<PAGE>
Morgan Stanley Dean Witter
Insured 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, has 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 in 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>
Morgan Stanley Dean Witter Insured Municipal Securities
Letter to the Shareholders October 31, 1999, continued
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
30-YEAR BOND YIELDS 1994-1999
AAA AAA
Date Ins Tsy % Relationship Date Ins Tsy % Relationship
12/31/93 5.40% 6.34% 85.17% 11/29/96 5.50 6.35 86.61%
01/31/94 5.40 6.24 86.54% 12/31/96 5.60 6.63 84.46%
02/28/94 5.80 6.66 87.09% 01/31/97 5.70 6.79 83.95%
03/31/94 6.40 7.09 90.27% 02/28/97 5.65 6.80 83.09%
04/29/94 6.35 7.32 86.75% 03/31/97 5.90 7.10 83.10%
05/31/94 6.25 7.43 84.12% 04/30/97 5.75 6.94 82.85%
06/30/94 6.50 7.61 85.41% 05/30/97 5.65 6.91 81.77%
07/29/94 6.25 7.39 84.57% 06/30/97 5.60 6.78 82.60%
08/31/94 6.30 7.45 84.56% 07/30/97 5.30 6.30 84.13%
09/30/94 6.55 7.81 83.87% 08/31/97 5.50 6.61 83.21%
10/31/94 6.75 7.96 84.80% 09/30/97 5.40 6.40 84.38%
11/30/94 7.00 8.00 87.50% 10/31/97 5.35 6.15 86.99%
12/30/94 6.75 7.88 85.66% 11/30/97 5.30 6.05 87.60%
01/31/95 6.40 7.70 83.12% 12/31/97 5.15 5.92 86.99%
02/28/95 6.15 7.44 82.66% 01/31/98 5.15 5.80 88.79%
03/31/95 6.15 7.43 82.77% 02/28/98 5.20 5.92 87.84%
04/28/95 6.20 7.34 84.47% 03/31/98 5.25 5.93 88.53%
05/31/95 5.80 6.66 87.09% 04/30/98 5.35 5.95 89.92%
06/30/95 6.10 6.62 92.15% 05/29/98 5.20 5.80 89.66%
07/31/95 6.10 6.86 88.92% 06/30/98 5.20 5.65 92.04%
08/31/95 6.00 6.66 90.09% 07/31/98 5.18 5.71 90.72%
09/29/95 5.95 6.48 91.82% 08/31/98 5.03 5.27 95.45%
10/31/95 5.75 6.33 90.84% 09/30/98 4.95 5.00 99.00%
11/30/95 5.50 6.14 89.58% 10/31/98 5.05 5.16 97.87%
12/29/95 5.35 5.94 90.07% 11/30/98 5.00 5.06 98.81%
01/31/96 5.40 6.03 89.55% 12/31/98 5.05 5.10 99.02%
02/29/96 5.60 6.46 86.69% 01/31/99 5.00 5.09 98.23%
03/29/96 5.85 6.66 87.84% 02/28/99 5.10 5.58 91.40%
04/30/96 5.95 6.89 86.36% 03/31/99 5.15 5.63 91.47%
05/31/96 6.05 6.99 86.55% 04/30/99 5.20 5.66 91.87%
06/28/96 5.90 6.89 85.63% 05/31/99 5.30 5.83 90.91%
07/31/96 5.85 6.97 83.93% 06/30/99 5.47 5.96 91.78%
08/30/96 5.90 7.11 82.98% 07/31/99 5.55 6.10 90.98%
09/30/96 5.70 6.93 82.25% 08/31/99 5.75 6.06 94.88%
10/31/96 5.65 6.64 85.09% 09/30/99 5.85 6.05 96.69%
10/31/99 6.03 6.16 97.89%
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 Municipal Securities (IMS) declined from $16.09 to $14.60
per share for the fiscal year ended October 31, 1999. Based on this change plus
reinvestment of tax-free dividends totaling $0.78 per share and a long-term
capital gain distribution of $0.19 per share paid on December 18, 1998, the
Trust's total NAV return was -3.10 percent. IMS's value on the New York Stock
Exchange (NYSE) fell from $15.125 to $12.625 per share during the same period.
Based on this change plus reinvestment of distributions, IMS's total market
return was -10.80 percent. On October 31, 1999 IMS's NYSE market price
represented a 13.5 percent discount to its NAV.
Monthly dividends for the fourth quarter of 1999, declared in September, were
unchanged at $0.065 per share. The dividend rate reflects the Trust's estimated
earnings over the next 6 - 12 months and its $0.078 per share cushion of
undistributed net investment income on October 31, 1999.
2
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Letter to the Shareholders October 31, 1999, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 11 long-term sectors and 38
credits. At the end of October, the portfolio's average maturity was 19 years.
Average duration, a measure of sensitivity to interest rate changes, was 8
years. Issues in the refunded bond category comprised 13 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 portfolios
credit enhancements, sector distribution and geographic diversification.
Optional call provisions by year with their respective cost (book) yields are
also charted.
LOOKING AHEAD
The Federal Reserve Board raised interest rates in the summer and again in
November 1999. 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 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 twelve-month period ended October 31,
1999, the Trust purchased and retired 181,300 shares of common stock at a
weighted average market discount of 10.43 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Insured
Municipal Securities and look forward to continuing to serve your investment
needs.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Letter to the Shareholders October 31, 1999, continued
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
<TABLE>
<CAPTION>
[BAR GRAPH] [PIE CHART]
LARGEST SECTORS AS OF OCTOBER 31, 1999 CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1999
(% OF NET ASSETS) (% OF TOTAL LONG-TERM PORTFOLIO)
<S> <C> <C> <C>
ELECTRIC 22% MBIA 46%
TRANSPORTATION 14% AMBAC 30%
REFUNDED 13% FGIC 19%
HOSPITAL 12% CONNIE LEE 3%
GENERAL OBLIGATION 11% FSA 2%
WATER & SEWER 9%
EDUCATION 5%
IDR/PCR* 5%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
</TABLE>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1999
Alabama ........... 2.4% Kansas ............ 2.8% Rhode Island ...... 1.5%
Alaska ............ 3.3 Massachusetts ..... 2.2 South Carolina .... 4.2
California ........ 17.7 Michigan .......... 1.6 Utah .............. 2.9
District of Missouri .......... 0.1 Virginia .......... 3.6
Columbia ........ 1.4 Nevada ............ 6.4 Washington ........ 2.4
Florida ........... 7.3 New Hampshire ..... 2.3 Wisconsin ......... 1.7
Georgia ........... 4.7 New Jersey ........ 1.3 Wyoming ........... 0.8
Hawaii ............ 6.2 New York .......... 2.1 ----
Illinois .......... 12.9 Ohio .............. 2.1 Total ............. 98.1%
Indiana ........... 4.2 ====
Portfolio structure is subject to change.
4
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Letter to the Shareholders October 31, 1999, continued
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
CALL AND COST (BOOK) YIELD STRUCTURE
OCTOBER 31, 1999
PERCENT CALLABLE*
1999 0%
2000 0%
2001 0%
2002 5%
2003 17%
2004 59%
2005 0%
2006 0%
2007 0%
2008 3%
2009 11%
2010+ 5%
WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS
COST (BOOK) YIELD**
1999 0.0%
2000 0.0%
2001 0.0%
2002 6.2%
2003 6.2%
2004 6.3%
2005 0.0%
2006 0.0%
2007 0.0%
2008 5.7%
2009 5.5%
2010+ 5.9%
WEIGHTED AVERAGE BOOK YIELD: 6.1%
* % BASED ON LONG-TERM PORTFOLIO.
** COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE TRUST OPERATING EXPENSES. FOR
EXAMPLE, THE TRUST EARNED A BOOK YIELD OF 6.2% ON 17% OF THE LONG-TERM
PORTFOLIO THAT IS CALLABLE IN 2003.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE>
Morgan Stanley Dean Witter Insured 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:
Michael Bozic
For ............................................................ 7,390,768
Withheld ....................................................... 112,196
Charles A. Fiumefreddo
For ............................................................ 7,379,126
Withheld ....................................................... 123,838
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:
For ............................................................ 7,378,385
Against ........................................................ 39,224
Abstain ........................................................ 85,355
6
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Portfolio of Investments October 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.2%)
General Obligation (11.0%)
$ 4,000 California, Refg Dtd 10/01/98 (MBIA) ........................................ 4.50 % 10/01/28 $ 3,139,680
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC) .................................. 5.125 01/01/22 2,663,400
8,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A (MBIA) ........ 5.75 06/01/13 8,056,160
--------- ------------
15,000 13,859,240
--------- ------------
Educational Facilities Revenue (5.1%)
2,000 District of Columbia, National Academy of Sciences Ser 1999 A (AMBAC)........ 5.00 01/01/19 1,774,100
2,000 New York State Dormitory Authority, Fordham University Ser 1994 (FGIC)....... 5.50 07/01/23 1,871,880
1,000 Ohio University, General Receipts Ser 1999 (FSA) ............................ 5.25 12/01/19 913,060
2,000 Rhode Island Health & Educational Building Corporation, Providence
--------- College Ser 1993 (MBIA) ..................................................... 5.60 11/01/22 1,877,200
------------
7,000 6,436,240
--------- ------------
Electric Revenue (21.9%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA) ..................................... 6.20 12/01/13 4,164,120
4,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA) ... 6.00 01/01/24 4,011,840
3,000 Municipal Electric Authority of Georgia, Power Ser EE (AMBAC) ............... 6.00 01/01/22 2,974,290
3,400 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC) .................... 6.375 09/01/23 3,481,226
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA) ....... 5.375 01/01/25 1,841,440
4,000 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC) ......................... 5.25 07/01/18 3,646,600
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC) ................................... 5.25 06/01/25 4,488,400
3,000 Tacoma, Washington, Refg 1994 (FGIC) ........................................ 6.25 01/01/15 3,070,470
--------- ------------
28,400 27,678,386
--------- ------------
Hospital Revenue (12.4%)
3,000 Morgan County - Decatur Health Care Authority, Alabama, Decatur
General Hospital Ser 1994 (Connie Lee) ...................................... 6.375 03/01/24 3,051,510
4,000 California Statewide Communities Development Authority, Sharp Health
Care COPs (MBIA) ............................................................ 6.00 08/15/24 4,004,000
3,000 Volusia County Health Facilities Authority, Florida, Memorial Health
Refg & Impr Ser 1994 (AMBAC) ................................................ 5.75 11/15/20 2,914,410
3,000 Massachusetts Health & Educational Facilities Authority, Lahey Clinic
Medical Center Ser B (MBIA) ................................................. 5.375 07/01/23 2,718,720
3,000 New Hampshire Higher Educational & Health Facilities Authority,
--------- Hitchcock Clinic Ser 1994 (MBIA) ............................................ 6.00 07/01/24 2,965,440
------------
16,000 15,654,080
--------- ------------
Industrial Development/Pollution Control Revenue (4.6%)
5,550 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc
========= Ser 1992 (AMT) (MBIA) ....................................................... 6.55 12/01/22 5,767,893
------------
Mortgage Revenue - Multi-Family (2.4%)
3,000 Los Angeles Community Redevelopment Agency, California,
--------- Refg Ser 1994 A (AMBAC) ..................................................... 6.55 01/01/27 3,081,030
------------
Public Facilities Revenue (1.6%)
2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC) ........................ 6.00 12/01/13 2,059,120
--------- ------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Portfolio of Investments October 31, 1999 , continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation Facilities Revenue (13.5%)
$ 3,995 San Francisco Airports Commission, California, San Francisco Int'l Airport
Second Ser Refg (MBIA) ....................................................... 6.75% 05/01/20 $ 4,271,134
3,000 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC) ........................... 6.00 01/01/21 2,964,300
2,000 Hawaii, Airports Third Refg Ser of 1994 (AMT) (AMBAC) ........................ 5.75 07/01/09 2,029,660
Chicago Midway Airport, Illinois,
3,000 1994 Ser A (AMT) (MBIA) ...................................................... 6.25 01/01/14 3,098,730
3,000 1994 Ser A (AMT) (MBIA) ...................................................... 6.25 01/01/24 3,002,700
2,000 New Jersey Transportation Trust Fund Authority, 1998 Ser A (FSA) ............. 4.50 06/15/19 1,652,540
-------- ------------
16,995 17,019,064
-------- ------------
Water & Sewer Revenue (9.0%)
4,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA) ................... 5.70 06/01/20 3,907,920
4,000 Lee County, Florida, Water & Sewer 1999 Ser A (AMBAC) ........................ 4.75 10/01/23 3,351,280
1,000 New York City Municipal Water Finance Authority, New York, 1999 Ser A
(FGIC) ....................................................................... 4.75 06/15/31 804,980
2,000 Toledo, Ohio, Waterworks Impr & Refg Ser 1999 (FGIC) ......................... 4.75 11/15/17 1,724,680
2,000 Charleston, South Carolina, Refg Cap Impr Ser 1998 (Secondary FGIC) .......... 4.50 01/01/24 1,581,020
-------- ------------
13,000 11,369,880
-------- ------------
Other Revenue (2.3%)
3,000 Florida Department of Environmental Protection, Preservation 2000
-------- Ser 1999 A (FGIC) ............................................................ 5.25 07/01/13 2,914,320
Refunded (13.4%) ------------
2,000 Chicago State University, Illinois, Ser 1994 (MBIA) .......................... 6.15 12/01/04+ 2,165,180
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC) .............. 6.25 06/01/04+ 5,405,750
5,000 Indianapolis, Indiana, Gas Utility Refg Ser 1994 A (AMBAC) ................... 5.875 06/01/04+ 5,329,100
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA)
(ETM) ........................................................................ 5.375 01/01/25 1,868,000
2,000 Wisconsin Health & Educational Facilities Authority, Marquette University
-------- Ser 1994 (FGIC) .............................................................. 6.45 12/01/04+ 2,177,200
16,000 ------------
-------- 16,945,230
125,945 TOTAL TAX-EXEMPT MUNICIPAL BONDS ------------
-------- (Identified Cost $120,521,489).......................................................................... 122,784,483
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (0.9%) ------------
100 Missouri Health & Educational Facilities Authority, Washington University
Ser C (Demand 11/01/99) ...................................................... 3.55* 09/01/30 100,000
1,000 Lincoln County, Wyoming, Exxon Co Ser 1985 (Demand 11/01/99) ................. 3.50* 08/01/15 1,000,000
-------- ------------
1,100 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost $1,100,000) 1,100,000
-------- ------------
$127,045 TOTAL INVESTMENTS (Identified Cost $121,621,489) (a) ...................................... 98.1% 123,884,483
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................................ 1.9 2,396,503
----- ------------
NET ASSETS ................................................................................ 100.0% $126,280,986
===== ============
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Portfolio of Investments October 31, 1999 , continued
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$3,854,942 and the aggregate gross unrealized depreciation is
$1,591,948, resulting in net unrealized appreciation of
$2,262,994.
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.
See Notes to Financial Statements
9
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $121,621,489)......................................... $123,884,483
Cash .................................................................... 40,759
Interest receivable ..................................................... 2,568,942
Prepaid expenses ........................................................ 3,824
------------
TOTAL ASSETS ......................................................... 126,498,008
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ............................ 97,990
Investment management fee ............................................ 45,361
Accrued expenses ........................................................ 73,671
------------
TOTAL LIABILITIES .................................................... 217,022
------------
NET ASSETS ........................................................... $126,280,986
============
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, 8,650,213 shares outstanding) ......................... $123,478,437
Net unrealized appreciation ............................................. 2,262,994
Accumulated undistributed net investment income ......................... 670,422
Accumulated net realized loss ........................................... (130,867)
------------
TOTAL NET ASSETS ..................................................... $126,280,986
NET ASSET VALUE PER COMMON SHARE
($126,280,986 divided by 8,650,213 common shares outstanding).......... $ 14.60
============
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Financial Statements, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $ 7,537,810
-------------
EXPENSES
Investment management fee ..................... 477,700
Professional fees ............................. 62,507
Transfer agent fees and expenses .............. 38,165
Shareholder reports and notices ............... 26,693
Trustees' fees and expenses ................... 22,444
Registration fees ............................. 16,452
Custodian fees ................................ 7,654
Organizational expenses ....................... 2,891
Other ......................................... 9,777
-------------
TOTAL EXPENSES ............................. 664,283
Less: expense offset .......................... (7,653)
-------------
NET EXPENSES ............................... 656,630
-------------
NET INVESTMENT INCOME ...................... 6,881,180
-------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ............................. (130,867)
Net change in unrealized appreciation ......... (11,659,790)
-------------
NET LOSS ................................... (11,790,657)
-------------
NET DECREASE .................................. $ (4,909,477)
=============
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
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 .............................. $ 6,881,180 $ 7,081,783
Net realized gain (loss) ........................... (130,867) 1,800,280
Net change in unrealized appreciation .............. (11,659,790) 3,097,313
------------- ------------
NET INCREASE (DECREASE) ......................... (4,909,477) 11,979,376
------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income .............................. (6,859,999) (7,175,503)
Net realized gain .................................. (1,642,606) -
------------- ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ............... (8,502,605) (7,175,503)
------------- ------------
Decrease from transactions in common shares of
beneficial interest .............................. (2,439,781) (1,611,680)
------------- ------------
NET INCREASE (DECREASE) ......................... (15,851,863) 3,192,193
NET ASSETS:
Beginning of period ................................ 142,132,849 138,940,656
------------- ------------
END OF PERIOD
(Including undistributed net investment income of
$670,422 and $649,241, respectively)............. $ 126,280,986 $142,132,849
============= ============
</TABLE>
See Notes to Financial Statements
12
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Notes to Financial Statements October 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Insured 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 federal income tax.
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 by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS - It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Trust records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations
13
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Notes to Financial Statements October 31, 1999, continued
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
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 $44,000 which have been reimbursed for the full amount
thereof. Such expenses were deferred and 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
$22,466,410 and $23,130,387, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At October 31, 1999, the Trust had transfer agent
fees and expenses payable of approximately $1,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of
14
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Notes to Financial Statements October 31, 1999, continued
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs for
the year ended October 31, 1999 included in Trustees' fees and expenses in the
Statement of Operations amounted to $9,892. At October 31, 1999, the Trust had
an accrued pension liability of $22,323 which is included in accrued expenses in
the Statement of Assets and Liabilities.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The 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.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at liquidation
value.
The preferred shares, 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 ................................................ 8,940,013 $ 89,400 $127,440,498
Treasury shares purchased and retired (weighted average discount 6.25%)* . (108,500) (1,085) (1,610,595)
--------- -------- ------------
Balance, October 31, 1998 ................................................ 8,831,513 88,315 125,829,903
Treasury shares purchased and retired (weighted average discount 10.43%)* (181,300) (1,813) (2,437,968)
--------- -------- ------------
Balance, October 31, 1999 ................................................ 8,650,213 $ 86,502 $123,391,935
========= ======== ============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
15
<PAGE>
Morgan Stanley Dean Witter Insured 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
$131,000 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>
$ 0.065 November 5, 1999 November 19, 1999
$ 0.065 December 3, 1999 December 17, 1999
</TABLE>
16
<PAGE>
Morgan Stanley Dean Witter Insured 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 ..................... $ 16.09 $ 15.54 $ 15.08 $ 14.91 $ 13.20
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ................................... 0.78 0.80 0.80 0.80 0.79
Net realized and unrealized gain (loss) ................. (1.33) 0.55 0.43 0.11 1.58
------- ------- ------- ------- -------
Total income (loss) from investment operations ........... (0.55) 1.35 1.23 0.91 2.37
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income ................................... (0.78) (0.81) (0.81) (0.81) (0.75)
Net realized gain ....................................... (0.19) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions ........................ (0.97) (0.81) (0.81) (0.81) (0.75)
------- ------- ------- ------- -------
Anti-dilutive effect of acquiring treasury shares ........ 0.03 0.01 0.04 0.07 0.09
------- ------- ------- ------- -------
Net asset value, end of period ........................... $ 14.60 $ 16.09 $ 15.54 $ 15.08 $ 14.91
======= ======= ======= ======= =======
Market value, end of period .............................. $12.625 $15.125 $14.375 $13.125 $12.625
======= ======= ======= ======= =======
TOTAL RETURN+ ............................................ (10.80)% 11.08% 16.12% 10.52% 20.61%
RATIOS TO AVERAGE NET ASSETS:
Total expenses ........................................... 0.49%(1) 0.47% 0.47% 0.49%(1) 0.54%(1)
Net investment income .................................... 5.04% 5.02% 5.27% 5.32% 5.51%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .................. $126,281 $142,133 $138,941 $138,241 $141,738
Portfolio turnover rate .................................. 17% 7% -- 1% --
</TABLE>
- -------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total return is based upon the current market value on the last day of each
period reported. Dividends 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>
Morgan Stanley Dean Witter Insured Municipal Securities
Report of Independent Accountants
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INSURED 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
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 $0.78 per
share from tax-exempt income.
For the year ended October 31, 1999, the Trust paid to shareholders $0.19 per
share from long-term capital gains.
- --------------------------------------------------------------------------------
18
<PAGE>
TRUSTEES
- -------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- -------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- -------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
INSURED
MUNICIPAL
SECURITIES
ANNUAL REPORT
OCTOBER 31, 1999
