<PAGE> 1
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL
SECURITIES Two World Trade Center
LETTER TO THE SHAREHOLDERS October 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy continued to register solid economic growth over the 12-month
period ended October 31, 2000. Unemployment reached a 30-year low and real
personal consumption accelerated. The tightening labor market and rising oil
prices led to increased concern that inflationary pressures would surface. In
response, the Federal Reserve Board increased the federal funds rate 100 basis
points in three moves between February and May. The federal funds rate currently
stands at a nine-year high of 6.50 percent. The Fed's shift toward a tighter
monetary policy, which began last year, caused long-term interest rates to
increase in 1999. Early this year, however, the U.S. Treasury announced its
plans to utilize a growing federal budget surplus to reduce its debt. This
announcement precipitated a rally in the bond market. By the end of October
2000, long-term interest rates had declined significantly. Vigilance by the
Federal Reserve in controlling inflation and signs of moderating economic
activity also contributed to more favorable bond market conditions.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index, which stood at 6.03 percent at the end of
October 1999, reached a high of 6.19 percent in mid January before declining to
5.65 percent at the end of October 2000. Because bond prices move inversely to
changes in interest rates, bond prices declined in 1999 but improved this year.
The municipal yield curve flattened 79 basis points during the year and the
pickup for extending maturities from one to 30 years declined from 225 basis
points in October 1999 to 146 basis points at the end of this October.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. A rising yield ratio
indicates weaker relative performance by municipals, a declining ratio stronger
performance. Over the past 12 months, this ratio has averaged 98 percent.
Long-term municipal yields have generally followed the trend of U.S. Treasury
yields. For the past three years the high and low ratios have been 100 percent
and 83 percent, respectively.
<PAGE> 2
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
During the first 10 months of 2000, municipal underwriting was 17 percent below
the same period last year. Refunding activity, the most interest-rate-sensitive
component of supply, dropped nearly 60 percent. Approximately 40 percent of the
underwritings were enhanced with bond insurance, versus an average of 50 percent
in the previous three years.
[30-YEAR BOND YIELDS 1994 - 2000 GRAPH]
<TABLE>
<CAPTION>
Insured U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.40% 6.34% 85.17%
5.40 6.24 86.54
5.80 6.66 87.09
6.40 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.50 7.61 85.41
6.25 7.39 84.57
6.30 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.80
7.00 8.00 87.50
6.75 7.88 85.66
1995 6.40 7.70 83.12
6.15 7.44 82.66
1995 6.40 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.20 7.34 84.47
5.80 6.66 87.09
6.10 6.62 92.15
6.10 6.86 88.92
6.00 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.50 6.14 89.58
5.35 5.94 90.07
1996 5.40 6.03 89.55
5.60 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.90 6.89 85.63
5.85 6.97 83.93
5.90 7.11 82.98
5.70 6.93 82.25
5.65 6.64 85.09
5.50 6.35 86.61
5.60 6.63 84.46
1997 5.70 6.79 83.95
5.65 6.80 83.09
5.90 7.10 83.10
5.75 6.94 82.85
5.65 6.91 81.77
5.60 6.78 82.60
5.30 6.30 84.13
5.50 6.61 83.21
5.40 6.40 84.38
5.35 6.15 86.99
5.30 6.05 87.60
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.20 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.20 5.80 89.66
5.20 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
5.30 5.83 90.91
5.47 5.96 91.78
5.55 6.10 90.98
5.75 6.06 94.88
5.85 6.05 96.69
6.03 6.16 97.89
6.00 6.29 95.39
5.97 6.48 92.13
2000 6.18 6.49 95.22
6.04 6.14 98.37
5.82 5.83 99.83
5.91 5.96 99.16
5.91 6.01 98.34
5.84 5.90 98.98
5.73 5.78 99.13
5.62 5.67 99.12
5.74 5.89 97.45
5.65 5.79 97.58
5.55 5.61 98.93
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
During the 12-month period ended October 31, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter Insured California Municipal Securities (ICS)
increased from $14.42 to $15.24 per share. Based on this change, plus a
reinvestment of tax-free dividends totaling $0.75 per share, the Trust's total
NAV return was 11.77 percent. ICS's value on the New York Stock Exchange
increased from $12.9375 to $13.375 per share during this period. Based on this
change plus reinvestment of tax-free dividends, ICS's total market return was
9.34 percent. As of October 31, 2000, ICS's share price was at a 12.24 percent
discount to its NAV.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
Monthly dividends for the fourth quarter of 2000, declared in September, were
unchanged at $0.0625 per share. The Trust's level of undistributed net
investment income, stood at $0.080 per share on October 31, 2000, versus $0.64
per share 12 months earlier.
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 12 long-term sectors and 27
credits. At the end of October, the portfolio's average maturity was 21 years.
Average duration, a measure of portfolio sensitivity to interest rates, was 7
years. Generally, bonds with longer durations have greater volatility. The
accompanying charts and tables provide current information on the portfolio's
credit enhancements, maturity distribution and sector diversification. Optional
call provisions and their respective cost (book) yields by year are also shown.
LOOKING AHEAD
The slower pace of economic growth and moderate inflation have caused the bond
market to anticipate a shift by the Federal Reserve Board to a neutral bias in
its monetary policy and the possibility of easing in 2001. This should create a
favorable environment for municipals bonds.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps support
the market value of the Trust's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Trust may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. During the fiscal period ended October 31, 2000,
the Trust purchased and retired 119,600 shares of common stock at a weighted
average market discount of 9.44 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, 2000, continued
[LARGEST SECTORS BAR GRAPH]
LARGEST SECTORS AS OF OCTOBER 31, 2000
(% OF NET ASSETS)
<TABLE>
<S> <C>
TAX ALLOCATION 23%
GENERAL OBLIGATION 13%
WATER & SEWER 12%
HOSPITAL 10%
TRANSPORTATION 9%
ELECTRIC 8%
MORTGAGE 8%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[LONG TERM INSURERS PIE CHART]
LONG TERM INSURERS AS OF OCTOBER 31, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
AMBAC 32%
MBIA 31%
FGIC 17%
FSA 15%
CONNIE LEE 3%
US GOV'T BACKED 2%
</TABLE>
[DISTRIBUTION BAR GRAPH]
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
DISTRIBUTION BY MATURITY
(% OF NET ASSETS)
WEIGHTED AVERAGE
MATURITY: 21 YEARS
<TABLE>
<S> <C>
UNDER 1 YEAR 1.3%
1-5 YEARS 0.0%
5-10 YEARS 1.6%
10-20 YEARS 45.2%
20-30 YEARS 47.4%
30+ YEARS 2.9%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
[YIELD STRUCTURE BAR GRAPH]
CALL AND COST (BOOK) YIELD STRUCTURE
(BASED ON LONG-TERM PORTFOLIO)
OCTOBER 31, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 4 YEARS
BONDS CALLABLE
<TABLE>
<CAPTION>
YEARS BONDS CALLABLE
<S> <C>
2000 0%
2001 0%
2002 0%
2003 40%
2004 39%
2005 3%
2006 0%
2007 0%
2008 11%
2009 2%
2010+ 5%
</TABLE>
[COST (BOOK) YIELD* BAR GRAPH]
WEIGHTED AVERAGE
BOOK YIELD: 6.1%
COST (BOOK) YIELD*
<TABLE>
<S> <C>
2000 0%
2001 0%
2002 0%
2003 6.1%
2004 6.3%
2005 6.3%
2006 0%
2007 0%
2008 5.7%
2009 5.9%
2010+ 5.5%
</TABLE>
* COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE FUND OPERATING EXPENSES. FOR
EXAMPLE, THE TRUST IS EARNING A BOOK YIELD OF 6.1% ON 40% OF THE BONDS IN THE
LONG-TERM PORTFOLIO THAT IS CALLABLE IN 2003.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 22, 2000, an annual meeting of the Trust's shareholders was held for the
purpose of voting on the following matter, the results of which were as follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Wayne E. Hedien
For......................................................... 3,492,693
Withheld.................................................... 47,570
Dr. Manuel H. Johnson
For......................................................... 3,492,695
Withheld.................................................... 47,568
John L. Schroeder
For......................................................... 3,492,695
Withheld.................................................... 47,568
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent and
Philip J. Purcell.
Additionally, James F. Higgins was elected as a Trustee of the Trust by the
Board of Trustees effective July 25, 2000
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.1%)
General Obligation (12.8%)
California,
$ 3,000 Various Purpose 03/01/94 (FSA)............................. 5.50% 03/01/20 $3,024,540
2,000 Dtd 09/01/00 (FGIC)........................................ 5.25 09/01/30 1,944,080
3,000 Moulton-Niguel Water District, 1993 Refg (MBIA)............. 5.00 09/01/19 2,889,900
------- ----------
8,000 7,858,520
------- ----------
Educational Facilities Revenue (2.6%)
1,500 California Educational Facilities Authority, National
------- University Ser 1994 (Connie Lee)........................... 6.20 05/01/21 1,603,365
----------
Electric Revenue (8.0%)
1,000 Anaheim Public Financing Authority, San Juan 2nd Ser
(FGIC)..................................................... 5.75 10/01/22 1,015,890
1,000 Burbank, Electric Ser 1998 (FSA)............................ 4.75 06/01/23 897,680
3,000 Los Angeles Department of Water & Power, Issue of 1999
(FSA)...................................................... 5.50 06/15/29 3,000,990
------- ----------
5,000 4,914,560
------- ----------
Hospital Revenue (9.6%)
2,000 Anaheim, Anaheim Memorial Hospital Association COPs
(Ambac).................................................... 5.125 05/15/20 1,943,460
2,000 California Health Facilities Financing Authority, Catholic
Healthcare West Ser 1994 B (Ambac)......................... 5.00 07/01/21 1,896,180
2,000 California Statewide Communities Development Authority,
Sharp Health Care COPs (MBIA).............................. 6.00 08/15/24 2,074,880
------- ----------
6,000 5,914,520
------- ----------
Mortgage Revenue -- Multi-Family (5.1%)
3,000 Los Angeles Community Redevelopment Agency, 1994 Ser A
------- (Ambac).................................................... 6.45 07/01/17 3,149,340
----------
Mortgage Revenue -- Single Family (2.4%)
1,455 California Housing Financing Agency, 1995 Ser B (AMT)
(Ambac).................................................... 6.25 08/01/14 1,498,534
------- ----------
Public Facilities Revenue (3.4%)
1,000 Glendale Unified School District, 1994 Ser A COPs (Ambac)... 6.00 03/01/19 1,051,020
1,000 Los Angeles Convention & Exhibition Center Authority, 1993
Refg Ser A (MBIA).......................................... 5.375 08/15/18 1,005,150
------- ----------
2,000 2,056,170
------- ----------
Tax Allocation Revenue (23.3%)
2,000 Bay Area Government Association, Pool 1994 Ser A (FSA)...... 6.00 12/15/24 2,075,420
2,000 Brea Redevelopment Agency, 1993 Refg Ser AB (MBIA).......... 5.75 08/01/23 2,033,820
2,000 Cerritos Public Financing Authority, Los Coyotes Redev Ser
1993 A (Ambac)............................................. 5.75 11/01/22 2,037,320
3,000 Corona Redevelopment Agency, Area A 1994 Refg Ser A
(FGIC)..................................................... 6.25 09/01/13 3,242,160
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 2000, 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 $2,926,650
2,000 Yorba Linda Redevelopment Agency, Ser 1993 A (MBIA)......... 5.25 09/01/23 1,960,740
------- ----------
14,000 14,276,110
------- ----------
Transportation Facilities Revenue (9.1%)
San Francisco Airports Commission, San Francisco Int'l
Airport
1,000 Second Ser Refg Issue 4 (MBIA)............................. 6.00 05/01/20 1,045,000
1,700 Second Ser Refg Issue 2 (MBIA)............................. 6.75 05/01/20 1,822,842
3,000 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1998 (Ambac)............................................... 4.75 07/01/23 2,692,380
------- ----------
5,700 5,560,222
------- ----------
Water & Sewer Revenue (12.4%)
2,000 East Bay Municipal Utility District, Water Ser 1998
(MBIA)..................................................... 4.75 06/01/34 1,745,740
1,000 Eastern Municipal Water District, Water & Sewer Refg Ser
1998 A COPs (FGIC)......................................... 4.75 07/01/23 896,270
2,900 Garden Grove Public Finance Authority, Water Ser 1993
(FGIC)..................................................... 5.50 12/15/23 2,911,339
2,000 Los Angeles, Wastewater Refg Ser 1993 A (MBIA).............. 5.70 06/01/20 2,033,040
------- ----------
7,900 7,586,389
------- ----------
Other Revenue (6.8%)
2,000 Sacramento Financing Authority, 1999 Solid Waste & Redev
(Ambac).................................................... 5.75 12/01/22 2,066,140
2,000 South Orange County Public Financing District #88-1, 1994
Ser A (MBIA)............................................... 6.00 09/01/18 2,096,060
------- ----------
4,000 4,162,200
------- ----------
Refunded (1.6%)
1,000 Puerto Rico Infrastructure Financing Authority, 2000 Ser A
(ETM)...................................................... 5.50 10/01/32 1,001,090
------- ----------
59,555 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Cost $55,502,638).................. 59,581,020
------- ----------
CALIFORNIA SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (1.3%)
800 California Health Facilities Financing Authority, Adventist
------- Health/West 1998 Ser B (MBIA) (Demand 11/01/00) (Cost
$800,000).................................................. 4.50* 09/01/28 800,000
----------
$60,355 TOTAL INVESTMENTS (Cost $56,302,638) (a).............................. 98.4% 60,381,020
=======
OTHER ASSETS IN EXCESS OF LIABILITIES................................. 1.6 979,001
----- ----------
NET ASSETS............................................................ 100.0% $61,360,021
===== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 2000, continued
---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $4,215,443 and
the aggregate gross unrealized depreciation is $137,061,
resulting in net unrealized appreciation of $4,078,382.
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, 2000
ASSETS:
Investments in securities, at value
(cost $56,302,638)....................... $60,381,020
Cash...................................... 41,780
Interest receivable....................... 1,011,229
Prepaid expenses.......................... 3,153
-----------
TOTAL ASSETS........................... 61,437,182
-----------
LIABILITIES:
Payable for:
Investment management fee.............. 18,775
Shares of beneficial interest
repurchased........................... 9,296
Accrued expenses.......................... 49,090
-----------
TOTAL LIABILITIES...................... 77,161
-----------
NET ASSETS............................. $61,360,021
===========
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, 4,025,613 shares outstanding)..... $57,071,229
Net unrealized appreciation............... 4,078,382
Accumulated undistributed net investment
income................................... 323,535
Accumulated net realized loss............. (113,125)
-----------
TOTAL NET ASSETS...................... $61,360,021
===========
NET ASSET VALUE PER COMMON SHARE
($61,360,021 divided by 4,025,613 common
shares outstanding)...................... $15.24
===========
STATEMENT OF OPERATIONS
For the year ended October 31, 2000
NET INVESTMENT INCOME:
INTEREST INCOME........................... $ 3,449,213
-----------
EXPENSES:
Investment management fee................. 210,626
Professional fees......................... 53,868
Transfer agent fees and expenses.......... 20,338
Registration fees......................... 16,168
Shareholder reports and notices........... 16,098
Trustees' fees and expenses............... 12,444
Custodian fees............................ 5,580
Other..................................... 3,628
-----------
TOTAL EXPENSES......................... 338,750
Less: expense offset...................... (5,575)
-----------
NET EXPENSES........................... 333,175
-----------
NET INVESTMENT INCOME.................. 3,116,038
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain......................... 311,387
Net change in unrealized appreciation..... 2,798,692
-----------
NET GAIN............................... 3,110,079
-----------
NET INCREASE.............................. $ 6,226,117
===========
</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, 2000 OCTOBER 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $3,116,038 $3,110,561
Net realized gain (loss)............................. 311,387 (424,512)
Net change in unrealized appreciation................ 2,798,692 (5,582,392)
----------- -----------
NET INCREASE (DECREASE).......................... 6,226,117 (2,896,343)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income................................ (3,058,655) (3,147,617)
Net realized gain.................................... -- (657,304)
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (3,058,655) (3,804,921)
----------- -----------
Decrease from transactions in common shares of
beneficial interest................................. (1,581,400) (702,943)
----------- -----------
NET INCREASE (DECREASE).......................... 1,586,062 (7,404,207)
NET ASSETS:
Beginning of period.................................. 59,773,959 67,178,166
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$323,535 and $266,152, respectively)............. $61,360,021 $59,773,959
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000
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 the 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
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000, 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 tax purposes are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), the Trust pays 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.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 2000 aggregated
$8,230,772 and $9,749,539, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent.
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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000, continued
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, 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
Treasury shares purchased and retired (weighted average
discount 9.44%)*........................................... (119,600) (1,196) (1,580,204)
--------- ------- -----------
Balance, October 31, 2000................................... 4,025,613 $40,256 $57,030,973
========= ======= ===========
</TABLE>
---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 2000, the Trust utilized approximately
$312,000 of its net capital loss carryover. At October 31, 2000, the Trust had a
net capital loss carryover of approximately $113,000 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 26, 2000, 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 3, 2000 November 17, 2000
$0.0625 December 8, 2000 December 22, 2000
</TABLE>
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000, continued
8. EXPENSE OFFSET
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Trust.
9. RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Trust may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
At October 31, 2000, the Trust did not hold positions in residual interest
bonds.
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 YEAR ENDED OCTOBER 31*
----------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 14.42 $ 16.00 $15.50 $ 15.02 $14.84
------- ------- ------ ------- ------
Income (loss) from investment operations:
Net investment income...................................... 0.76 0.74 0.76 0.78 0.78
Net realized and unrealized gain (loss).................... 0.77 (1.43) 0.52 0.50 0.12
------- ------- ------ ------- ------
Total income (loss) from investment operations.............. 1.53 (0.69) 1.28 1.28 0.90
------- ------- ------ ------- ------
Less dividends and distributions from:
Net investment income...................................... (0.75) (0.75) (0.78) (0.81) (0.75)
Net realized gain.......................................... -- (0.16) -- -- (0.01)
------- ------- ------ ------- ------
Total dividends and distributions........................... (0.75) (0.91) (0.78) (0.81) (0.76)
------- ------- ------ ------- ------
Anti-dilutive effect of acquiring treasury shares........... 0.04 0.02 -- 0.01 0.04
------- ------- ------ ------- ------
Net asset value, end of period.............................. $ 15.24 $ 14.42 $16.00 $ 15.50 $15.02
======= ======= ====== ======= ======
Market value, end of period................................. $13.375 $12.938 $15.25 $14.375 $13.50
======= ======= ====== ======= ======
TOTAL RETURN+............................................... 9.34% (9.83)% 11.71% 12.64% 14.33%
RATIOS TO AVERAGE NET ASSETS:
Total expenses.............................................. 0.56%(1) 0.58%(1) 0.58%(1) 0.56%(1) 0.58%(1)
Net investment income....................................... 5.18% 4.80% 4.84% 5.14% 5.22%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $61,360 $59,774 $67,178 $65,111 $63,753
Portfolio turnover rate..................................... 14% 9% 12% -- --
</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
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Insured California Municipal Securities (the "Trust"),
including the portfolio of investments, as of October 31, 2000, and the related
statements of operations and changes in net assets, and the financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended October 31,
1999 and the financial highlights for each of the respective stated periods
ended October 31, 1999 were audited by other independent accountants whose
report, dated December 8, 1999, expressed an unqualified opinion on that
statement and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Dean Witter Insured California Municipal Securities as of October 31,
2000, the results of its operations, the changes in its net assets, and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
December 8, 2000
--------------------------------------------------------------------
2000 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 2000, all of the Trust's
dividends from net investment income paid to its shareholders
were exempt interest dividends, excludable from gross income
for Federal income tax purposes.
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Trust.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Trust for the past two fiscal years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Trust, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent auditors as of July 1,
2000.
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER INSURED CALIFORNIA MUNICIPAL SECURITIES
REVISED INVESTMENT POLICY
On January 26, 2000, the Trustees of Morgan Stanley Dean Witter Insured
California Municipal Securities (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.
19
<PAGE> 20
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
Insured
California
Municipal
Securities
Annual Report
October 31, 2000
