nvq
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-07111
Morgan Stanley Insured California Municipal Securities
(Exact name of registrant as specified in charter)
     
522 Fifth Avenue, New York, New York   10036
(Address of principal executive offices)   (Zip code)
Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant’s telephone number, including area code: 212-296-6963
Date of fiscal year end: October 31, 2009
Date of reporting period: July 31, 2009
 
 

 


 

Item 1. Schedule of Investments.
The Trust’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:

 


 

Morgan Stanley Insured California Municipal Securities
Portfolio of Investments ■ July 31, 2009 (unaudited)
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
       
Tax-Exempt Municipal Bonds (100.8%)
                       
       
California (98.5%)
                       
$ 235    
Alameda County Joint Powers Authority, Ser 2008 (FSA Insd)
    5.00 %     12/01/24     $ 239,150  
  280    
Alhambra Unified School District, California, Ser 2007 A (FSA Insd)
    0.00       08/01/35       50,341  
  450    
Alhambra Unified School District, California, Ser 2007 B (FSA Insd)
    0.00       08/01/36       76,136  
  185    
Alvord Unified School District, California, Ser 2007 A (FSA Insd)
    5.00       08/01/28       181,442  
  2,000    
Anaheim Public Financing Authority, Distribution Electric Ser 2007-A (NATL-RE Insd)
    4.50       10/01/37       1,683,460  
  205    
Beverly Hills Unified School District, Election of 2008 Ser 2009 (a)
    0.00       08/01/26       86,223  
  430    
Beverly Hills Unified School District, Election of 2008 Ser 2009 (a)
    0.00       08/01/32       121,806  
  1,500    
California Department of Veterans Affairs, Home Purchase 2002 Ser A (AMBAC Insd)
    5.35       12/01/27       1,517,475  
  2,000    
California Infrastructure & Economic Development Bank, Bay Area Toll Bridges Seismic Retrofit First Lien Ser 2003 A (AMBAC Insd) (ETM)
    5.00       01/01/28 (b)     2,277,140  
  1,000    
California State University, Ser 2005 A (AMBAC Insd)
    5.00       11/01/35       921,770  
  590    
Campbell Union High School District, Election of 2006 Ser 2008 B (AGC Insd)
    5.00       08/01/35       568,400  
  1,000    
Capistrano Unified School District, Community Facilities District #98-2 Ladera Ser 2005 (FGIC Insd)
    5.00       09/01/29       849,940  
  3,025    
City of Fairfield Water Financing, Ser 2007 A (COPs) (XLCA Insd) (a)
    0.00       04/01/30       725,123  
  105    
Clovis Unified School District, Election of 2004 Ser 2004 A (FGIC Insd) (a)
    0.00       08/01/29       28,832  
  890    
Corona-Norco Unified School District, Election of 2006 Ser 2009 B (AGC Insd) (a)
    0.00       08/01/28       276,924  
  2,860    
Dry Creek California Joint Elementary School Capital Appreciation Election 2008 E
    0.00       08/01/48       198,198  
  615    
El Segundo Unified School District, Election of 2008 Ser 2009 A (a)
    0.00       08/01/33       126,758  
  1,055    
Fontana Unified School District, Ser 2008 B (FSA Insd) (a)
    0.00       02/01/33       224,472  
  750    
Gilroy Unified School District, Election of 2008 Ser 2009 A (AGC Insd) (a)
    0.00       08/01/29       206,655  
  1,000    
Golden State Tobacco Securitization Corporation, Enhanced Asset Backed Ser 2005 A (FGIC Insd)
    5.00       06/01/38       825,780  
  775    
Grossmont Union High School District, Election of 2004 Ser 2006 (NATL-RE Insd) (a)
    0.00       08/01/24       306,451  
  775    
Grossmont-Cuyamaca Community College District, Election of 2002 Ser 2008C (AGC Insd) (a)
    0.00       08/01/30       230,904  
  1,280    
Huntington Beach Union High School District Ser 2004 (FSA Insd)
    5.00       08/01/26       1,292,390  
  1,110    
Kern County Board of Education Refg 2006 Ser A (COPs) (NATL-RE Insd)
    5.00       06/01/31       1,037,195  
  245    
Kern County Water Agency, Improvement District No 4 Ser 2008A (COPs) (AGC Insd)
    5.00       05/01/28       242,628  
  1,100    
La Quinta Financing Authority, Local Agency 2004 Ser A (AMBAC Insd)
    5.25       09/01/24       1,048,168  
  1,030    
Los Angeles, Ser 2004 A (NATL-RE Insd)
    5.00       09/01/24       1,065,896  
  1,000    
Los Angeles County Metropolitan Transportation Authority Sales Tax Ser 2000 A (FGIC Insd)
    4.50       07/01/29 (b)     929,720  
  1,000    
Los Angeles Department of Water & Power,2001 Ser A (FSA Insd)
    5.25       07/01/21       1,038,740  
  800    
Los Angeles Municipal Improvement Corporation, Police Headquarters Ser 2006 - A (FGIC Insd)
    4.75       01/01/31       747,912  
  1,240    
Metropolitan Water District Southern California Ser B (f)
    5.00       07/01/27       1,312,816  
  2,000    
Moorpark Unified School District, Election of 2008 Ser 2009 A (AGC Insd) (a)
    0.00       08/01/31       486,500  
  315    
Moreland California School District 2014 Ser C
    0.00       08/01/29       82,602  
  1,020    
Murrieta Valley Unified School District, Election of 2006 Ser 2008 (FSA Insd) (a)
    0.00       09/01/31       244,902  
  820    
Murrieta Valley Unified School District, Election of 2006 Ser 2008 (FSA Insd) (a)
    0.00       09/01/33       171,970  
  235    
Oakland Joint Powers Financing Authority, Oakland Administration Buildings Ser 2008 A (AGC Insd)
    5.00       08/01/26       233,670  
  1,000    
Oxnard Financing Authority, Wastewater 2004 Ser A (FGIC Insd)
    5.00       06/01/29       966,950  
  3,920    
Patterson Joint Unified School District, Election of 2008 Ser 2009 B (FSA Insd) (a)
    0.00       03/01/49       283,612  
  250    
Placer County Water Agency Water Refg, Ser 2008 (COPs) (FSA Insd)
    4.75       07/01/29       242,470  
  2,095    
Planada California Elementary School District 2008 Ser B
    0.00       07/01/49       110,574  
  790    
Poway Unified School District, Election of 2008 Ser 2009 A (a)
    0.00       08/01/30       202,848  
  730    
Poway Unified School District, Election of 2008 Ser 2009 A (a)
    0.00       08/01/31       173,463  
  1,000    
Rancho Mirage Redevelopment Agency, Ser 2003 A (NATL-RE Insd)
    5.00       04/01/33       803,530  
  360    
Redding Electric System, Ser 2008 A (COPs) (FSA Insd)
    5.00       06/01/27       350,446  
  500    
Riverside Electric, Issue of 2008D (FSA Insd)
    5.00       10/01/28       503,990  
  1,235    
Rocklin Unified School District, Community Facilities District No 2 Ser 2007 (NATL-RE Insd) (a)
    0.00       09/01/34       194,661  
  1,255    
Rocklin Unified School District, Community Facilities District No 2 Ser 2007 (NATL-RE Insd) (a)
    0.00       09/01/35       184,322  
  1,230    
Rocklin Unified School District, Community Facilities District No 2 Ser 2007 (NATL-RE Insd) (a)
    0.00       09/01/36       168,412  
  1,025    
Rocklin Unified School District, Community Facilities District No 2 Ser 2007 (NATL-RE Insd) (a)
    0.00       09/01/37       130,483  
  675    
Roseville Joint Union High School District, Election Ser 2004 C (FSA Insd) (a)
    0.00       08/01/25       258,410  
  180    
Sacramento City Financing Authority, 1999 Solid Waste & Redevelopment (AMBAC Insd)
    5.75       12/01/22       178,909  

 


 

                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
  1,000    
Sacramento County Sanitation Districts Financing Authority, Refg Ser 2006 (FGIC Insd)
    5.00       12/01/28       1,001,650  
  1,000    
Sacramento California Municipal Utility District Election Ser U
    5.00       08/15/24       1,026,160  
  5,495    
San Bernadino Community College District Election 2008 Ser B
    0.00       08/01/48       384,980  
  1,000    
San Diego County Water Authority, California, Ser 2004 A (COPs) (FSA Insd)
    5.00       05/01/29       1,001,900  
  1,000    
San Francisco City & County, City Buildings Ser 2007 A (COPs) (FGIC Insd)
    4.50       09/01/37       857,760  
  1,360    
San Francisco City & County, Laguna Honda Hospital Ser 2005 I (FSA Insd)
    5.00       06/15/30       1,366,338  
  2,000    
San Francisco Public Utilities Commission, Water Refg Ser A 2001 (FSA Insd)
    5.00       11/01/31       1,986,580  
  1,000    
San Jose, Airport Ser 2001 A (FGIC Insd)
    5.00       03/01/25       970,470  
  1,000    
San Jose-Evergreen Community College District, Election Ser 2004 B (FSA Insd) (a)
    0.00       09/01/32       236,480  
  130    
San Rafael City High School District , Election Ser 2002 B
    0.00       08/01/25       51,754  
  500    
San Ysidro School District, 1997 Election Ser 2007 E (FSA Insd) (a)
    0.00       08/01/27       165,060  
  760    
San Ysidro School District, 1997 Election Ser 2007 E (FSA Insd) (a)
    0.00       08/01/29       210,550  
  1,870    
School Facilities Financing Authority, Grant Joint Union High School District Ser 2008A (FSA Insd) (a)
    0.00       08/01/33       386,230  
  1,000    
Simi Valley Public Financing Authority, Ser 2004 (COPs) (AMBAC Insd)
    5.00       09/01/30       948,760  
  480    
Simi Valley Unified School District, Election of 2004 Ser 2007 C (FSA Insd) (a)
    0.00       08/01/28       142,056  
  380    
Simi Valley Unified School District, Election of 2004 Ser 2007 C (FSA Insd) (a)
    0.00       08/01/30       91,508  
  1,000    
Southern California Public Power Authority, Transmission Refg Ser 2002 A (FSA Insd)
    5.25       07/01/18       1,062,790  
  250    
Tustin Unified School Facilities District No 2002-1-2002 Election Ser 2008 C (FSA Insd)
    5.00       06/01/28       250,693  
  250    
Twin Rivers Unified School District, Ser 2009 (BANs) (a)
    0.00       04/01/14       198,360  
  1,000    
University of California, Ser 2007- J (FSA Insd)
    4.50       05/15/31       903,260  
  1,000    
University of California, Ser 2007- J (FSA Insd)
    4.50       05/15/35       881,760  
  1,000    
University of California Regents Ser 2007 A (NATL-RE Insd)
    4.50       05/15/37       869,880  
  500    
University of California, Ser 2009 O
    5.25       05/15/39       511,490  
  1,000    
Upland School District, Election 2000 Ser 2001 B (FSA Insd)
    5.125       08/01/25       1,020,450  
  675    
Val Verde Unified School District of Construction, Ser 2005 B (COPs) (FGIC Insd)
    5.00       01/01/30       550,233  
  8,115    
Victor Valley Community College District, Election 2008 Ser C
    0.00       06/01/49       501,507  
  1,375    
Washington Unified School District, 2004 Ser A (FGIC Insd)
    5.00       08/01/22       1,409,018  
  245    
West Basin Municipal Water District, Refg Ser 2008B (COPs) (AGC Insd)
    5.00       08/01/27       238,481  
  570    
Yosemite Community College District, Election of 2004, Ser 2008 C (FSA Insd) (a)
    0.00       08/01/25       226,923  
  1,000    
Yucaipa Valley Water District, Ser 2004 A (COPs) (NATL-RE Insd)
    5.25       09/01/24       1,000,840  
       
 
                     
       
 
                    46,865,486  
       
 
                     
 
       
Guam (0.2%)
                       
  95    
Guam Government Ltd Obligation Ser A
    5.625       12/01/29       93,021  
       
 
                     
       
 
                       
       
Puerto Rico (1.6%)
                       
  500    
Puerto Rico Infrastructure Financing Authority, 2000 Ser A (ETM) (c)
    5.50       10/01/32       533,675  
  240    
Puerto Rico Sales Tax Financing Corporation Ser 2009 A
    5.00       08/01/39       244,106  
       
 
                     
       
 
                    777,781  
       
 
                     
 
       
Virgin Islands (0.5%)
                       
  240    
Virgin Islands Public Finance Authority Matching Fund Loan Diago A
    6.625       10/01/29       242,018  
       
 
                     
       
 
                       
       
Total Tax-Exempt Municipal Bonds
(Cost $50,521,923)
                    47,978,307  
       
 
                     
       
 
                       
       
California Short-Term Tax-Exempt Municipal Obligations (0.7%)
                       
  30    
California Housing Finance Agency, Multifamily Housing III Ser 2008 A (Demand 08/03/09)
    0.32 (d)     08/01/40       30,000  
  300    
Sacramento County Sanitation Districts Financing Authority Ser 2008 D (Demand 08/03/09)
    0.32 (d)     12/01/39       300,000  
       
 
                     
       
Total California Short-Term Tax-Exempt Municipal Obligations
(Cost $330,000)
                    330,000  
       
 
                     
       
 
                       
       
Total Investments
(Cost $50,760,123)
                    48,308,307  
       
 
                     
       
 
                       
       
Floating Rate Note and Dealer Trusts Obligation Related to Securities Held (-1.7%)
                       
       
Note with interest rate of 0.23% at July 31, 2009 and contractual
maturity of collateral at 07/01/27 (e) (Cost ($825,000))
                    (825,000)  
       
 
                     
 
       
Total Net Investments
(Cost $49,935,123) (f) (g)
            99.8 %     47,483,307  
       
 
                       
       
Other Assets in Excess of Liabilities
            0.2       102,911  
       
 
                   
       
 
                       
       
Net Assets Applicable to Common Shareholders
            100.0 %   $ 47,586,218  
       
 
                   

 


 

 
Note: The categories of investments are shown as a percentage of net assets applicable to common shareholders.
 
AMT   Alternative Minimum Tax.
 
BANs   Bond Anticipation Notes.
 
COPs   Certificates of Participation.
 
ETM   Escrowed to Maturity.
 
(a)   Capital appreciation bond.
 
(b)   Prefunded to call date shown.
 
(c)   A portion of this security has been physically segregated in connection with open futures contracts.
 
(d)   Current coupon rate of variable rate demand obligation.
 
(e)   Floating rate note and dealer trusts obligations related to securities held — The Trust enters into transactions in which it transfers to Dealer Trusts (“Dealer Trusts”), fixed rate bonds in exchange for cash and residual interests in the Dealer Trusts’ assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Trust to retain residual interest in the bonds. The Trust enters into shortfall agreements with the Dealer Trusts which commit the Trust to pay the Dealer Trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Trust (inverse floating rate investments) include the right of the Fund (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. 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. At July 31, 2009, Trust investments with a value of $1,312,816 are held by the Dealer Trusts and serve as collateral for the $825,000 in floating rate note obligations outstanding at that date.
 
(f)   Securities have been designated as collateral in connection with open futures contracts.
 
(g)   The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes.
 
Bond Insurance:
 
AGC   Assured Guaranty Corporation.
 
AMBAC   AMBAC Assurance Corporation.
 
FGIC   Financial Guaranty Insurance Company.
 
FSA   Financial Security Assurance Inc.
 
NATL-RE   National Public Finance Guarantee Corporation.
 
XLCA   XL Capital Assurance Inc.

 


 

Morgan Stanley Insured California Municipal Securities
FUTURES CONTRACTS OPEN AT JULY 31, 2009:
                             
                        UNREALIZED  
NUMBER OF         DESCRIPTION, DELIVERY   UNDERLYING FACE     APPRECIATION  
CONTRACTS     LONG/SHORT   MONTH AND YEAR   AMOUNT AT VALUE     (DEPRECIATION)  
       
  137     Long  
U.S. Treasury Notes 20 Year September 2009
  $ 16,067,532     $ 392,640  
 
  2     Long  
U.S. Treasury Notes 5 Year September 2009
    230,766       (75 )
 
  20     Short  
U.S. Treasury Bonds 2 Year September 2009
    (4,331,562 )     (4,473 )
 
  50     Short  
U.S. Treasury Notes September 2009
    (5,950,000 )     (164,182 )
           
 
             
 
           
Net Unrealized Appreciation
          $ 223,910  
           
 
             

 


 

Morgan Stanley Insured California Municipal Securities
Notes to the Portfolio of Investments
SFAS 157 Disclosure
7/31/2009
The Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), effective November 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed baed on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.
Level 1 — unadjusted quoted prices in active markets for identical investments
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is a summary of the inputs used as of July 31, 2009 in valuing the Fund’s investments carried at value:
                                 
    Fair Value Measurements at July 31, 2009 Using
            Unadjusted        
            Quoted Prices In   Significant   Significant
            Active Market for   Other Observable   Unobservable
            Identical Investments   Inputs   Inputs
Investment Type   Total   (Level 1)   (Level 2)   (Level 3)
 
Assets
                               
Tax-Exempt Municipal Bonds
  $ 47,978,307           $ 47,978,307        
Short-Term Tax-Exempt Municipal Obligations
    330,000             330,000        
Futures
    392,640     $ 392,640              
 
Total Assets
  $ 48,700,947     $ 392,640     $ 48,308,307        
 
Liabilities
                               
 
Futures
  $ (168,730 )   $ (168,730 )            
 
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 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; (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, which approximates market value.

 


 

Item 2. Controls and Procedures.
(a) The Trust’s principal executive officer and principal financial officer have concluded that the Trust’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust’s in this Form N-Q 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 Trust’s internal control over financial reporting that occurred during the registrant’s fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.
Item 3. Exhibits.
(a) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto.

2


 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Insured California Municipal Securities
/s/ Randy Takian
Randy Takian
Principal Executive Officer
September 17, 2009
     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/ Randy Takian
Randy Takian
Principal Executive Officer
September 17, 2009
/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 17, 2009

3