<PAGE> 1
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
Two World Trade Center
LETTER TO THE SHAREHOLDERS October 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, continued to experience robust growth
this year. The fixed-income markets anticipated that the Federal Reserve Board
would remove the liquidity it provided during last year's international economic
crises. The Fed changed monetary policy and raised the federal-funds rate 50
basis points, to 5.25 percent during the summer. By October long-term interest
rates had risen to levels last seen two years ago. Subsequently, the Fed raised
the federal-funds rate an additional 25 basis points, to 5.50 percent in
November.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal index yields began 1999 near a record low of 5.05
percent. By the end of October, municipal index yields had increased 100 basis
points to 6.05 percent. Since bond prices move inversely to changes in interest
rates, these higher yields resulted in significantly lower bond prices. The
increase in yields translated into a 13 percent price decline for a generic
insured municipal bond with a 30-year maturity.
The municipal market outperformed U.S. Treasury bonds early in the year, but
gradually gave ground. The ratio of long-term insured municipal index yields to
benchmark 30-year Treasury yields is a measure of relative performance. The
ratio declined from 99 percent at the end of 1998 to 91 percent in May before
rising to 98 percent by the end of October. A declining ratio means that
municipals have outperformed Treasuries. Over the past five years the ratio has
ranged from a high of 99 percent, to a low of 82 percent.
Higher interest rates led to a reduction in municipal market underwriting this
year. New issue volume declined 20 percent in the first ten months of 1999.
Refunding activity, the most interest rate sensitive component of supply, was
down 50 percent.
<PAGE> 2
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
[LINE GRAPH]
30-YEAR BOND YIELDS 1994-1999
<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
5.00 5.06 98.81
5.05 5.10 99.02
1999 5.00 5.09 98.23
5.10 5.58 91.40
5.15 5.63 91.47
5.20 5.66 91.87
</TABLE>
Source: Municipal Market Data -- A Division of Thomson Financial Municipal
Group and Bloomberg L.P.
PERFORMANCE
In this interest rate environment, the net asset value (NAV) of Morgan Stanley
Dean Witter Insured California Municipal Securities (ICS) declined from $16.00
to $14.42 per share for the fiscal year ended October 31, 1999. Based on this
change plus reinvestment of tax-free dividends totaling $0.75 per share and a
long-term capital gains distribution of $0.16 per share paid on December 18,
1998, the Trust's total NAV return was -4.21 percent. The Trust's value on the
New York Stock Exchange (NYSE) fell from $15.25 to $12.9375 per share during the
same period. Based on this change plus reinvestment of distributions, the ICS's
total market return was -9.83 percent. On October 31, 1999, ICS's NYSE market
price represented a 10 percent discount to its NAV.
Monthly dividends for the fourth quarter of 1999, declared in September, were
unchanged at $0.0625 per share. The dividend rate reflects the Trust's estimated
earnings over the next 6-12 months and its $0.06 per share cushion of
undistributed net investment income on October 31, 1999.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 12 long-term sectors and 28
credits. At the end of October, the portfolio's average maturity was 20 years.
The Trust's average duration, a measure of sensitivity to interest rate changes,
was 9 years. Issues in the refunded bond category comprised 4 percent of net
assets. These bonds have been refinanced and will be redeemed on the dates shown
in the portfolio. The accompanying charts provide current information on the
portfolio's credit enhancements and sector distribution. Optional call
provisions by year with their respective cost (book) yields are also charted.
LOOKING AHEAD
The Federal Reserve Board raised interest rates twice in the summer and again in
November. This confirmed its previously disclosed bias of becoming less
accommodative in the face of continued strong domestic economic growth.
Depending on the impact of tight labor markets and higher commodity prices on
inflation, the central bank may raise short-term interest rates further.
However, we believe municipal bonds continue to offer long-term investors good
value especially in relationship to Treasuries.
The Fund'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 Fund's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Fund 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. During the twelve-month period ended October 31,
1999, the Fund purchased and retired 53,300 shares of common stock at a weighted
average market discount of 9.43 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Insured
California Municipal Securities and look forward to continuing to serve your
investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
[BAR CHART]
LARGEST SECTORS AS OF OCTOBER 31, 1999
(% OF NET ASSETS)
<TABLE>
<CAPTION>
TAX WATER & GENERAL
ALLOCATION HOSPITAL TRANSPORTATION SEWER OBLIGATION MORTGAGE
---------- -------- -------------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
26% 12% 12% 12% 9% 8%
<CAPTION>
EDUCATION
---------
<S> <C>
5%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[PIE GRAPH]
LONG TERM INSURERS AS OF OCTOBER 31, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<CAPTION>
MBIA AMBAC FSA FGIC CONNIE LEE
---- ----- --- ---- ----------
<S> <C> <C> <C> <C> <C>
37% 32% 15% 13% 3%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
CALL AND COST (BOOK) YIELD STRUCTURE
OCTOBER 31, 1999
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CALL PROTECTION: 5 YEARS
YEARS BONDS CALLABLE PERCENT CALLABLE*
- -------------------- -----------------
<S> <C>
1999 0%
2000 0%
2001 0%
2002 0%
2003 41%
2004 42%
2005 3%
2006 0%
2007 0%
2008 10%
2009 2%
2010+ 2%
<CAPTION>
WEIGHTED AVERAGE
BOOK YIELD: 6.1%
COST (BOOK) YIELD **
--------------------
<S> <C>
1999 -
2000 -
2001 -
2002 -
2003 6.15
2004 6.32
2005 6.25
2006 -
2007 -
2008 5.72
2009 4.99
2010+ 4.82
* % 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
the Trust earned a book yield of 6.2% on 41% of the long-term portfolio
that is callable in 2003.
Portfolio structure is subject to change.
</TABLE>
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 22, 1999, 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>
Michael Bozic
For......................................................... 3,541,785
Withheld.................................................... 44,056
Charles A. Fiumefreddo
For......................................................... 3,544,847
Withheld.................................................... 40,994
</TABLE>
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E. Nugent, Philip J.
Purcell and John L. Schroeder
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 3,499,298
Against..................................................... 6,313
Abstain..................................................... 80,230
</TABLE>
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (96.8%)
General Obligation (9.2%)
$ 3,000 California, Various Purpose Dtd 03/01/94 (FSA).............. 5.50 % 03/01/20 $2,855,280
3,000 Moulton-Niguel Water District, 1993 Refg (MBIA)............. 5.00 09/01/19 2,660,880
------- ----------
6,000 5,516,160
------- ----------
Educational Facilities Revenue (4.5%)
California Educational Facilities Authority,
1,500 National University Ser 1994 (Connie Lee).................. 6.20 05/01/21 1,525,470
690 Santa Clara University Ser 1999 (AMBAC).................... 5.25 09/01/16 654,465
545 Santa Clara University Ser 1999 (AMBAC).................... 5.25 09/01/17 511,913
------- ----------
2,735 2,691,848
------- ----------
Electric Revenue (3.0%)
1,000 Anaheim Public Financing Authority, San Juan 2nd Ser
(FGIC)..................................................... 5.75 10/01/22 977,540
1,000 Burbank, Electric Ser 1998 (FSA)............................ 4.75 06/01/23 836,650
------- ----------
2,000 1,814,190
------- ----------
Hospital Revenue (12.4%)
2,000 Anaheim, Anaheim Memorial Hospital Association COPs
(AMBAC).................................................... 5.125 05/15/20 1,795,940
3,000 California Health Facilities Financing Authority, Catholic
Healthcare West
Ser 1994 B (AMBAC)......................................... 5.00 07/01/21 2,618,880
3,000 California Statewide Communities Development Authority,
------- Sharp Health Care
COPs (MBIA)................................................ 6.00 08/15/24 3,003,000
----------
8,000 7,417,820
------- ----------
Mortgage Revenue - Multi-Family (5.2%)
Los Angeles Community Redevelopment Agency, 1994 Ser A
3,000 (AMBAC).................................................... 6.45 07/01/17 3,086,280
------- ----------
Mortgage Revenue - Single Family (2.9%)
California Housing Financing Agency, 1995 Ser B (AMT)
1,745 (AMBAC)..................................................... 6.25 08/01/14 1,748,455
------- ----------
Public Facilities Revenue (3.2%)
1,000 Glendale Unified School District, 1994 Ser A COPs (AMBAC)... 6.00 03/01/19 1,005,650
Los Angeles Convention & Exhibition Center Authority, 1993
1,000 Refg Ser A (MBIA).......................................... 5.375 08/15/18 942,920
------- ----------
2,000 1,948,570
------- ----------
Tax Allocation Revenue (25.9%)
3,000 Bay Area Government Association, Pool 1994 Ser A (FSA)...... 6.00 12/15/24 3,010,080
2,000 Brea Redevelopment Agency, 1993 Refg Ser AB (MBIA).......... 5.75 08/01/23 1,949,260
2,000 Cerritos Public Financing Authority, Los Coyotes Redev Ser
1993 A (AMBAC)............................................. 5.75 11/01/22 1,950,220
3,000 Corona Redevelopment Agency, Area A 1994 Refg Ser A
(FGIC)..................................................... 6.25 09/01/13 3,161,460
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Pittsburg Redevelopment Agency, Los Medanos Refg Ser 1993 A
(AMBAC).................................................... 5.00 % 08/01/17 $2,677,770
3,000 Yorba Linda Redevelopment Agency, Ser 1993 A (MBIA)......... 5.25 09/01/23 2,712,840
------- ----------
16,000 15,461,630
------- ----------
Transportation Facilities Revenue (11.6%)
1,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999
A (MBIA)................................................... 5.25 10/01/21 915,980
San Francisco Airports Commission, San Francisco Int'l
Airport
1,680 Second Ser Refg Issue 4 (MBIA)............................. 6.00 05/01/20 1,690,147
1,700 Second Ser Refg Issue 2 (MBIA)............................. 6.75 05/01/20 1,817,504
3,000 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1998 (AMBAC)............................................... 4.75 07/01/23 2,509,050
------- ----------
7,380 6,932,681
------- ----------
Water & Sewer Revenue (11.9%)
2,000 East Bay Municipal Utility District, Water Ser 1998
(MBIA)..................................................... 4.75 06/01/34 1,610,000
1,000 Eastern Municipal Water District, Water & Sewer Refg Ser
1998 A COPs (FGIC)......................................... 4.75 07/01/23 831,970
2,900 Garden Grove Public Finance Authority, Water Ser 1993
(FGIC)..................................................... 5.50 12/15/23 2,733,743
2,000 Los Angeles, Wastewater Refg Ser 1993 A (MBIA).............. 5.70 06/01/20 1,953,960
------- ----------
7,900 7,129,673
------- ----------
Other Revenue (3.4%)
South Orange County Public Financing District #88-1, 1994
2,000 Ser A (MBIA)............................................... 6.00 09/01/18 2,012,500
------- ----------
Refunded (3.6%)
2,000 San Mateo County Joint Powers Financing Authority, San Mateo
------- County Health Center 1994 Ser A (FSA)...................... 5.75 07/15/04+ 2,147,080
----------
60,760 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $56,627,197)....... 57,906,887
------- ----------
CALIFORNIA TAX-EXEMPT SHORT TERM MUNICIPAL OBLIGATIONS
(1.7%)
500 California Pollution Control Financing Authority, Pacific
Gas & Electric Co
Ser 1996 F (Demand 11/01/99)............................... 3.55* 11/01/26 500,000
500 California Statewide Communities Development Authority,
------- Sutter Health
Ser 1995 COPs (AMBAC) (Demand 11/01/99).................... 3.50* 07/01/15 500,000
----------
1,000 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
------- (Identified Cost $1,000,000)................................................... 1,000,000
----------
$61,760 TOTAL INVESTMENTS (Identified Cost $57,627,197) (a)................... 98.5% 58,906,887
=======
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 1.5 867,072
---- ---------
NET ASSETS............................................................. 100.0% $59,773,959
====== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ 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 $1,883,631 and the aggregate gross
unrealized depreciation is $603,941, resulting in net
unrealized appreciation of $1,279,690.
Bond Insurance:
- ---------------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of
AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
ASSETS:
Investments in securities, at value
(identified cost $57,627,197).............................. $58,906,887
Cash........................................................ 4,860
Interest receivable......................................... 1,014,495
Prepaid expenses............................................ 2,767
-----------
TOTAL ASSETS............................................ 59,929,009
-----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 64,712
Investment management fee............................... 21,627
Accrued expenses............................................ 68,711
-----------
TOTAL LIABILITIES....................................... 155,050
-----------
NET ASSETS.............................................. $59,773,959
===========
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, 4,145,213 shares outstanding) $58,652,629
Net unrealized appreciation................................. 1,279,690
Accumulated undistributed net investment income............. 266,152
Accumulated net realized loss............................... (424,512)
-----------
TOTAL NET ASSETS........................................ $59,773,959
===========
NET ASSET VALUE PER COMMON SHARE
($59,773,959 divided by 4,145,213 common shares
outstanding)............................................... $14.42
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $3,481,139
-----------
EXPENSES
Investment management fee................................... 226,688
Professional fees........................................... 60,292
Shareholder reports and notices............................. 22,940
Transfer agent fees and expenses............................ 17,762
Registration fees........................................... 15,930
Trustees' fees and expenses................................. 12,338
Custodian fees.............................................. 3,356
Organizational expenses..................................... 2,622
Other....................................................... 11,999
-----------
TOTAL EXPENSES.......................................... 373,927
Less: expense offset........................................ (3,349)
-----------
NET EXPENSES............................................ 370,578
-----------
NET INVESTMENT INCOME................................... 3,110,561
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (424,512)
Net change in unrealized appreciation....................... (5,582,392)
-----------
NET LOSS................................................ (6,006,904)
-----------
NET DECREASE................................................ $(2,896,343)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
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, 1999 OCTOBER 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $3,110,561 $3,207,781
Net realized gain (loss)............................. (424,512) 683,210
Net change in unrealized appreciation................ (5,582,392) 1,470,354
----------- -----------
NET INCREASE (DECREASE).......................... (2,896,343) 5,361,345
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income................................ (3,147,617) (3,264,337)
Net realized gain.................................... (657,304) --
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (3,804,921) (3,264,337)
----------- -----------
Decrease from transactions in common shares of
beneficial interest................................. (702,943) (29,498)
----------- -----------
NET INCREASE (DECREASE).......................... (7,404,207) 2,067,510
NET ASSETS:
Beginning of period.................................. 67,178,166 65,110,656
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$266,152 and $303,208, respectively)............. $59,773,959 $67,178,166
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Insured California Municipal Securities (the "Trust")
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.
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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
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") 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 were fully amortized
as of February 28, 1999.
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, 1999 aggregated
$5,548,648 and $10,148,283, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
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, 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
Treasury shares purchased and retired (weighted average
discount 9.43%)*........................................... (53,300) (533) (702,410)
--------- ------- -----------
Balance, October 31, 1999................................... 4,145,213 $41,452 $58,611,177
========= ======= ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
6. FEDERAL INCOME TAX STATUS
At October 31, 1999, the Trust had a net capital loss carryover of approximately
$425,000 which will be available through October 31, 2007 to offset future
capital gains to the extent provided by regulations.
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 28, 1999, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ---------------- -----------------
<S> <C> <C>
$0.0625 November 5, 1999 November 19, 1999
$0.0625 December 3, 1999 December 17, 1999
</TABLE>
16
<PAGE> 17
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 YEAR ENDED OCTOBER 31*
----------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 16.00 $ 15.50 $ 15.02 $ 14.84 $ 13.15
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income...................................... 0.74 0.76 0.78 0.78 0.76
Net realized and unrealized gain (loss).................... (1.43) 0.52 0.50 0.12 1.59
------- ------- ------- ------- -------
Total income (loss) from investment operations.............. (0.69) 1.28 1.28 0.90 2.35
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income...................................... (0.75) (0.78) (0.81) (0.75) (0.72)
Net realized gain.......................................... (0.16) -- -- (0.01) --
------- ------- ------- ------- -------
Total dividends and distributions........................... (0.91) (0.78) (0.81) (0.76) (0.72)
------- ------- ------- ------- -------
Anti-dilutive effect of acquiring treasury shares........... 0.02 -- 0.01 0.04 0.04
------- ------- ------- ------- -------
Offering costs charged against capital...................... -- -- -- -- 0.02
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 14.42 $ 16.00 $ 15.50 $ 15.02 $ 14.84
======= ======= ======= ======= =======
Market value, end of period................................. $12.938 $ 15.25 $14.375 $ 13.50 $ 12.50
======= ======= ======= ======= =======
TOTAL RETURN+............................................... (9.83)% 11.71% 12.64% 14.33% 20.51%
RATIOS TO AVERAGE NET ASSETS:
Total expenses(1)........................................... 0.58% 0.58% 0.56% 0.58% 0.72%
Net investment income....................................... 4.80% 4.84% 5.14% 5.22% 5.35%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $59,774 $67,178 $65,111 $63,753 $64,469
Portfolio turnover rate..................................... 9% 12% -- -- 3%
</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
17
<PAGE> 18
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") at October 31, 1999, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 8, 1999
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1999, the Trust paid to
shareholders $0.75 per share from tax-exempt income.
For the year ended October 31, 1999, the Trust paid to
shareholders $0.16 per share from long-term capital gains.
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
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
MORGAN STANLEY
DEAN WITTER
INSURED
CALIFORNIA
MUNICIPAL
SECURITIES
Semiannual Report
October 31, 1999
