<PAGE> 1
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES Two World
Trade Center
LETTER TO THE SHAREHOLDERS October 31, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Morgan Stanley
Dean Witter Insured California Municipal Securities (ICS) for the fiscal year
ended October 31, 1998.
On December 21, 1998, after the close of the period under review, the Trust
changed its name from InterCapital Insured California Municipal Securities to
Morgan Stanley Dean Witter Insured California Municipal Securities. Information
on the name change was mailed to shareholders in mid-December under separate
cover.
Since our last report six months ago, global financial turmoil, including the
Russian currency crisis, has continued to affect the securities markets. This
led to a flight-to-quality rally for U.S. Treasury bonds, with yields falling to
30-year lows. Municipal bond yields declined but lagged the downward trend of
Treasury yields.
The deflationary impact of the international financial crisis began to temper
U.S. economic growth prior to the summer's tumultuous market activity. Lower
commodity prices, cheaper imports and improved
BOND YIELDS 1994 - 1998
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.4% 6.34% 85.17%
5.4 6.24 86.54
5.8 6.66 87.09
6.4 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.5 7.61 85.41
6.25 7.39 84.57
6.3 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.2 7.34 84.47
5.8 6.66 87.09
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.9 6.89 85.63
5.85 6.97 83.93
5.9 7.11 82.98
5.7 6.93 82.25
5.65 6.64 85.09
5.5 6.35 86.61
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
productivity offset the potential inflationary impact of strong domestic
employment. With inflation held in check, the Federal Reserve Board provided
liquidity to the markets by lowering short-term interest rates. Since the end of
September, the Federal Reserve Open Market Committee cut the federal funds rate
75 basis points from 5.50 percent to 4.75 percent in three separate moves.
MUNICIPAL MARKET CONDITIONS
Municipal bond yields followed the downward trend of Treasury yields at a more
moderate pace. At the end of October, long-term insured municipal index yields
stood at 5.05 percent, index yields declined 30 basis points over the last 12
months. In contrast, 30-year U.S. Treasury bond yields fell 100 basis points
during the same period.
As municipals lagged the rally in Treasuries, the ratio of municipal yields to
Treasury yields rose sharply to 98 percent. (A rising ratio means that
municipals have underperformed Treasuries and have become more attractive on a
relative basis.) This increase was similar to the jump witnessed in 1986, when
tax-reform proposals threatened the favorable tax advantage of municipal bonds.
The overall decline in interest rates has led to a substantial increase in new
issue municipal volume. Municipal issuance is on a pace to challenge 1993's
underwriting record of $292 billion. Year-to-date, total municipal volume of
$234 billion is up 32 percent. Half the underwriting volume was enhanced with
bond insurance. Refundings represented 30 percent of total new issuance.
California new issue underwriting accounted for 12 percent of national volume.
PERFORMANCE
The Trust's net asset value (NAV) increased from $15.50 to $16.00 per share
during the fiscal year ended October 31, 1998. Based on this NAV change plus
reinvestment of tax-free dividends of $0.7775 per share, the Trust's total NAV
return was 8.69 percent. ICS's price on the New York Stock Exchange moved from
$14.375 to $15.25 per share. Based on this change in market price plus
reinvestment of dividends, the Trust's total market return was 11.71 percent. On
October 31, 1998, the Trust traded at a 4.69 percent discount to NAV.
Monthly dividends for the fourth quarter of 1998 were declared in September.
Beginning with the October 1998 dividend, the monthly dividend was reduced from
$0.065 per share to $0.0625 per share, to more closely reflect the Trust's
anticipated income. The level of undistributed net investment income declined
from $0.086 to $0.072 per share. Subsequent to the end of the fiscal year, the
Trust declared a capital gain distribution of $0.1566 per share.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
<TABLE>
<CAPTION>
LARGEST SECTORS as of October 31, 1998 (% of Net Assets)
<S> <C>
Tax Allocation 25%
Hospital 16%
General Obligation 13%
Water & Sewer 11%
Transportation 8%
Mortgage 8%
Electric 7%
Refunded 5%
All Others 7%
Portfolio structure is subject to change.
</TABLE>
<TABLE>
<CAPTION>
CREDIT ENHANCEMENTS as of October 31, 1998 (% of Net Assets)
<S> <C>
MBIA 37%
AMBAC 31%
FSA 18%
FGIC 12%
CONNIE LEE 2%
Portfolio structure is subject to change.
</TABLE>
<TABLE>
<CAPTION>
CALL STRUCTURE as of October 31, 1998
(% of Total Long-Term Portfolio)
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
Years Bonds Callable Percent Callable
<S> <C>
1999 0%
2000 0%
2001 0%
2002 5%
2003 40%
2004 38%
2005 3%
2006 0%
2007 0%
2008 14%
2009+ 0%
Portfolio structure is subject to change.
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
PORTFOLIO STRUCTURE
The Trust remained fully invested in long-term municipal bonds during the fiscal
year. Investments were diversified among 12 long-term sectors and 27 credits. As
illustrated in the accompanying chart, the distribution of call dates in the
portfolio produced 6 years of weighted average call protection.
The Trust's weighted average maturity was 21 years. Average duration (a measure
of price volatility to interest rate changes) was 7 years. To assure the timely
payment of principal and interest, each position in the portfolio was backed by
triple "A" rated bond insurance.
LOOKING AHEAD
Global economic conditions seem likely to keep inflationary pressures under
control and have contributed to lower interest rates. The fixed-income markets
have also begun to anticipate the possibility of additional monetary easing by
the Fed. With the municipal relationship to Treasuries more favorable than it
has been in the last 10 years, the outlook for municipal bonds is positive.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust may,
when appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase.
We appreciate your ongoing support of Morgan Stanley Dean Witter Insured
California Municipal Securities and look forward to continuing to serve your
investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 23, 1998, 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:
<TABLE>
<S> <C>
Edwin J. Garn
For......................................................... 3,206,919
Withheld.................................................... 55,828
John R. Haire
For......................................................... 3,208,875
Withheld.................................................... 53,872
Michael E. Nugent
For......................................................... 3,209,749
Withheld.................................................... 52,998
Philip J. Purcell
For......................................................... 3,209,924
Withheld.................................................... 52,823
</TABLE>
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 PRICEWATERHOUSECOOPERS LLP (THE SUCCESSOR
FIRM TO PRICE WATERHOUSE LLP AS OF JULY 1, 1998) AS THE TRUST'S INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 3,156,974
Against..................................................... 10,418
Abstain..................................................... 95,355
</TABLE>
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (101.9%)
General Obligation (13.3%)
California,
$ 3,000 Refg 10/01/98 (MBIA)....................................... 4.50% 10/01/28 $2,785,890
3,000 Various Purpose 03/01/94 (FSA)**........................... 5.50 03/01/20 3,141,570
3,000 Moulton-Niguel Water District, 1993 Refg (MBIA)**........... 5.00 09/01/19 2,992,110
------- ----------
9,000 8,919,570
------- ----------
Educational Facilities Revenue (2.5%)
1,500 California Educational Facilities Authority, National
------- University Ser 1994 (Connie Lee)........................... 6.20 05/01/21 1,665,195
----------
Electric Revenue (7.4%)
1,000 Anaheim Public Financing Authority, San Juan 2nd Ser
(FGIC)..................................................... 5.75 10/01/22 1,072,320
4,000 Burbank, Electric Ser 1998 (FSA) (WI)....................... 4.75 06/01/23 3,870,440
------- ----------
5,000 4,942,760
------- ----------
Hospital Revenue (15.5%)
2,000 Anaheim, Anaheim Memorial Hospital Association COPs
(AMBAC).................................................... 5.125 05/15/20 2,018,000
3,000 California Health Facilities Financing Authority, Catholic
Healthcare West Ser 1994 B (AMBAC)......................... 5.00 07/01/21 2,979,690
3,000 California Statewide Communities Development Authority,
Sharp Health Care COPs (MBIA).............................. 6.00 08/15/24 3,304,050
2,000 San Mateo County Joint Powers Financing Authority, San Mateo
County Health Center 1994 Ser A (FSA)...................... 5.75 07/15/22 2,149,420
------- ----------
10,000 10,451,160
------- ----------
Mortgage Revenue - Multi-Family (4.8%)
3,000 Los Angeles Community Redevelopment Agency, 1994 Ser A
(AMBAC).................................................... 6.45 07/01/17 3,209,850
------- ----------
Mortgage Revenue - Single Family (2.9%)
1,880 California Housing Financing Agency, 1995 Ser B (AMT)
(AMBAC).................................................... 6.25 08/01/14 1,981,370
------- ----------
Public Facilities Revenue (3.2%)
1,000 Glendale Unified School District, 1994 Ser A COPs (AMBAC)... 6.00 03/01/19 1,103,230
1,000 Los Angeles Convention & Exhibition Center Authority, 1993
Refg Ser A (MBIA).......................................... 5.375 08/15/18 1,027,660
------- ----------
2,000 2,130,890
------- ----------
Tax Allocation Revenue (25.4%)
3,000 Bay Area Government Association, Pool 1994 Ser A (FSA)...... 6.00 12/15/24 3,342,210
2,000 Brea Redevelopment Agency, 1993 Refg Ser AB (MBIA).......... 5.75 08/01/23 2,148,100
2,000 Cerritos Public Finance Authority, Los Coyotes Redev Ser
1993 A (AMBAC)............................................. 5.75 11/01/22 2,149,620
3,000 Corona Redevelopment Agency, Area A 1994 Refg Ser A
(FGIC)..................................................... 6.25 09/01/13 3,378,930
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Pittsburgh Redevelopment Agency, Los Medanos Refg Ser 1993 A
(AMBAC).................................................... 5.00% 08/01/17 $3,008,280
3,000 Yorba Linda Redevelopment Agency, Ser 1993 A (MBIA)......... 5.25 09/01/23 3,054,930
------- ----------
16,000 17,082,070
------- ----------
Transportation Facilities Revenue (8.0%)
San Francisco Airports Commission, San Francisco Int'l
Airport
2,000 Second Ser Refg Issue 4 (MBIA)............................. 6.00 05/01/20 2,191,580
2,000 Second Ser Refg Issue 2 (MBIA)............................. 6.75 05/01/20 2,252,740
1,000 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1998 (AMBAC)............................................... 4.75 07/01/23 966,100
------- ----------
5,000 5,410,420
------- ----------
Water & Sewer Revenue (10.6%)
1,000 East Bay Municipal Utility District, Water Ser 1998
(MBIA)..................................................... 4.75 06/01/34 955,390
1,000 Eastern Municipal Water District, Water & Sewer Refg Ser
1998 A COPs (FGIC)......................................... 4.75 07/01/23 966,100
2,900 Garden Grove Public Finance Authority, Water Ser 1993
(FGIC)..................................................... 5.50 12/15/23 3,038,939
2,000 Los Angeles, Wastewater Refg Ser 1993 A (MBIA).............. 5.70 06/01/20 2,135,460
------- ----------
6,900 7,095,889
------- ----------
Other Revenue (3.3%)
2,000 South Orange County Public Financing District #88-1, 1994
Ser A (MBIA)............................................... 6.00 09/01/18 2,201,620
------- ----------
Refunded (5.0%)
3,000 Central Coast Water Authority, Ser 1992 (AMBAC)............. 6.60 10/01/02+ 3,388,350
------- ----------
65,280 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS
(Identified Cost $61,617,062).................................................... 68,479,144
------- ----------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (2.3%)
700 California Health Facilities Financing Authority, Adventist
Health/West 1998 Ser B (Demand 11/02/98)................... 3.60* 09/01/28 700,000
800 California Pollution Control Financing Authority, Pacific
------- Gas & Electric Co Ser 1996 F (Demand 11/02/98)............. 3.60* 11/01/26 800,000
----------
1,500 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
- --------- (Identified Cost $1,500,000)..................................................... 1,500,000
----------
$66,780 TOTAL INVESTMENTS (Identified Cost $63,117,062) (a).................. 104.2% 69,979,144
=======
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS....................... (4.2) (2,800,978)
----- ----------
NET ASSETS........................................................... 100.0% $67,178,166
===== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a "when-issued" basis.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
** Some or all of these securities are segregated in connection
with the purchase of "when-issued" securities.
(a) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $6,973,632 and the aggregate gross
unrealized depreciation is $111,550, resulting in net
unrealized appreciation of $6,862,082.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
ASSETS:
Investments in securities, at value
(identified cost $63,117,062).............................. $69,979,144
Cash........................................................ 155,310
Interest receivable......................................... 995,751
Deferred organizational expenses............................ 2,622
Prepaid expenses............................................ 2,349
----------
TOTAL ASSETS............................................ 71,135,176
----------
LIABILITIES:
Payable for:
Investment purchased.................................... 3,870,440
Investment management fee............................... 23,309
Accrued expenses............................................ 63,261
----------
TOTAL LIABILITIES....................................... 3,957,010
----------
NET ASSETS.............................................. $67,178,166
==========
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares
authorized of non-participating $.01 par value, none
issued).................................................... --
----------
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 4,198,513 shares
outstanding)............................................... $59,355,572
Net unrealized appreciation................................. 6,862,082
Accumulated undistributed net investment income............. 303,208
Accumulated undistributed net realized gain................. 657,304
----------
TOTAL NET ASSETS........................................ $67,178,166
==========
NET ASSET VALUE PER COMMON SHARE
($67,178,166 divided by 4,198,513 common shares
outstanding)............................................... $16.00
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $3,588,124
----------
EXPENSES
Investment management fee................................... 231,856
Professional fees........................................... 51,819
Shareholder reports and notices............................. 28,792
Transfer agent fees and expenses............................ 18,875
Registration fees........................................... 17,181
Trustees' fees and expenses................................. 12,773
Organizational expenses..................................... 7,997
Custodian fees.............................................. 3,232
Other....................................................... 11,043
----------
TOTAL EXPENSES.......................................... 383,568
Less: expense offset........................................ (3,225)
----------
NET EXPENSES............................................ 380,343
----------
NET INVESTMENT INCOME................................... 3,207,781
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 683,210
Net change in unrealized appreciation....................... 1,470,354
----------
NET GAIN................................................ 2,153,564
----------
NET INCREASE................................................ $5,361,345
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 3,207,781 $ 3,271,980
Net realized gain (loss)............................. 683,210 (377)
Net change in unrealized appreciation................ 1,470,354 2,115,361
----------- -----------
NET INCREASE..................................... 5,361,345 5,386,964
Dividends to common shareholders from net investment
income.............................................. (3,264,337) (3,402,772)
Decrease from transactions in common shares of
beneficial interest................................. (29,498) (626,777)
----------- -----------
NET INCREASE..................................... 2,067,510 1,357,415
NET ASSETS:
Beginning of period.................................. 65,110,656 63,753,241
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$304,458 and $361,014, respectively)............. $67,178,166 $65,110,656
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Insured California Municipal Securities (the
"Trust"), formerly InterCapital Insured California Municipal Securities (the
Trust changed its name effective December 21, 1998), is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust's investment objective is to provide
current income which is exempt from both federal and California income taxes.
The Trust was organized as a Massachusetts business trust on October 14, 1993
and commenced operations on February 28, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Trust by
an outside independent pricing service approved by the Trustees. The pricing
service has informed the Trust that in valuing the portfolio securities, it uses
both a computerized matrix of tax-exempt securities and evaluations by its
staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the bid side of the market each day. The
portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Morgan Stanley Dean Witter Advisors Inc. (the
"Investment Manager"), formerly Dean Witter InterCapital Inc. paid the
organizational expenses of the Trust's common shares in the amount of $40,000
which have been reimbursed by the Trust for the full amount thereof. Such
expenses have been deferred and are being amortized by the straight-line method
over a period not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays the Investment
Manager a management fee, calculated weekly and payable monthly, by applying the
annual rate of 0.35% to the Trust's weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1998 aggregated
$10,354,399 and $7,508,469, respectively.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At October 31, 1998, the Trust had transfer agent
fees and expenses payable of approximately $400.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The preferred shares have a liquidation value of $50,000
per share plus the redemption premium, if any, plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of distribution. The
Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or not
declared, thereon to the date of redemption.
Upon issuance, the Trust will be subject to certain restrictions relating to the
preferred shares. Failure to comply with these restrictions could preclude the
Trust from declaring any distributions to common shareholders or purchasing
common shares and/or could trigger the mandatory redemption of preferred shares
at liquidation value.
The preferred shares, entitled to one vote per share, generally vote with the
common shares but vote separately as a class to elect two Trustees and on any
matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
--------- --------- -----------
<S> <C> <C> <C>
Balance, October 31, 1996................................... 4,245,213 $42,452 $59,969,395
Treasury shares purchased and retired (weighted average
discount 6.99%)*........................................... (44,700) (447) (626,330)
--------- ------- -----------
Balance, October 31, 1997................................... 4,200,513 42,005 59,343,065
Treasury shares purchased and retired (weighted average
discount 5.09%)*........................................... (2,000) (20) (29,478)
--------- ------- -----------
Balance, October 31, 1998................................... 4,198,513 $41,985 $59,313,587
========= ======= ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1998, the Trust utilized its net capital loss
carryover of approximately $26,000.
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 29, 1998, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ---------------- -----------------
<S> <C> <C>
$0.0625 November 6, 1998 November 20, 1998
$0.0625 December 4, 1998 December 18, 1998
</TABLE>
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31** FEBRUARY 28, 1994*
----------------------------------------- THROUGH
1998 1997 1996 1995 OCTOBER 31, 1994**
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $15.50 $ 15.02 $14.84 $13.15 $14.06
------ ------- ------ ------ ------
Net investment income....................................... 0.76 0.78 0.78 0.76 0.41
Net realized and unrealized gain (loss)..................... 0.52 0.50 0.12 1.59 (0.92)
------ ------- ------ ------ ------
Total from investment operations............................ 1.28 1.28 0.90 2.35 (0.51)
------ ------- ------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.78) (0.81) (0.75) (0.72) (0.36)
Net realized gain.......................................... -- -- (0.01) -- --
------ ------- ------ ------ ------
Total dividends and distributions........................... (0.78) (0.81) (0.76) (0.72) (0.36)
------ ------- ------ ------ ------
Anti-dilutive effect of acquiring treasury shares........... -- 0.01 0.04 0.04 0.04
------ ------- ------ ------ ------
Offering costs charged against capital...................... -- -- -- 0.02 (0.08)
------ ------- ------ ------ ------
Net asset value, end of period.............................. $16.00 $ 15.50 $15.02 $14.84 $13.15
====== ======= ====== ====== ======
Market value, end of period................................. $15.25 $14.375 $13.50 $12.50 $11.00
====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN+.................................... 11.71% 12.64% 14.33% 20.51% (24.55)%(1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses.............................................. 0.58%(3) 0.56%(3) 0.58%(3) 0.72%(3) 0.65%(2)
Net investment income....................................... 4.84% 5.14% 5.22% 5.35% 4.45%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $67,178 $65,111 $63,753 $64,469 $58,822
Portfolio turnover rate..................................... 12% -- -- 3% --
</TABLE>
- ---------------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends are assumed to be reinvested at the
prices obtained under the Trust's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Insured
California Municipal Securities (the " Trust"), formerly InterCapital Insured
California Municipal Securities, at October 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the four years in the period then ended and for the period February 28, 1994
(commencement of operations) through October 31, 1994, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 21, 1998
1998 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1998, all of the Trust's
dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax
purposes.
17
<PAGE> 18
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<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- -------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- -------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- -------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
INSURED
CALIFORNIA
MUNICIPAL
SECURITIES
Annual Report
October 31, 1998
