<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED Two World Trade Center,
MUNICIPAL INCOME TRUST New York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 2000
DEAR SHAREHOLDER:
The U.S. economy continued to register solid economic growth over the 12-month
period ended October 31, 2000. Unemployment reached a 30-year low and real
personal consumption accelerated. The tightening labor market and rising oil
prices led to increased concern that inflationary pressures would surface. In
response, the Federal Reserve Board increased the federal funds rate 100 basis
points in three moves between February and May. The federal funds rate currently
stands at a nine-year high of 6.50 percent. The Fed's shift toward a tighter
monetary policy, which began last year, caused long-term interest rates to
increase in 1999. Early this year, however, the U.S. Treasury announced its
plans to utilize a growing federal budget surplus to reduce its debt. This
announcement precipitated a rally in the bond market. By the end of October
2000, long-term interest rates had declined significantly. Vigilance by the
Federal Reserve in controlling inflation and signs of moderating economic
activity also contributed to more favorable bond market conditions.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index, which stood at 6.03 percent at the end of
October 1999, reached a high of 6.19 percent in mid January before declining to
5.65 percent at the end of October 2000. Because bond prices move inversely to
changes in interest rates, bond prices declined in 1999 but improved this year.
The municipal yield curve flattened 79 basis points during the year and the
pickup for extending maturities from one to 30 years declined from 225 basis
points in October 1999 to 146 basis points at the end of this October.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. A rising yield ratio
indicates weaker relative performance by municipals, a declining ratio stronger
performance. Over the past 12 months, this ratio has averaged 98 percent.
Long-term municipal yields have generally followed the trend of U.S. Treasury
yields. For the past three years the high and low ratios have been 100 percent
and 83 percent, respectively.
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
During the first 10 months of 2000, municipal underwriting was 17 percent below
the same period last year. Refunding activity, the most interest-rate-sensitive
component of supply, dropped nearly 60 percent. Approximately 40 percent of the
underwritings were enhanced with bond insurance, versus an average of 50 percent
in the previous three years.
30-YEAR BOND YIELDS 1994-2000
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%
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%
11/30/99 6.00 6.29 95.39%
12/31/99 5.97 6.48 92.13%
01/31/00 6.18 6.49 95.22%
02/29/00 6.04 6.14 98.37%
03/31/00 5.82 5.83 99.83%
04/30/00 5.91 5.96 99.16%
05/31/00 5.91 6.01 98.34%
06/30/00 5.84 5.90 98.98%
07/31/00 5.73 5.78 99.13%
08/31/00 5.62 5.67 99.12%
09/30/00 5.74 5.89 97.45%
10/31/00 6.65 5.79 97.58%
Source: Municipal Market Data - A Division of Thomson Financial Municipal
Group and Bloomberg L.P.
PERFORMANCE
During the 12-month period ended October 31, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter California Insured Municipal Income Trust (IIC)
increased from $13.51 to $14.28 per share. Based on this change, plus a
reinvestment of tax-free dividends totaling $0.78 per share, the Trust's total
NAV return was 12.29 percent. IIC's value on the New York Stock Exchange
increased from $12.50 to $13.25 per share during this period. Based on this
change plus reinvestment of tax-free dividends, IIC's total market return was
12.61 percent. As of October 31, 2000, IIC's share price was at a 7.21 percent
discount to its NAV.
2
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
Monthly dividends for the fourth quarter of 2000, declared in September, were
unchanged at $0.065 per share. The Trust's level of undistributed net investment
income, stood at $0.09 per share on October 31, 2000, versus $0.116 per share 12
months earlier.
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 10 long-term sectors and 41
credits. Issues in the refunded bond category comprised 9 percent of net assets.
These bonds have been refinanced and will be redeemed on the dates shown in the
portfolio. At the end of October, the portfolio's average maturity was 18 years.
Average duration, a measure of portfolio sensitivity to interest rates, was 5.5
years. Generally, bonds with longer durations have greater volatility. The
accompanying charts and tables provide current information on the portfolio's
credit enhancements, maturity distribution and sector diversification. Optional
call provisions and their respective cost (book) yields by year are also shown.
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 $0.06 per
share to common share earnings. The Trust's four ARPS series totaling $65
million represented 27 percent of net assets. The yield on IIC's two weekly ARPS
series ranged between 2.50 and 5.30 percent. Yields on series with rollovers in
July and September 2001 are 4.38 and 4.00 percent, respectively. In comparison,
the yield on 1-year municipal notes increased from 3.77 percent at the end of
October 1999 to 4.19 percent at the end of this October.
3
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
LOOKING AHEAD
The slower pace of economic growth and moderate inflation have caused the bond
market to anticipate a shift by the Federal Reserve Board to a neutral bias in
its monetary policy and the possibility of easing in 2001. This should create a
favorable environment for municipal bonds.
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 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 period
ended October 31, 2000, the Trust purchased and retired 388,051 shares of common
stock at a weighted average market discount of 8.06 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/ CHARLES A. 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, 2000, continued
LARGEST SECTORS AS OF OCTOBER 31, 2000
(% OF NET ASSETS)
WATER & SEWER 20%
TAX ALLOCATION 15%
PUBLIC FACILITIES 14%
TRANSPORTATION 11%
GENERAL OBLIGATION 10%
REFUNDED 9%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
MBIA 48%
Ambac 25%
FGIC 22%
FSA 4%
U.S. GOV'T BACKED 1%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
DISTRIBUTION BY MATURITY
(% OF NET ASSETS)
WEIGHTED AVERAGE
MATURITY 18 YEARS
UNDER 1 YEAR 6.5%
1-5 YEARS 2.2%
5-10 YEARS 1.3%
10-20 YEARS 51.2%
20-30 YEARS 35.6%
30+ YEARS 1.5%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
(BASED ON LONG-TERM PORTFOLIO)
OCTOBER 31, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 5 YEARS
BONDS CALLABLE
2000 0%
2001 2%
2002 18%
2003 56%
2004 1%
2005 0%
2006 1%
2007 2%
2008 6%
2009 1%
2010+ 13%
YEARS BONDS CALLABLE
WEIGHTED AVERAGE
BOOK YIELD: 5.7%
COST (BOOK) YIELD*
2000 0%
2001 5.0%
2002 5.7%
2003 5.8%
2004 5.7%
2005 0%
2006 6.1%
2007 5.5%
2008 5.3%
2009 5.0%
2010+ 5.5%
* 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 is earning a book yield of 5.0% on 2% of the long-term
portfolio that is callable in 2001.
Portfolio structure is subject to change.
6
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 24, 2000, an annual meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
Edwin J. Garn
For .................................................. 10,331,643
Withheld ............................................. 187,617
James F. Higgins
For .................................................. 10,326,290
Withheld ............................................. 192,970
Michael E. Nugent
For .................................................. 10,334,904
Withheld ............................................. 184,356
Philip J. Purcell
For .................................................. 10,334,904
Withheld ............................................. 184,356
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H.
Johnson and John L. Schroeder.
(2) RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS:
For .................................................. 10,278,227
Against .............................................. 25,085
Abstain .............................................. 215,948
7
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (91.8%)
General Obligation (9.9%)
California,
$ 8,000 Various Purpose Dtd 04/01/93 (FSA) ......................................... 5.50% 04/01/19 $ 8,074,400
4,000 Veterans Ser BD, BE & BF (AMT) (Ambac) ..................................... 6.375 02/01/27 4,003,080
2,000 Refg Dtd 10/01/98 Refg (MBIA) .............................................. 4.50 10/01/28 1,693,600
4,000 Dtd 09/01/00 (FGIC) ........................................................ 5.25 09/01/30 3,888,160
Industry,
3,000 Refg Issue of 1993 (MBIA) .................................................. 5.50 07/01/13 3,081,000
3,000 Refg Issue of 1993 (MBIA) .................................................. 5.50 07/01/16 3,071,220
--------- ------------
24,000 23,811,460
--------- ------------
Educational Facilities Revenue (0.4%)
1,000 California Educational Facilities Authority, Santa Clara University Ser 1999
========= (Ambac) .................................................................... 5.25 09/01/18 1,012,670
------------
Electric Revenue (6.5%)
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (Ambac) ....................... 6.00 07/01/20 8,371,840
Sacramento Municipal Utility District,
2,000 Refg 1993 Ser D (FGIC) ..................................................... 5.25 11/15/12 2,044,300
4,000 Refg 1993 Ser D (MBIA) ..................................................... 5.595# 11/15/15 4,155,000
1,080 Puerto Rico Electric Power Authority, Power Ser GG (FSA) ..................... 4.75 07/01/21 976,925
--------- ------------
15,080 15,548,065
--------- ------------
Hospital Revenue (5.1%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA) ........................... 5.50 03/01/19 4,181,416
California Health Facilities Financing Authority,
3,000 Cedars-Sinai Medical Center Ser 1997 A (MBIA) .............................. 5.25 08/01/27 2,896,950
3,000 Children's Hospital-San Diego Ser 1993 (MBIA) .............................. 5.75 07/01/23 3,042,540
2,000 Marysville, Fremont-Rideout Health Refg Ser 1993 A (Ambac) ................... 5.55 01/01/13 2,063,900
--------- ------------
12,150 12,184,806
--------- ------------
Mortgage Revenue - Single Family (1.3%)
3,000 California Housing Financing Agency, Home 1996 Ser E (AMT) (MBIA) ............ 6.05 08/01/15 3,032,940
--------- ------------
Public Facilities Revenue (14.0%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA) ........................ 5.70 12/01/14 10,447,100
7,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA) ............. 6.52# 06/01/15 7,280,000
9,000 California Public Works Board, Corrections Refg 1993 Ser B (MBIA) ............ 5.50 12/01/12 9,317,700
2,000 Irvine Unified School District-Community Facilities District #86-1,
Special Tax Ser 1998 (Ambac) ................................................. 5.00 11/01/19 1,940,340
5,000 Modesto, Community Center Refg 1993 Ser A COPs (Ambac) ....................... 5.00 11/01/23 4,801,950
--------- ------------
33,000 33,787,090
--------- ------------
Tax Allocation Revenue (14.7%)
7,000 Long Beach Financing Authority, Ser 1992 (Ambac) ............................. 5.50 11/01/22 7,018,340
5,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A (Ambac) .......... 5.70 10/01/23 5,084,950
6,000 Port Hueneme Redevelopment Agency, Central Community 1993 Refg
(Ambac) .................................................................... 5.50 05/01/23 6,026,040
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC) ................... 5.50% 12/15/23 $ 5,024,000
3,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA) ................. 5.625 08/01/23 3,023,370
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg (Ambac) ............ 5.75 07/01/14 5,149,150
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA) ...................... 5.50 09/01/15 4,071,480
--------- -------------
35,000 35,397,330
---------
Transportation Facilities Revenue (11.3%)
2,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999 A (MBIA) .......... 5.25 10/01/21 1,974,920
2,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1999 (MBIA) 5.125 01/15/19 1,957,000
6,000 Los Angeles, County Metropolitan Transportation Authority, Sales Tax
Refg Ser 1993 A (MBIA) ...................................................... 5.625 07/01/18 6,106,440
3,000 Port of Oakland, 2000 Ser K (AMT) (FGIC) ...................................... 5.875 11/01/17 3,141,150
4,230 San Francisco Airports Commission, San Francisco Int'l Airport
Second Ser Refg Issue 2 (MBIA) .............................................. 6.75 05/01/20 4,535,660
San Francisco Bay Area Rapid Transit District,
1,255 Sales Tax Ser 1995 (FGIC) ................................................... 5.50 07/01/20 1,265,830
1,800 Sales Tax Ser 1998 (Ambac) .................................................. 4.75 07/01/23 1,615,428
5,000 Sales Tax Ser 1998 (Ambac) .................................................. 5.00 07/01/28 4,693,600
2,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refg
--------- Ser 1997 A (MBIA) ........................................................... 5.25 01/15/30 1,936,020
27,285 -------------
--------- 27,226,048
Water & Sewer Revenue (20.1%) -------------
10,000 California Department of Water Resources, Central Valley Ser L
(Secondary MBIA) ............................................................ 5.75 12/01/19 10,188,500
4,000 East Bay Municipal Utility District, Water Ser 1998 (MBIA) .................... 4.75 06/01/34 3,491,480
5,000 Eastern Municipal Water District, Ser 1993 A COPs (FGIC) ...................... 5.25 07/01/23 4,902,250
10,000 Los Angeles, Wastewater Refg Ser 1993 A (MBIA) ................................ 5.80 06/01/21 10,192,400
3,000 Oceanside, Water 1993 Refg COPs (Ambac) ....................................... 5.70 08/01/14 3,106,260
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992 Ser A
(FGIC) ...................................................................... 6.00 12/01/11 3,668,385
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC) .......................... 5.50 08/01/21 5,026,400
8,000 South County Regional Wastewater Authority, Morgan Hill Ser 1992 B
(FGIC) ...................................................................... 5.50 08/01/22 8,031,520
--------- -------------
48,500 48,607,195
--------- -------------
Refunded (8.5%)
12,000 Southern California Public Power Authority, Power 1993 Sub Refg Ser A
(FGIC) (ETM) ................................................................ 5.45 07/01/17 12,082,440
3,000 Puerto Rico Infrastructure Financing Authority, 2000 Ser A (ETM) .............. 5.50 10/01/32 3,003,270
5,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA) ............................ 6.307# 01/01/03+ 5,300,000
--------- -------------
20,000 20,385,710
--------- -------------
219,015 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Cost $215,335,499) ............. 220,993,314
--------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (6.5%)
$ 7,000 Beverly Hills Public Financing Authority, Refg 1993 Ser A (MBIA)
(Auction reset 11/30/00) ................................................ 4.78 **% 06/01/15 $ 7,000,000
1,000 California Health Facilities Financing Authority, Adventist Health
System/West 1998 Ser B (MBIA) (Demand 11/01/00) ........................ 4.50 * 09/01/28 1,000,000
600 California Pollution Control Financing Authority, Pacific Gas & Electric Co
Ser 1996 F (Demand 11/01/00) ............................................ 4.50 * 11/01/26 600,000
3,000 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
(Demand 11/01/00) ....................................................... 4.50 * 10/01/22 3,000,000
4,000 Sacramento Municipal Utility District, Refg 1993 Ser D (FGIC)
-------- (Auction reset 11/10/00) ................................................ 5.655** 11/15/15 4,000,000
------------
15,600 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (Cost $15,600,000) .................. 15,600,000
-------- ------------
$234,615 TOTAL INVESTMENTS (Cost $230,935,499) (a) .......................................... 98.3% 236,593,314
========
OTHER ASSETS IN EXCESS OF LIABILITIES .............................................. 1.7 4,087,619
----- ------------
NET ASSETS ......................................................................... 100.0% $240,680,933
===== ============
</TABLE>
---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ Prerefunded to call date shown.
# Current coupon rate for residual interest bond. This rate resets
periodically as the auction rate on the related short-term securities
fluctuates.
* Current coupon of variable rate demand obligation.
** Current auction rate.
(a) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $6,240,664 and the aggregate gross unrealized
depreciation is $582,849, resulting in net unrealized appreciation of
$5,657,815.
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, 2000
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(cost $230,935,499) ..................................................... $236,593,314
Cash ...................................................................... 38,325
Interest receivable ....................................................... 4,303,496
Prepaid expenses .......................................................... 143,959
------------
TOTAL ASSETS ........................................................... 241,079,094
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders .................................... 156,668
Investment management fee .............................................. 73,834
Common shares of beneficial interest repurchased ....................... 66,957
Accrued expenses .......................................................... 100,702
------------
TOTAL LIABILITIES ...................................................... 398,161
------------
NET ASSETS ............................................................. $240,680,933
============
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, 12,303,462 shares outstanding) .......................... 174,100,130
Net unrealized appreciation ............................................... 5,657,815
Accumulated undistributed net investment income ........................... 1,112,044
Accumulated net realized loss ............................................. (5,189,056)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................... 175,680,933
------------
TOTAL NET ASSETS ....................................................... $240,680,933
============
NET ASSET VALUE PER COMMON SHARE
($175,680,933 divided by 12,303,462 common shares outstanding) .......... $14.28
======
</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, 2000
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $13,138,874
-----------
EXPENSES
Investment management fee ..................... 832,478
Auction commission fees ....................... 219,384
Professional fees ............................. 92,090
Transfer agent fees and expenses .............. 38,063
Auction agent fees ............................ 32,875
Shareholder reports and notices ............... 25,234
Registration fees ............................. 24,700
Trustees' fees and expenses ................... 16,537
Custodian fees ................................ 13,235
Other ......................................... 32,181
-----------
TOTAL EXPENSES ............................. 1,326,777
Less: expense offset .......................... (13,205)
-----------
NET EXPENSES ............................... 1,313,572
-----------
NET INVESTMENT INCOME ...................... 11,825,302
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ............................. 110,362
Net change in unrealized depreciation ......... 9,328,110
-----------
NET GAIN ................................... 9,438,472
-----------
NET INCREASE .................................. $21,263,774
===========
</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, 2000 OCTOBER 31, 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ...................................... $ 11,825,302 $ 11,969,487
Net realized gain .......................................... 110,362 600,307
Net change in unrealized appreciation/depreciation ......... 9,328,110 (19,912,660)
------------- -------------
NET INCREASE (DECREASE) ................................. 21,263,774 (7,342,866)
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred .................................................. (2,453,621) (2,212,893)
Common ..................................................... (9,725,547) (9,630,356)
------------- -------------
TOTAL DIVIDENDS ......................................... (12,179,168) (11,843,249)
------------- -------------
Decrease from transactions in common shares of
beneficial interest ...................................... (4,868,994) (1,637,331)
------------- -------------
NET INCREASE (DECREASE) ................................. 4,215,612 (20,823,446)
NET ASSETS:
Beginning of period ........................................ 236,465,321 257,288,767
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$1,112,044 and $1,465,910, respectively) ................ $ 240,680,933 $ 236,465,321
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 2000
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 income and net realized capital
gains are determined in accordance with federal income tax regulations
14
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 2000, continued
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 tax purposes 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.
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, 2000 aggregated
$24,329,384 and $35,633,178, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At October 31, 2000, the Trust had transfer agent
fees and expenses payable of approximately $1,300.
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, 2000 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,106. At October 31, 2000, the Trust had an accrued pension liability of
$39,557 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
15
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 2000, continued
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.
RANGE OF
AMOUNT IN RESET DIVIDEND
SERIES SHARES* THOUSANDS* RATE* DATE RATES**
------ ------- ---------- ----- ---- -------
1 200 $10,000 4.13% 11/06/00 2.50% - 5.00%
2 400 20,000 4.00 09/10/01 3.90 - 4.00
3 500 25,000 4.38 07/09/01 3.50 - 4.38
4 200 10,000 3.84 11/06/00 2.50 - 5.30
---------------
* As of October 31, 2000.
** For the year ended October 31, 2000.
Subsequent to October 31, 2000 and up through December 4, 2000 the Trust paid
dividends to Series 1 through 4 at rates ranging from 3.84% to 4.38% in the
aggregate amount of $390,802.
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.
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, 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
Treasury shares purchased and retired (weighted average discount 8.06%)* (388,051) (3,881) (4,865,113)
---------- -------- ------------
Balance, October 31, 2000 ............................................... 12,303,462 $123,034 $173,977,096
========== ======== ============
</TABLE>
---------------
* The Trustees have voted to retire the shares purchased.
16
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 2000, continued
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 2000, the Trust utilized approximately
$110,000 of its net capital loss carryover. At October 31, 2000, the Trust had a
net capital loss carryover of approximately $5,189,000 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:
AMOUNT IN THOUSANDS
---------------------------------
2002 2003 2004
----------- --------- -------
$2,972 $1,938 $279
====== ====== ====
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 26, 2000, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
------------- ---------------------- --------------------
$ 0.065 November 3, 2000 November 17, 2000
$ 0.065 December 8, 2000 December 22, 2000
8. EXPENSE OFFSET
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Trust.
9. RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Trust may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
At October 31, 2000, the Trust held positions in residual interest bonds having
a total value of $16,735,000, which represents 7.0% of the Trust's net assets.
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*
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....................... $13.51 $15.00 $14.27 $13.55 $13.40
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ..................................... 0.95 0.94 0.94 0.94 0.93
Net realized and unrealized gain (loss) ................... 0.77 (1.52) 0.72 0.68 0.05
------ ------ ------ ------ ------
Total income (loss) from investment operations ............. 1.72 (0.58) 1.66 1.62 0.98
------ ------ ------ ------ ------
Less dividends from:
Net investment income ..................................... (0.78) (0.75) (0.75) (0.75) (0.72)
Common share equivalent of dividends paid to preferred
shareholders ............................................. (0.20) (0.17) (0.19) (0.18) (0.17)
------ ------ ------ ------ ------
Total dividends ............................................ (0.98) (0.92) (0.94) (0.93) (0.89)
------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares .......... 0.03 0.01 0.01 0.03 0.06
------ ------ ------ ------ ------
Net asset value, end of period ............................. $14.28 $13.51 $15.00 $14.27 $13.55
====== ====== ====== ====== ======
Market value, end of period ................................ $13.25 $12.50 $14.438 $13.375 $12.00
====== ====== ======= ======= ======
TOTAL RETURN +.............................................. 12.61% (8.69)% 13.88% 18.22% 8.54%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ............................................. 0.77%(1) 0.75 %(1) 0.74%(1) 0.74% 0.76%
Net investment income before preferred stock dividends ..... 6.85% 6.41 % 6.39% 6.85% 6.93%
Preferred stock dividends .................................. 1.42% 1.18 % 1.26% 1.29% 1.24%
Net investment income available to common shareholders ..... 5.43% 5.23 % 5.13% 5.56% 5.69%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .................... $240,681 $236,465 $257,289 $249,126 $244,210
Asset coverage on preferred shares at end of period ........ 369% 363 % 395% 382% 375%
Portfolio turnover rate .................................... 11% 5 % 5% 4% 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
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter California Insured Municipal Income Trust (the "Trust"),
including the portfolio of investments, as of October 31, 2000, and the related
statements of operations and changes in net assets, and the financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended October 31,
1999 and the financial highlights for each of the respective stated periods
ended October 31, 1999 were audited by other independent accountants whose
report, dated December 8, 1999, expressed an unqualified opinion on that
statement and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Dean Witter California Insured Municipal Income Trust as of October 31,
2000, the results of its operations, the changes in its net assets, and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
December 8, 2000
2000 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 2000, 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>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Trust.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Trust for the past two fiscal years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Trust, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent auditors as of July 1,
2000.
20
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA INSURED MUNICIPAL INCOME TRUST
REVISED INVESTMENT POLICY
On January 26, 2000, the Trustees of Morgan Stanley Dean Witter California
Insured Municipal Income Trust (the "Trust") approved an investment policy
whereby the Trust would be permitted to invest up to 10% of its assets in
inverse floating rate municipal obligations. The inverse floating rate municipal
obligations in which the Trust will invest are typically created through a
division of a fixed rate municipal obligation into two separate instruments, a
short-term obligation and a long-term obligation. The interest rate on the
short-term obligation is set at periodic auctions. The interest rate on the
long-term obligation is the rate the issuer would have paid on the fixed income
obligation: (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. The interest rates on these obligations generally
move in the reverse direction of market interest rates. If market interest rates
fall, the interest rate on the obligation will increase and if market interest
rates increase, the interest rate on the obligation will fall. Inverse floating
rate municipal obligations offer the potential for higher income than is
available from fixed rate obligations of comparable maturity and credit rating.
They also carry greater risks. In particular, the prices of inverse floating
rate municipal obligations are more volatile, i.e., they increase and decrease
in response to changes in interest rates to a greater extent than comparable
fixed rate obligations.
21
<PAGE>
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<PAGE>
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<PAGE>
TRUSTEES
------------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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 AUDITORS
------------------------------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
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, 2000
