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)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Ronald E. Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-296-6990
Date of fiscal year end: October 31, 2008
Date of reporting period: April 30, 2008
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 semiannual 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.
INCOME EARNED BY CERTAIN SECURITIES IN THE PORTFOLIO MAY BE SUBJECT TO THE
FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
FUND REPORT
For the six months ended April 30, 2008
MARKET CONDITIONS
The six-month period under review was marked by disrupted credit markets,
recession fears, deterioration of the housing market, and markdowns in the
mortgage market as a result of forced selling. Although the fixed income market
saw some improvements in the last month of the period, many of the same concerns
and problems remained.
The Federal Reserve (the "Fed") stepped in several times during the period to
minimize the liquidity crisis. Not only did the Federal Open Market Committee
reduce the target federal funds rate several times, from 4.5 percent to 2.0
percent, but in an unprecedented move, the Fed granted primary Treasury dealers
(mostly brokerage firms) access to its discount window and loosened its
collateral requirements, extending loans of Treasury securities in exchange for
lower quality, less liquid securities. Finally, in what was most decidedly the
biggest headline event, the Fed arranged and supported JPMorgan Chase's purchase
of Bear Stearns, which was viewed by many as necessary to avoid serious market
repercussions had the firm failed.
The decline in short-term interest rates, coupled with the risk-averse
environment during the period pushed Treasury yields lower, especially on the
short end of the yield curve, causing the curve to steepen. The municipal yield
curve steepened as well, with the yield differential between one-year and 30-
year maturities reaching more than 300 basis points. Overall, municipal bonds
underperformed their taxable counterparts as credit rating downgrades of various
monoline bond insurers and the deterioration of the auction rate and variable
rate markets posed additional challenges for the sector. After a record year for
new municipal bond issuance in 2007, the amount of new issues coming to market
in the first four months of 2008 declined.
PERFORMANCE ANALYSIS
For the six-month period ended April 30, 2008, the net asset value (NAV) of
Morgan Stanley Insured California Municipal Securities (ICS) decreased from
$14.86 to $14.44 per share. Based on this change plus reinvestment of tax-free
dividends totaling $0.315 per share, a short-term capital gain distribution of
$0.021518 and a long-term capital gain distribution of $0.110661 per share, the
Trust's total NAV return was 0.34 percent. ICS's value on the New York Stock
Exchange (NYSE) moved from $14.19 to $13.90 per share during the same period.
Based on this change plus reinvestment of dividends and distributions, the
Trust's total market return was 1.15 percent. ICS's NYSE market price was at a
3.74 percent discount to its NAV. During the fiscal period, the Trust purchased
and retired 22,518 shares of common stock at a weighted average market discount
of 5.53 percent. Past performance is no guarantee of future results.
Monthly dividends for the second quarter of 2008, declared in April, were
unchanged at $0.0525 per share. The dividend reflects the current level of the
Trust's net investment income. ICS's level of undistributed net investment
income was $0.102 per share on April 30, 2008 versus $0.117 per share six months
earlier.(1)
Throughout the six-month period, the Trust maintained a lower interest rate
sensitivity (as measured by duration*), which was implemented through the use of
a U.S. Treasury futures hedge. This defensive positioning benefited performance
as it helped to
2
minimize the price declines that resulted from rising yields across the
intermediate and long end of the municipal yield curve.
In terms of the Trust's sector positioning, an overweight in the hospital/life
care and tobacco sectors detracted from relative performance as spread widening
in those sectors hindered returns. Conversely, an overweight in the public
utility sector, particularly water and sewer bonds, benefited performance. The
flight to quality that took place during the period helped boost the performance
of the more solid infrastructure sectors such as utilities and the Trust's
holdings there enhanced returns.
The Trust's procedure for reinvesting all dividends and distributions in common
shares is through purchases in the open market. This method helps support the
market value of the Trust's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Trust may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase.
--------------------------------------------------------------------------------
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.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein 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).
* 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.
3
TOP FIVE SECTORS AS OF 04/30/08
General Obligation 16.7%
Water & Sewer 15.9
Appropriation 15.3
Public Power 10.8
Dedicated Tax 10.4
LONG-TERM CREDIT ENHANCEMENTS AS
OF 04/30/08
FSA 34.3%
FGIC 28.9
MBIA 20.0
AMBAC 11.6
US Gov't Backed 2.2
XLCA 1.9
AGC 1.1
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. Top five sectors are as a percentage of
total investments. Long-term credit enhancements are as a percentage of long-
term investments. Securities are classified by sectors that represent broad
groupings of related industries. 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.
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. The semiannual reports and the annual reports
are filed electronically with the Securities and Exchange Commission (SEC) on
Form N-CSRS and Form N-CSR, respectively. 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
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - APRIL 30, 2008 (UNAUDITED)
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
--------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (94.3%)
California (92.2%)
$ 235 Alameda County Joint Powers Authority, Ser 2008 (FSA
Insd)................................................ 5.00 % 12/01/24 $ 247,615
185 Alvord Unified School District, California, Ser 2007 A
(FSA Insd) (WI)...................................... 5.00 08/01/28 192,981
2,000 Anaheim Public Financing Authority, Distribution
Electric Ser 2007-A (MBIA Insd)...................... 4.50 10/01/37 1,894,140
1,000 Anaheim Public Financing Authority, Generation Refg
Electric Ser 2002-B (FSA Insd)....................... 5.25 10/01/18 1,061,580
2,000 California Department of Veterans Affairs, Home
Purchase 2002 Ser A (AMBAC Insd)..................... 5.35 12/01/27 2,081,040
1,500 California Department of Water Resources, Central
Valley Ser Y (FGIC Insd)............................. 5.25 12/01/19 1,581,585
2,000 California Infrastructure & Economic Development Bank,
Bay Area Toll Bridges Seismic Retrofit First Lien Ser
2003 A (FGIC Insd) (ETM)............................. 5.00 07/01/29 2,136,260
1,000 California, Ser 2007 (MBIA Insd)....................... 4.25 08/01/33 915,830
265 California, Ser 2007 (FSA Insd)........................ 5.50 03/01/20 266,961
1,000 California State University, Ser 2005 A (AMBAC Insd)... 5.00 11/01/35 1,012,370
400 California Veterans Ser BH (AMT) (FSA Insd)............ 5.40 12/01/16 404,908
1,000 Capistrano Unified School District, Community
Facilities District #98-2 Ladera Ser 2005 (FGIC
Insd)................................................ 5.00 09/01/29 987,020
3,025 City of Fairfield Water Financing, COPs Ser 2007 A
(XLCA Insd).......................................... 0.00 04/01/30 899,000
1,055 Fontana Unified School District, Ser 2008 B (FSA
Insd)................................................ 0.00 02/01/33 282,128
1,000 Golden State Tobacco Securitization Corporation,
Enhanced Asset Backed Ser 2005 A (FGIC Insd)......... 5.00 06/01/38 957,980
775 Grossmont Union High School District, Election of 2004
Ser 2006 (MBIA Insd)................................. 0.00 08/01/24 345,115
1,280 Huntington Beach Union High School District Ser 2004
(FSA Insd)........................................... 5.00 08/01/26 1,316,570
1,110 Kern County Board of Education Refg 2006 Ser A COPs
(MBIA Insd).......................................... 5.00 06/01/31 1,123,198
245 Kern County Water Agency, Improvement District No 4 Ser
2008A COPs (AGC Insd) (WI)........................... 5.00 05/01/28 250,615
1,100 La Quinta Financing Authority, Local Agency 2004 Ser A
(AMBAC Insd)......................................... 5.25 09/01/24 1,143,131
1,030 Los Angeles, Ser 2004 A (MBIA Insd).................... 5.00 09/01/24 1,064,938
1,000 Los Angeles County Metropolitan Transportation
Authority Sales Tax Ser 2000 A (FGIC Insd)........... 4.50 07/01/29(a) 981,720
1,000 Los Angeles Department of Water & Power, 2001 Ser A
(FSA Insd)........................................... 5.25 07/01/21 1,046,510
800 Los Angeles Municipal Improvement Corporation, Police
Headquarters Ser 2006-A (FGIC Insd).................. 4.75 01/01/31 762,576
1,000 Los Angeles Wastewater Refg Ser 2003 B (FSA Insd)...... 5.00 06/01/22 1,046,980
1,000 Metropolitan Water District of Southern California,
2003 Ser B-2 (FGIC Insd)............................. 5.00 10/01/27 1,026,680
235 Oakland Joint Powers Financing Authority, Oakland
Administration Buildings Ser 2008 A (AGC Insd) (WI).. 5.00 08/01/26 245,533
See Notes to Financial Statements
5
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - APRIL 30, 2008 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
--------------------------------------------------------------------------------------------------------
$ 1,000 Oxnard Financing Authority, Wastewater 2004 Ser A (FGIC
Insd)................................................ 5.00 % 06/01/29 $ 1,003,080
250 Placer County Water Agency Water Refg COPs Ser 2008
(FSA Insd)........................................... 4.75 07/01/29 252,395
1,000 Rancho Mirage Redevelopment Agency, Ser 2003 A (MBIA
Insd)................................................ 5.00 04/01/33 1,006,890
360 Redding Electric System, COPs Ser 2008 A (FSA Insd)
(WI)................................................. 5.00 06/01/27 367,704
1,235 Rocklin Unified School District, Community Facilities
District No 2 Ser 2007 (MBIA Insd)................... 0.00 09/01/34 286,903
1,255 Rocklin Unified School District, Community Facilities
District No 2 Ser 2007 (MBIA Insd)................... 0.00 09/01/35 274,079
1,230 Rocklin Unified School District, Community Facilities
District No 2 Ser 2007 (MBIA Insd)................... 0.00 09/01/36 253,441
1,025 Rocklin Unified School District, Community Facilities
District No 2 Ser 2007 (MBIA Insd)................... 0.00 09/01/37 199,239
675 Roseville Joint Union High School District, Election
Ser 2004 C (FSA Insd)................................ 0.00 08/01/25 284,641
1,000 Sacramento County Sanitation Districts Financing
Authority, Refg Ser 2006 (FGIC Insd)................. 5.00 12/01/28 1,029,440
180 Sacramento City Financing Authority, 1999 Solid Waste &
Redevelopment (AMBAC Insd)........................... 5.75 12/01/22 189,081
1,000 San Diego County Water Authority, California, Ser 2004
A COPs (FSA Insd).................................... 5.00 05/01/29 1,023,720
1,000 San Francisco City & County, City Buildings Ser 2007 A
COPs (FGIC Insd)..................................... 4.50 09/01/37 911,970
340 San Francisco City & County, Laguna Honda Hospital
RITES PA 1387 (FSA Insd)............................. 11.589(b) 06/15/30 372,327
2,000 San Francisco Public Utilities Commission, Water Refg
Ser A 2001 (FSA Insd)................................ 5.00 11/01/31 2,028,200
1,000 San Jose, Airport Ser 2001 A (FGIC Insd)............... 5.00 03/01/25 1,010,460
1,000 San Jose-Evergreen Community College District, Election
Ser 2004 B (FSA Insd)................................ 0.00 09/01/32 276,030
1,000 Simi Valley Public Financing Authority, Ser 2004 COPs
(AMBAC Insd)......................................... 5.00 09/01/30 1,005,320
1,000 Southern California Public Power Authority,
Transmission Refg Ser 2002 A (FSA Insd).............. 5.25 07/01/18 1,059,130
250 Tustin Unified School Facilities District No 2002-1-
2002 Election Ser 2008 C (FSA Insd) (WI)............. 5.00 06/01/28 260,035
1,000 University of California, Ser 2007-J (FSA Insd)........ 4.50 05/15/31 969,280
1,000 University of California, Ser 2007-J (FSA Insd)........ 4.50 05/15/35 957,730
1,000 University of California Regents Ser 2007 A (MBIA
Insd)................................................ 5.00 05/15/37 944,270
1,000 Upland School District, Election 2000 Ser 2001 B (FSA
Insd)................................................ 5.125 08/01/25 1,046,390
675 Val Verde Unified School District of Construction COPs
Ser 2005 B (FGIC Insd)............................... 5.00 01/01/30 666,164
1,375 Washington Unified School District, 2004 Ser A (FGIC
Insd)................................................ 5.00 08/01/22 1,421,695
See Notes to Financial Statements
6
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - APRIL 30, 2008 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
--------------------------------------------------------------------------------------------------------
$ 570 Yosemite Community College District, Election of 2004,
Ser 2008 C (FSA Insd)................................ 0.00 % 08/01/25 $ 239,480
1,000 Yucaipa Valley Water District, Ser 2004 A COPs (MBIA
Insd)................................................ 5.25 09/01/24 1,028,120
-----------
45,642,178
-----------
Puerto Rico (2.1%)
1,000 Puerto Rico Infrastructure Financing Authority, 2000
Ser A (ETM) (c)...................................... 5.50 10/01/32 1,039,270
-----------
Total Tax-Exempt Municipal Bonds (Cost $46,487,197).......................... 46,681,448
-----------
California Short-Term Tax-Exempt Municipal Obligations
(6.9%)
900 California Department of Water Resources, Power Supply
Ser 2002 B Subser B-1 (Demand 05/01/08).............. 2.35 (d) 05/01/22 900,000
900 California Housing Finance Agency, Multifamily Housing
Ser 2000 D (Demand 05/01/08)......................... 2.55 (d) 02/01/31 900,000
900 Los Angeles Department of Water & Power, Power System
2001 B Subser B-3 (Demand 05/01/08).................. 2.40 (d) 07/01/34 900,000
700 Irvine Reassessment District No 85-7, Limited
Obligation Improvement Ser 2007 A (FSA Insd) (Demand
05/01/08)............................................ 2.30 (d) 09/02/32 700,000
-----------
Total California Short-Term Tax-Exempt Municipal Obligations (Cost
$3,400,000).................................................................. 3,400,000
-----------
Total Investments (Cost $49,887,196) (e) (f)..................... 101.2% 50,081,448
Liabilities in Excess of Other Assets ........................... (1.2) (579,537)
------- -----------
Net Assets Applicable to Common Shareholders .................... 100.0% $49,501,911
===== ===========
See Notes to Financial Statements
7
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - APRIL 30, 2008 (UNAUDITED) continued
----------
Note: The categories of investments are shown as a percentage of net assets
applicable to common shareholders.
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
RITES Residual Interest Tax-Exempt Security.
WI Security purchased on a when-issued basis.
(a) Prefunded to call date shown.
(b) 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 $372,327, which represents 0.8% of net
assets applicable to common shareholders.
(c) A portion of this security has been physically segregated in
connection with open futures contracts in the amount of
$269,393.
(d) Current coupon rate of variable rate demand obligation.
(e) Securities have been designated as collateral in an amount equal
to $40,713,010 in connection with open futures and swaps
contracts and securities purchased on a when-issued basis.
(f) The aggregate cost for federal income tax purposes approximates
the aggregate cost for book purposes. The aggregate gross
unrealized appreciation is $966,826 and the aggregate gross
unrealized depreciation is $772,574 resulting in net unrealized
appreciation of $194,252.
Bond Insurance:
---------------
AGC Assured Guaranty Corporation.
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
XLCA XL Capital Assurance Inc.
FUTURES CONTRACTS OPEN AT APRIL 30, 2008:
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION)
--------------------------------------------------------------------------------------------
241 Long U.S. Swaps 10 Year,
June 2008 $ 27,187,813 $(14,825)
30 Long U.S. Treasury Bonds 20 Year,
June 2008 3,506,719 44,232
18 Short U.S. Treasury Notes 5 Year,
June 2008 (2,015,719) 19,781
53 Short U.S. Treasury Notes 2 Year,
June 2008 (11,272,438) 55,542
194 Short U.S. Treasury Notes 10 Year,
June 2008 (22,467,625) (92,546)
--------
Net Unrealized Appreciation.................... $ 12,184
========
See Notes to Financial Statements
8
Morgan Stanley Insured California Municipal Securities
PORTFOLIO OF INVESTMENTS - APRIL 30, 2008 (UNAUDITED) continued
INTEREST RATE SWAP CONTRACTS OPEN AT APRIL 30, 2008:
UNREALIZED
NOTIONAL PAYMENTS PAYMENTS TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (000) RECEIVED BY TRUST MADE BY TRUST DATE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank N.A. $3,280 Fixed Rate 5.385% Floating Rate 0.00%@ February 14, 2018 $ 37,294
Bank of America N.A. 3,135 Fixed Rate 5.58 Floating Rate 0.00@ February 28, 2018 57,245
Bank of America N.A. 935 Fixed Rate 5.070 Floating Rate 0.00@ April 14, 2018 (982)
Bank of America N.A. 945 Fixed Rate 4.982 Floating Rate 0.00@ April 15, 2018 (3,988)
Merrill Lynch & Co. 1,255 Fixed Rate 5.00 Floating Rate 0.00@ April 15, 2018 (4,506)
JPMorgan Chase Bank N.A. 4,190 Floating Rate 0.00@ Fixed Rate 5.831 February 14, 2023 (45,755)
Bank of America N.A. 4,010 Floating Rate 0.00@ Fixed Rate 5.99 February 28, 2023 (61,473)
Bank of America N.A. 1,195 Floating Rate 0.00@ Fixed Rate 5.47 April 14, 2023 (789)
Bank of America N.A. 1,155 Floating Rate 0.00@ Fixed Rate 5.38 April 15, 2023 2,137
Merrill Lynch & Co. 1,620 Floating Rate 0.00@ Fixed Rate 5.395 April 15, 2023 2,317
--------
Net Unrealized Depreciation..................................................... $(18,500)
========
----------
@ Floating rate represents USD-3 months LIBOR.
See Notes to Financial Statements
9
Morgan Stanley Insured California Municipal Securities
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2008 (unaudited)
Assets:
Investments in securities, at value (cost $49,887,196).......... $50,081,448
Unrealized appreciation on open swap contracts.................. 98,993
Cash............................................................ 72,762
Receivable for:
Interest..................................................... 633,947
Variation margin............................................. 87,923
Prepaid expenses and other assets............................... 13,483
-----------
Total Assets................................................. 50,988,556
-----------
Liabilities:
Unrealized depreciation on open swap contracts 117,493
Payable for:
Investments purchased........................................ 1,314,250
Investment advisory fee...................................... 10,170
Administration fee........................................... 3,013
Transfer agent fee........................................... 1,166
Accrued expenses and other payables............................. 40,553
-----------
Total Liabilities............................................ 1,486,645
-----------
Preferred shares of beneficial interest (1,000,000 shares
authorized of non-participating $.01 par value, none issued).. --
-----------
Net Assets Applicable to Common Shareholders................. $49,501,911
===========
Composition of Net Assets Applicable to Common Shareholders:
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 3,427,554 shares outstanding)... $48,716,453
Net unrealized appreciation..................................... 187,936
Accumulated undistributed net investment income................. 349,606
Accumulated undistributed net realized gain..................... 247,916
-----------
Net Assets Applicable to Common Shareholders................. $49,501,911
===========
Net Asset Value Per Common Share
($49,501,911 divided by 3,427,554 common shares outstanding).... $14.44
======
See Notes to Financial Statements
10
Morgan Stanley Insured California Municipal Securities
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended April 30, 2008 (unaudited)
Net Investment Income:
Interest Income................................................. $ 1,171,944
-----------
Expenses
Investment advisory fee......................................... 65,587
Professional fees............................................... 24,445
Administration fee.............................................. 19,433
Custodian fees.................................................. 11,880
Shareholder reports and notices................................. 11,638
Listing fees.................................................... 9,553
Transfer agent fees and expenses................................ 5,463
Trustees' fees and expenses..................................... 641
Other........................................................... 6,857
-----------
Total Expenses............................................... 155,497
Less: expense offset............................................ (11,756)
-----------
Net Expenses................................................. 143,741
-----------
Net Investment Income........................................ 1,028,203
-----------
Realized and Unrealized Gain (Loss):
Realized Gain (Loss) on:
Investments..................................................... 476,240
Futures contracts............................................... (150,887)
-----------
Net Realized Gain............................................ 325,353
-----------
Change in Unrealized Appreciation/Depreciation on:
Investments..................................................... (1,271,522)
Futures contracts............................................... 8,946
Swap contracts.................................................. (18,500)
-----------
Net Change in Unrealized Appreciation/Depreciation........... (1,281,076)
-----------
Net Loss..................................................... (955,723)
-----------
Net Increase.................................................... $ 72,480
===========
See Notes to Financial Statements
11
Morgan Stanley Insured California Municipal Securities
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2008 OCTOBER 31, 2007
-------------- ----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income.............................. $ 1,028,203 $ 2,100,376
Net realized gain.................................. 325,353 357,398
Net change in unrealized
appreciation/depreciation........................ (1,281,076) (1,250,052)
----------- -----------
Net Increase.................................... 72,480 1,207,722
----------- -----------
Dividends and Distributions to Common Shareholders
from:
Net investment income.............................. (1,082,285) (2,092,309)
Net realized gain.................................. (455,670) (142,684)
----------- -----------
Total Dividends and Distributions............... (1,537,955) (2,234,993)
----------- -----------
Decrease from transactions in common shares of
beneficial interest.............................. (315,022) (561,984)
----------- -----------
Net Decrease.................................... (1,780,497) (1,589,255)
Net Assets Applicable to Common Shareholders:
Beginning of period................................ 51,282,408 52,871,663
----------- -----------
End of Period
(Including accumulated undistributed net investment
income of $349,606 and $403,688, respectively)..... $49,501,911 $51,282,408
=========== ===========
See Notes to Financial Statements
12
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2008 (UNAUDITED)
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; (3) interest rate
swaps are marked-to-market daily based upon quotations from market makers; and
(4) 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 and are included in interest income. 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
13
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2008 (UNAUDITED) continued
applicable futures exchange. Pursuant to the contract, the Trust agrees to
receive from or pay to the 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. 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
Trust's 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)
included 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 Trust's investment assets, and the related floating rate notes
reflected as Trust liabilities under the caption "floating rate note
obligations" on the Statement of Assets and Liabilities. The Trust records the
interest income from the fixed rate bonds under the caption "Interest Income"
and records the expenses related to floating rate note obligations and any
administrative expenses of the Dealer Trusts under the caption "Interest and
residual trust expenses" in the Trust's Statement of Operations. The notes
issued by the Dealer Trusts have interest rates that reset weekly and the
floating rate note holders have the option to tender their notes to the Dealer
Trusts for redemption at par at each reset date. As of the six months ended
April 30, 2008, the Trust did not hold any floating rate note obligations.
E. Interest Rate Swaps -- Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal amount.
Net periodic interest payments to be received or paid are accrued daily and are
recorded as realized gains or losses in the Statement of Operations.
14
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2008 (UNAUDITED) continued
F. Federal Income Tax Policy -- It is the Trust's policy to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable and non taxable income to its shareholders. Therefore, no provision for
federal income taxes is required. The Trust files tax returns with the U.S.
Internal Revenue Service, New York State and New York City. The Trust adopted
the provisions of the Financial Accounting Standards Board ("FASB")
Interpretation No. 48 ("FIN 48") Accounting for Uncertainty in Income Taxes on
April 29, 2008. FIN 48 sets forth a minimum threshold for financial statement
recognition of the benefit of a tax position taken or expected to be taken in a
tax return. The implementation of FIN 48 did not result in any unrecognized tax
benefits in the accompanying financial statements. If applicable, the Trust
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in other expenses in the Statement of Operations. Each of
the tax years in the four year period ended April 30, 2008, remains subject to
examination by taxing authorities.
G. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. 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 average 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 average weekly net assets.
Under an agreement between the Administrator and State Street Bank and Trust
Company ("State Street"), State Street provides certain administrative services
to the Trust. For such services, the Administrator pays State Street a portion
of the fee the Administrator receives from the Trust.
15
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2008 (UNAUDITED) continued
3. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended April 30, 2008, aggregated
$5,258,329 and $6,160,049, respectively.
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 or she 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 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 is subject to certain restrictions relating to the
preferred shares. Failure to comply with these restrictions could preclude the
Trust from declaring any distributions to common shareholders or purchasing
common shares and/or could trigger the mandatory redemption of preferred shares
at liquidation value.
The preferred shares, which are 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 April 30, 2008, there were no preferred shares outstanding.
16
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2008 (UNAUDITED) continued
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, 2006......................... 3,489,972 $34,900 $49,558,559
Treasury shares purchased and retired (weighted
average discount 5.59%)+........................ (39,900) (399) (561,585)
--------- ------- -----------
Balance, October 31, 2007......................... 3,450,072 34,501 48,996,974
Treasury shares purchased and retired (weighted
average discount 5.53%)+........................ (22,518) (225) (314,797)
--------- ------- -----------
Balance, April 30, 2008........................... 3,427,554 $34,276 $48,682,177
========= ======= ===========
----------
+ The Trustees have voted to retire the shares purchased.
6. Dividends to Common Shareholders
On April 08, 2008, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ------------- -------------
$0.0525 May 23, 2008 May 30, 2008
$0.0525 June 20, 2008 June 27, 2008
7. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest
earned on cash balances maintained by the Trust with the transfer agent and
custodian.
8. Purposes of and Risks Relating to Certain Financial Instruments
The Trust may invest a portion of its assets in inverse floating rate
instruments, either through outright purchases of inverse floating rate
securities or through the transfer of bonds to a Dealer Trusts in exchange for
cash and residual interests in the Dealer Trusts. These investments are
typically used by the Trust in seeking to enhance the yield of the portfolio.
These instruments typically involve greater risks than a fixed rate municipal
bond. In particular, these instruments are acquired through leverage or may have
leverage embedded in them and therefore involve many of the risks associated
with leverage. Leverage is a speculative technique that may expose the Trust to
greater risk and increased costs. Leverage may cause the Trust's net asset value
to be more volatile than if it had not been leveraged because leverage tends to
magnify the effect of any increases or decreases in the value of the Trust's
portfolio securities. The use of the leverage may also cause the Trust to
17
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2008 (UNAUDITED) continued
liquidate portfolio positions when it may not be advantageous to do so in order
to satisfy its obligations with respect to inverse floating rate instruments.
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.
The Trust may enter into interest rate swaps and may purchase or sell interest
rate caps, floors and collars. The Trust expects to enter into these
transactions primarily to manage interest rate risk, hedge portfolio positions
and preserve a return or spread on a particular investment or portion of its
portfolio. The Trust may also enter into these transactions to protect against
any increase in the price of securities the Trust anticipates purchasing at a
later date. Interest rate swap transactions are subject to market risk, risk of
default by the other party to the transaction, risk of imperfect correlation and
manager risk. Such risks may exceed the related amounts shown in the Statement
of Assets and Liabilities.
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.
As of October 31, 2007, 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.
18
Morgan Stanley Insured California Municipal Securities
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2008 (UNAUDITED) continued
10. Accounting Pronouncements
On March 19, 2008, FASB released Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"). FAS 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about credit- risk-
related contingent features in derivative agreements. The application of FAS 161
is required for fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years. At this time, management is evaluating the
implications of FAS 161 and its impact on the financial statements has not been
determined.
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), was issued and is effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Management is currently evaluating the impact the adoption of SFAS
157 will have on the Trust's financial statement disclosures.
19
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 SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED -----------------------------------------------
APRIL 30, 2008 2007 2006 2005 2004 2003
-------------- ------- ------- ------- ------- -------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of period......... $14.86 $15.15 $15.17 $15.35 $15.24 $15.56
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income(1).................. 0.30 0.60 0.59 0.62 0.66 0.67
Net realized and unrealized gain (loss)... (0.28) (0.26) 0.32 (0.05) 0.25 (0.07)
------ ------ ----- ------ ----- ------
Total income from investment operations...... 0.02 0.34 0.91 0.57 0.91 0.60
----- ----- ----- ----- ----- -----
Less dividends and distributions from:
Net investment income..................... (0.32) (0.60) (0.61) (0.66) (0.63) (0.71)
Net realized gain......................... (0.13) (0.04) (0.35) (0.13) (0.20) (0.25)
------ ------ ------ ------ ------ ------
Total dividends and distributions............ (0.45) (0.64) (0.96) (0.79) (0.83) (0.96)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury
shares(1)................................... 0.01 0.01 0.03 0.04 0.03 0.04
----- ----- ----- ----- ----- -----
Net asset value, end of period............... $14.44 $14.86 $15.15 $15.17 $15.35 $15.24
====== ====== ====== ====== ====== ======
Market value, end of period.................. $13.90 $14.19 $14.06 $13.99 $13.96 $13.83
====== ====== ====== ====== ====== ======
Total Return(2).............................. 1.15%(5) 5.54% 7.68% 5.96% 7.19% 4.57%
Ratios to Average Net Assets:
Total expenses (before expense offset)....... 0.62%(6)(4) 0.76%(3) 0.61%(3) 0.62%(3) 0.58%(3) 0.55%(3)
Total expenses (before expense offset,
exclusive of interest and residual trust
expenses)................................... 0.62%(6)(4) 0.62%(3) 0.61%(3) 0.62%(3) 0.58%(3) 0.55%(3)
Net investment income........................ 4.11%(6) 4.05% 4.07% 4.09% 4.37% 4.50%
Supplemental Data:
Net assets, end of period, in thousands...... $49,502 $51,282 $52,872 $54,413 $56,955 $57,923
Portfolio turnover rate...................... 11%(5) 19% 5% 26% 31% 31%
----------
(1) The per share amounts were computed using an average number of shares
outstanding during the period.
(2) 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.
(3) Does not reflect the effect of expense offset of 0.01%.
(4) Does not reflect the effect of expense offset of 0.05%.
(5) Not annualized.
(6) Annualized.
See Notes to Financial Statements
20
Morgan Stanley Insured California Municipal Securities
REVISED INVESTMENT POLICY (UNAUDITED)
While the Trust's policy is to emphasize investments in municipal obligations
with longer-term maturities because generally longer-term obligations, while
more susceptible to market fluctuations resulting from changes in interest
rates, produce higher yields than short-term obligations, the Trust no longer
expects to maintain a specific average weighted maturity of its portfolio. As a
result of changes in the fixed-income and municipal marketplace, the Trust's
average portfolio maturity will vary depending upon market conditions and other
factors.
21
Morgan Stanley Insured California Municipal Securities
MORGAN STANLEY ADVISOR CLOSED END FUNDS
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY (UNAUDITED)
We are required by federal law to provide you with a copy of our Privacy Policy
annually.
The following Policy applies to current and former individual investors in
Morgan Stanley Advisor closed end funds. This Policy is not applicable to
partnerships, corporations, trusts or other non-individual clients or account
holders. Please note that we may amend this Policy at any time, and will inform
you of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others. We hope this Policy will help you understand how we
collect and share non-public personal information that we gather about you.
Throughout this Policy, we refer to the non-public information that personally
identifies you or your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
FOR EXAMPLE:
- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
- We may obtain information about account balances, your use of account(s) and
the types of products and services you prefer to receive from us through your
dealings and transactions with us and other sources.
- We may obtain information about your creditworthiness and credit history from
consumer reporting agencies.
- We may collect background information from and through third-party vendors to
verify representations you have made and to comply with various regulatory
requirements.
- If you interact with us through our public and private Web sites, we may
collect information that you provide directly through online communications
(such as an e-mail address). We may also collect information about your
Internet service provider, your domain name, your computer's operating system
and Web browser, your use of our Web sites and your product and service
preferences,
22
Morgan Stanley Insured California Municipal Securities
MORGAN STANLEY ADVISOR CLOSED END FUNDS
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY (UNAUDITED) continued
through the use of "cookies." "Cookies" recognize your computer each time you
return to one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting offerings
that may interest you. Please consult the Terms of Use of these sites for more
details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to nonaffiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
23
TRUSTEES
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
OFFICERS
Michael E. Nugent
Chairperson of the Board
Ronald E. Robison
President and Principal Executive Officer
Kevin Klingert
Vice President
Dennis F. Shea
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Mary E. Mullin
Secretary
TRANSFER AGENT
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
LEGAL COUNSEL
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Trust without examination by the independent auditors and accordingly they do
not express an opinion thereon.
(c) 2008 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured California
Municipal Securities
Semiannual Report
April 30, 2008
ICSSAN
IU08-03238P-Y04/08
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports covering periods ending on or after December 31,
2005.
Item 9. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
-----------------------------------------------------------------------------------------------------------
Period (a) Total (b) Average (c) Total (d) Maximum
Number of Price Paid Number of Number (or
Shares (or per Share Shares (or Approximate
Units) (or Unit) Units) Dollar Value)
Purchased Purchased as of Shares (or
Part of Publicly Units) that May
Announced Yet Be Purchased
Plans or Under the Plans
Programs or Programs
-----------------------------------------------------------------------------------------------------------
November 1,-
November 30, 2007 2,700 13.966 N/A N/A
-----------------------------------------------------------------------------------------------------------
December 1, -
December 31, 2007 11,312 13.8592 N/A N/A
-----------------------------------------------------------------------------------------------------------
January 1, -
January 31, 2008 8,506 14.1119 N/A N/A
-----------------------------------------------------------------------------------------------------------
February 1 -
February 29, 2008 N/A N/A
-----------------------------------------------------------------------------------------------------------
March 1 -
March 31, 2008 N/A N/A
-----------------------------------------------------------------------------------------------------------
April 1, -
April 30, 2008 N/A N/A
-----------------------------------------------------------------------------------------------------------
Total 22,518 13.9792 N/A N/A
-----------------------------------------------------------------------------------------------------------
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Trust's/Fund's principal executive officer and principal financial
officer have concluded that the Trust's/Fund's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust/Fund 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.
2
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(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.
3
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
June 19, 2008
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
June 19, 2008
/s/ Francis Smith
Francis Smith
Principal Financial Officer
June 19, 2008
4