/98 (MBIA) ....................................... 4.50 % 10/01/28 $1,857,260
9,000 Various Purpose Dtd 04/01/93 (FSA) ............................. 5.50 04/01/19 9,404,820
4,000 Veterans Ser BD, BE & BF (AMT)(AMBAC) ......................... 6.375 02/01/27 4,088,560
Industry,
3,000 Refg Issue of 1993 (MBIA) ...................................... 5.50 07/01/13 3,156,630
4,900 Refg Issue of 1993 (MBIA) ...................................... 5.50 07/01/16 5,128,487
- ----------- --------------
22,900 23,635,757
- ----------- --------------
Electric Revenue (13.8%)
5,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary MBIA) ............................................... 5.875 09/01/30 5,412,950
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (AMBAC) ......... 6.00 07/01/20 8,786,240
2,500 Northern California Power Agency, Hydro #1 Refg 1998 Ser A
(MBIA) ......................................................... 5.00 07/01/28 2,499,825
7,000 Northern California Transmission Agency, California -Oregon
Transmission Refg Ser 1993 A (MBIA) ............................ 5.25 05/01/20 7,127,190
1,080 Puerto Rico Electric Power Authority, Power Ser GG (FSA) ....... 4.750 07/01/21 1,056,456
Sacramento Municipal Utility District,
3,000 Refg 1993 Ser D (FGIC) ........................................ 5.25 11/15/12 3,167,790
7,000 Refg 1993 Ser D (MBIA) ........................................ 5.625 11/15/15 7,366,590
- ----------- --------------
33,580 35,417,041
- ----------- --------------
Hospital Revenue (7.0%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA) .............. 5.50 03/01/19 4,306,787
California Health Facilities Financing Authority,
3,000 Cedars -Sinai Medical Center Ser 1997 A (MBIA) ................ 5.25 08/01/27 3,071,580
3,000 Children's Hospital -San Diego Ser 1993 (MBIA) ................. 5.75 07/01/23 3,174,810
5,000 California Statewide Communities Development Authority,
UniHealth America 1993 Ser A COPs (AMBAC) ...................... 5.50 10/01/14 5,376,800
2,000 Marysville, Fremont -Rideout Group Health Refg Ser 1993-A
(AMBAC) ....................................................... 5.55 01/01/13 2,154,300
- ----------- --------------
17,150 18,084,277
- ----------- --------------
Mortgage Revenue -Single Family (1.3%)
3,000 California Housing Financing Agency, Home 1996 Ser E (AMT)(MBIA) 6.05 08/01/15 3,205,590
- ----------- --------------
Public Facilities Revenue (16.9%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA) ........... 5.70 12/01/14 10,914,300
14,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A
(MBIA) ......................................................... 5.65 06/01/15 14,695,800
9,000 California Public Works Board, Corrections Refg 1993 Ser B
(MBIA) ......................................................... 5.50 12/01/12 9,792,990
3,000 Irvine Unified School District -Community Facilities District
#86-1,
Special Tax Ser 1998 (AMBAC) ................................... 5.00 11/01/19 3,013,440
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC) .......... 5.00 11/01/23 5,086,100
- ----------- --------------
41,000 43,502,630
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998, 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 $7,279,790
5,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A
(AMBAC) ....................................................... 5.70 10/01/23 5,301,250
6,000 Port Hueneme Redevelopment Agency, Central Community 1993 Refg
(AMBAC) ........................................................ 5.50 05/01/23 6,293,640
5,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC) ..... 5.50 12/15/23 5,239,550
3,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA) .. 5.625 08/01/23 3,163,740
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg
(AMBAC) ........................................................ 5.75 07/01/14 5,399,900
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA) ........ 5.50 09/01/15 4,173,840
- ----------- --------------
35,000 36,851,710
- ----------- --------------
Transportation Facilities Revenue (6.3%)
6,000 Los Angeles County Metropolitan Transportation Authority, Sales
Tax
Refg Ser 1993-A (MBIA) ........................................ 5.625 07/01/18 6,307,140
5,000 San Francisco Airports Commission, San Francisco Int'l Airport
Second Ser Refg Issue 2 (MBIA) ................................. 6.75 05/01/20 5,631,850
San Francisco Bay Area Rapid Transit District,
1,255 Sales Tax Ser 1995 (FGIC) ...................................... 5.50 07/01/20 1,316,470
1,000 Sales Tax Ser 1998 (AMBAC) ..................................... 4.75 07/01/23 966,100
2,000 San Joaquin Hills Transportation Corridor Agency, Toll Road
Refg Ser 1997 A (MBIA) ......................................... 5.25 01/15/30 2,047,480
- ----------- --------------
15,255 16,269,040
- ----------- --------------
Water & Sewer Revenue (20.3%)
10,000 California Department of Water Resources, Central Valley Ser L
(Secondary MBIA) ............................................... 5.75 12/01/19 10,682,700
2,000 East Bay Municipal Utility District, Water Ser 1998 (MBIA) ...... 4.75 06/01/34 1,910,780
7,000 Eastern Municipal Water District, Ser 1993-A COPs (FGIC) ........ 5.25 07/01/23 7,125,510
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA) .................. 5.80 06/01/21 10,761,600
3,000 Oceanside, Water 1993 Refg COPs (AMBAC) ......................... 5.70 08/01/14 3,261,450
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992
Ser A (FGIC) ................................................... 6.00 12/01/11 3,827,810
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC) ............ 5.50 08/01/21 5,229,950
9,000 South County Regional Wastewater Authority, Morgan Hill Ser 1992
B (FGIC) ....................................................... 5.50 08/01/22 9,423,180
- ----------- --------------
49,500 52,222,980
- ----------- --------------
Other Revenue (4.0%)
10,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA) .............. 5.45 01/16/15 10,401,200
- ----------- --------------
Refunded (4.8%)
12,000 Southern California Public Power Authority, Power 1993 Sub Refg
Ser A (FGIC)(ETM) .............................................. 5.45 07/01/17 12,425,400
- ----------- --------------
239,385 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $235,773,260) ......... 252,015,625
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (0.4%)
$ 300 California Pollution Control Financing Authority, Pacific Gas &
Electric Co Ser 1996 A (Demand 11/02/98) ...................... 3.60*% 12/01/18 $ 300,000
700 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
- -----------
(Demand 11/02/98) ............................................. 3.60* 10/01/22 700,000
------------
1,000 TOTAL CALIFORNIA SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- -----------
(Identified Cost $1,000,000) ...................................................... 1,000,000
------------
$240,385 TOTAL INVESTMENTS (Identified Cost $236,773,260) (a) ..................... 98.3% 253,015,625
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.7 4,273,142
------ ------------
NET ASSETS .............................................................. 100.0% $257,288,767
====== ============
</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 purpose approximates
identified cost. The aggregate gross unrealized appreciation is
$16,316,399 and the aggregate gross unrealized depreciation is
$74,034, resulting in net unrealized appreciation of $16,242,365.
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
9
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $236,773,260) ....................................... $253,015,625
Cash................................................................... 10,718
Interest receivable ................................................... 4,437,590
Prepaid expenses ...................................................... 163,645
---------------
TOTAL ASSETS ........................................................ 257,627,578
---------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders ................................. 152,684
Investment management fee ........................................... 89,161
Accrued expenses ...................................................... 96,966
---------------
TOTAL LIABILITIES ................................................... 338,811
---------------
NET ASSETS .......................................................... $257,288,767
===============
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, 12,815,713 shares outstanding) ....................... 180,606,455
Net unrealized appreciation ........................................... 16,242,365
Accumulated undistributed net investment income........................ 1,339,672
Accumulated net realized loss ......................................... (5,899,725)
---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................ 192,288,767
---------------
TOTAL NET ASSETS .................................................... $257,288,767
===============
NET ASSET VALUE PER COMMON SHARE
($192,288,767 divided by 12,815,713 common shares outstanding) ...... $ 15.00
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $13,439,962
-----------
EXPENSES
Investment management fee.............. 888,181
Auction commission fees ............... 218,791
Professional fees ..................... 95,488
Transfer agent fees and expenses ..... 53,270
Auction agent fees .................... 32,958
Registration fees ..................... 24,527
Trustees' fees and expenses ........... 18,769
Shareholder reports and notices ...... 15,272
Custodian fees ........................ 11,593
Organizational expenses ............... 2,324
Other ................................. 34,848
-----------
TOTAL EXPENSES ...................... 1,396,021
Less: expense offset .................. (11,478)
-----------
NET EXPENSES ........................ 1,384,543
-----------
NET INVESTMENT INCOME ............... 12,055,419
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ..................... 841,577
Net change in unrealized appreciation 8,536,604
-----------
NET GAIN ............................ 9,378,181
-----------
NET INCREASE .......................... $21,433,600
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER 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, 1998 OCTOBER 31, 1997
- --------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .............................. $ 12,055,419 $ 12,275,923
Net realized gain .................................. 841,577 270,892
Net change in unrealized appreciation/depreciation 8,536,604 8,532,314
---------------- ----------------
NET INCREASE ..................................... 21,433,600 21,079,129
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred .......................................... (2,380,800) (2,315,881)
Common ............................................. (9,642,125) (9,783,367)
---------------- ----------------
TOTAL ............................................ (12,022,925) (12,099,248)
---------------- ----------------
Decrease from transactions in common shares of
beneficial interest ............................... (1,247,652) (4,063,806)
---------------- ----------------
NET INCREASE ..................................... 8,163,023 4,916,075
NET ASSETS:
Beginning of period ................................ 249,125,744 244,209,669
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$1,339,672 and $1,307,178, respectively) ........ $257,288,767 $249,125,744
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter California Insured Municipal Income Trust (the
"Trust"), formerly InterCapital California Insured Municipal Income Trust
(the Trust changed its name effective December 21, 1998), 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.
13
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their 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-- Morgan Stanley Dean Witter Advisors Inc. (the
"Investment Manager"), formerly Dean Witter InterCapital Inc., 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 year ended October 31, 1998
aggregated $11,159,548 and $11,224,406, respectively.
14
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MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At October 31, 1998, the Trust had transfer
agent fees and expenses payable of approximately $2,000.
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 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, 1998 included in Trustees' fees and expenses in the
Statement of Operations amounted to $5,521. At October 31, 1998, the Trust
had an accrued pension liability of $34,165 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 3.00% 11/02/98 2.70%-5.00%
2 400 20,000 3.489 09/07/99 3.489-3.80
3 500 25,000 3.65 07/12/99 3.65 -3.85
4 200 10,000 3.00 11/02/98 2.55 -4.299
</TABLE>
- ------------
* As of October 31, 1998.
** For the year ended October 31, 1998.
Subsequent to October 31, 1998 and up through December 21, 1998 the Trust
paid dividends to Series 1 through 4 at rates ranging from 2.38% to 3.65%, in
the aggregate amount of $365,214.
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
15
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
purchasing common shares and/or could trigger the mandatory redemption of
preferred shares at liquidation value.
The preferred shares, which are entitled to one vote per share, generally
vote with the common shares but vote separately as a class to elect two
Trustees and on any matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
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
6.02%)*................................................................. (90,700) (907) (1,246,745)
-------------- ----------- ---------------
Balance, October 31, 1998 ............................................... 12,815,713 $128,157 $180,478,298
============== =========== ===============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1998, the Trust utilized approximately
$841,000 of its capital loss carryover. At October 31, 1998, the Trust had a
net capital loss carryover of approximately $5,900,000, 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>
$3,683 $1,938 $279
======== ======== ======
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 29, 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 November 6, 1998 November 20, 1998
$0.0625 December 4, 1998 December 18, 1998
</TABLE>
16
<PAGE>
MORGAN STANLEY DEAN WITTER 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*
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------ ------------- -------------- -------------- -------------- ------------
<S> <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
------------- -------------- -------------- -------------- ------------
Net investment income.................................. 0.94 0.94 0.93 0.92 1.07
Net realized and unrealized gain (loss)................ 0.72 0.68 0.05 2.12 (3.57)
------------- -------------- -------------- -------------- ------------
Total from investment operations....................... 1.66 1.62 0.98 3.04 (2.50)
------------- -------------- -------------- -------------- -------------
Less dividends and distributions from:
Net investment income................................. (0.75) (0.75) (0.72) (0.77) (0.87)
Common share equivalent of dividends paid to
preferred shareholders............................... (0.19) (0.18) (0.17) (0.18) (0.20)
Net realized gain..................................... -- -- -- -- (0.01)
------------- -------------- -------------- -------------- -------------
Total dividends and distributions...................... (0.94) (0.93) (0.89) (0.95) (1.08)
------------- -------------- -------------- -------------- -------------
Anti-dilutive effect of acquiring treasury shares ..... 0.01 0.03 0.06 0.02 --
------------- -------------- -------------- -------------- -------------
Net asset value, end of period......................... $15.00 $ 14.27 $13.55 $13.40 $ 11.29
============= ============== ============== ============== =============
Market value, end of period ........................... $14.438 $13.375 $12.00 $11.75 $11.125
============= ============== ============== ============== =============
TOTAL INVESTMENT RETURN+............................... 13.88 % 18.22 % 8.54 % 12.93 % (22.82)%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses......................................... 0.74 % (1) 0.74 % 0.76 % 0.81 %(1) 0.89 %
Net investment income before preferred stock
dividends............................................. 6.39 % 6.85 % 6.93 % 7.39 % 8.12 %
Preferred stock dividends.............................. 1.26 % 1.29 % 1.24 % 1.44 % 1.54 %
Net investment income available to common
shareholders.......................................... 5.13 % 5.56 % 5.69 % 5.95 % 6.58 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................ $257,289 $249,126 $244,210 $249,232 $243,676
Asset coverage on preferred shares at end of period ... 395 % 382 % 375 % 383 % 287 %
Portfolio turnover rate................................ 5 % 4 % 1 % 1 % 12 %
</TABLE>
- ------------
* 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) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER 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 Morgan Stanley
Dean Witter California Insured Municipal Income Trust (the "Trust"), formerly
InterCapital California Insured Municipal Income Trust, at October 31, 1998,
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 five years in the period then ended, 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 21, 1998
-----------------------------------------------------------------------
1998 Federal Tax Notice (unaudited)
For the year ended October 31, 1998, 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.
-----------------------------------------------------------------------
18
<PAGE>
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<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
- --------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- --------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
CALIFORNIA
INSURED
MUNICIPAL
INCOME TRUST
ANNUAL REPORT
OCTOBER 31, 1998
