UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-07111
Morgan Stanley Insured California Municipal Securities
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: October 31, 2007
Date of reporting period: January 31, 2007
ITEM 1. SCHEDULE OF INVESTMENTS.
The Trust's schedule of investments as of the close of the reporting period
prepared pursuant to Rule 12-12 of Regulation S-X is as follows:
MORGAN STANLEY INSURED CALIFORNIA MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS January 31, 2007 (unaudited)
PRINCIPAL
AMOUNT MATURITY
IN THOUSANDS COUPON RATE DATE VALUE
------------ ----------- -------- --------------
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (100.1%)
General Obligation (12.0%)
$ 400 California, Veterans Ser BH (AMT) (FSA) 5.40% 12/01/16 $ 412,312
505 California, Various Purposes Dtd 03/01/94 (FSA) 5.50 03/01/20 505,707
1,280 Huntington Beach Union High School District, Ser 2004 (FSA) 5.00 08/01/26 1,347,405
1,030 Los Angeles, Ser 2004 A (MBIA) 5.00 09/01/24 1,087,453
340 San Francisco City & County, Laguna Honda Hospital RITES PA
1387 (FSA) 6.802@@ 06/15/30 404,348
1,000 Upland School District, Election 2000 Ser 2001 B (FSA) 5.125 08/01/25 1,060,900
1,375 Washington Unified School District, Election 2004 Ser A (FGIC) 5.00 08/01/22 1,448,192
------------ --------------
5,930 6,266,317
------------ --------------
Educational Facilities Revenue (7.9%)
1,000 California State University, Ser 2005 A (Ambac) 5.00 11/01/35 1,054,870
University of California,
1,000 Limited Projects Ser 2005 B (FSA) 5.00 05/15/30 1,050,680
1,040 Ser 2007 J (FSA) ++ 4.50 05/15/31 1,037,561
960 Ser 2007 J (FSA) ++ 4.50 05/15/35 957,749
------------ --------------
4,000 4,100,860
------------ --------------
Electric Revenue (6.1%)
1,000 Anaheim Public Financing Authority, Generation Refg Ser
2002-B (FSA) 5.25 10/01/18 1,070,880
1,000 Los Angeles Department of Water & Power, 2001 Ser A (FSA) 5.25 07/01/21 1,050,110
1,000 Southern California Public Power Authority, Transmission
Refg Ser 2002 A (FSA) 5.25 07/01/18 1,069,090
------------ --------------
3,000 3,190,080
------------ --------------
Hospital Revenue (1.9%)
1,000 University of California Regents Ser 2007 A (MBIA) 4.50 05/15/37 994,210
------------ --------------
Mortgage Revenue - Single Family (4.2%)
2,000 California Department of Veterans Affairs, Home Purchase 2002
Ser A (Ambac) 5.35 12/01/27 2,128,040
60 California Housing Financing Agency, 1995 Ser B (AMT) (Ambac) 6.25 08/01/14 60,609
------------ --------------
2,060 2,188,649
------------ --------------
Public Facilities Revenue (6.2%)
1,110 Kern County Board of Education, Refg 2006 Ser A COPs (MBIA) 5.00 06/01/31 1,169,585
1,000 Simi Valley Public Financing Authority, Ser 2004 COPs (Ambac) 5.00 09/01/30 1,045,840
1,000 Val Verde Unified School District, School Construction COPs
Ser 2005 B (FGIC) 5.00 01/01/30 1,047,540
------------ --------------
3,110 3,262,965
------------ --------------
Resource Recovery Revenue (3.5%)
Sacramento Financing Authority,
1,510 2005 Refg Solid Waste & Redevelopment (FGIC) 5.00 12/01/17 1,629,169
180 1999 Solid Waste & Redevelopment (Ambac) 5.75 12/01/22 192,519
------------ --------------
1,690 1,821,688
------------ --------------
Tax Allocation Revenue (8.8%)
250 Bay Area Government Association, Pool 1994 Ser A (FSA) 6.00 12/15/24 251,973
1,000 Capistrano Unified School District, Community Facilities
District #98-2 Ladera Special Tax Ser 2005 (FGIC) 5.00 09/01/29 1,055,270
1,100 La Quinta Financing Authority, Local Agency 2004 Ser A (Ambac) 5.25 09/01/24 1,182,071
1,000 Rancho Mirage Redevelopment Agency, Ser 2003 A (MBIA) 5.00 04/01/33 1,037,780
1,000 San Jose Redevelopment Agency, Merged Area
Ser 2002 (MBIA) 5.00 08/01/32 1,055,430
------------ --------------
4,350 4,582,524
------------ --------------
Transportation Facilities Revenue (6.0%)
2,000 Orange County Transportation Authority, Toll Road Express
Lanes Refg Ser 2003 A (Ambac) 5.00 08/15/20 2,130,020
1,000 San Jose, Airport Ser 2001 A (FGIC) 5.00 03/01/25 1,029,890
------------ --------------
3,000 3,159,910
------------ --------------
Water & Sewer Revenue (27.2%)
1,500 California Department of Water Resources, Central Valley
Ser Y (FGIC) 5.25 12/01/19 1,617,390
2,000 East Bay Municipal Utility District, Water Ser 2001 (MBIA) 5.00 06/01/26 2,069,080
1,000 Los Angeles Wastewater Refg Ser 2003 B (FSA) 5.00 06/01/22 1,051,980
1,000 Metropolitan Water District of Southern California, 2003 Ser
B-2 (FGIC) 5.00 10/01/27 1,047,230
1,000 Oxnard Financing Authority, Wastewater 2004 Ser A (FGIC) 5.00 06/01/29 1,049,670
1,000 Sacramento County Sanitation District's Financing Authority,
Ser 2006 (FGIC) 5.00 12/01/28 1,062,380
2,000 Sacramento Financing Authority, Water & Capital Improvement
2001 Ser A (Ambac) 5.00 12/01/26 2,103,779
1,000 San Diego County Water Authority, Ser 2004 A COPs (FSA) 5.00 05/01/29 1,052,020
2,000 San Francisco Public Utilities Commission, Water Refg Ser A
2001 (FSA) 5.00 11/01/31 2,067,680
1,000 Yucaipa Valley Water District, Ser 2004 A COPs (MBIA) 5.25 09/01/24 1,071,240
------------ --------------
13,500 14,192,449
------------ --------------
Other Revenue (2.0%)
1,000 Golden State Tobacco Securitization Corporation,
Enhanced Asset Backed Ser 2005 A (FGIC) 5.00 06/01/38 1,046,040
------------ --------------
Refunded (14.3%)
2,000 Anaheim, Anaheim Memorial Hospital Assn COPs (Ambac) (ETM) 5.125 05/15/20 2,002,280
1,000 California Department of Water Resources, Power Supply
Ser 2002 A (Ambac) 5.375 05/01/12+ 1,088,700
2,000 California Infrastructure & Economic Development Bank, 5.00 07/01/29 2,237,580
Bay Area Toll Bridges Seismic Retrofit First Lien Ser 2003 A
(FGIC) (ETM)
1,000 Los Angeles County Metropolitan Transportation Authority,
Sales Tax Ser 2000 A (FGIC) # 5.25 07/01/30 1,062,250
1,000 Puerto Rico Infrastructure Financing Authority, 2000 Ser A
(ETM) 5.50 10/01/32 1,066,510
------------ --------------
7,000 7,457,320
------------ --------------
49,640 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (COST $49,901,543) 52,263,012
------------ --------------
CALIFORNIA SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (1.5%)
800 Newport Beach, Hoag Memorial Presbyterian Hospital 1992
Ser (Demand 02/01/07) (Cost $800,000) 3.00* 10/01/22 800,000
------------ --------------
50,440 TOTAL INVESTMENTS (COST $50,701,543) 53,063,012
------------ --------------
(1,500) FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD
(-2.9%)
Notes with interest rate of 3.44% at January 31, 2007
and contractual maturities of collateral ranging from
05/15/31 to 05/15/35+++(c) (Cost ($1,500,000)) (1,500,000)
------------ --------------
$ 48,940 TOTAL NET INVESTMENTS (COST $49,201,543) (A) (B) 98.7% 51,563,012
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3 673,988
------------ -------- --------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 100.0% $52,237,000
======== ==============
----------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
RITES Residual Interest Tax-Exempt Securities (Illiquid securities).
@@ Current coupon rate for residual interest bond. This rate resets
periodically as the auction rate on the related security changes. Position
in an inverse floating rate municipal obligation has a value of $404,348
which represents 0.8% of net assets applicable to common shareholders.
+ Prerefunded to call date shown.
++ Underlying security related to inverse floaters entered into by the Trust.
+++ Floating rate note obligation related to securities held. The interest
rate shown reflects the rate in effect January 31,2007.
* Current coupon of variable rate demand obligation.
# A portion of this security has been physically segregated in connection
with open futures contracts in the amount of $32,500.
(A) Securities have been designated as collateral in an amount equal to
$5,412,539 in connection with open futures contracts.
(B) The aggregate cost for federal income tax purposes is $49,137,304. The
aggregate gross unrealized appreciation is $2,446,197 and the aggregate
gross unrealized depreciation is $20,489, resulting in net unrealized
appreciation of $2,425,708.
(C) Floating Rate Note Obligations Related to Securities Held - The Trust
enters into transactions in which it transfers to Dealer Trusts ("Dealer
Trusts"), fixed rate bonds in exchange for cash and residual interests in
the Dealer Trusts' assets and cash flows, which are in the form of inverse
floating rate investments. The Dealer Trusts fund the purchases of the
fixed rate bonds by issuing floating rate notes to third parties and
allowing the Trust to retain residual interest in the bonds. The Trust
enters into shortfall agreements with the Dealer Trusts which commit
the Trust to pay the Dealer Trusts, in certain circumstances, the
difference between the liquidation value of the fixed rate bonds held by
the Dealer Trusts and the liquidation value of the floating rate notes held
by third parties, as well as any shortfalls in interest cash flows. The
residual interests held by the Trust (inverse floating rate investments)
include the right of the Trust (1) to cause the holders of the floating
rate notes to tender their notes at par at the next interest rate reset
date, and (2) to transfer the municipal bond from the Dealer Trusts to the
Trust, thereby collapsing the Dealer Trusts. The Trust accounts for the
transfer of bonds to the Dealer Trusts as secured borrowings, with the
securities transferred remaining in the Fund's investment assets, and the
related floating rate notes reflected as Trust liabilities. The notes
issued by the Dealer Trust have interest rates that reset weekly and the
floating rate note holders have the option to tender their notes to the
Dealer Trust for redemption at par at each reset date. At January 31, 2007,
Trust investments with a value of $1,995,310 are held by the Dealer Trust
and serve as collateral l for the $1,500,000 in floating rate note
obligations outstanding at that date. Contractual maturities of the
floating rate note obligations and interest rates in effect at January 31,
2007 are presented in the "Portfolio of Investments".
BOND INSURANCE:
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
FUTURES CONTRACTS OPEN AT JANUARY 31, 2007:
UNDERLYING
NUMBER OF DESCRIPTION, DELIVERY FACE AMOUNT UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AT VALUE APPRECIATION
--------- ---------- -------------------------------------- ----------- ------------
50 Short U.S. Treasury Notes 10 Year March 2007 $(5,337,500) $107,402
========
ITEM 2. CONTROLS AND PROCEDURES.
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
provide reasonable assurance that information required to be disclosed by the
Trust in this Form N-Q was recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's ("SEC")
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report. The
Trust's principal executive officer and principal financial officer have also
concluded that the Trust's disclosure controls and procedures designed to ensure
that information required to be disclosed by the Trust in this Form N-Q is
accumulated and communicated to the Trust's management, including its principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure were effective.
Management of the Trust has determined that as of and prior to January 31, 2007,
the Trust's fiscal quarter end period, the Trust had a deficiency in its
internal control over financial reporting related to the review, analysis and
determination of whether certain transfers of municipal securities qualified for
sale accounting under the provisions of Statement of Financial Accounting
Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." Since January 31, 2007, and prior to the
issuance of the Trust's quarterly schedule of portfolio holdings, management has
revised its disclosure controls and procedures and its internal control over
financial reporting in order to improve the controls' effectiveness to ensure
that transactions in transfer of municipal securities are accounted for
properly.
Management notes that other investment companies investing in similar
investments over similar time periods had been accounting for such investments
in a similar manner as the Trust. Accordingly, other investment companies are
also concluding that there was a material weakness in their internal control
over financial reporting of such investments. There was no impact to the net
asset value of the Trust's shares or the Trust's total return for any period as
a result of the changes in financial reporting of such investments.
(b) There were no changes in the Trust's internal control over financial
reporting that occurred during the fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Trust's internal control over
financial reporting. However, as discussed above, subsequent to January 31,
2007, the Trust's internal control over financial reporting was revised.
ITEM 3. EXHIBITS.
(a) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Insured California
Municipal Securities
/s/ Ronald E. Robison
-------------------------------------
Ronald E. Robison
Principal Executive Officer
March 22, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
-------------------------------------
Ronald E. Robison
Principal Executive Officer
March 22, 2007
/s/ Francis Smith
-------------------------------------
Francis Smith
Principal Financial Officer
March 22, 2007
3