UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
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, 2005
Date of reporting period: October 31, 2005
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Insured
California Municipal Securities performed during the annual period. We will
provide an overview of the market conditions, and discuss some of the factors
that affected performance during the reporting period. In addition, this report
includes the Trust's financial statements and a list of Trust investments.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE TRUST
IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE TRUST WILL DECLINE AND, THEREFORE, THE VALUE OF THE
TRUST'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN
LOSE MONEY INVESTING IN THIS TRUST.
FUND REPORT
For the year ended October 31, 2005
MARKET CONDITIONS
Throughout the 12-month period ended October 31, 2005, economic reports
continued to show moderate growth, sustained consumer spending, and reasonable
gains in employment. Although core inflation (which excludes food and energy)
remained benign, inflationary concerns mounted during the summer as heavy demand
and geopolitical events drove oil prices to protracted highs. September brought
heightened uncertainty in the wake of the unprecedented devastation caused by
Hurricanes Rita and Katrina. The immediate economic impact was a major
disruption of the nation's energy infrastructure. However, in the weeks that
followed, economists generally agreed that an initial slowdown would be followed
by stimulus to growth from reconstruction.
The Federal Open Market Committee (the Fed) continued the "measured" rate
tightening cycle it began in June of 2004, raising the federal funds target rate
eight times during the 12-month period. As a result, the rate moved from 1.75
percent to 3.75 percent, a four-year high. Yet, as the period closed, signals
from the Fed supported investors' expectations of additional increases.
Although yields on short maturity bonds rose in response to the Fed's actions,
the yields of long-term municipal bonds were lower to unchanged. Representative
yields on 30-year AAA rated municipal bonds declined from 4.60 percent at the
start of the period to a low of 4.25 percent in the summer, returning to 4.60
percent at the end of October. Overall, the municipal yield curve continued to
flatten and the yield spread (or differential between one-year rates and 30-year
rates) narrowed.
Lower yields during most of the year led to a surge in refinancing activity, and
municipal issuance remained strong. New issue volume increased by 12 percent to
a record $336 billion during the first 10 months of the calendar year. As
issuers rushed to refinance higher cost debt, refundings increased to 35 percent
of total issuance, up from 24 percent in the first 10 months of 2004. Bonds
backed by insurance dominated issuance and increased their market penetration to
nearly 60 percent. California issuers represented 15 percent of volume in 2005.
The municipal-to-Treasury yield ratio, which gauges performance between the two
markets, remained attractive for tax-exempt bonds. The 30-year ratio averaged 97
percent during the period and moved as high as 102 percent in June. (Higher
ratios indicate increased relative attractiveness of municipal bonds.) As a
result, institutional investors that normally focus on taxable bond sectors
supported municipals by "crossing over" to purchase tax-exempt bonds.
California's economic conditions continued to improve with defense and high tech
sectors experiencing steady growth. On the fiscal front, this has led to
stronger state revenues. The state also made progress in addressing some of its
structural budget imbalances.
PERFORMANCE ANALYSIS
For the 12-month period ended October 31, 2005, the net asset value (NAV) of
Morgan Stanley Insured California Municipal Securities (ICS) decreased from
$15.35 to $15.17 per share. ICS paid tax-free dividends totaling $0.655 per
share and a long-term capital gain distribution of $0.127818 per share. The
Trust's total NAV return was 4.49 percent. ICS's value on the New
2
York Stock Exchange (NYSE) moved from $13.96 to $13.99 per share during the same
period. Based on this change plus reinvestment of dividends and distributions,
the Trust's total market return was 5.96 percent. On October 31, 2005, ICS's
NYSE market price was at a 7.78 percent discount to its NAV. During the 12-month
period ended October 31, 2005, the Trust purchased and retired 123,741 shares of
common stock at a weighted average market discount of 7.99 percent. Past
performance is no guarantee of future results.
Monthly dividends for the fourth quarter of 2005, declared in September, were
decreased from $0.055 to $0.05 per share. The new dividend reflects the current
level of the Trust's net investment income. ICS's level of undistributed net
investment income was $0.110 per share on October 31, 2005, versus $0.132 per
share 12 months earlier.(1)
During the period the Trust maintained a conservative strategy in anticipation
of continued Fed tightening and higher interest rates. The Trust's duration* (a
measure of interest rate sensitivity) was positioned defensively throughout the
period. Overall, this duration stance tempered total returns early in the fiscal
period when rates declined, but helped total returns as rates rose. The Trust's
option-adjusted duration was 7.0 years at the end of the reporting period.
Consistent with a commitment to diversification, the Trust's net assets of $54
million were invested among 12 long-term sectors and 41 credits.
The Trust's procedure for reinvesting 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
investors 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 NAV, whichever is lower at the
time of purchase.
------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL
FLUCTUATE AND TRUST SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
* A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates. The
longer a bond's duration, the greater the effect of interest-rate movements on
its price. Typically, trusts with shorter durations perform better in
rising-interest-rate environments, while trusts with longer durations perform
better when rates decline.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Trust in the future.
(1)Income earned by certain securities in the portfolio may be subject to the
federal alternative minimum tax (AMT).
3
TOP FIVE SECTORS**
Water & Sewer 20.1%
Tax Allocation 12.4%
Transportation 11.5%
General Obligation 9.9%
Refunded 9.6%
CREDIT ENHANCEMENTS
AMBAC 35.1%
FGIC 26.8%
FSA 24.3%
MBIA 11.8%
US Gov't Backed 2.0%
Data as of October 31, 2005. Subject to change daily. All percentages for top
five sectors are as a percentage of net assets applicable to common
shareholders. All percentages for credit enhancements are as a percentage of net
assets applicable to common shareholders. These data are provided for
informational purposes only and should not be deemed a recommendation to buy or
sell the securities mentioned. Morgan Stanley is a full-service securities firm
engaged in securities trading and brokerage activities, investment banking,
research and analysis, financing and financial advisory services.
** Does not include open short future contracts with an underlying face amount
of $6,379,063 with unrealized appreciation of $106,069.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY TRUST PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE TRUST'S
SECOND AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO TRUST SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN
STANLEY TRUST ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE TRUST'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of October 31, 2005
WEIGHTED AVERAGE MATURITY: 19 YEARS(A)
0-5 0.00
6-10 5.00
11-15 26.00
16-20 21.00
21-25 30.00
26-30 16.00
30+ 2.00
(a) Where applicable maturities reflect mandatory tenders, puts and call dates.
Portfolio structure is subject to change.
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of October 31, 2005
YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
2005(a) 9
2006 1
2007 0
2008 0
2009 2
2010 6
2011 18
2012 13
2013 23
2014 13
2015+ 15
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.0%
2005(a) 6.2
2006 6.5
2007 0
2008 0
2009 5.9
2010 5.2
2011 5.1
2012 4.9
2013 4.8
2014 4.9
2015+ 4.4
(a) May include issues initially callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Trust's operating expenses.
For example, the Trust is earning a book yield of 6.2% on 9% of the
long-term portfolio that is callable in 2005.
Portfolio structure is subject to change.
6
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2005
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
California Tax-Exempt Municipal Bonds (96.8%)
General Obligation (9.9%)
$ 505 California, Various Purpose Dtd 03/01/94 (FSA)............ 5.50 % 03/01/20 $ 508,646
1,280 Huntington Beach Union High School District, Ser 2004
(FSA)................................................... 5.00 08/01/26 1,330,944
1,030 Los Angeles, Ser 2004 A (MBIA)............................ 5.00 09/01/24 1,074,383
1,000 Upland School District, Election 2000 Ser 2001 B (FSA).... 5.125 08/01/25 1,054,220
1,375 Washington Unified School District, Election 2004 Ser A
(FGIC).................................................. 5.00 08/01/22 1,437,219
-----------
-------
5,405,412
5,190
-----------
-------
Educational Facilities Revenue (6.2%)
1,000 California State University, Ser 2005 A (Ambac)........... 5.00 11/01/35 1,034,010
University of California,
1,000 Limited Projects Ser 2005 B (FSA) (WI).................. 5.00 05/15/30 1,034,030
1,250 Multi Purpose Ser Q (FSA)............................... 5.00 09/01/31 1,287,888
-----------
-------
3,355,928
3,250
-----------
-------
Electric Revenue (8.7%)
1,000 Anaheim Public Financing Authority, Generation Refg Ser
2002-B (FSA)............................................ 5.25 10/01/18 1,080,490
1,400 California Department of Water Resources, Power Supply Ser
2002 A (Ambac).......................................... 5.375 05/01/18 1,512,616
1,000 Los Angeles Department of Water & Power, 2001 Ser A
(FSA)................................................... 5.25 07/01/21 1,063,280
1,000 Southern California Public Power Authority, Transmission
Refg Ser 2002 A (FSA)................................... 5.25 07/01/18 1,079,320
-----------
-------
4,735,706
4,400
-----------
-------
Mortgage Revenue - Multi-Family (4.0%)
2,130 Los Angeles Community Redevelopment Agency, 1994 Ser A
------- (Ambac)................................................. 6.45 07/01/17 2,156,795
-----------
Mortgage Revenue - Single Family (4.1%)
2,000 California Department of Veterans Affairs, Home Purchase
2002 Ser A (Ambac)...................................... 5.35 12/01/27 2,071,840
135 California Housing Financing Agency, 1995 Ser B (AMT)
(Ambac)................................................. 6.25 08/01/14 137,512
-----------
-------
2,209,352
2,135
-----------
-------
Public Facilities Revenue (3.8%)
1,000 Simi Valley Public Financing Authority, Ser 2004 COPs
(Ambac)................................................. 5.00 09/01/30 1,028,340
1,000 Val Verde Unified School District, School Construction
COPs Ser 2005 B (FGIC).................................. 5.00 01/01/30 1,029,200
-----------
-------
2,057,540
2,000
-----------
-------
Resource Recovery Revenue (4.6%)
Sacramento Financing Authority,
1,510 2005 Refg Solid Waste & Redevelopment (FGIC)............ 5.00 12/01/17 1,611,623
See Notes to Financial Statements
7
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2005 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
$ 835 1999 Solid Waste & Redevelopment (Ambac)................ 5.75 % 12/01/22 $ 919,702
-----------
-------
2,531,325
2,345
-----------
-------
Tax Allocation Revenue (12.4%)
250 Bay Area Government Association, Pool 1994 Ser A (FSA).... 6.00 12/15/24 253,308
1,145 Capistrano Unified School District, Community Facilities
District #98-2 Ladera Special Tax Ser 2005 (FGIC)....... 5.00 09/01/29 1,183,117
1,100 La Quinta Financing Authority, Local Agency 2004 Ser A
(Ambac)................................................. 5.25 09/01/24 1,177,319
1,000 Long Beach Bond Finance Authority, Downtown, North Long
Beach, Poly High and West Beach Areas 2002 Ser A
(Ambac)................................................. 5.375 08/01/21 1,075,670
1,000 Rancho Mirage Redevelopment Agency, Ser 2003 A (MBIA)..... 5.00 04/01/33 1,022,650
1,000 San Jose Redevelopment Agency, Merged Area Ser 2002
(MBIA).................................................. 5.00 08/01/32 1,018,370
1,000 San Marcos Public Facilities Authority, Areas #2 & 3 2005
Ser C (Ambac)........................................... 5.00 08/01/35 1,026,720
-----------
-------
6,757,154
6,495
-----------
-------
Transportation Facilities Revenue (11.5%)
2,000 California Infrastructure & Economic Development Bank, Bay
Area Toll Bridges Seismic Retrofit First Lien Ser 2003 A
(FGIC).................................................. 5.00 07/01/29 2,064,760
1,000 Los Angeles County Metropolitan Transportation Authority,
Sales Tax Ser 2000 A (FGIC) #........................... 5.25 07/01/30 1,056,520
2,000 Orange County Transportation Authority, Toll Road Express
Lanes Refg Ser 2003 A (Ambac)........................... 5.00 08/15/20 2,100,900
1,000 San Jose, Airport Ser 2001 A (FGIC)....................... 5.00 03/01/25 1,022,700
-----------
-------
6,244,880
6,000
-----------
-------
Water & Sewer Revenue (20.1%)
1,500 California Department of Water Resources, Central Valley
Ser Y (FGIC)............................................ 5.25 12/01/19 1,617,480
2,000 East Bay Municipal Utility District, Water Ser 2001
(MBIA).................................................. 5.00 06/01/26 2,054,280
1,000 Los Angeles, Wastewater Refg Ser 2003 B (FSA)............. 5.00 06/01/22 1,044,990
1,000 Metropolitan Water District of Southern California, 2003
Ser B-2 (FGIC).......................................... 5.00 10/01/27 1,034,640
1,000 Oxnard Financing Authority, Redwood Trunk Sewer &
Headworks Ser 2004 A (FGIC)............................. 5.00 06/01/29 1,034,160
1,000 San Diego County Water Authority, Ser 2004 A COPs (FSA)... 5.00 05/01/29 1,034,790
2,000 San Francisco Public Utilities Commission, Water Refg Ser
A 2001 (FSA)............................................ 5.00 11/01/31 2,048,380
1,000 Yucaipa Valley Water District, Ser 2004 A COPs (MBIA)..... 5.25 09/01/24 1,065,740
-----------
-------
10,934,460
10,500
-----------
-------
Other Revenue (1.9%)
1,000 Golden State Tobacco Securitization Corporation, Enhanced
Asset Backed Ser 2005 A (FGIC).......................... 5.00 06/01/38 1,021,730
-----------
-------
See Notes to Financial Statements
8
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2005 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Refunded (9.6%)
$ 2,000 Anaheim, Anaheim Memorial Hospital Association COPs
(Ambac) (ETM)........................................... 5.125% 05/15/20 $ 2,014,360
2,000 Sacramento Financing Authority, Water & Capital
Improvement 2001 Ser A (Ambac).......................... 5.00 06/01/11+ 2,151,100
1,000 Puerto Rico Infrastructure Financing Authority, 2000 Ser A
(ETM)................................................... 5.50 10/01/32 1,085,970
-----------
-------
5,251,430
5,000
-----------
-------
50,445 Total California Tax-Exempt Municipal Bonds (Cost $50,791,751)................ 52,661,712
-----------
-------
California Short-Term Tax-Exempt Municipal Obligations (3.7%)
500 California Department of Water Resources, Power Supply Ser
2002 B (Demand 11/01/05)................................ 2.69* 05/01/22 500,000
1,500 Orange County Sanitation District, Ser 2000 A COPs (Demand
11/01/05)............................................... 2.66* 08/01/30 1,500,000
-----------
-------
2,000 Total California Short-Term Tax-Exempt Municipal Obligations (Cost
$2,000,000)................................................................... 2,000,000
-----------
-------
$52,445 Total Investments (Cost $52,791,751) (a) (b)......................... 100.5% 54,661,712
-------
Liabilities In Excess of Other Assets................................ (0.5) (248,433)
----- -----------
Net Assets Applicable to Common Shareholders......................... 100.0% $54,413,279
===== ===========
---------------------
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.
# 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 $7,482,737 in connection with open futures
contracts and securities purchased on a when-issued basis.
(b) The aggregate cost for federal income tax purposes is
$52,736,130. The aggregate gross unrealized appreciation is
$2,040,772 and the aggregate gross unrealized depreciation
is $115,190, resulting in net unrealized appreciation of
$1,925,582.
Bond Insurance:
---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
9
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2005 continued
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2005:
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
-------------------------------------------------------------------------------------------
50 Short U.S. Treasury Notes 5 $(5,294,532) $ 80,565
Year December 2005
10 Short U.S. Treasury Notes 10 (1,084,531) 25,504
Year December 2005
--------
Total Unrealized Appreciation.................... $106,069
========
See Notes to Financial Statements
10
Morgan Stanley Insured California Municipal Securities
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2005
Assets:
Investments in securities, at value (cost $52,791,751)...... $54,661,712
Cash........................................................ 55,232
Interest receivable......................................... 794,868
Prepaid expenses and other assets........................... 4,269
-----------
Total Assets............................................ 55,516,081
-----------
Liabilities:
Payable for:
Investments purchased................................... 1,029,940
Investment advisory fee................................. 12,586
Administration fee...................................... 3,729
Transfer agent fee...................................... 3,288
Common shares of beneficial interest repurchased........ 2,804
Variation margin........................................ 1,094
Accrued expenses and other payables......................... 49,361
-----------
Total Liabilities....................................... 1,102,802
-----------
Preferred shares of beneficial interest (1,000,000 shares
non-participating $.01 par value, none issued)............ --
-----------
Net Assets Applicable to Common Shareholders............ $54,413,279
===========
Composition of Net Assets Applicable to Common Shareholders:
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 3,586,372 shares
outstanding).............................................. $50,920,674
Net unrealized appreciation................................. 1,976,030
Accumulated undistributed net investment income............. 394,361
Accumulated undistributed net realized gain................. 1,122,214
-----------
Net Assets Applicable to Common Shareholders............ $54,413,279
===========
Net Asset Value Per Common Share
($54,413,279 divided by 3,586,372 common shares
outstanding)................................................ $15.17
===========
See Notes to Financial Statements
11
Morgan Stanley Insured California Municipal Securities
FINANCIAL STATEMENTS continued
Statement of Operations
For the year ended October 31, 2005
Net Investment Income:
Interest Income............................................. $ 2,626,131
-----------
Expenses
Investment advisory fee..................................... 151,313
Professional fees........................................... 78,203
Administration fee.......................................... 44,833
Shareholder reports and notices............................. 25,042
Registration fees........................................... 16,165
Transfer agent fees and expenses............................ 12,604
Custodian fees.............................................. 5,238
Trustees' fees and expenses................................. 687
Other....................................................... 11,170
-----------
Total Expenses.......................................... 345,255
Less: expense offset........................................ (4,950)
-----------
Net Expenses............................................ 340,305
-----------
Net Investment Income................................... 2,285,826
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments................................................. 1,106,514
Futures contracts........................................... (3,742)
-----------
Net Realized Gain....................................... 1,102,772
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. (1,468,543)
Futures contracts........................................... 149,901
-----------
Net Depreciation........................................ (1,318,642)
-----------
Net Loss................................................ (215,870)
-----------
Net Increase................................................ $ 2,069,956
===========
See Notes to Financial Statements
12
Morgan Stanley Insured California Municipal Securities
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2005 OCTOBER 31, 2004
---------------- ----------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 2,285,826 $ 2,481,552
Net realized gain........................................... 1,102,772 482,387
Net change in unrealized appreciation/depreciation.......... (1,318,642) 446,846
----------- -----------
Net Increase............................................ 2,069,956 3,410,785
----------- -----------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (2,405,662) (2,390,725)
Net realized gain........................................... (463,024) (754,732)
----------- -----------
Total Dividends and Distributions....................... (2,868,686) (3,145,457)
----------- -----------
Decrease from transactions in common shares of beneficial
interest.................................................. (1,742,523) (1,233,332)
----------- -----------
Net Decrease............................................ (2,541,253) (968,004)
Net Assets Applicable to Common Shareholders:
Beginning of period......................................... 56,954,532 57,922,536
----------- -----------
End of Period
(Including accumulated undistributed net investment income
of $394,361 and $489,809, respectively)..................... $54,413,279 $56,954,532
=========== ===========
See Notes to Financial Statements
13
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2005
1. Organization and Accounting Policies
Morgan Stanley Insured California 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 both federal and
California income taxes. The Trust was organized as a Massachusetts business
trust on October 14, 1993 and commenced operations on February 28, 1994.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid 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 mean between the last reported bid and
asked price. 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.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (2) futures are valued at the latest sale price
on the commodities exchange on which they trade unless it is determined that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees; and (3) 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.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Trust is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Trust agrees to
receive from or pay to the
14
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2005 continued
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments known as variation margin are recorded by
the Trust as unrealized gains and losses. Upon closing of the contract, the
Trust realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
D. Federal Income Tax Policy -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
E. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
F. Use of Estimates -- 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.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement, with Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser"), the Trust pays an advisory fee,
calculated weekly and payable monthly, by applying the annual rate of 0.27% to
the Trust's weekly net assets.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Trust
pays an administration fee, calculated weekly and payable monthly, by applying
the annual rate of 0.08% 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, 2005 aggregated
$14,084,359 and $16,690,181, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator,
is the Trust's transfer agent.
The Trust has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Trustee to defer payment of all, or a portion, of
the fees he receives for serving on the Board of Trustees. Each eligible Trustee
generally may elect to have the deferred amounts credited with a return equal to
the total return on one or more of the Morgan Stanley funds that are offered as
investment options under the Compensation Plan. Appreciation/depreciation and
distributions
15
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2005 continued
received from these investments are recorded with an offsetting
increase/decrease in the deferred compensation obligation and do not affect the
net asset value of the Trust.
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.
Upon issuance, the Trust will be 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.
As of October 31, 2005, there were no preferred shares outstanding.
5. Common Shares of Beneficial Interest
Transactions in common shares of beneficial interest were as follows:
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
--------- --------- -----------
Balance, October 31, 2003................................... 3,799,913 $37,999 $53,858,530
Treasury shares purchased and retired (weighted average
discount 9.05%)*.......................................... (89,800) (898) (1,232,434)
--------- ------- -----------
Balance, October 31, 2004................................... 3,710,113 37,101 52,626,096
Treasury shares purchased and retired (weighted average
discount 7.99%)*.......................................... (123,741) (1,237) (1,741,286)
--------- ------- -----------
Balance, October 31, 2005................................... 3,586,372 $35,864 $50,884,810
========= ======= ===========
---------------------
* The Trustees have voted to retire the shares purchased.
16
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2005 continued
6. Dividends to Common Shareholders
On September 27, 2005, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ----------------- -----------------
$0.05 November 4, 2005 November 18, 2005
$0.05 December 9, 2005 December 23, 2005
7. Expense Offset
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Trust.
8. 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.
To hedge against adverse interest rate changes, the Trust may invest in
financial futures contracts or municipal bond index futures contracts ("futures
contracts").
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Trust bears the risk
of an unfavorable change in the value of the underlying securities. Risks may
also arise upon entering into these contracts from the potential inability of
the counterparties to meet the terms of their contracts.
9. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
17
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2005 continued
The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2005 OCTOBER 31, 2004
---------------- ----------------
Tax-exempt income........................................... $2,395,477 $2,376,330
Ordinary income............................................. 10,185 14,395
Long-term capital gains..................................... 463,024 754,732
---------- ----------
Total distributions......................................... $2,868,686 $3,145,457
========== ==========
As of October 31, 2005, the tax-basis components of accumulated earnings were as
follows:
Undistributed tax-exempt income............................. $ 290,314
Undistributed ordinary income............................... 134,039
Undistributed long-term gains............................... 1,142,735
----------
Net accumulated earnings.................................... 1,567,088
Temporary differences....................................... (65)
Net unrealized appreciation................................. 1,925,582
----------
Total accumulated earnings.................................. $3,492,605
==========
As of October 31, 2005, the Trust had temporary book/tax differences primarily
attributable to book amortization of discounts on debt securities and
mark-to-market of open futures contracts and permanent book/tax differences
attributable to tax adjustments on debt securities sold by the Trust. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged and accumulated undistributed net
investment income was credited $24,388.
18
Morgan Stanley Insured California Municipal Securities
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
FOR THE YEAR ENDED OCTOBER 31
----------------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Selected Per Share Data:
Net asset value, beginning of period........................ $15.35 $15.24 $15.56 $16.00 $15.24
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income*.................................. 0.62 0.66 0.67 0.69 0.78
Net realized and unrealized gain (loss)................. (0.05) 0.25 (0.07) (0.01) 0.71
------ ------ ------ ------ ------
Total income from investment operations..................... 0.57 0.91 0.60 0.68 1.49
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................................... (0.66) (0.63) (0.71) (0.72) (0.75)
Net realized gain....................................... (0.13) (0.20) (0.25) (0.41) --
------ ------ ------ ------ ------
Total dividends and distributions........................... (0.79) (0.83) (0.96) (1.13) (0.75)
------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares*.......... 0.04 0.03 0.04 0.01 0.02
------ ------ ------ ------ ------
Net asset value, end of period.............................. $15.17 $15.35 $15.24 $15.56 $16.00
====== ====== ====== ====== ======
Market value, end of period................................. $13.99 $13.96 $13.83 $14.15 $15.29
====== ====== ====== ====== ======
Total Return+............................................... 5.96% 7.19% 4.57% (0.14)% 20.34%
Ratios to Average Net Assets:
Total expenses (before expense offset)...................... 0.62%(1) 0.58%(1) 0.55%(1) 0.55%(1) 0.57%(1)
Net investment income....................................... 4.09% 4.37% 4.50% 4.68% 5.01%
Supplemental Data:
Net assets, end of period, in thousands..................... $54,413 $56,955 $57,923 $60,862 $63,150
Portfolio turnover rate..................................... 26% 31% 31% 19% 22%
---------------------
* 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
19
Morgan Stanley Insured California Municipal Securities
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Morgan Stanley Insured California Municipal Securities:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Insured California Municipal Securities (the "Trust"), including the
portfolio of investments, as of October 31, 2005, and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers. We believe that our audits provide 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 Insured California Municipal Securities as of October 31, 2005, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
December 19, 2005
20
Morgan Stanley Insured California Municipal Securities
SHAREHOLDER VOTING RESULTS
On June 21, 2005, an annual meeting of the Trust's shareholders was held for the
purpose of voting on the following matters, the results of which were as
follows:
Election of Trustees by all Shareholders:
FOR WITHHELD
----------------------------
Michael Bozic............................................... 2,592,031 63,398
Charles A. Fiumefreddo...................................... 2,592,536 62,893
James F. Higgins............................................ 2,595,086 60,343
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael E.
Nugent and Fergus Reid.
21
Morgan Stanley Insured California Municipal Securities
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
--------------------------------------- ----------- -------------- ------------------------------ -------------
Michael Bozic (64) Trustee Since April Private Investor; Director or 197
c/o Kramer Levin Naftalis & Frankel LLP 1994 Trustee of the Retail Funds
Counsel to the Independent Trustees (since April 1994) and the
1177 Avenue of the Americas Institutional Funds (since
New York, NY 10036 July 2003); formerly Vice
Chairman of Kmart Corporation
(December 1998-October 2000),
Chairman and Chief Executive
Officer of Levitz Furniture
Corporation (November
1995-November 1998) and
President and Chief Executive
Officer of Hills Department
Stores (May 1991-July 1995);
formerly variously Chairman,
Chief Executive Officer,
President and Chief Operating
Officer (1987-1991) of the
Sears Merchandise Group of
Sears, Roebuck & Co.
Edwin J. Garn (73) Trustee Since January Consultant; Director or 197
1031 N. Chartwell Court 1993 Trustee of the Retail Funds
Salt Lake City, UT 84103 (since January 1993) and the
Institutional Funds (since
July 2003); member of the Utah
Regional Advisory Board of
Pacific Corp. (utility
company); formerly Managing
Director of Summit Ventures
LLC (2000-2004) (lobbying and
consulting firm); United
States Senator (R-Utah)
(1974-1992) and Chairman,
Senate Banking Committee
(1980-1986), Mayor of Salt
Lake City, Utah (1971-1974),
Astronaut, Space Shuttle
Discovery (April 12-19, 1985),
and Vice Chairman, Huntsman
Corporation (chemical
company).
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
--------------------------------------- -----------------------------------
Michael Bozic (64) Director of various business
c/o Kramer Levin Naftalis & Frankel LLP organizations.
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
Edwin J. Garn (73) Director of Franklin Covey (time
1031 N. Chartwell Court management systems), BMW Bank of
Salt Lake City, UT 84103 North America, Inc. (industrial
loan corporation), Escrow Bank USA
(industrial loan corporation);
United Space Alliance (joint
venture between Lockheed Martin and
the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing);
member of the board of various
civic and charitable organizations.
22
Morgan Stanley Insured California Municipal Securities
TRUSTEE AND OFFICER INFORMATION continued
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
--------------------------------------- ----------- -------------- ------------------------------ -------------
Wayne E. Hedien (71) Trustee Since Retired; Director or Trustee 197
c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since
Counsel to the Independent Trustees September 1997) and the
1177 Avenue of the Americas Institutional Funds (since
New York, NY 10036 July 2003); formerly
associated with the Allstate
Companies (1966-1994), most
recently as Chairman of The
Allstate Corporation (March
1993-December 1994) and
Chairman and Chief Executive
Officer of its wholly-owned
subsidiary, Allstate Insurance
Company (July 1989-December
1994).
Dr. Manuel H. Johnson (56) Trustee Since July Senior Partner, Johnson Smick 197
c/o Johnson Smick Group, Inc. 1991 International, Inc., a
888 16th Street, NW consulting firm; Chairman of
Suite 740 the Audit Committee and
Washington, D.C. 20006 Director or Trustee of the
Retail Funds (since July 1991)
and the Institutional Funds
(since July 2003); Co-
Chairman and a founder of the
Group of Seven Council (G7C),
an international economic
commission; formerly Vice
Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (63) Trustee Since July President, Kearns & Associates 198
c/o Kearns & Associates LLC 2003 LLC (investment consulting);
PMB754 Deputy Chairman of the Audit
23852 Pacific Coast Highway Committee and Director or
Malibu, CA 90265 Trustee of the Retail Funds
(since July 2003) and the
Institutional Funds (since
August 1994); previously
Chairman of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); formerly CFO of the J.
Paul Getty Trust.
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
--------------------------------------- -----------------------------------
Wayne E. Hedien (71) Director of The PMI Group Inc.
c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The
1177 Avenue of the Americas Field Museum of Natural History;
New York, NY 10036 director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (56) Director of NVR, Inc. (home
c/o Johnson Smick Group, Inc. construction); Director of KFX
888 16th Street, NW Energy; Director of RBS Greenwich
Suite 740 Capital Holdings (financial holding
Washington, D.C. 20006 company).
Joseph J. Kearns (63) Director of Electro Rent
c/o Kearns & Associates LLC Corporation (equipment leasing),
PMB754 The Ford Family Foundation, and the
23852 Pacific Coast Highway UCLA Foundation.
Malibu, CA 90265
23
Morgan Stanley Insured California Municipal Securities
TRUSTEE AND OFFICER INFORMATION continued
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
--------------------------------------- ----------- -------------- ------------------------------ -------------
Michael E. Nugent (69) Trustee Since July General Partner of Triumph 197
c/o Triumph Capital, L.P. 1991 Capital, L.P., a private
445 Park Avenue investment partnership;
New York, NY 10022 Chairman of the Insurance
Committee and Director or
Trustee of the Retail Funds
(since July 1991) and the
Institutional Funds (since
July 2001); formerly Vice
President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).
Fergus Reid (73) Trustee Since July Chairman of Lumelite Plastics 198
c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the
85 Charles Colman Blvd. Governance Committee and
Pawling, NY 12564 Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since June 1992).
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
--------------------------------------- -----------------------------------
Michael E. Nugent (69)
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022
Fergus Reid (73) Trustee and Director of certain
c/o Lumelite Plastics Corporation investment companies in the
85 Charles Colman Blvd. JPMorgan Funds complex managed by
Pawling, NY 12564 J.P. Morgan Investment Management
Inc.
24
Morgan Stanley Insured California Municipal Securities
TRUSTEE AND OFFICER INFORMATION continued
Interested Trustees:
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Interested Trustee Registrant Time Served* Past 5 Years** Trustee***
------------------------------------- ----------- -------------- ------------------------------ -------------
Charles A. Fiumefreddo (72) Chairman of Since July Chairman and Director or 197
c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds
Harborside Financial Center, and Trustee (since July 1991) and the
Plaza Two, Institutional Funds (since
Jersey City, NJ 07311 July 2003); formerly Chief
Executive Officer of the
Retail Funds (until September
2002).
James F. Higgins (57) Trustee Since June Director or Trustee of the 197
c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000)
Harborside Financial Center, and the Institutional Funds
Plaza Two, (since July 2003); Senior
Jersey City, NJ 07311 Advisor of Morgan Stanley
(since August 2000); Director
of the Distributor and Dean
Witter Realty Inc.; previously
President and Chief Operating
Officer of the Private Client
Group of Morgan Stanley (May
1999-August 2000), and
President and Chief Operating
Officer of Individual
Securities of Morgan Stanley
(February 1997-May 1999).
Name, Age and Address of
Interested Trustee Other Directorships Held by Trustee
------------------------------------- -----------------------------------
Charles A. Fiumefreddo (72) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ 07311
James F. Higgins (57) Director of AXA Financial, Inc. and
c/o Morgan Stanley Trust The Equitable Life Assurance
Harborside Financial Center, Society of the United States
Plaza Two, (financial services).
Jersey City, NJ 07311
---------------------
* This is the earliest date the Trustee began serving the funds advised by
Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the
"Retail Funds").
** The dates referenced below indicating commencement of services as
Director/Trustee for the Retail Funds and the funds advised by Morgan
Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the
"Institutional Funds") reflect the earliest date the Director/Trustee began
serving the Retail or Institutional Funds, as applicable.
*** The Fund Complex includes all open-end and closed-end funds (including all
of their portfolios) advised by the Investment Adviser and any funds that
have an investment adviser that is an affiliated person of the Investment
Adviser (including, but not limited to, Morgan Stanley Investment Management
Inc.).
25
Morgan Stanley Insured California Municipal Securities
TRUSTEE AND OFFICER INFORMATION continued
Officers:
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
----------------------------- --------------- -------------- ------------------------------------------------------------
Ronald E. Robison (66) President and Since May 2003 President (since September 2005) and Principal Executive
1221 Avenue of the Americas Principal Officer of funds in the Fund Complex (since May 2003);
New York, NY 10020 Executive Managing Director of Morgan Stanley & Co. Incorporated and
Officer Morgan Stanley; Managing Director and Director of Morgan
Stanley Investment Management Inc., Morgan Stanley
Distribution Inc. and Morgan Stanley Distributors Inc.;
Managing Director, Chief Administrative Officer and Director
of Morgan Stanley Investment Advisors Inc. and Morgan
Stanley Services Company Inc.; Chief Executive Officer and
Director of Morgan Stanley Trust; Director of Morgan Stanley
SICAV (since May 2004); President (since September 2005) and
Principal Executive Officer (since May 2003) of the Van
Kampen Funds; previously, Executive Vice President (July
2003-September 2005) of funds in the Fund Complex and the
Van Kampen Funds. He was also previously President and
Director of the Institutional Funds (March 2001-July 2003),
Chief Global Operations Officer of Morgan Stanley Investment
Management Inc. and Chief Executive Officer and Chairman of
Van Kampen Investor Services.
Joseph J. McAlinden (62) Vice President Since July Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas 1995 Investment Adviser and Morgan Stanley Investment Management
New York, NY 10020 Inc.; Chief Investment Officer of the Van Kampen Funds; Vice
President of the Institutional Funds (since July 2003) and
the Retail Funds (since July 1995).
Barry Fink (50) Vice President Since February General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas 1997 (since December 2000) of Morgan Stanley Investment
New York, NY 10020 Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director of the
Investment Adviser and the Administrator; Vice President of
the Retail Funds; Assistant Secretary of Morgan Stanley DW;
Vice President of the Institutional Funds (since July 2003);
Managing Director, Secretary and Director of the
Distributor; previously Secretary (February 1997-July 2003)
and General Counsel (February 1997-April 2004) of the Retail
Funds; Vice President and Assistant General Counsel of the
Investment Adviser and the Administrator (February
1997-December 2001).
Amy R. Doberman (43) Vice President Since July Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management Inc. and the Investment Adviser, Vice President
of the Institutional and Retail Funds (since July 2004);
Vice President of the Van Kampen Funds (since August 2004);
previously, Managing Director and General
Counsel -- Americas, UBS Global Asset Management (July
2000-July 2004) and General Counsel, Aeltus Investment
Management, Inc. (January 1997-July 2000).
Carsten Otto (41) Chief Since October Executive Director and U.S. Director of Compliance for
1221 Avenue of the Americas Compliance 2004 Morgan Stanley Investment Management (since October 2004);
New York, NY 10020 Officer Executive Director of the Investment Adviser and Morgan
Stanley Investment Management Inc.; formerly Assistant
Secretary and Assistant General Counsel of the Morgan
Stanley Retail Funds.
Stefanie V. Chang (38) Vice President Since July Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment
New York, NY 10020 Adviser; Vice President of the Institutional Funds (since
December 1997) and the Retail Funds (since July 2003);
formerly practiced law with the New York law firm of Rogers
& Wells (now Clifford Chance US LLP).
26
Morgan Stanley Insured California Municipal Securities
TRUSTEE AND OFFICER INFORMATION continued
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
----------------------------- --------------- -------------- ------------------------------------------------------------
Francis J. Smith (40) Treasurer and Treasurer Executive Director of the Investment Adviser and the
c/o Morgan Stanley Trust Chief Financial since July Administration (since December 2001); previously, Vice
Harborside Financial Center, Officer 2003 and Chief President of the Retail Funds (September 2002-July 2003);
Plaza Two, Financial Vice President of the Investment Adviser and the
Jersey City, NJ 07311 Officer since Administrator (August 2000- November 2001).
September 2002
Thomas F. Caloia (59) Vice President Since July Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust 2003 Treasurer of the Investment Adviser, the Distributor and the
Harborside Financial Center, Administrator; previously Treasurer of the Retail Funds
Plaza Two, (April 1989-July 2003); formerly First Vice President of the
Jersey City, NJ 07311 Investment Adviser, the Distributor and the Administrator.
Mary E. Mullin (38) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment
New York, NY 10020 Adviser; Secretary of the Institutional Funds (since June
1999) and the Retail Funds (since July 2003); formerly
practiced law with the New York law firms of McDermott, Will
& Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
---------------------
* This is the earliest date the Officer began serving the Retail Funds. Each
Officer serves an indefinite term, until his or her successor is elected.
** The dates referenced below indicating commencement of service as an Officer
for the Retail and Institutional Funds reflect the earliest date the Officer
began serving the Retail or Institutional Funds, as applicable.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Trust's Annual CEO Certification certifying as to compliance
with NYSE's Corporate Governance Listing Standards was submitted to the Exchange
on July 19, 2005.
The Trust's Principal Executive Officer and Principal Financial Officer
Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 were
filed with the Fund's N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
2005 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 2005, the Trust paid to its
shareholders $0.66 per share from tax-exempt income.
For the year ended October 31, 2005, the Trust paid to its
shareholders $0.13 per share from long-term capital gains.
27
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Ronald E. Robison
President and Principal Executive Officer
Joseph J. McAlinden
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
(c) 2005 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured California
Municipal Securities
Annual Report
October 31, 2005
[MORGAN STANLEY LOGO]
38622RPT-RA05-01052P-Y10/05
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Trust or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Trust has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
Additionally, Exhibit B was amended to remove Mitchell M. Merin as a covered
officer.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
2
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2005
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES................ $ 30,448 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.... $ 540(2) $ (2)
TAX FEES.............. $ 5,026(3) $ (4)
ALL OTHER FEES........ $ - $ -
TOTAL NON-AUDIT FEES...... $ 5,566 $
TOTAL..................... $ 36,014 $
2004
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES................ $ 28,989 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.... $ 5,752(2) $ 5,067,400(2)
TAX FEES.............. $ 4,455(3) $ 545,053(4)
ALL OTHER FEES........ $ - $ -(5)
TOTAL NON-AUDIT FEES...... $ 10,207 $ 5,612,453
TOTAL..................... $ 39,196 $ 5,612,453
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any
entity controlling, controlled by or under common control with the Adviser
that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or
its affiliates, specifically data verification and agreed-upon procedures
related to asset securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice services
provided in connection with the preparation and review of the Registrant's
tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice services
provided in connection with the review of Covered Entities' tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
3
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("general pre-approval"); or require the specific pre-approval of the Audit
Committee or its delegate ("specific pre-approval"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "Policy"), adopted as of the date above, supersedes and
replaces all prior versions that may have been adopted from time to time.
4
The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters
5
not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be
6
rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
7
Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Trust has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6.
See Item 1.
8
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Trust invests in exclusively non-voting securities and therefore this item
is not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports covering periods ending on or after December 31,
2005.
9
Item 9. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
(c) Total Number of (d) Maximum Number (or
(a) Total Shares (or Units) Approximate Dollar
Number of Purchased as Part Value) of Shares (or
Shares (or (b) Average of Publicly Units) that May Yet Be
Units) Price Paid per Announced Plans or Purchased Under the
Period Purchased Share (or Unit) Programs Plans or Programs
--------------------- ---------- --------------- ------------------- ----------------------
November 1, 2004 --
November 30, 2004 7,900 $ 13.82 N/A N/A
December 1, 2004 --
December 31, 2004 8,200 $ 13.67 N/A N/A
January 1, 2005 --
January 31, 2005 8,400 $ 13.89 N/A N/A
February 1, 2005 --
February 28, 2005 7,000 $ 13.92 N/A N/A
March 1, 2005 --
March 31, 2005 11,755 $ 13.99 N/A N/A
April 1, 2005 --
April 30, 2005 5,500 $ 13.99 N/A N/A
May 1, 2005 --
May 31, 2005 17,586 $ 14.06 N/A N/A
June 1, 2005 --
June 30, 2005 10,700 $ 14.13 N/A N/A
July 1, 2005 --
July 31, 2005 20,400 $ 14.38 N/A N/A
August 1, 2005 --
August 31, 2005 9,500 $ 14.30 N/A N/A
September 1, 2005 --
September 30, 2005 5,700 $ 14.28 N/A N/A
October 1, 2005 --
October 31, 2005 11,100 $ 14.06 N/A N/A
Total 123,741 $ 14.04 N/A N/A
10
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's 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.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
11
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
December 19, 2005
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
December 19, 2005
/s/ Francis Smith
---------------------------
Francis Smith
Principal Financial Officer
December 19, 2005
12