<PAGE>
Morgan Stanley Dean Witter Insured Two World Trade Center,
Municipal Securities New York, New York 10048
Letter to the Shareholders April 30, 2000
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion into the new year. Strong
growth pushed the unemployment rate to a 30-year low. Rising commodity prices
heightened concern about inflation. The price of oil moved above $30 per barrel
prior to ending April at $25 per barrel. Between June 1999 and March 2000, the
Federal Reserve Board raised the federal funds rate in five, 25-basis-point
moves to reach 6.00 percent. The Fed subsequently demonstrated its resistance to
inflation by raising the federal funds rate another 50 basis points to 6.50
percent in May. Economic growth and a less accommodative monetary policy caused
long-term interest rates to increase throughout 1999. In February, the U.S.
Treasury announced plans to retire debt with the federal budget surplus. This
precipitated a 50-75 basis-point rally in longer Treasury maturities.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began 1999 near a record low yield of 5.05
percent but increased to 5.97 percent by calendar year-end. This index reached a
high of 6.18 percent in January 2000 before ending April at 5.93 percent.
Because bond prices move inversely to changes in interest rates, higher yields
caused bond prices to decline significantly last year and improve modestly in
the first four months of 2000.
The ratio of municipal yields as a percentage of Treasury yields has been used
historically as a measure of relative value. Over the past five years the ratio
has ranged between an average high of 93 percent and an average low of 85
percent. The increase in the ratio from 92 percent at the end of 1999 to 99
percent at the end of April 2000 was primarily the result of the magnitude of
the rally in long Treasuries. A rising yield ratio indicates weaker relative
performance by municipals.
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent last year. Refunding activity, the most
interest-rate-sensitive component of supply, was down more than 50 percent. In
the first four months of this year, volume was 30 percent lower than in the same
period last year.
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Letter to the Shareholders April 30, 2000, continued
30-YEAR BOND YIELDS 1994-2000
AAA AAA
Date Ins Tsy % Relationship Date Ins Tsy % Relationship
12/31/93 5.40% 6.34% 85.17% 03/31/97 5.90 7.10 83.10%
01/31/94 5.40 6.24 86.54% 04/30/97 5.75 6.94 82.85%
02/28/94 5.80 6.66 87.09% 05/30/97 5.65 6.91 81.77%
03/31/94 6.40 7.09 90.27% 06/30/97 5.60 6.78 82.60%
04/29/94 6.35 7.32 86.75% 07/30/97 5.30 6.30 84.13%
05/31/94 6.25 7.43 84.12% 08/31/97 5.50 6.61 83.21%
06/30/94 6.50 7.61 85.41% 09/30/97 5.40 6.40 84.38%
07/29/94 6.25 7.39 84.57% 10/31/97 5.35 6.15 86.99%
08/31/94 6.30 7.45 84.56% 11/30/97 5.30 6.05 87.60%
09/30/94 6.55 7.81 83.87% 12/31/97 5.15 5.92 86.99%
10/31/94 6.75 7.96 84.80% 01/31/98 5.15 5.80 88.79%
11/30/94 7.00 8.00 87.50% 02/28/98 5.20 5.92 87.84%
12/30/94 6.75 7.88 85.66% 03/31/98 5.25 5.93 88.53%
01/31/95 6.40 7.70 83.12% 04/30/98 5.35 5.95 89.92%
02/28/95 6.15 7.44 82.66% 05/29/98 5.20 5.80 89.66%
03/31/95 6.15 7.43 82.77% 06/30/98 5.20 5.65 92.04%
04/28/95 6.20 7.34 84.47% 07/31/98 5.18 5.71 90.72%
05/31/95 5.80 6.66 87.09% 08/31/98 5.03 5.27 95.45%
06/30/95 6.10 6.62 92.15% 09/30/98 4.95 5.00 99.00%
07/31/95 6.10 6.86 88.92% 10/31/98 5.05 5.16 97.87%
08/31/95 6.00 6.66 90.09% 11/30/98 5.00 5.06 98.81%
09/29/95 5.95 6.48 91.82% 12/31/98 5.05 5.10 99.02%
10/31/95 5.75 6.33 90.84% 01/31/99 5.00 5.09 98.23%
11/30/95 5.50 6.14 89.58% 02/28/99 5.10 5.58 91.40%
12/29/95 5.35 5.94 90.07% 03/31/99 5.15 5.63 91.47%
01/31/96 5.40 6.03 89.55% 04/30/99 5.20 5.66 91.87%
02/29/96 5.60 6.46 86.69% 05/31/99 5.30 5.83 90.91%
03/29/96 5.85 6.66 87.84% 06/30/99 5.47 5.96 91.78%
04/30/96 5.95 6.89 86.36% 07/31/99 5.55 6.10 90.98%
05/31/96 6.05 6.99 86.55% 08/31/99 5.75 6.06 94.88%
06/28/96 5.90 6.89 85.63% 09/30/99 5.85 6.05 96.69%
07/31/96 5.85 6.97 83.93% 10/31/99 6.03 6.16 97.89%
08/30/96 5.90 7.11 82.98% 11/30/99 6.00 6.29 95.39%
09/30/96 5.70 6.93 82.25% 12/31/99 5.97 6.48 92.13%
10/31/96 5.65 6.64 85.09% 01/31/00 6.18 6.49 95.22%
11/29/96 5.50 6.35 86.61% 02/29/00 6.04 6.14 98.37%
12/31/96 5.60 6.63 84.46% 03/31/00 5.82 5.83 99.83%
01/31/97 5.70 6.79 83.95% 04/30/00 5.91 5.96 99.16%
02/28/97 5.65 6.80 83.09%
Source: Municipal Market Data -- A Division of Thomson Financial Municipal
Group and Bloomberg L.P.
PERFORMANCE
During the six-month period ended April 30, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter Insured Municipal Securities (IMS) increased from
$14.60 to $14.70 per share. Based on this change, plus a reinvestment of
tax-free dividends totaling $0.39 per share and a taxable dividend of $0.009608
paid in December 1999, the Trust's total NAV return was 3.97 percent. IMS's
value on the New York Stock Exchange (NYSE) increased from $12.625 to $12.75 per
share during this period. Based on this change plus reinvestment of dividends,
IMS's total market return was 4.22 percent. On April 30, 2000, IMS's share price
was at a 13.27 percent discount to its NAV.
Monthly dividends for the second quarter of 2000, declared in March, were
unchanged at $0.065 per share. The Trust's level of undistributed net investment
income was $0.068 per share on April 30, 2000, versus $0.078 per share six
months earlier.
2
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Letter to the Shareholders April 30, 2000, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 11 long-term sectors and 38
credits. At the end of April, the portfolio's average maturity was 18 years.
Average duration, a measure of sensitivity to interest rate changes, was 7.7
years. Issues in the refunded bond category comprised 16 percent of net assets.
These bonds have been refinanced and will be redeemed on the dates shown in the
portfolio. Current information on the portfolio's credit enhancements, sector
distribution and geographic diversification is provided in the accompanying
charts and tables. Optional call provisions, by year, with their respective cost
(book) yields are also shown.
LOOKING AHEAD
The Federal Reserve Board has expressed concern about consumer wealth and rising
prices. We anticipate that the central bank will continue to increase short-term
interest rates in an effort to slow the economy. We believe municipal bonds
continue to offer tax-conscious investors good long-term value.
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 six-month period ended April 30, 2000,
the Trust purchased and retired 3.4 percent of its common stock (295,400 shares)
at a weighted average market discount of 13.13 percent. The anti-dilutive effect
of acquiring treasury shares is reported in the table of Financial Highlights on
page 14.
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 April 30, 2000, continued
LARGEST SECTORS AS OF APRIL 30, 2000
(% OF NET ASSETS)
ELECTRIC 23%
REFUNDED 16%
HOSPITAL 13%
TRANSPORTATION 10%
GENERAL OBLIGATION 10%
WATER & SEWER 9%
EDUCATION 5%
IDR/PCR* 5%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT ENHANCEMENTS AS OF APRIL 30, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
MBIA 44%
AMBAC 31%
FGIC 20%
CONNIE LEE 3%
FSA 2%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
GEOGRAPHIC SUMMARY OF INVESTMENTS
BASED ON MARKET VALUE AS A PERCENT OF NET ASSETS
APRIL 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C>
ALABAMA ...................... 2.5% KANSAS ....................... 2.9% OHIO ......................... 2.2%
ALASKA ....................... 3.4 LOUISIANA .................... 0.7 RHODE ISLAND ................. 1.6
CALIFORNIA ................... 18.2 MASSACHUSETTS ................ 2.2 SOUTH CAROLINA ............... 4.4
DISTRICT OF COLUMBIA ......... 1.4 MICHIGAN ..................... 1.7 UTAH ......................... 3.0
FLORIDA ...................... 7.5 MISSOURI ..................... 0.7 VIRGINIA ..................... 3.7
GEORGIA ...................... 4.9 NEVADA ....................... 4.9 WASHINGTON ................... 2.5
HAWAII ....................... 6.3 NEW HAMPSHIRE ................ 2.4 WISCONSIN .................... 1.7
ILLINOIS ..................... 11.4 NEW JERSEY ................... 1.3 ----
INDIANA ...................... 4.3 NEW YORK ..................... 2.2 TOTAL ........................ 98.0%
====
</TABLE>
-----------------
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Letter to the Shareholders April 30, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
APRIL 30, 2000
PERCENT CALLABLE* WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
0% 0% 5% 17% 57% 0% 0% 0% 3% 12% 6%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010+
YEARS BONDS CALLABLE
COST (BOOK) YIELD** WEIGHTED AVERAGE
BOOK YIELD: 6.1%
0% 0% 6.2% 6.2% 6.3% 0% 0% 0% 5.7% 5.5% 5.9%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010+
* %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 5% OF THE BONDS IN THE
LONG-TERM PORTFOLIO THAT ARE CALLABLE IN 2002.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Portfolio of Investments April 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (96.7%)
General Obligation (9.7%)
$ 4,000 California, Refg Dtd 10/01/98 (MBIA) .......................................... 4.50 % 10/01/28 $ 3,173,800
3,000 Chicago, Illinois, Refg Ser 1993 B (AMBAC) .................................... 5.125 01/01/22 2,693,760
6,000 Washoe County School District, Nevada, Ltd Tax Ser 04/01/94 A (MBIA) .......... 5.75 06/01/13 6,076,380
--------- ------------
13,000 11,943,940
--------- ------------
Educational Facilities Revenue (5.3%)
2,000 District of Columbia, National Academy of Sciences Ser 1999 A (AMBAC) ......... 5.00 01/01/19 1,766,760
2,000 New York State Dormitory Authority, Fordham University Ser 1994 (FGIC) ........ 5.50 07/01/23 1,897,040
1,000 Ohio University, General Receipts Ser 1999 (FSA) .............................. 5.25 12/01/19 933,940
2,000 Rhode Island Health & Educational Building Corporation, Providence
College Ser 1993 (MBIA) ...................................................... 5.60 11/01/22 1,909,020
--------- ------------
7,000 6,506,760
--------- ------------
Electric Revenue (22.7%)
4,000 Anchorage, Alaska, Refg Ser 1993 (MBIA) ....................................... 6.20 12/01/13 4,128,000
4,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA) ..... 6.00 01/01/24 4,032,080
3,000 Municipal Electric Authority of Georgia, Power Ser EE (AMBAC) ................. 6.00 01/01/22 3,006,840
3,400 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC) ...................... 6.375 09/01/23 3,509,446
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA) ......... 5.375 01/01/25 1,859,340
4,000 Utah Municipal Power Agency, Refg Ser 1993 A (FGIC) ........................... 5.25 07/01/18 3,718,440
5,000 Bedford, Virginia, Hydro Ser 1994 (AMBAC) ..................................... 5.25 06/01/25 4,516,500
3,000 Tacoma, Washington, Refg 1994 (FGIC) .......................................... 6.25 01/01/15 3,116,850
--------- ------------
28,400 27,887,496
--------- ------------
Hospital Revenue (12.8%)
3,000 Morgan County - Decatur Health Care Authority, Alabama, Decatur
General Hospital Ser 1994 (Connie Lee) ...................................... 6.375 03/01/24 3,045,900
4,000 California Statewide Communities Development Authority, Sharp Health
Care COPs (MBIA) ............................................................ 6.00 08/15/24 4,026,640
3,000 Volusia County Health Facilities Authority, Florida, Memorial Health
Refg & Impr Ser 1994 (AMBAC) ................................................ 5.75 11/15/20 2,960,760
3,000 Massachusetts Health & Educational Facilities Authority, Lahey Clinic
Medical Center Ser B (MBIA) ................................................. 5.375 07/01/23 2,714,550
3,000 New Hampshire Higher Educational & Health Facilities Authority,
Hitchcock Clinic Ser 1994 (MBIA) ............................................ 6.00 07/01/24 2,977,020
--------- ------------
16,000 15,724,870
--------- ------------
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 5,667,216
------------
Mortgage Revenue - Multi-Family (2.5%)
3,000 Los Angeles Community Redevelopment Agency, California, Refg Ser 1994 A
--------- (AMBAC) ..................................................................... 6.55 01/01/27 3,052,860
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Portfolio of Investments April 30, 2000 (unaudited) 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 $ 2,067,940
--------- ------------
Transportation Facilities Revenue (10.2%)
3,995 San Francisco Airports Commission, California, San Francisco Int'l Airport
Second Ser Refg (MBIA) ..................................................... 6.75 05/01/20 4,256,872
3,000 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC) ........................... 6.00 01/01/21 2,989,140
2,000 Hawaii, Airports Third Refg Ser of 1994 (AMT) (AMBAC) ........................ 5.75 07/01/09 2,033,020
Chicago Midway Airport, Illinois,
770 1994 Ser A (AMT) (MBIA) .................................................... 6.25 01/01/14 792,846
765 1994 Ser A (AMT) (MBIA) .................................................... 6.25 01/01/24 771,082
2,000 New Jersey Transportation Trust Fund Authority, 1998 Ser A (FSA) ............. 4.50 06/15/19 1,657,260
--------- ------------
12,530 12,500,220
--------- ------------
Water & Sewer Revenue (9.3%)
4,000 Los Angeles, California, Wastewater Refg Ser 1993 A (MBIA) ................... 5.70 06/01/20 3,977,040
4,000 Lee County, Florida, Water & Sewer 1999 Ser A (AMBAC) ........................ 4.75 10/01/23 3,365,400
1,000 New York City Municipal Water Finance Authority, New York, 1999 Ser A
(FGIC) ..................................................................... 4.75 06/15/31 812,120
2,000 Toledo, Ohio, Waterworks Impr & Refg Ser 1999 (FGIC) ......................... 4.75 11/15/17 1,748,660
2,000 Charleston, South Carolina, Refg & Cap Impr Ser 1998 (Secondary FGIC) ........ 4.50 01/01/24 1,597,480
--------- ------------
13,000 11,500,700
--------- ------------
Other Revenue (2.4%)
3,000 Florida Department of Environmental Protection, Preservation 2000
Ser 1999 A (FGIC) .......................................................... 5.25 07/01/13 2,943,870
Refunded (15.5%)
2,235 Chicago Midway Airport, Illinois, 1994 Ser A (AMT) (MBIA) .................... 6.25 01/01/04+ 2,357,858
2,000 Chicago State University, Illinois, Ser 1994 (MBIA) .......................... 6.15 12/01/04+ 2,125,100
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC) .............. 6.25 06/01/04+ 5,310,100
5,000 Indianapolis, Indiana, Gas Utility Refg Ser 1994 A (AMBAC) ................... 5.875 06/01/04+ 5,241,500
2,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA)
(ETM) ...................................................................... 5.375 01/01/25 1,890,280
2,000 Wisconsin Health & Educational Facilities Authority, Marquette University
Ser 1994 (FGIC) ............................................................ 6.45 12/01/04+ 2,133,660
--------- ------------
18,235 19,058,498
--------- ------------
121,715 TOTAL TAX-EXEMPT MUNICIPAL BONDS
--------- (Identified Cost $116,391,116).............................................. 118,854,370
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Portfolio of Investments April 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.3%)
$ 800 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1993
(Demand 05/01/00) ................................................... 5.80*% 03/01/22 $ 800,000
800 Missouri Health & Educational Facilities Authority, Cox Health Ser 1997
(MBIA) (Demand 05/01/00) ............................................ 5.80* 06/01/15 800,000
-------- ------------
1,600 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $1,600,000) .................................................................... 1,600,000
------------
$123,315 TOTAL INVESTMENTS (Identified Cost $117,991,116) (a)................................. 98.0% 120,454,370
========
OTHER ASSETS IN EXCESS OF LIABILITIES ............................................... 2.0 2,396,575
----- ------------
NET ASSETS .......................................................................... 100.0% $122,850,945
===== ============
</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
$3,883,644 and the aggregate gross unrealized depreciation is
$1,420,390, resulting in net unrealized appreciation of
$2,463,254.
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
8
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (unaudited)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $117,991,116).................. $120,454,370
Cash .............................................. 65,116
Interest receivable ............................... 2,449,489
Prepaid expenses .................................. 11,917
------------
TOTAL ASSETS ................................. 122,980,892
------------
LIABILITIES:
Payable for:
Investment management fee .................... 35,789
Shares of beneficial interest repurchased..... 26,988
Accrued expenses .................................. 67,170
------------
TOTAL LIABILITIES ............................ 129,947
------------
NET ASSETS ................................... $122,850,945
============
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, 8,354,813 shares
outstanding) ................................... $119,735,267
Net unrealized appreciation ....................... 2,463,254
Accumulated undistributed net investment
income ......................................... 570,487
Accumulated undistributed net realized gain ....... 81,937
------------
TOTAL NET ASSETS ............................. $122,850,945
============
NET ASSET VALUE PER COMMON SHARE
($122,850,945 divided by 8,354,813
common shares outstanding) .................... $14.70
======
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 2000 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $3,598,191
----------
EXPENSES
Investment management fee ..................... 216,806
Professional fees ............................. 33,414
Transfer agent fees and expenses .............. 14,824
Shareholder reports and notices ............... 13,537
Trustees' fees and expenses ................... 10,463
Registration fees ............................. 8,170
Custodian fees ................................ 4,793
Other ......................................... 3,902
----------
TOTAL EXPENSES ........................... 305,909
Less: expense offset .......................... (4,787)
----------
NET EXPENSES ............................. 301,122
----------
NET INVESTMENT INCOME .................... 3,297,069
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ............................. 212,804
Net change in unrealized appreciation ......... 200,260
----------
NET GAIN ................................. 413,064
----------
NET INCREASE .................................. $3,710,133
==========
</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, 2000 OCTOBER 31, 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .............................. $ 3,297,069 $ 6,881,180
Net realized gain (loss) ........................... 212,804 (130,867)
Net change in unrealized appreciation .............. 200,260 (11,659,790)
------------ -------------
NET INCREASE (DECREASE) ......................... 3,710,133 (4,909,477)
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income .............................. (3,397,004) (6,859,999)
Net realized gain .................................. -- (1,642,606)
------------ -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ............... (3,397,004) (8,502,605)
------------ -------------
Decrease from transactions in common shares of
beneficial interest .............................. (3,743,170) (2,439,781)
------------ -------------
NET DECREASE .................................... (3,430,041) (15,851,863)
NET ASSETS:
Beginning of period ................................ 126,280,986 142,132,849
------------ -------------
END OF PERIOD
(Including undistributed net investment income of
$570,487 and $670,422, respectively)............. $122,850,945 $ 126,280,986
============ =============
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Notes to Financial Statements April 30, 2000 (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 income and net realized capital
gains are determined in accordance with federal income tax regulations
11
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Notes to Financial Statements April 30, 2000 (unaudited) 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.
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 proceeds from sales of portfolio securities, excluding short-term
investments, for the six months ended April 30, 2000 aggregated $4,370,306.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At April 30, 2000, the Trust had transfer agent fees
and expenses payable of approximately $1,300.
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 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, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $4,301. At April 30, 2000, the Trust had an accrued pension liability of
$25,750 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
12
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Notes to Financial Statements April 30, 2000 (unaudited) continued
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, 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 13.13%)* (295,400) (2,954) (3,740,216)
--------- -------- ------------
Balance, April 30, 2000 .................................................. 8,354,813 $ 83,548 $119,651,719
========= ======== ============
</TABLE>
----------
* The Trustees have voted to retire the shares purchased.
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 March 28, 2000, 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 5, 2000 May 19, 2000
$0.065 June 9, 2000 June 23, 2000
</TABLE>
13
<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 FOR THE YEAR ENDED OCTOBER 31*
MONTHS ENDED --------------------------------------------------------------
APRIL 30, 2000* 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<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 $13.20
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ............................... 0.39 0.78 0.80 0.80 0.80 0.79
Net realized and unrealized gain (loss) ............. 0.04 (1.33) 0.55 0.43 0.11 1.58
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations ....... 0.43 (0.55) 1.35 1.23 0.91 2.37
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income ............................... (0.40) (0.78) (0.81) (0.81) (0.81) (0.75)
Net realized gain ................................... -- (0.19) -- -- -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions .................... (0.40) (0.97) (0.81) (0.81) (0.81) (0.75)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares .... 0.07 0.03 0.01 0.04 0.07 0.09
------ ------ ------ ------ ------ ------
Net asset value, end of period ....................... $14.70 $14.60 $16.09 $15.54 $15.08 $14.91
====== ====== ====== ====== ====== ======
Market value, end of period .......................... $12.75 $12.625 $15.125 $14.375 $13.125 $12.625
====== ====== ====== ====== ====== ======
TOTAL RETURN+ ....................................... 4.22%(1) (10.80)% 11.08% 16.12% 10.52% 20.61%
RATIOS TO AVERAGE NET ASSETS:
Total expenses ....................................... 0.49%(2) 0.49%(3) 0.47% 0.47% 0.49%(3) 0.54%(3)
Net investment income ................................ 5.32%(2) 5.04% 5.02% 5.27% 5.32% 5.51%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .............. $122,851 $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 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) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%
See Notes to Financial Statements
14
<PAGE>
Morgan Stanley Dean Witter Insured Municipal Securities
Revised Investment Policy (unaudited)
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: (i) plus the
difference between such fixed rate and the rate on the short-term obligation, if
the short-term rate is lower than the fixed rate; or (ii) minus such difference
if the interest rate on the short-term obligation is higher than the fixed rate.
The interest rates on these obligations generally move in the reverse direction
of market interest rates. If market interest rates fall, the interest rate on
the obligation will increase and if market interest rates increase, the interest
rate on the obligation will fall. Inverse floating rate municipal obligations
offer the potential for higher income than is available from fixed rate
obligations of comparable maturity and credit rating. They also carry greater
risks. In particular, the prices of inverse floating rate municipal obligations
are more volatile, i.e., they increase and decrease in response to changes in
interest rates to a greater extent than comparable fixed rate obligations
15
<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
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
MORGAN STANLEY
DEAN WITTER
INSURED
MUNICIPAL
SECURITIES
SEMIANNUAL REPORT
APRIL 30, 2000
