<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL Two World Trade Center,
SECURITIES New York, New York 10048
LETTER TO THE SHAREHOLDERS April 30, 1999
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Insured Municipal Securities (IMS) for the period ended
April 30, 1999.
The financial markets have begun to recover from last year's global economic
difficulties. The turmoil which included the Asian crisis, the Russian debt
default and the rescue of a major U.S. hedge fund has given way to more normal
financial conditions. The major catalyst for this return to stability was the
liquidity provided by the Federal Reserve Board's 75 basis point reduction in
the federal-funds rate during the fourth quarter of 1998.
International economic problems precipitated a "flight to quality" rally in
fixed income securities and U.S. Treasury yields reached 30-year lows in
October 1998. As the world markets recovered, foreign investors repatriated
funds and Treasury yields began to rise. Interest rates also rose in response
to the surprisingly robust domestic economic growth reported over the second
half of 1998. The bond market became concerned that the central bank might
become more restrictive by taking back some of the liquidity provided during
the crisis.
MUNICIPAL MARKET CONDITIONS
During 1998, municipal yields were less volatile than Treasury yields. This
pattern of stability continued into 1999. Long-term insured index yields stood
at 5.25 percent at the end of April, only 20 basis points higher than their
October 1998 levels. In contrast, Treasury bond yields rose 50 basis points
from 5.15 to 5.65 percent. During the past six months, the yield pick up for
extending tax-exempt maturities from one to 30 years averaged 225 basis points.
The modest rally of municipals during 1998 created a favorable relative value
relationship to Treasuries. Municipals underperformed Treasuries and the ratio
of municipal yields to Treasury yields climbed to 99 percent by December. The
higher the ratio, the more attractive municipals are relative to Treasuries.
Municipals have outperformed Treasuries this year and the ratio declined to
92 percent by April. The high-to-low annual range of municipal/Treasury yields
for the past five years has averaged 93 to 84 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
In addition to lagging 1998's Treasury rally, municipals also experienced a
glut of new-issue supply. Underwriting volume of $284 billion was up 28 percent
from the prior year and approached 1993's record. Issuers actively refinanced
at lower interest rates and refundings were 29 percent of the total volume.
This year's rise in interest rates has reduced the amount of refunding
activity. Refunding volume was down 42 percent in the first four months of 1999
while total underwriting declined 22 percent.
PERFORMANCE
The Trust's net asset value (NAV) declined from $16.09 per share to $15.74 per
share for the six-month period. Based on this change plus reinvestment of
tax-free dividends totaling $0.39 per share and a long-term capital gains
distribution of $0.185 per share paid on December 18, 1998, the Trust's total
NAV return was 1.57 percent. IMS's value on the New York Stock Exchange
declined from $15.125 per share to $14.75 per share during the same period.
Based on this change plus reinvestment of tax-free dividends and a long-term
capital gains distribution, IMS's total market return was 1.25 percent. As of
April 30, 1999, IMS's share price was a 6.29 percent discount to its NAV.
Monthly dividends for the second quarter of 1999 remained at $0.065 per share.
The Trust's level of undistributed net investment income was $0.078 per share
on April 30, 1999.
30-YEAR BOND YIELDS 1994 - 1999
DATE AAA INS TSY % RELATIONSHIP
12/31/93 5.40% 6.34% 85.17%
01/31/94 5.40 6.24 86.54%
02/28/94 5.80 6.66 87.09%
03/31/94 6.40 7.09 90.27%
04/29/94 6.35 7.32 86.75%
05/31/94 6.25 7.43 84.12%
06/30/94 6.50 7.61 85.41%
07/29/94 6.25 7.39 84.57%
08/31/94 6.30 7.45 84.56%
09/30/94 6.55 7.81 83.87%
10/31/94 6.75 7.96 84.80%
11/30/94 7.00 8.00 87.50%
12/30/94 6.75 7.88 85.66%
01/31/95 6.40 7.70 83.12%
02/28/95 6.15 7.44 82.66%
03/31/95 6.15 7.43 82.77%
04/28/95 6.20 7.34 84.47%
05/31/95 5.80 6.66 87.09%
06/30/95 6.10 6.62 92.15%
07/31/95 6.10 6.86 88.92%
08/31/95 6.00 6.66 90.09%
09/29/95 5.95 6.48 91.82%
10/31/95 5.75 6.33 90.84%
11/30/95 5.50 6.14 89.58%
12/29/95 5.35 5.94 90.07%
01/31/96 5.40 6.03 89.55%
02/29/96 5.60 6.46 86.69%
03/29/96 5.85 6.66 87.84%
04/30/96 5.95 6.89 86.36%
05/31/96 6.05 6.99 86.55%
06/28/96 5.90 6.89 85.63%
07/31/96 5.85 6.97 83.93%
08/30/96 5.90 7.11 82.98%
09/30/96 5.70 6.93 82.25%
10/31/96 5.65 6.64 85.09%
11/29/96 5.50 6.35 86.61%
12/31/96 5.60 6.63 84.46%
01/31/97 5.70 6.79 83.95%
02/28/97 5.65 6.80 83.09%
03/31/97 5.90 7.10 83.10%
04/30/97 5.75 6.94 82.85%
05/30/97 5.65 6.91 81.77%
06/30/97 5.60 6.78 82.60%
07/30/97 5.30 6.30 84.13%
08/31/97 5.50 6.61 83.21%
09/30/97 5.40 6.40 84.38%
10/31/97 5.35 6.15 86.99%
11/30/97 5.30 6.05 87.60%
12/31/97 5.15 5.92 86.99%
01/31/98 5.15 5.80 88.79%
02/28/98 5.20 5.92 87.84%
03/31/98 5.25 5.93 88.53%
04/30/98 5.35 5.95 89.92%
05/29/98 5.20 5.80 89.66%
06/30/98 5.20 5.65 92.04%
07/31/98 5.18 5.71 90.72%
08/31/98 5.03 5.27 95.45%
09/30/98 4.95 5.00 99.00%
10/31/98 5.05 5.16 97.87%
11/30/98 5.00 5.06 98.81%
12/31/98 5.05 5.10 99.02%
01/31/99 5.00 5.09 98.23%
02/28/99 5.10 5.58 91.40%
03/31/99 5.15 5.63 91.47%
04/30/99 5.20 5.66 91.87%
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
2
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
LARGEST SECTORS AS OF APRIL 30, 1999
(% OF NET ASSETS)
Electric 22%
Transportation 19%
Hospital 13%
Water & Sewer 11%
General Obligation 10%
Refunded 9%
Education 5%
Portfolio structure is subject to change.
CREDIT ENHANCEMENTS AS OF APRIL 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
MBIA 46%
AMBAC 30%
FGIC 19%
FSA 3%
CONNIE LEE 2%
Portfolio structure is subject to change.
CALL STRUCTURE AS OF APRIL 30, 1999 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 7 YEARS
PERCENT CALLABLE
Years Bonds Callable
1999 0%
2000 0%
2001 0%
2002 5%
2003 17%
2004 57%
2005 0%
2006 0%
2007 0%
2008 3%
2009 12%
2010+ 6%
Portfolio structure is subject to change.
3
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 10 long-term sectors and 41
credits. At the end of April, the portfolio's average maturity was 20 years.
Portfolio duration, a measure of sensitivity to interest-rate changes, was 6.2
years. Issues in the refunded bond category comprised 9 percent of net assets.
These bonds have been refinanced and will be redeemed on the dates shown in the
portfolio. The accompanying charts provide current information on the
portfolio's call structure, largest sectors and mix of credit enhancements.
LOOKING AHEAD
The combination of a flight to quality and the flood of new municipal issues
made the municipal-to- Treasury yield relationship more favorable late last
year than it had been in the previous 10 years. Although municipals have thus
far outperformed Treasuries in 1999, we believe that municipals still offer
investors considerable value versus their historical 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 this six-month period, the Trust
purchased and retired 21,500 shares of common stock at a weighted average
market discount of 4.94 percent.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley
Dean Witter Funds. Mr. Merin is also the President and Chief Operating Officer
of Asset Management of Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Trust's Investment Manager. He also serves as Chairman, Chief Executive Officer
and Director of Morgan Stanley Dean Witter Distributors Inc. and Morgan Stanley
Dean Witter Trust FSB.
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
4
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.1%)
General Obligation (9.7%)
$ 2,000 California, Refg Dtd 10/01/98 (MBIA) .......................................... 4.50% 10/01/28 $ 1,809,660
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC) .................................... 5.125 01/01/22 3,034,020
8,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A (MBIA) .......... 5.75 06/01/13 8,562,480
-------- ------------
13,000 13,406,160
-------- ------------
Educational Facilities Revenue (5.1%)
2,000 District of Columbia, National Academy of Sciences Ser 1999 A (AMBAC) ......... 5.00 01/01/19 1,941,360
2,000 New York State Dormitory Authority, Fordham University Ser 1994 (FGIC) ........ 5.50 07/01/23 2,066,780
1,000 Ohio University, General Receipts Ser 1999 (FSA) .............................. 5.25 12/01/19 1,016,200
2,000 Rhode Island Health & Educational Building Corporation, Providence
College Ser 1993 (MBIA) ....................................................... 5.60 11/01/22 2,061,440
-------- ------------
7,000 7,085,780
-------- ------------
Electric Revenue (21.7%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA) ....................................... 6.20 12/01/13 4,368,000
4,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA) ..... 6.00 01/01/24 4,323,680
3,000 Municipal Electric Authority of Georgia, Power Ser EE (AMBAC) ................. 6.00 01/01/22 3,236,130
3,400 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC) ...................... 6.375 09/01/23 3,794,060
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA) ......... 5.375 01/01/25 2,083,940
4,000 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC) ........................... 5.25 07/01/18 4,029,000
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC) ..................................... 5.25 06/01/25 5,043,900
3,000 Tacoma, Washington, Refg 1994 (FGIC) .......................................... 6.25 01/01/15 3,292,740
-------- ------------
28,400 30,171,450
-------- ------------
Hospital Revenue (13.0%)
1,000 Montgomery Special Care Facilities Financing Authority, Alabama,
Baptist Health Ser 1998 B (MBIA) .............................................. 5.00 11/15/29 960,670
3,000 Morgan County -- Decatur Health Care Authority, Alabama, Decatur
General Hospital Ser 1994 (Connie Lee) ........................................ 6.375 03/01/24 3,316,440
4,000 California Statewide Communities Development Authority, Sharp Health
Care COPs (MBIA) .............................................................. 6.00 08/15/24 4,322,960
3,000 Volusia County Health Facilities Authority, Florida, Memorial Health
Refg & Impr Ser 1994 (AMBAC) .................................................. 5.75 11/15/20 3,161,040
3,000 Massachusetts Health & Educational Facilities Authority, Lahey Clinic
Medical Center Ser B (MBIA) ................................................... 5.375 07/01/23 3,024,030
3,000 New Hampshire Higher Educational & Health Facilities Authority,
Hitchcock Clinic Ser 1994 (MBIA) .............................................. 6.00 07/01/24 3,238,500
-------- ------------
17,000 18,023,640
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development/Pollution Control Revenue (4.4%)
$ 5,550 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc
-------- Ser 1992 (AMT) (MBIA) ........................................................ 6.55% 12/01/22 $ 6,079,303
------------
Mortgage Revenue -- Multi-Family (2.3%)
3,000 Los Angeles Community Redevelopment Agency, California,
-------- Refg Ser 1994 A (AMBAC) ...................................................... 6.55 01/01/27 3,184,260
------------
Public Facilities Revenue (1.6%)
2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC) ......................... 6.00 12/01/13 2,199,760
-------- ------------
Transportation Facilities Revenue (19.3%)
3,995 San Francisco Airports Commission, California, San Francisco Int'l Airport
Second Ser Refg (MBIA) ....................................................... 6.75 05/01/20 4,453,227
3,000 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC) ........................... 6.00 01/01/21 3,207,270
2,000 Hawaii, Airports Third Refg Ser of 1994 (AMT) (AMBAC) ........................ 5.75 07/01/09 2,153,500
Chicago Midway Airport, Illinois,
3,000 1994 Ser A (AMT) (MBIA) ...................................................... 6.25 01/01/14 3,258,120
3,000 1994 Ser A (AMT) (MBIA) ...................................................... 6.25 01/01/24 3,266,070
1,000 Illinois Toll Highway Authority, Priority Refg 1998 Ser A (FSA) .............. 5.50 01/01/15 1,074,120
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC) .............. 6.25 06/01/24 5,519,050
2,000 New Jersey Transportation Trust Authority, 1998 Ser A (FSA) .................. 4.50 06/15/19 1,869,100
2,000 Southeastern Pennsylvania Transportation Authority, Ser A 1999 (FGIC) ........ 5.25 03/01/18 2,038,740
-------- ------------
24,995 26,839,197
-------- ------------
Water & Sewer Revenue (11.2%)
2,000 East Bay Municipal Utility District, California, Water Ser 1998 (MBIA) ....... 4.75 06/01/34 1,867,600
4,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA) ................... 5.70 06/01/20 4,196,480
2,000 Lee County, Florida, Water & Sewer 1999 Ser A (AMBAC) ........................ 4.75 10/01/23 1,892,120
1,000 Honolulu City and County, Hawaii, Wastewater Jr Ser 1998 (FGIC) .............. 5.25 07/01/18 1,010,030
2,000 St Louis, Missouri, Water Refg Ser 1998 (AMBAC) .............................. 4.75 07/01/14 1,980,680
5,000 Charleston, South Carolina, Refg Cap Impr Ser 1998 (Secondary FGIC) .......... 4.50 01/01/24 4,535,650
-------- ------------
16,000 15,482,560
-------- ------------
Refunded (8.8%)
2,000 Chicago State University, Illinois, Ser 1994 (MBIA) .......................... 6.15 12/01/04+ 2,253,920
5,000 Indianapolis, Indiana, Gas Utility Refg Ser 1994 A (AMBAC) ................... 5.875 06/01/04+ 5,526,250
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA)
(ETM) ........................................................................ 5.375 01/01/25 2,108,220
2,000 Wisconsin Health & Educational Facilities Authority, Marquette University
Ser 1994 (FGIC) .............................................................. 6.45 12/01/04+ 2,268,740
-------- ------------
11,000 12,157,130
-------- ------------
127,945 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $123,746,412) ................................. 134,629,240
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.0%)
$ 1,000 Missouri Health & Educational Facilities Authority, Washington University
Ser C (Demand 05/03/99) ................................................. 4.25*% 09/01/30 $ 1,000,000
400 Harris County Health Facilities Development Corporation, Texas, Methodist
Hospital Ser 1994 (Demand 05/03/99) ..................................... 4.30* 12/01/25 400,000
-------- ------------
1,400 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost $1,400,000)...... 1,400,000
-------- ------------
$129,345 TOTAL INVESTMENTS (Identified Cost $125,146,412) (a)................................ 98.1% 136,029,240
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ..................................... 1.9 2,598,965
------------
NET ASSETS ......................................................................... 100.0% $138,628,205
============
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$11,266,080 and the aggregate gross unrealized depreciation is
$383,252, resulting net unrealized appreciation of $10,882,828.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1999
<TABLE>
<S> <C>
Alabama .................... 3.1 %
Alaska ....................... 3.2
California ................... 17.4
District of Columbia ......... 1.4
Florida ...................... 3.6
Georgia ...................... 4.6
Hawaii ....................... 6.7
Illinois ..................... 13.3
Indiana .................... 4.0
Kansas ..................... 2.7%
Massachusetts ............... 2.2
Michigan ..................... 1.6
Missouri ..................... 2.2
Nevada ..................... 6.2
New Hampshire ............... 2.3
New Jersey .................. 1.3
New York .................... 1.5
Ohio ......................... 0.7
Pennsylvania ................. 1.5%
Rhode Island ................. 1.5
South Carolina ............... 6.3
Texas ...................... 0.3
Utah ......................... 2.9
Virginia .................... 3.6
Washington ................. 2.4
Wisconsin .................... 1.6
-----
Total ........................ 98.1%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $125,146,412) ............... $136,029,240
Cash ............................................ 100,923
Interest receivable ............................. 2,603,770
Prepaid expenses ................................ 1,482
------------
TOTAL ASSETS ............................... 138,735,415
------------
LIABILITIES:
Investment management fee payable ............... 46,705
Accrued expenses ................................ 60,505
------------
TOTAL LIABILITIES .......................... 107,210
------------
NET ASSETS ................................. $138,628,205
=============
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, 8,810,013 shares outstanding) ......... $125,594,417
Net unrealized appreciation ..................... 10,882,828
Accumulated undistributed net investment
income ....................................... 683,200
Accumulated undistributed net realized gain 1,467,760
------------
TOTAL NET ASSETS ........................... $138,628,205
=============
NET ASSET VALUE PER COMMON SHARE
($138,628,205 divided by 8,810,013
common shares outstanding) .............. $ 15.74
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999 (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $3,795,706
----------
EXPENSES
Investment management fee ..................... 243,438
Professional fees ............................. 22,890
Transfer agent fees and expenses .............. 16,181
Trustees' fees and expenses ................... 11,819
Shareholder reports and notices ............... 10,698
Registration fees ............................. 8,232
Custodian fees ................................ 3,508
Organizational expenses ....................... 2,891
Other ......................................... 4,756
----------
TOTAL EXPENSES ........................... 324,413
Less: expense offset .......................... (3,508)
----------
NET EXPENSES ............................. 320,905
----------
NET INVESTMENT INCOME .................... 3,474,801
----------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain ............................. 1,467,771
Net change in unrealized appreciation ......... (3,039,956)
----------
NET LOSS ................................. (1,572,185)
----------
NET INCREASE .................................. $1,902,616
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1999 OCTOBER 31, 1998
---------------- -----------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS :
Net investment income .............................. $ 3,474,801 $ 7,081,783
Net realized gain .................................. 1,467,771 1,800,280
Net change in unrealized appreciation .............. (3,039,956) 3,097,313
------------ ------------
NET INCREASE .................................... 1,902,616 11,979,376
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income .............................. (3,440,842) (7,175,503)
Net realized gain .................................. (1,642,617) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ............... (5,083,459) (7,175,503)
------------ ------------
Decrease from transactions in common shares of
beneficial interest .............................. (323,801) (1,611,680)
------------ ------------
NET INCREASE (DECREASE) ......................... (3,504,644) 3,192,193
NET ASSETS:
Beginning of period ................................ 142,132,849 138,940,656
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$683,200 and $649,241, respectively) ............ $138,628,205 $142,132,849
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited)
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
11
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
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 $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 six months ended April 30, 1999
aggregated $13,932,510 and $12,945,887, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At April 30, 1999, the Trust had transfer agent
fees and expenses payable of approximately $300.
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
12
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) 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 six months ended April 30, 1999 included in Trustees' fees and expenses in
the Statement of Operations amounted to $5,544. At April 30, 1999, the Trust
had an accrued pension liability of $18,849 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
PAR EXCESS OF
SHARES 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 4.94%)* ........................................................ (21,500) (215) (323,586)
--------- -------- ------------
Balance, April 30, 1999 ................................................. 8,810,013 $ 88,100 $125,506,317
========= ======== ============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares purchased.
13
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
6. DIVIDENDS TO COMMON SHAREHOLDERS
On March 30, 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 May 7, 1999 May 21, 1999
$0.065 June 4, 1999 June 18, 1999
</TABLE>
14
<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 SIX
MONTHS ENDED
APRIL 30, 1999**
---------------------------
(unaudited)
<S> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................. $ 16.09
-----------
Income (loss) from investment operations:
Net investment income ............................... 0.39
Net realized and unrealized gain (loss) ............. (0.16)
------------
Total income (loss) from investment operations ....... 0.23
------------
Less dividends and distributions from:
Net investment income ............................... (0.39)
Net realized gain ................................... (0.19)
------------
Total dividends and distributions .................... (0.58)
------------
Anti-dilutive effect of acquiring treasury shares..... --
------------
Offering costs charged against capital ............... --
------------
Net asset value, end of period ....................... $ 15.74
============
Market value, end of period .......................... $ 14.75
============
TOTAL RETURN+ ........................................ 1.25% (1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses ....................................... 0.47%(2)(3)
Net investment income ................................ 5.00%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .............. $ 138,628
Portfolio turnover rate .............................. 10%(1)
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31**
-------------------------------------------------------------------
1998 1997 1996 1995
------------- ------------- ------------------- -------------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................. $ 15.54 $ 15.08 $ 14.91 $ 13.20
-------- -------- ---------- ----------
Income (loss) from investment operations:
Net investment income ............................... 0.80 0.80 0.80 0.79
Net realized and unrealized gain (loss) ............. 0.55 0.43 0.11 1.58
-------- -------- ---------- ----------
Total income (loss) from investment operations ....... 1.35 1.23 0.91 2.37
-------- -------- ---------- ----------
Less dividends and distributions from:
Net investment income ............................... (0.81) (0.81) (0.81) (0.75)
Net realized gain ................................... -- -- -- --
-------- -------- ----------- -----------
Total dividends and distributions .................... (0.81) (0.81) (0.81) (0.75)
-------- -------- ----------- -----------
Anti-dilutive effect of acquiring treasury shares..... 0.01 0.04 0.07 0.09
-------- -------- ----------- -----------
Offering costs charged against capital ............... -- -- -- --
-------- -------- ----------- -----------
Net asset value, end of period ....................... $ 16.09 $ 15.54 $ 15.08 $ 14.91
======== ======== =========== ===========
Market value, end of period .......................... $15.125 $14.375 $ 13.125 $ 12.625
======== ======== =========== ===========
TOTAL RETURN+ ........................................ 11.08% 16.12% 10.52% 20.61%
RATIOS TO AVERAGE NET ASSETS:
Total expenses ....................................... 0.47% 0.47% 0.49%(3) 0.54%(3)
Net investment income ................................ 5.02% 5.27% 5.32% 5.51%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .............. $142,133 $138,941 $ 138,241 $ 141,738
Portfolio turnover rate .............................. 7% -- 1% --
<CAPTION>
FOR THE PERIOD
FEBRUARY 28, 1994*
THROUGH
OCTOBER 31, 1994**
-------------------
<S> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................. $ 14.06
---------
Income (loss) from investment operations:
Net investment income ............................... 0.44
Net realized and unrealized gain (loss) ............. (0.93)
---------
Total income (loss) from investment operations ....... (0.49)
---------
Less dividends and distributions from:
Net investment income ............................... (0.38)
Net realized gain ................................... --
---------
Total dividends and distributions .................... (0.38)
---------
Anti-dilutive effect of acquiring treasury shares..... 0.05
---------
Offering costs charged against capital ............... (0.04)
---------
Net asset value, end of period ....................... $ 13.20
=========
Market value, end of period .......................... $ 11.125
=========
TOTAL RETURN+ ........................................ (23.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Total expenses ....................................... 0.51 %(2)
Net investment income ................................ 4.69 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .............. $132,377
Portfolio turnover rate .............................. --
</TABLE>
- -------------
* Commencement of operations.
** 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
investment return does not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
TRUSTEES
- ---------------------------------------
Michael Bozic
Charles A. Fiumefreddo MORGAN STANLEY
Edwin J. Garn DEAN WITTER
Wayne E. Hedien INSURED
Dr. Manuel H. Johnson MUNICIPAL
Michael E. Nugent SECURITIES
Philip J. Purcell
John L. Schroeder
OFFICERS
- ---------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ---------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ---------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ---------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein Semiannual Report
have been taken from the records of the April 30, 1999
Trust without examination by the independent
accountants and accordingly they do not
express an opinion thereon.
