<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1999
Two World Trade Center,
New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, has continued to experience robust
growth this year. The fixed-income markets anticipated that the Federal Reserve
Board would remove the liquidity it provided during last year's international
economic crises. The Fed changed monetary policy and raised the federal-funds
rate 50 basis points, to 5.25 percent during the summer. By October long-term
interest rates had risen to levels last seen two years ago. Subsequently, the
Fed raised the federal-funds rate an additional 25 basis points to 5.50 percent
in November.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal index yields began 1999 near a record low of 5.05
percent. By the end of October, municipal index yields had increased 100 basis
points to 6.05 percent. Since bond prices move inversely to changes in interest
rates, these higher yields resulted in significantly lower bond prices. The
increase in yields translated into a 13 percent price decline for a generic
insured municipal bond with a 30-year maturity.
The municipal market outperformed U.S. Treasury bonds early in the year but
gradually gave ground. The ratio of long-term insured municipal index yields to
benchmark 30-year Treasury yields is a measure of relative performance. The
ratio declined from 99 percent at the end of 1998 to 91 percent in May before
rising to 98 percent by the end of October. A declining ratio means that
municipals have outperformed Treasuries. Over the past five years the ratio has
ranged from a high of 99 percent, to a low of 82 percent.
Higher interest rates led to a reduction in municipal market underwriting this
year. New issue volume declined 20 percent in the first ten months of 1999.
Refunding activity, the most interest rate sensitive component of supply, was
down 50 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
30-YEAR BOND YIELDS 1994-1999
<TABLE>
<CAPTION>
Date AAA Ins Tsy % Relationship
---- ------- --- --------------
<S> <C> <C> <C>
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%
11/30/98 5.00 5.06 98.81%
12/31/98 5.05 5.10 99.02%
01/31/99 5.00 5.09 98.23%
02/28/99 5.10 5.58 91.40%
03/31/99 5.15 5.63 91.47%
04/30/99 5.20 5.66 91.87%
05/31/99 5.30 5.83 90.91%
06/30/99 5.47 5.96 91.78%
07/31/99 5.55 6.10 90.98%
08/31/99 5.75 6.06 94.88%
09/30/99 5.85 6.05 96.69%
10/31/99 6.03 6.16 97.89%
</TABLE>
PERFORMANCE
In this interest rate environment, the net asset value (NAV) of Morgan Stanley
Dean Witter California Insured Municipal Income Trust (IIC) declined from
$15.00 to $13.51 per share for the fiscal year ended October 31, 1999. Based on
this change plus reinvestment of tax-free dividends totaling $0.7525 per share,
the Trust's total NAV return was -- 5.01 percent. IIC's value on the New York
Stock Exchange (NYSE) fell from $14.4375 to $12.50 per share during the same
period. Based on this change plus reinvestment of tax-free dividends, IIC's
total market return was -- 8.69 percent. On October 31, 1999, IIC's NYSE market
price represented a 7.48 percent discount to its NAV.
Monthly dividends for the fourth quarter of 1999 were declared in September.
Beginning with the October payment, the dividend was increased from $0.0625 to
$0.065 per share. The new dividend rate reflects the Trust's estimated earnings
over the next 6 -- 12 months and its $0.116 per share cushion of undistributed
net investment income on October 31, 1999.
2
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 10 long-term sectors and 40
credits. At the end of October, the portfolio's average maturity was 19 years.
Average duration, a measure of sensitivity to interest rate changes, was 9.2
years. Issues in the refunded bond category comprised 10 percent of net assets.
These bonds have been refinanced and will be redeemed on the dates shown in the
portfolio. The accompanying charts provide current information on the
portfolio's credit enhancements and sector distribution. Optional call
provisions by year with their respective cost (book) yields are also charted.
THE IMPACT OF LEVERAGING
As discussed in previous shareholder 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 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. ARPS leverage also increases the price volatility of
common shares and has the effect of extending portfolio duration.
During the 12-month period, ARPS leverage contributed approximately $0.07 per
share to common share earnings. Weekly ARPS yields ranged between 2.39 and 4.75
percent. In comparison, the yield on 1-year municipal notes increased from 3.04
percent at the end of 1998, to 3.77 percent at the end of October 1999. The
Trust's four ARPS series totaled $65 million and represented 27 percent of net
assets.
LOOKING AHEAD
The Federal Reserve Board raised interest rates twice in the summer and again
in November 1999. This confirmed its previously disclosed bias of becoming less
accommodative in the face of continued strong domestic economic growth.
Depending on the impact of tight labor markets and higher commodity prices on
inflation, the central bank may raise short-term interest rates further.
However, we believe municipal bonds continue to offer long-term investors good
value especially in relationship to Treasuries.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps
support the market value of the Trust's shares. In
3
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
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. 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 ended October 31, 1999, the Trust
purchased and retired 124,200 shares of common stock at a weighted average
market discount of 5.36 percent.
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/ C. Fiumefreddo /s/ Mitchell M. Merin
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
4
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
LARGEST SECTORS AS OF OCTOBER 31, 1999
(% OF NET ASSETS)
WATER & SEWER ................. 20%
PUBLIC FACILITIES ............. 17%
TAX ALLOCATION ................ 14%
TRANSPORTATION ................ 10%
ELECTRIC ...................... 10%
REFUNDED ...................... 10%
GENERAL OBLIGATION ............ 9%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
FSA ........................... 4%
FGIC .......................... 19%
AMBAC ......................... 24%
MBIA .......................... 53%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
CALL AND COST (BOOK) YIELD STRUCTURE
OCTOBER 31, 1999
WEIGHTED AVERAGE
CALL PROTECTION: 5 YEARS
PERCENT CALLABLE*
CALL STRUCTURE (BAR GRAPH):
- ----------------------------------------------------------
CALL DATES INSURED CALIFORNIA IIC
- ---------- ----------------------
1999 ............................. -
2000 ............................. 2%
2001 ............................. -
2002 ............................. 18%
2003 ............................. 61%
2004 ............................. 1%
2005 ............................. -
2006 ............................. 1%
2007 ............................. 2%
2008 ............................. 5%
2009 ............................. 2%
2010+............................. 8%
0.00% 100.00%
-------
Weighted Avg Call Protec: 5
YEARS BONDS CALLABLE
COST (BOOK) YIELD**
WEIGHTED AVERAGE
CALL PROTECTION: 5 YEARS
COST BOOK YIELD (STRUCTURE) BAR GRAPH
- ----------------------------------------------------------
YIELD DATES INSURED CALIFORNIA IIC
- ---------- ----------------------
1999 ............................. 0.00%
2000 ............................. 5.00%
2001 ............................. 0.00%
2002 ............................. 5.67%
2003 ............................. 5.73%
2004 ............................. 5.68%
2005 ............................. 0.00%
2006 ............................. 6.05%
2007 ............................. 5.47%
2008 ............................. 5.21%
2009 ............................. 5.18%
2010+............................. 5.46%
Weighted Avg Call Protec: 5.65%
* % BASED ON LONG-TERM PORTFOLIO.
** COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE TRUST OPERATING EXPENSES. FOR
EXAMPLE, THE TRUST EARNED A BOOK YIELD OF 5.7% ON 18% OF THE LONG-TERM
PORTFOLIO THAT IS CALLABLE IN 2002.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
6
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 28, 1999, 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 BY ALL SHAREHOLDERS:
Wayne E. Hedien
For ...................................... 10,416,016
Withheld ................................. 208,926
John L. Schroeder
For ...................................... 10,409,176
Withheld ................................. 215,766
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
Dr. Manuel H. Johnson
For ...................................... 972
Withheld ................................. 0
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent
and Philip J. Purcell.
(3) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
For ...................................... 10,324,886
Against .................................. 53,076
Abstain .................................. 246,980
7
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (96.4%)
General Obligation (9.3%)
California,
$ 9,000 Various Purpose Dtd 04/01/93 (FSA) ..................................... 5.50 % 04/01/19 $ 8,596,620
4,000 Veterans Ser BD, BE & BF (AMT) (AMBAC) ................................. 6.375 02/01/27 4,002,520
2,000 Refg Dtd 10/01/98 (MBIA) ............................................... 4.50 10/01/28 1,569,840
Industry,
3,000 Refg Issue of 1993 (MBIA) .............................................. 5.50 07/01/13 3,002,610
4,900 Refg Issue of 1993 (MBIA) .............................................. 5.50 07/01/16 4,769,317
-------- ------------
22,900 21,940,907
-------- ------------
Educational Facilities Revenue (0.4%)
1,000 California Educational Facilities Authority, Santa Clara University
-------- Ser 1999 (AMBAC) ....................................................... 5.25 09/01/18 927,660
Electric Revenue (9.6%)
5,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary MBIA) ....................................................... 5.875 09/01/30 4,932,950
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (AMBAC) ................... 6.00 07/01/20 8,048,800
Sacramento Municipal Utility District,
2,000 Refg 1993 Ser D (FGIC) ................................................. 5.25 11/15/12 1,979,480
7,000 Refg 1993 Ser D (MBIA) ................................................. 5.625 11/15/15 6,952,400
1,080 Puerto Rico Electric Power Authority, Power Ser GG (FSA) ................. 4.75 07/01/21 919,728
-------- ------------
23,080 22,833,358
-------- ------------
Hospital Revenue (4.9%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA) ....................... 5.50 03/01/19 3,918,554
California Health Facilities Financing Authority,
3,000 Cedars -- Sinai Medical Center Ser 1997 A (MBIA) ....................... 5.25 08/01/27 2,671,500
3,000 Children's Hospital -- San Diego Ser 1993 (MBIA) ....................... 5.75 07/01/23 2,909,250
2,000 Marysville, Fremont -- Rideout Group Health Refg Ser 1993-A (AMBAC) ...... 5.55 01/01/13 1,992,440
-------- ------------
12,150 11,491,744
-------- ------------
Mortgage Revenue -- Single Family (1.3%)
3,000 California Housing Financing Agency, Home 1996 Ser E (AMT) (MBIA) ........ 6.05 08/01/15 3,034,620
-------- ------------
Public Facilities Revenue (17.0%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA) .................... 5.70 12/01/14 10,055,500
14,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA) ......... 5.65 06/01/15 14,045,640
9,000 California Public Works Board, Corrections Refg 1993 Ser B (MBIA) ........ 5.50 12/01/12 9,050,310
3,000 Irvine Unified School District -- Community Facilities District #86-1,
Special Tax Ser 1998 (AMBAC) ........................................... 5.00 11/01/19 2,672,430
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC) ................... 5.00 11/01/23 4,414,450
-------- ------------
41,000 40,238,330
-------- ------------
Tax Allocation Revenue (14.2%)
7,000 Long Beach Financing Authority, Ser 1992 (AMBAC) ......................... 5.50 11/01/22 6,591,270
5,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A (AMBAC) ...... 5.70 10/01/23 4,838,850
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
$ 6,000 Port Hueneme Redevelopment Agency, Central Community 1993 Refg (AMBAC) ........ 5.50 % 05/01/23 $ 5,646,120
5,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC) ................... 5.50 12/15/23 4,701,200
3,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA) ................. 5.625 08/01/23 2,872,860
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg (AMBAC) ............ 5.75 07/01/14 5,027,950
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA) ...................... 5.50 09/01/15 3,921,040
-------- ------------
35,000 33,599,290
-------- ------------
Transportation Facilities Revenue (10.1%)
2,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999 A (MBIA) .......... 5.25 10/01/21 1,831,960
2,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1999 (MBIA)..... 5.125 01/15/19 1,803,940
Los Angeles County Metropolitan Transportation Authority, Sales Tax
6,000 Refg Ser 1993-A (MBIA) ...................................................... 5.625 07/01/18 5,840,700
2,000 Refg Ser 1999-C (AMBAC) ..................................................... 5.00 07/01/26 1,733,000
4,230 San Francisco Airports Commission, San Francisco Int'l Airport Second Ser
Refg Issue 2 (MBIA) ......................................................... 6.75 05/01/20 4,522,378
San Francisco Bay Area Rapid Transit District, Sales Tax
1,255 Ser 1995 (FGIC) ............................................................. 5.50 07/01/20 1,193,944
1,000 Ser 1998 (AMBAC) ............................................................ 4.75 07/01/23 836,350
5,000 Ser 1998 (AMBAC) ............................................................ 5.00 07/01/28 4,313,150
2,000 San Joaquin Hills Transportation Corridor Agency, Toll Road
-------- Refg Ser 1997 A (MBIA) ...................................................... 5.25 01/15/30 1,771,480
------------
25,485 23,846,902
-------- ------------
Water & Sewer Revenue (20.1%)
10,000 California Department of Water Resources, Central Valley Ser L (Secondary MBIA) 5.75 12/01/19 9,812,700
2,000 East Bay Municipal Utility District, Water Ser 1998 (MBIA) .................... 4.75 06/01/34 1,610,000
7,000 Eastern Municipal Water District, Ser 1993-A COPs (FGIC) ...................... 5.25 07/01/23 6,332,130
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA) ................................ 5.80 06/01/21 9,866,200
3,000 Oceanside, Water 1993 Refg COPs (AMBAC) ....................................... 5.70 08/01/14 3,015,750
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992 Ser A (FGIC) ... 6.00 12/01/11 3,663,345
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC) .......................... 5.50 08/01/21 4,732,800
9,000 South County Regional Wastewater Authority, Morgan Hill Ser 1992 B (FGIC) ..... 5.50 08/01/22 8,497,710
-------- ------------
49,500 47,530,635
-------- ------------
Refunded (9.5%)
12,000 Southern California Public Power Authority, Power 1993 Sub Refg Ser A
(FGIC) (ETM) ................................................................ 5.45 07/01/17 12,074,520
10,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA) ............................ 5.45 01/01/03+ 10,355,400
-------- ------------
22,000 22,429,920
-------- ------------
235,115 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $231,543,661)........................ 227,873,366
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (1.9%)
$ 1,700 California Pollution Control Financing Authority, Pacific Gas & Electric Co
Ser 1996 F (Demand 11/01/99) ............................................ 3.55*% 11/01/26 $ 1,700,000
2,900 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
(Demand 11/01/99) ......................................................... 3.55* 10/01/22 2,900,000
-------- ------------
4,600 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
-------- (Identified Cost $4,600,000)....................................................................... 4,600,000
$239,715 TOTAL INVESTMENTS (Identified Cost $236,143,661) (a) ................................. 98.3% 232,473,366
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ....................................... 1.7 3,991,955
------------
NET ASSETS ........................................................................... 100.0% $236,465,321
============
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ 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 unrealized appreciation is
$1,298,400 and the aggregate gross unrealized depreciation is $4,968,695,
resulting in net unrealized depreciation of $3,670,295.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $236,143,661) .......................................... $232,473,366
Cash ...................................................................... 38,180
Interest receivable ....................................................... 4,282,729
Prepaid expenses .......................................................... 143,282
------------
TOTAL ASSETS ........................................................... 236,937,557
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders .................................... 151,687
Shares of beneficial interest repurchased .............................. 123,006
Investment management fee .............................................. 85,085
Accrued expenses .......................................................... 112,458
------------
TOTAL LIABILITIES ...................................................... 472,236
------------
NET ASSETS ............................................................. $236,465,321
============
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, 12,691,513 shares outstanding) .......................... 178,969,124
Net unrealized depreciation ............................................... (3,670,295)
Accumulated undistributed net investment income ........................... 1,465,910
Accumulated net realized loss ............................................. (5,299,418)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................... 171,465,321
------------
TOTAL NET ASSETS ....................................................... $236,465,321
============
NET ASSET VALUE PER COMMON SHARE
($171,465,321 divided by 12,691,513 common shares outstanding) .......... $13.51
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $ 13,358,580
-------------
EXPENSES
Investment management fee ..................... 881,376
Auction commission fees ....................... 218,789
Professional fees ............................. 112,130
Transfer agent fees and expenses .............. 39,844
Auction agent fees ............................ 32,875
Shareholder reports and notices ............... 25,413
Registration fees ............................. 25,123
Trustees' fees and expenses ................... 18,340
Custodian fees ................................ 11,416
Other ......................................... 35,101
-------------
TOTAL EXPENSES ............................. 1,400,407
Less: expense offset .......................... (11,314)
-------------
NET EXPENSES ............................... 1,389,093
-------------
NET INVESTMENT INCOME ...................... 11,969,487
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ............................. 600,307
Net change in unrealized appreciation ......... (19,912,660)
-------------
NET LOSS ................................... (19,312,353)
-------------
NET DECREASE .................................. $ (7,342,866)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<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, 1999 OCTOBER 31, 1998
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................... $ 11,969,487 $ 12,055,419
Net realized gain ................................... 600,307 841,577
Net change in unrealized appreciation ............... (19,912,660) 8,536,604
------------- -------------
NET INCREASE (DECREASE) ......................... (7,342,866) 21,433,600
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred ........................................... (2,212,893) (2,380,800)
Common .............................................. (9,630,356) (9,642,125)
------------- -------------
TOTAL DIVIDENDS ................................. (11,843,249) (12,022,925)
------------- -------------
Decrease from transactions in common shares of
beneficial interest ............................... (1,637,331) (1,247,652)
------------- -------------
NET INCREASE (DECREASE) ......................... (20,823,446) 8,163,023
NET ASSETS:
Beginning of period ................................. 257,288,767 249,125,744
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$1,465,910 and $1,339,672, respectively) ......... $ 236,465,321 $ 257,288,767
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter 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
14
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1999, 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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), the Trust pays 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, 1999
aggregated $11,579,820 and $16,408,037, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At October 31, 1999, the Trust had transfer
agent fees and expenses payable of approximately $1,400.
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, 1999
included in Trustees' fees
15
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
and expenses in the Statement of Operations amounted to $5,832. At October 31,
1999, the Trust had an accrued pension liability of $37,528 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 2.90% 11/01/99 2.90 % -- 3.67%
2 400 20,000 3.90 09/05/00 3.489 -- 3.90
3 500 25,000 3.50 07/10/00 3.50 -- 3.65
4 200 10,000 2.90 11/01/99 2.39 -- 4.75
</TABLE>
- ---------------
* As of October 31, 1999.
** For the year ended October 31, 1999.
Subsequent to October 31, 1999 and up through December 3, 1999 the Trust paid
dividends to Series 1 through 4 at rates ranging from 2.80% to 3.90% in the
aggregate amount of $334,863.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at
liquidation value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
16
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
-------------- ------------- ---------------
<S> <C> <C> <C>
Balance, October 31, 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
Treasury shares purchased and retired (weighted average discount 5.36%)* (124,200) (1,242) (1,636,089)
---------- -------- ------------
Balance, October 31, 1999 ............................................... 12,691,513 $126,915 $178,842,209
========== ======== ============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1999, the Trust utilized approximately
$600,000 of its net capital loss carryover. At October 31, 1999, the Trust had
a net capital loss carryover of approximately $5,300,000, 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>
$3,083 $1,938 $279
====== ====== ====
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 28, 1999, 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 5, 1999 November 19, 1999
$0.065 December 3, 1999 December 17, 1999
</TABLE>
17
<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*
----------------------------------
1999 1998
-------------- -------------------
<S> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....................... $15.00 $ 14.27
------ -------
Income (loss) from investment operations:
Net investment income ...................................... 0.94 0.94
Net realized and unrealized gain (loss) .................... (1.52) 0.72
------ -------
Total income (loss) from investment operations .............. (0.58) 1.66
------ -------
Less dividends from:
Net investment income ...................................... (0.75) (0.75)
Common share equivalent of dividends paid to preferred
shareholders .............................................. (0.17) (0.19)
------ -------
Total dividends ............................................ (0.92) (0.94)
------ -------
Anti-dilutive effect of acquiring treasury shares ........... 0.01 0.01
------ -------
Net asset value, end of period ............................. $13.51 $ 15.00
====== =======
Market value, end of period ................................. $12.50 $14.438
====== =======
TOTAL RETURN+ ............................................... (8.69)% 13.88%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses .............................................. 0.75 %(1) 0.74%(1)
Net investment income before preferred stock dividends ..... 6.41 % 6.39%
Preferred stock dividends ................................... 1.18 % 1.26%
Net investment income available to common shareholders ...... 5.23 % 5.13%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ..................... $236,465 $257,289
Asset coverage on preferred shares at end of period ......... 363 % 395%
Portfolio turnover rate ..................................... 5 % 5%
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31*
-------------------------------------------
1997 1996 1995
------------- ------------ ----------------
<S> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....................... $ 13.55 $13.40 $11.29
------- ------ ------
Income (loss) from investment operations:
Net investment income ...................................... 0.94 0.93 0.92
Net realized and unrealized gain (loss) .................... 0.68 0.05 2.12
------- ------ ------
Total income (loss) from investment operations .............. 1.62 0.98 3.04
------- ------ ------
Less dividends from:
Net investment income ...................................... (0.75) (0.72) (0.77)
Common share equivalent of dividends paid to preferred
shareholders .............................................. (0.18) (0.17) (0.18)
------- ------ ------
Total dividends ............................................ (0.93) (0.89) (0.95)
------- ------ ------
Anti-dilutive effect of acquiring treasury shares ........... 0.03 0.06 0.02
------- ------ ------
Net asset value, end of period ............................. $ 14.27 $13.55 $13.40
======= ====== ======
Market value, end of period ................................. $13.375 $12.00 $11.75
======= ====== ======
TOTAL RETURN+ ............................................... 18.22% 8.54% 12.93%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses .............................................. 0.74% 0.76% 0.81%(1)
Net investment income before preferred stock dividends ..... 6.85% 6.93% 7.39%
Preferred stock dividends ................................... 1.29% 1.24% 1.44%
Net investment income available to common shareholders ...... 5.56% 5.69% 5.95%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ..................... $249,126 $244,210 $ 249,232
Asset coverage on preferred shares at end of period ......... 382% 375% 383%
Portfolio turnover rate ..................................... 4% 1% 1%
</TABLE>
- -------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total 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 return does not reflect brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
18
<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") at October 31, 1999,
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, 1999 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 8, 1999
1999 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1999, 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.
19
<PAGE>
TRUSTEES
- ---------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn MORGAN STANLEY
Wayne E. Hedien DEAN WITTER
Dr. Manuel H. Johnson CALIFORNIA
Michael E. Nugent INSURED
Philip J. Purcell MUNICIPAL
John L. Schroeder INCOME TRUST
OFFICERS
- ---------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
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
Annual Report
October 31, 1999
