<PAGE>
Morgan Stanley Dean Witter California Two World Trade Center,
Insured Municipal Income Trust New York, New York 10048
Letter to the Shareholders April 30, 2000
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion into the new year.
Strong growth pushed the unemployment rate to a 30-year low. Rising commodity
prices heightened concern about inflation. The price of oil moved above $30 per
barrel prior to ending April at $25 per barrel. Between June 1999 and March
2000, the Federal Reserve Board raised the federal funds rate in five, 25
basis-point moves to reach 6.00 percent. The Fed subsequently demonstrated its
resistance to inflation by raising the federal funds rate another 50 basis
points to 6.50 percent in May. Economic growth and a less accommodative
monetary policy caused long-term interest rates to increase throughout 1999. In
February, the U.S. Treasury announced plans to retire debt with the federal
budget surplus. This precipitated a 50-75 basis-point rally in longer Treasury
maturities.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began 1999 near a record low yield of
5.05 percent but increased to 5.97 percent by calendar year-end. This index
reached a high of 6.18 percent in January 2000 before ending April at 5.93
percent. Because bond prices move inversely to changes in interest rates,
higher yields caused bond prices to decline significantly last year and improve
modestly in the first four months of 2000.
The ratio of municipal yields as a percentage of Treasury yields has been used
historically as a measure of relative value. Over the past five years the ratio
has ranged between an average high of 93 percent and an average low of 85
percent. The increase in the ratio from 92 percent at the end of 1999 to 99
percent at the end of April 2000 was primarily the result of the magnitude of
the rally in long Treasuries. A rising yield ratio indicates weaker relative
performance by municipals.
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent last year. Refunding activity, the most
interest-rate-sensitive component of supply, was down more than 50 percent. In
the first four months of this year, volume was 30 percent lower than in the
same period last year.
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Letter to the Shareholders April 30, 2000, continued
30-YEAR BOND YIELDS 1994-2000
AAA AAA
Date Ins Tsy % Relationship Date Ins Tsy % Relationship
12/31/93 5.40% 6.34% 85.17% 03/31/97 5.90 7.10 83.10%
01/31/94 5.40 6.24 86.54% 04/30/97 5.75 6.94 82.85%
02/28/94 5.80 6.66 87.09% 05/30/97 5.65 6.91 81.77%
03/31/94 6.40 7.09 90.27% 06/30/97 5.60 6.78 82.60%
04/29/94 6.35 7.32 86.75% 07/30/97 5.30 6.30 84.13%
05/31/94 6.25 7.43 84.12% 08/31/97 5.50 6.61 83.21%
06/30/94 6.50 7.61 85.41% 09/30/97 5.40 6.40 84.38%
07/29/94 6.25 7.39 84.57% 10/31/97 5.35 6.15 86.99%
08/31/94 6.30 7.45 84.56% 11/30/97 5.30 6.05 87.60%
09/30/94 6.55 7.81 83.87% 12/31/97 5.15 5.92 86.99%
10/31/94 6.75 7.96 84.80% 01/31/98 5.15 5.80 88.79%
11/30/94 7.00 8.00 87.50% 02/28/98 5.20 5.92 87.84%
12/30/94 6.75 7.88 85.66% 03/31/98 5.25 5.93 88.53%
01/31/95 6.40 7.70 83.12% 04/30/98 5.35 5.95 89.92%
02/28/95 6.15 7.44 82.66% 05/29/98 5.20 5.80 89.66%
03/31/95 6.15 7.43 82.77% 06/30/98 5.20 5.65 92.04%
04/28/95 6.20 7.34 84.47% 07/31/98 5.18 5.71 90.72%
05/31/95 5.80 6.66 87.09% 08/31/98 5.03 5.27 95.45%
06/30/95 6.10 6.62 92.15% 09/30/98 4.95 5.00 99.00%
07/31/95 6.10 6.86 88.92% 10/31/98 5.05 5.16 97.87%
08/31/95 6.00 6.66 90.09% 11/30/98 5.00 5.06 98.81%
09/29/95 5.95 6.48 91.82% 12/31/98 5.05 5.10 99.02%
10/31/95 5.75 6.33 90.84% 01/31/99 5.00 5.09 98.23%
11/30/95 5.50 6.14 89.58% 02/28/99 5.10 5.58 91.40%
12/29/95 5.35 5.94 90.07% 03/31/99 5.15 5.63 91.47%
01/31/96 5.40 6.03 89.55% 04/30/99 5.20 5.66 91.87%
02/29/96 5.60 6.46 86.69% 05/31/99 5.30 5.83 90.91%
03/29/96 5.85 6.66 87.84% 06/30/99 5.47 5.96 91.78%
04/30/96 5.95 6.89 86.36% 07/31/99 5.55 6.10 90.98%
05/31/96 6.05 6.99 86.55% 08/31/99 5.75 6.06 94.88%
06/28/96 5.90 6.89 85.63% 09/30/99 5.85 6.05 96.69%
07/31/96 5.85 6.97 83.93% 10/31/99 6.03 6.16 97.89%
08/30/96 5.90 7.11 82.98% 11/30/99 6.00 6.29 95.39%
09/30/96 5.70 6.93 82.25% 12/31/99 5.97 6.48 92.13%
10/31/96 5.65 6.64 85.09% 01/31/00 6.18 6.49 95.22%
11/29/96 5.50 6.35 86.61% 02/29/00 6.04 6.14 98.37%
12/31/96 5.60 6.63 84.46% 03/31/00 5.82 5.83 99.83%
01/31/97 5.70 6.79 83.95% 04/30/00 5.91 5.96 99.16%
02/28/97 5.65 6.80 83.09%
Source: Municipal Market Data -- A Division of Thomson Financial Municipal
Group and Bloomberg L.P.
PERFORMANCE
During the six-month period ended April 30, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter California Insured Municipal Income Trust (IIC)
increased from $13.51 to $13.67 per share. Based on this change, plus a
reinvestment of tax-free dividends totaling $0.39 per share, the Trust's total
NAV return was 4.30 percent. IIC's value on the New York Stock Exchange (NYSE)
increased from $12.50 to $12.5625 per share during this period. Based on this
change plus reinvestment of tax-free dividends, IIC's total market return was
3.67 percent. On April 30, 2000, IIC's share price was at a 8.10 percent
discount to its NAV.
Monthly dividends for the second quarter of 2000, declared in March, were
unchanged at $0.065 per share. The Trust's level of undistributed net
investment income was $0.103 per share on April 30, 2000, versus $0.116 per
share six months earlier.
2
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Letter to the Shareholders April 30, 2000, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 10 long-term sectors and 39
credits. At the end of April, the portfolio's average maturity was 18 years.
Average duration, a measure of sensitivity to interest rate changes, was 8.8
years. 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. Current information on the portfolio's credit enhancements and
sector distribution is provided in the accompanying charts and tables. Optional
call provisions, by year, with their respective cost (book) yields 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 six-month period, ARPS leverage contributed approximately $0.03 per
share to common share earnings. Weekly ARPS yields ranged between 2.50 and 5.30
percent. In comparison, the yield on 1-year municipal notes increased from 3.77
percent at the end of October 1999 to 4.23 percent at the end of April. The
Trust's four ARPS series totaling $65 million represented 28 percent of net
assets.
LOOKING AHEAD
The Federal Reserve Board has expressed concern about consumer wealth and
rising prices. We anticipate that the central bank will continue to increase
short-term interest rates in an effort to slow the economy. We believe
municipal bonds continue to offer tax-conscious investors good long-term value.
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
3
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Letter to the Shareholders April 30, 2000, continued
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 six-month period ended April 30,
2000, the Trust purchased and retired 242,100 shares of common stock at a
weighted average market discount of 9.07 percent. The anti-dilutive effect of
acquiring treasury shares is reported in the table of Financial Highlights on
page 17.
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 April 30, 2000, continued
LARGEST SECTORS AS OF APRIL 30, 2000
(% OF NET ASSETS)
WATER AND SEWER 21%
PUBLIC FACILITIES 17%
TAX ALLOCATION 15%
TRANSPORTATION 12%
GENERAL OBLIGATION 9%
REFUNDED 9%
ELECTRIC 8%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT ENHANCEMENTS AS OF APRIL 30, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
AMBAC 24%
FGIC 20%
FSA 4%
MBIA 52%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Letter to the Shareholders April 30, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
APRIL 30, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 5 YEARS
PERCENT CALLABLE*
0% 0% 18% 59% 1% 1% 1% 2% 5% 2% 11%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010+
WEIGHTED AVERAGE
BOOK YIELD: 5.6%
COST (BOOK) YIELD**
5.7% 5.7% 5.7% 5.9% 6.1% 5.5% 5.3% 5.2% 5.4%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010+
* % 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 BONDS IN THE
LONG-TERM PORTFOLIO THAT ARE CALLABLE IN 2002.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
6
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Portfolio of Investments April 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.6%)
General Obligation (9.5%)
California,
$ 9,000 Various Purpose Dtd 04/01/93 (FSA) ............................................. 5.50% 04/01/19 $ 8,792,820
4,000 Veterans Ser BD, BE & BF (AMT) (AMBAC) ......................................... 6.375 02/01/27 4,001,320
2,000 Refg Dtd 10/01/98 (MBIA) ....................................................... 4.50 10/01/28 1,586,900
Industry,
3,000 Refg Issue of 1993 (MBIA) ...................................................... 5.50 07/01/13 3,047,970
4,900 Refg Issue of 1993 (MBIA) ...................................................... 5.50 07/01/16 4,889,171
--------- ------------
22,900 22,318,181
--------- ------------
Educational Facilities Revenue (0.4%)
1,000 California Educational Facilities Authority, Santa Clara University Ser 1999
=========
(AMBAC) ......................................................................... 5.25 09/01/18 957,910
Electric Revenue (8.0%) ------------
8,000 M-S-R Public Power Agency, San Juan Refg Ser F (AMBAC) .......................... 6.00 07/01/20 8,098,320
Sacramento Municipal Utility District,
2,000 Refg 1993 Ser D (FGIC) ......................................................... 5.25 11/15/12 1,996,300
8,000 Refg 1993 Ser D (MBIA) ......................................................... 5.625 11/15/15 7,865,600
1,080 Puerto Rico Electric Power Authority, Power Ser GG (FSA) ........................ 4.75 07/01/21 927,364
--------- ------------
19,080 18,887,584
--------- ------------
Hospital Revenue (5.0%)
4,150 Bakersfield, Adventist Health West Ser 1993 (MBIA) .............................. 5.50 03/01/19 4,008,070
California Health Facilities Financing Authority,
3,000 Cedars-Sinai Medical Center Ser 1997 A (MBIA) .................................. 5.25 08/01/27 2,686,290
3,000 Children's Hospital - San Diego Ser 1993 (MBIA) ................................ 5.75 07/01/23 2,935,860
2,000 Marysville, Fremont - Rideout Group Health Refg Ser 1993-A (AMBAC) .............. 5.55 01/01/13 2,011,420
--------- ------------
12,150 11,641,640
--------- ------------
Mortgage Revenue - Single Family (1.3%)
3,000 California Housing Financing Agency, Home 1996 Ser E (AMT) (MBIA) ............... 6.05 08/01/15 3,005,190
--------- ------------
Public Facilities Revenue (17.2%)
10,000 Alameda County, Santa Rita Jail 1993 Refg COPs (MBIA) ........................... 5.70 12/01/14 10,145,500
14,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA) ................ 5.65 06/01/15 13,971,020
9,000 California Public Works Board, Corrections Refg 1993 Ser B (MBIA) ............... 5.50 12/01/12 9,111,690
3,000 Irvine Unified School District - Community Facilities District #86-1, Special
Tax Ser 1998 (AMBAC) ............................................................ 5.00 11/01/19 2,705,610
5,000 Modesto, Community Center Refg 1993 Ser A COPs (AMBAC) .......................... 5.00 11/01/23 4,466,650
--------- ------------
41,000 40,400,470
--------- ------------
Tax Allocation Revenue (14.5%)
7,000 Long Beach Financing Authority, Ser 1992 (AMBAC) ................................ 5.50 11/01/22 6,729,380
5,000 Orange Redevelopment Agency, Southwest Refg Issue of 1993 A (AMBAC) 5.70 10/01/23 4,923,550
6,000 Port Hueneme Redevelopment Agency, Central Community 1993 Refg
(AMBAC) ......................................................................... 5.50 05/01/23 5,758,200
5,000 Poway Redevelopment Agency, Paguay Sub Refg Ser 1993 (FGIC) ..................... 5.50 12/15/23 4,795,550
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Portfolio of Investments April 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,000 Riverside Redevelopment Agency, Merged Refg 1993 Ser A (MBIA) .............. 5.625% 08/01/23 $ 2,925,660
5,000 Santa Clara Redevelopment Agency, Bayshore North 1992 Refg (AMBAC) ......... 5.75 07/01/14 5,066,050
4,000 Simi Valley Public Financing Authority, 1993 Refg (MBIA) ................... 5.50 09/01/15 4,001,200
--------- ------------
35,000 34,199,590
--------- ------------
Transportation Facilities Revenue (11.9%)
2,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999 A (MBIA) ....... 5.25 10/01/21 1,854,420
2,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1999
(MBIA) ..................................................................... 5.125 01/15/19 1,838,340
Los Angeles County Metropolitan Transportation Authority,
6,000 Sales Tax Refg Ser 1993-A (MBIA) .......................................... 5.625 07/01/18 5,982,539
2,000 Sales Tax Refg Ser 1999 C (AMBAC) ......................................... 5.00 07/01/26 1,749,320
3,000 Port of Oakland, 2000 Ser K (AMT) (FGIC) ................................... 5.875 11/01/17 3,053,340
4,230 San Francisco Airports Commission, San Francisco Int'l Airport
Second Ser Refg Issue 2 (MBIA) ............................................. 6.75 05/01/20 4,507,277
San Francisco Bay Area Rapid Transit District,
1,255 Sales Tax Ser 1995 (FGIC) ................................................. 5.50 07/01/20 1,219,170
1,800 Sales Tax Ser 1998 (AMBAC) ................................................ 4.75 07/01/23 1,514,196
5,000 Sales Tax Ser 1998 (AMBAC) ................................................ 5.00 07/01/28 4,345,100
2,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refg
Ser 1997 A (MBIA) .......................................................... 5.25 01/15/30 1,805,720
--------- ------------
29,285 27,869,422
--------- ------------
Water & Sewer Revenue (20.5%)
10,000 California Department of Water Resources, Central Valley Ser L
(Secondary MBIA) ........................................................... 5.75 12/01/19 10,019,300
2,000 East Bay Municipal Utility District, California, Water Ser 1998 (MBIA) ..... 4.75 06/01/34 1,625,740
7,000 Eastern Municipal Water District, Ser 1993-A COPs (FGIC) ................... 5.25 07/01/23 6,403,880
10,000 Los Angeles, Wastewater Refg Ser 1993-A (MBIA) ............................. 5.80 06/01/21 10,003,700
3,000 Oceanside, Water 1993 Refg COPs (AMBAC) .................................... 5.70 08/01/14 3,041,250
3,500 Redding Joint Powers Financing Authority, Wastewater Refg 1992 Ser A
(FGIC) ..................................................................... 6.00 12/01/11 3,638,915
5,000 Santa Maria, Local Water & Refg Ser 1993 COPs (FGIC) ....................... 5.50 08/01/21 4,829,450
9,000 South County Regional Wastewater Authority, Morgan Hill Ser 1992 B
(FGIC) ..................................................................... 5.50 08/01/22 8,653,140
--------- ------------
49,500 48,215,375
--------- ------------
Refunded (9.3%)
12,000 Southern California Public Power Authority, Power 1993 Sub Refg Ser A
(FGIC) (ETM) ............................................................... 5.45 07/01/17 11,711,520
10,000 Puerto Rico Telephone Authority, Refg Ser M (MBIA) ......................... 5.45 01/01/03+ 10,274,700
--------- ------------
22,000 21,986,220
--------- ------------
234,915 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS
=========
(Identified Cost $231,287,918) ........................................... 229,481,582
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Portfolio of Investments April 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (0.7%)
$ 800 California Pollution Control Financing Authority, Pacific Gas & Electric Co
Ser 1996 F (Demand 05/01/00) .............................................. 5.75*% 11/01/26 $ 800,000
800 Newport Beach, Hoag Memorial Hospital/Presbytarian Ser 1992
(Demand 05/01/00) ......................................................... 6.00* 10/01/22 800,000
-------- ------------
1,600 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
========
(Identified Cost $1,600,000) ...................................................................... 1,600,000
------------
$236,515 TOTAL INVESTMENTS (Identified Cost $232,887,918) (a) ................................. 98.3% 231,081,582
========
OTHER ASSETS IN EXCESS OF LIABILITIES ................................................ 1.7 4,077,177
----- ------------
NET ASSETS ........................................................................... 100.0% $235,158,759
===== ============
</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
$1,998,772 and the aggregate gross unrealized depreciation is
$3,805,108, resulting in net unrealized depreciation of $1,806,336.
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
9
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $232,887,918) ............................................ $231,081,582
Cash ........................................................................ 84,293
Interest receivable ......................................................... 4,244,368
Prepaid expenses ............................................................ 84,905
------------
TOTAL ASSETS ............................................................ 235,495,148
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders ...................................... 142,979
Investment management fee ................................................ 68,512
Shares of beneficial interest repurchased ................................ 31,794
Accrued expenses ............................................................ 93,104
------------
TOTAL LIABILITIES ........................................................ 336,389
------------
NET ASSETS ............................................................... $235,158,759
============
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, 12,449,413 shares outstanding) ................................. 175,992,742
Net unrealized depreciation ................................................ (1,806,336)
Accumulated undistributed net investment income ............................. 1,283,414
Accumulated net realized loss ............................................... (5,311,061)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ............................. 170,158,759
------------
TOTAL NET ASSETS ......................................................... $235,158,759
============
NET ASSET VALUE PER COMMON SHARE
($170,158,759 divided by 12,449,413 common shares outstanding) ............ $13.67
======
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Financial Statements, continued
STATEMENT OF OPERATIONS
For the six months ended April 30, 2000 (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME .............................. $6,559,786
----------
EXPENSES
Investment management fee ..................... 411,925
Auction commission fees ....................... 109,092
Professional fees ............................. 58,522
Transfer agent fees and expenses .............. 20,778
Auction agent fees ............................ 16,132
Shareholder reports and notices ............... 12,744
Registration fees ............................. 12,500
Trustees' fees and expenses ................... 8,270
Custodian fees ................................ 6,696
Other ......................................... 16,214
----------
TOTAL EXPENSES ............................. 672,873
Less: expense offset .......................... (6,667)
----------
NET EXPENSES ............................... 666,206
----------
NET INVESTMENT INCOME ...................... 5,893,580
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ............................. (11,643)
Net change in unrealized depreciation ......... 1,863,959
----------
NET GAIN ................................... 1,852,316
----------
NET INCREASE .................................. $7,745,896
==========
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2000 OCTOBER 31, 1999
---------------- -----------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ...................................... $ 5,893,580 $ 11,969,487
Net realized gain (loss) ................................... (11,643) 600,307
Net change in unrealized appreciation/depreciation ......... 1,863,959 (19,912,660)
------------ ------------
NET INCREASE (DECREASE) ................................. 7,745,896 (7,342,866)
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred .................................................. (1,173,915) (2,212,893)
Common ..................................................... (4,902,161) (9,630,356)
------------ ------------
TOTAL DIVIDENDS ......................................... (6,076,076) (11,843,249)
------------ ------------
Decrease from transactions in common shares of
beneficial interest ...................................... (2,976,382) (1,637,331)
------------ ------------
NET DECREASE ............................................ (1,306,562) (20,823,446)
NET ASSETS:
Beginning of period ........................................ 236,465,321 257,288,767
------------ ------------
END OF PERIOD ...........................................
(Including undistributed net investment income of
$1,283,414 and $1,465,910, respectively) ................ $235,158,759 $236,465,321
============ ============
</TABLE>
See Notes to Financial Statements
12
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Notes to Financial Statements April 30, 2000 (unaudited)
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
13
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Notes to Financial Statements April 30, 2000 (unaudited) 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 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.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended April 30, 2000
aggregated $4,732,244 and $4,982,500, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At April 30, 2000, the Trust had transfer agent
fees and expenses payable of approximately $1,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended April 30, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,539. At April 30, 2000, the Trust had an accrued pension liability of
$38,529 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
14
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Notes to Financial Statements April 30, 2000 (unaudited) continued
the date of distribution. The Trust may redeem such shares, in whole or in
part, at the original purchase price of $50,000 per share plus accumulated but
unpaid dividends, whether or not declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
AMOUNT IN RESET RANGE OF
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES**
-------- --------- ------------ ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
1 200 $10,000 3.652% 05/01/00 2.50% - 5.00%
2 400 20,000 3.90 09/05/00 3.90
3 500 25,000 3.50 07/10/00 3.50
4 200 10,000 4.70 05/01/00 2.50 - 5.30
</TABLE>
---------------
* As of April 30, 2000.
** For the six months ended April 30, 2000.
Subsequent to April 30, 2000 and up through June 2, 2000 the Trust paid
dividends to Series 1 through 4 at rates ranging from 3.50% to 5.10% in the
aggregate amount of $352,188.
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 9.07%)* (242,100) (2,421) (2,973,961)
---------- -------- ------------
Balance, April 30, 2000 ................................................. 12,449,413 $124,494 $175,868,248
========== ======== ============
</TABLE>
---------------
* The Trustees have voted to retire the shares purchased.
15
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Notes to Financial Statements April 30, 2000 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
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 March 28, 2000, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ------------ ---------------
<S> <C> <C>
$0.065 May 5, 2000 May 19, 2000
$0.065 June 9, 2000 June 23, 2000
</TABLE>
16
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Financial Highlights
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31*
MONTHS ENDED -----------------------------------------------------------
APRIL 30, 2000* 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $11.29
------- ------ ------- ------- ------ ------
Income (loss) from investment operations:
Net investment income ................................ 0.47 0.94 0.94 0.94 0.93 0.92
Net realized and unrealized gain (loss) .............. 0.15 (1.52) 0.72 0.68 0.05 2.12
------- ------ ------- ------- ------ ------
Total income (loss) from investment operations ........ 0.62 (0.58) 1.66 1.62 0.98 3.04
------- ------ ------- ------- ------ ------
Less dividends from:
Net investment income ................................ (0.39) (0.75) (0.75) (0.75) (0.72) (0.77)
Common share equivalent of dividends paid to
preferred shareholders .............................. (0.09) (0.17) (0.19) (0.18) (0.17) (0.18)
------- ------ ------- ------- ------ ------
Total dividends ....................................... (0.48) (0.92) (0.94) (0.93) (0.89) (0.95)
------- ------ ------- ------- ------ ------
Anti-dilutive effect of acquiring treasury shares ..... 0.02 0.01 0.01 0.03 0.06 0.02
------- ------ ------- ------- ------ ------
Net asset value, end of period ........................ $ 13.67 $13.51 $ 15.00 $ 14.27 $13.55 $13.40
======== ====== ======= ======= ====== ======
Market value, end of period ........................... $12.563 $12.50 $14.438 $13.375 $12.00 $11.75
======== ====== ======= ======= ====== ======
TOTAL RETURN + ........................................ 3.67%(1) (8.69)% 13.88% 18.22% 8.54% 12.93%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:
Total expenses ........................................ 0.79%(2)(3) 0.75%(3) 0.74%(3) 0.74% 0.76% 0.81%(3)
Net investment income before preferred stock
dividends ............................................ 6.92%(2) 6.41% 6.39% 6.85% 6.93% 7.39%
Preferred stock dividends ............................. 1.38%(2) 1.18% 1.26% 1.29% 1.24% 1.44%
Net investment income available to common
shareholders ......................................... 5.54%(2) 5.23% 5.13% 5.56% 5.69% 5.95%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............... $235,159 $236,465 $257,289 $249,126 $244,210 $249,232
Asset coverage on preferred shares at end of period ... 361% 363% 395% 382% 375% 383%
Portfolio turnover rate ............................... 2%(1) 5% 5% 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) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
See Notes to Financial Statements
17
<PAGE>
Morgan Stanley Dean Witter California Insured Municipal Income Trust
Revised Investment Policy (unaudited)
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.
18
<PAGE>
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<PAGE>
TRUSTEES
------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
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
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
MORGAN STANLEY
DEAN WITTER
CALIFORNIA
INSURED
MUNICIPAL
INCOME TRUST
SEMIANNUAL REPORT
APRIL 30, 2000
