<PAGE>
Two World Trade Center,
New York, New York 10048
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 2000
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>
MORGAN STANLEY DEAN WITTER INSURED 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
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%
05/31/99 5.30 5.83 90.91%
06/30/99 5.47 5.96 91.78%
07/31/99 5.55 6.10 90.98%
08/31/99 5.75 6.06 94.88%
09/30/99 5.85 6.05 96.69%
10/31/99 6.03 6.16 97.89%
11/30/99 6.00 6.29 95.39%
12/31/99 5.97 6.48 92.13%
01/31/00 6.18 6.49 95.22%
02/29/00 6.04 6.14 98.37%
03/31/00 5.82 5.83 99.83%
04/30/00 5.91 5.96 99.16%
05/31/00 5.91 6.01 98.34%
06/30/00 5.84 5.90 98.98%
07/31/00 5.73 5.78 99.13%
08/31/00 5.62 5.67 99.12%
09/30/00 5.74 5.89 97.45%
10/31/00 5.65 5.79 97.58%
Source: Municipal Market Data - A Division of Thomson Financial 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 Municipal Securities (IMS) increased from
$14.60 to $15.16 per share. Based on this change, plus a reinvestment of
tax-free dividends totaling $0.78 per share and a taxable dividend of $0.0096
paid in December 1999, the Trust's total NAV return was 10.36 percent. IMS's
value on the New York Stock Exchange (NYSE) increased from $12.625 to $13.5625
per share during this period. Based on this change plus reinvestment of
dividends, IMS's total market return was 14.10 percent. As of October 31, 2000,
IMS's share price was at a 10.54 percent discount to its NAV.
2
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
Monthly dividends for the fourth quarter of 2000, declared in September, were
unchanged at $0.065 per share. The Trust's level of undistributed net
investment income was $0.075 per share on October 31, 2000, versus $0.078 per
share 12 months earlier.
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 12 long-term sectors and 41
credits. Issues in the refunded bond category comprised 14 percent of net
assets. These bonds have been refinanced and will be redeemed on the dates
shown in the portfolio. At the end of October, the portfolio's average maturity
was 18 years. Average duration, a measure of portfolio sensitivity to interest
rates, was 6.7 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 municipal 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 478,998 shares of common stock at a weighted
average market discount of 11.92 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,
[GRAPHIC OMITTED]
/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, 2000, continued
LARGEST SECTORS AS OF OCTOBER 31, 2000
(% OF NET ASSETS)
ELECTRIC 23%
REFUNDED 14%
HOSPITAL 13%
TRANSPORTATION 11%
WATER & SEWER 10%
GENERAL OBLIGATION 9%
EDUCATION 6%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT EHANCEMENTS AS OF OCTOBER 31, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
MBIA 41%
Ambac 34%
FGIC 21%
Connie Lee 3%
FSA 1%
TOTAL 100%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
DISTRIBUTION BY MATURITY
(% OF NET ASSETS)
WEIGHTED AVERAGE
MATURITY 18 YEARS
UNDER 1 YEAR 1.7%
1-5 YEARS 12.1%
5-10 YEARS 1.7%
10-20 YEARS 31.9%
20-30 YEARS 50.0%
30+ YEARS 1.5%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
(BASED ON LONG-TERM PORTFOLIO)
OCTOBER 31, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 5 YEARS
BONDS CALLABLE
2000 0%
2001 0%
2002 5%
2003 18%
2004 52%
2005 0%
2006 0%
2007 0%
2008 3%
2009 11%
2010+ 11%
YEARS BONDS CALLABLE
WEIGHTED AVERAGE
BOOK YIELD: 6.1%
COST (BOOK) YIELD*
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 5.8%
2009 5.6%
2010+ 5.8%
* 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 IS EARNING A BOOK YIELD OF 6.2% ON 5% OF THE LONG-TERM
PORTFOLIO THAT IS CALLABLE IN 2002.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED 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:
Wayne E. Hedien
For ................ 6,930,365
Withheld ........... 96,853
Dr. Manuel H. Johnson
For ................ 6,925,376
Withheld ........... 101,842
John L. Schroeder
For ................ 6,930,129
Withheld ........... 97,089
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>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
------------------------------------------------------------------------------------------------------ ---------- ---------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.2%)
General Obligation (8.8%)
$ 3,500 California, Refg Dtd 10/01/98 Refg (MBIA) ..................................... 4.50 % 10/01/28 $ 2,963,800
3,000 Chicago, Illinois, Refg Ser 1993 B (Ambac) ** ................................. 5.125 01/01/22 2,868,030
5,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A (MBIA) .......... 5.75 06/01/13 5,135,150
------- ------------
11,500 10,966,980
------- ------------
Educational Facilities Revenue (5.5%)
2,000 District of Columbia, National Academy of Sciences Ser 1999 A (Ambac) ......... 5.00 01/01/19 1,848,680
2,000 New York State Dormitory Authority, Fordham University Ser 1994 (FGIC)......... 5.50 07/01/23 1,966,760
1,000 Ohio University, General Receipts Ser 1999 (FSA) .............................. 5.25 12/01/19 971,790
2,000 Rhode Island Health & Educational Building Corporation, Providence
College Ser 1993 (MBIA) ..................................................... 5.60 11/01/22 1,992,480
------- ------------
7,000 6,779,710
------- ------------
Electric Revenue (23.2%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA) ....................................... 6.20 12/01/13 4,199,120
4,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA) ..... 6.00 01/01/24 4,130,240
3,000 Municipal Electric Authority of Georgia, Power Ser EE (Ambac) ................. 6.00 01/01/22 3,071,820
3,400 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC) ...................... 6.375 09/01/23 3,581,254
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA) ......... 5.375 01/01/25 1,956,180
4,000 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC) ........................... 5.25 07/01/18 3,883,200
5,000 Bedford, Virginia, Hydro Ser 1994 (Ambac) ..................................... 5.25 06/01/25 4,761,250
3,000 Tacoma, Washington, Refg 1994 (FGIC) .......................................... 6.25 01/01/15 3,175,050
------- ------------
28,400 28,758,114
------- ------------
Hospital Revenue (13.1%)
3,000 Morgan County - Decatur Health Care Authority, Alabama, Decatur
General Hospital Ser 1994 (Connie Lee) ...................................... 6.375 03/01/24 3,098,670
4,000 California Statewide Communities Development Authority, Sharp Health
Care COPs (MBIA) ............................................................ 6.00 08/15/24 4,149,760
3,000 Volusia County Health Facilities Authority, Florida, Memorial Health
Refg & Impr Ser 1994 (Ambac) ................................................ 5.75 11/15/20 3,031,890
3,000 Massachusetts Health & Educational Facilities Authority, Lahey Clinic
Medical Center Ser B (MBIA) ................................................. 5.375 07/01/23 2,872,500
3,000 New Hampshire Higher Educational & Health Facilities Authority,
Hitchcock Clinic Ser 1994 (MBIA) ............................................ 6.00 07/01/24 3,039,900
------- ------------
16,000 16,192,720
------- ------------
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 5,744,638
------------
Mortgage Revenue - Multi-Family (2.5%)
3,000 Los Angeles Community Redevelopment Agency, California, Refg Ser 1994 A
======= (Ambac) ..................................................................... 6.55 01/01/27 3,127,590
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Public Facilities Revenue (1.7%)
$ 2,000 Michigan Municipal Bond Authority, Ser 1994 A (FGIC) ......................... 6.00% 12/01/13 $ 2,120,140
-------- ------------
Recreational Facilities Revenue (0.8%)
1,000 Hamilton County, Ohio, Sales Tax Ser 2000 (Ambac) (WI) ....................... 5.25 12/01/32 946,650
-------- ------------
Transportation Facilities Revenue (10.5%)
3,995 San Francisco Airports Commission, California, San Francisco Int'l Airport
Second Ser Refg (MBIA) ..................................................... 6.75 05/01/20 4,283,679
3,000 Denver City & County, Colorado, Airport Refg Ser 2000 A (AMT) (Ambac) ........ 6.00 11/15/18 3,100,410
1,000 Atlanta, Georgia, Airport Ser 1994 B (AMT) (Ambac) ........................... 6.00 01/01/21 1,014,510
2,000 Hawaii, Airports Third Refg Ser of 1994 (AMT) (Ambac) ........................ 5.75 07/01/09 2,068,100
770 Chicago, Illinois, Midway Airport 1994 Ser A (AMT) (MBIA) .................... 6.25 01/01/14 809,586
2,000 North Texas Tollway Authority, Dallas North Tollway Ser 1998 (FGIC) .......... 4.75 01/01/29 1,708,640
-------- ------------
12,765 12,984,925
-------- ------------
Water & Sewer Revenue (10.3%)
1,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien Wastewater
Ser 2000 (FGIC) ............................................................ 6.25 07/01/17 1,086,580
4,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA) ................... 5.70 06/01/20 4,066,080
4,000 Lee County, Florida, Water & Sewer 1999 Ser A (Ambac) ........................ 4.75 10/01/23 3,538,480
1,375 Kansas Development Finance Authority, Public Water Supply Revolving
Loan Ser 2000-2 (Ambac) .................................................... 5.50 04/01/21 1,371,590
1,000 New York City Municipal Water Finance Authority, New York, 1999 Ser A
(FGIC) ..................................................................... 4.75 06/15/31 859,870
2,000 Toledo, Ohio, Waterworks Impr & Refg Ser 1999 (FGIC) ......................... 4.75 11/15/17 1,837,720
-------- ------------
13,375 12,760,320
-------- ------------
Other Revenue (2.5%)
3,000 Florida Department of Environmental Protection, Preservation 2000
======== Ser 1999 A (FGIC) .......................................................... 5.25 07/01/13 3,040,650
Refunded (13.7%) ------------
2,000 Chicago State University, Illinois, Ser 1994 (MBIA) .......................... 6.15 12/01/04+ 2,152,780
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (Ambac) .............. 6.25 06/01/04+ 5,366,450
5,000 Indianapolis, Indiana, Gas Utility Refg Ser 1994 A (Ambac) ................... 5.875 06/01/04+ 5,305,100
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA)
(ETM) ...................................................................... 5.375 01/01/25 1,967,940
2,000 Wisconsin Health & Educational Facilities Authority, Marquette University
Ser 1994 (FGIC) ............................................................ 6.45 12/01/04+ 2,158,260
-------- ------------
16,000 16,950,530
-------- ------------
119,590 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Cost $114,474,173).......................... 120,372,967
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.7%)
$ 400 Collier County Health Facilities Authority, Florida, Cleveland Clinic Health 4.60* % 01/01/33 $ 400,000
Ser 1999 (Demand 11/01/00) ...............................................
1,100 Idaho Health Facilities Authority, St Lukes Regional Medical Center 4.60* 07/01/30 1,100,000
Ser 2000 (FSA) (Demand 11/01/00) ........................................
600 Missouri Health & Educational Facilities Authority, Washington University
Ser 1996 D (Demand 11/01/00) ............................................. 4.60* 09/01/30 600,000
-------- ------------
2,100 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Cost $2,100,000)................................. 2,100,000
-------- ------------
$121,690 TOTAL INVESTMENTS (Cost $116,574,173) (a) ................................................. 98.9% 122,472,967
========
OTHER ASSETS IN EXCESS OF LIABILITIES ................................................... 1.1 1,409,181
----- ------------
NET ASSETS ................................................................................ 100.0% $123,882,148
===== ============
</TABLE>
-------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Security purchased on a "when-issued" basis.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
** This security is segregated in connection with the purchase of a
"when-issued" security.
(a) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $6,103,636 and the aggregate gross unrealized
depreciation is $204,842, resulting in net unrealized appreciation
of $5,898,794.
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.
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Alabama ....................... 2.5% Idaho ......................... 0.9% New York ...................... 2.3%
Alaska ........................ 3.4 Illinois ..................... 9.0 Ohio .......................... 3.0
Arizona ....................... 0.9 Indiana ....................... 4.3 Rhode Island .................. 1.6
California .................... 18.3 Kansas ...................... 4.0 South Carolina ................ 3.2
Colorado ...................... 2.5 Massachusetts ................. 2.3 Texas ....................... 1.4
District of Columbia .......... 1.5 Michigan ...................... 1.7 Utah .......................... 3.1
Florida ....................... 8.1 Missouri ...................... 0.5 Virginia ...................... 3.8
Georgia ....................... 3.3 Nevada ........................ 4.2 Washington .................. 2.6
Hawaii ........................ 6.3 New Hampshire ................ 2.5 Wisconsin ..................... 1.7
----
Total ........................ 98.9%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
ASSETS:
Investments in securities, at value
(cost $116,574,173) .......................... $122,472,967
Cash ............................................ 89,984
Interest receivable ............................. 2,385,232
Prepaid expenses ................................ 3,780
------------
TOTAL ASSETS ................................ 124,951,963
------------
LIABILITIES:
Payable for:
Investments purchased ...................... 946,427
Investment management fee .................. 37,888
Common shares of beneficial interest
repurchased ............................. 13,618
Accrued expenses ................................ 71,882
------------
TOTAL LIABILITIES ........................... 1,069,815
------------
NET ASSETS .................................. $123,882,148
============
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, 8,171,215 shares outstanding) ......... $117,281,294
Net unrealized appreciation ..................... 5,898,794
Accumulated undistributed net investment
income ....................................... 609,230
Accumulated undistributed net realized gain ..... 92,830
------------
TOTAL NET ASSETS ............................ $123,882,148
============
NET ASSET VALUE PER COMMON SHARE
($123,882,148 divided by 8,171,215
common shares outstanding) ................... $15.16
======
STATEMENT OF OPERATIONS
For the year ended October 31, 2000
NET INVESTMENT INCOME:
INTEREST INCOME ................................. $ 7,146,818
-----------
EXPENSES
Investment management fee ....................... 434,433
Professional fees ............................... 56,639
Transfer agent fees and expenses ................ 30,477
Shareholder reports and notices ................. 25,034
Trustees' fees and expenses ..................... 20,123
Registration fees ............................... 16,325
Custodian fees .................................. 9,519
Other ........................................... 8,166
-----------
TOTAL EXPENSES .............................. 600,716
Less: expense offset ............................ (9,506)
-----------
NET EXPENSES ................................ 591,210
-----------
NET INVESTMENT INCOME ....................... 6,555,608
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ............................... 223,697
Net change in unrealized appreciation ........... 3,635,800
-----------
NET GAIN .................................... 3,859,497
-----------
NET INCREASE .................................... $10,415,105
===========
SEE NOTES TO FINANCIAL STATEMENTS
10
<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, 2000 OCTOBER 31, 1999
------------------------------------------------------------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 6,555,608 $ 6,881,180
Net realized gain (loss) .......................... 223,697 (130,867)
Net change in unrealized appreciation ............. 3,635,800 (11,659,790)
------------ -------------
NET INCREASE (DECREASE) ........................ 10,415,105 (4,909,477)
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income ............................. (6,616,800) (6,859,999)
Net realized gain ................................. - (1,642,606)
------------ -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .............. (6,616,800) (8,502,605)
------------ -------------
Decrease from transactions in common shares of
beneficial interest ............................. (6,197,143) (2,439,781)
------------ -------------
NET DECREASE ................................... (2,398,838) (15,851,863)
NET ASSETS:
Beginning of period ............................... 126,280,986 142,132,849
------------ -------------
END OF PERIOD
(Included undistributed net investment income of
$609,230 and $670,422, respectively) ........... $123,882,148 $ 126,280,986
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000
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
12
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000, 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 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 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 $8,113,333 and $14,435,894, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At October 31, 2000, the Trust had transfer
agent fees and expenses payable of approximately $100.
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 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, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $8,649. At October 31, 2000, the Trust had an accrued pension liability of
$29,225 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.
13
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000, continued
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, 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
Treasury shares purchased and retired (weighted average discount 11.92%)*.. (478,998) (4,790) (6,192,353)
--------- -------- ------------
Balance, October 31, 2000 ................................................. 8,171,215 $ 81,712 $117,199,582
========= ======== ============
</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 its net capital loss
carryover of approximately $131,000.
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 26, 2000, the Trust declared the following dividends from net
investment income:
AMOUNT
PER SHARE RECORD DATE PAYABLE DATE
---------- -------------------- ---------------------
$0.065 November 3, 2000 November 17, 2000
$0.065 December 8, 2000 December 22, 2000
8. EXPENSE OFFSET
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Trust.
14
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 2000, continued
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>
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*
-------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ...................... $ 14.60 $ 16.09 $ 15.54 $ 15.08 $ 14.91
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income .................................... 0.78 0.78 0.80 0.80 0.80
Net realized and unrealized gain (loss) .................. 0.47 (1.33) 0.55 0.43 0.11
------- ------- ------- ------- -------
Total income (loss) from investment operations ............ 1.25 (0.55) 1.35 1.23 0.91
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income .................................... (0.79) (0.78) (0.81) (0.81) (0.81)
Net realized gain ........................................ - (0.19) - - -
------- ------- ------- ------- -------
Total dividends and distributions ......................... (0.79) (0.97) (0.81) (0.81) (0.81)
------- ------- ------- ------- -------
Anti-dilutive effect of acquiring treasury shares ......... 0.10 0.03 0.01 0.04 0.07
------- ------- ------- ------- -------
Net asset value, end of period ............................ $ 15.16 $ 14.60 $ 16.09 $ 15.54 $ 15.08
======= ======= ======= ======= =======
Market value, end of period ............................... $13.563 $12.625 $15.125 $14.375 $13.125
======= ======= ======= ======= =======
TOTAL RETURN+ ............................................. 14.10% (10.80)% 11.08% 16.12% 10.52%
RATIOS TO AVERAGE NET ASSETS:
Total expenses ............................................ 0.48% 0.49 %(1) 0.47% 0.47% 0.49%(1)
Net investment income ..................................... 5.28% 5.04 % 5.02% 5.27% 5.32%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................... $123,882 $126,281 $142,133 $138,941 $138,241
Portfolio turnover rate ................................... 7% 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 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>
MORGAN STANLEY DEAN WITTER INSURED MUNCIPAL SECURITIES
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Insured 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 and broker. 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 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)
During the year ended October 31, 2000, the Trust paid to shareholders
$0.78 per share in exempt interest dividends, which is excludable from
gross income for Federal income tax purposes.
17
<PAGE>
MORGAN STANLEY DEAN WITTER INSURED MUNCIPAL 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>
MORGAN STANLEY DEAN WITTER INSURED MUNICIPAL SECURITIES
REVISED INVESTMENT POLICY
On January 26, 2000, the Trustees of Morgan Stanley Dean Witter Insured
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: (1) 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>
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
MUNICIPAL
SECURITIES
Annual Report
October 31, 2000
