<PAGE> 1
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
Two World Trade Center
LETTER TO THE SHAREHOLDERS October 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, continued to experience robust growth
this year. The fixed-income markets anticipated that the Federal Reserve Board
would remove the liquidity it provided during last year's international economic
crises. The Fed changed monetary policy and raised the federal-funds rate 50
basis points, to 5.25 percent during the summer. By October long-term interest
rates had risen to levels last seen two years ago. Subsequently, the Fed raised
the federal-funds rate an additional 25 basis points, to 5.50 percent in
November.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal index yields began 1999 near a record low of 5.05
percent. By the end of October, municipal index yields had increased 100 basis
points to 6.05 percent. Since bond prices move inversely to changes in interest
rates, these higher yields resulted in significantly lower bond prices. The
increase in yields translated into a 13 percent price decline for a generic
insured municipal bond with a 30-year maturity.
The municipal market outperformed U.S. Treasury bonds early in the year but
gradually gave ground. The ratio of long-term insured municipal index yields to
benchmark 30-year Treasury yields is a measure of relative performance. The
ratio declined from 99 percent at the end of 1998 to 91 percent in May before
rising to 98 percent by the end of October. A declining ratio means that
municipals have outperformed Treasuries. Over the past five years the ratio has
ranged from a high of 99 percent, to a low of 82 percent.
Higher interest rates led to a reduction in municipal market underwriting this
year. New issue volume declined 20 percent in the first ten months of 1999.
Refunding activity, the most interest rate sensitive component of supply, was
down 50 percent.
<PAGE> 2
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
30-YEAR BOND YIELDS 1994 - 1999
<TABLE>
<CAPTION>
Insured U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percent of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.4% 6.34% 85.17%
5.4 6.24 86.54
5.8 6.66 87.09
6.4 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.5 7.61 85.41
6.25 7.39 84.57
6.3 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.2 7.34 84.47
5.8 6.66 87.09
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.9 6.89 85.63
5.85 6.97 83.93
5.9 7.11 82.98
5.7 6.93 82.25
5.65 6.64 85.09
5.5 6.35 86.61
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
5.00 5.06 98.81
5.05 5.10 99.02
1999 5.00 5.09 98.23
5.10 5.58 91.40
5.15 5.63 91.47
5.20 5.66 91.87
5.30 5.83 90.91
5.47 5.96 91.78
5.55 6.10 90.98
5.75 6.06 94.88
5.85 6.05 96.69
6.03 6.16 97.90
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal
Group and Bloomberg L.P.
PERFORMANCE
In this interest rate environment, the net asset value (NAV) of Morgan Stanley
Dean Witter California Quality Municipal Securities (IQC) declined from $14.67
to $12.89 per share for the fiscal year ended October 31, 1999. Based on this
change plus reinvestment of tax-free dividends totaling $0.75 per share, the
Trust's total NAV return was -7.14 percent. IQC's value on the New York Stock
Exchange (NYSE) fell from $14.1875 to $12.1875 per share during the same period.
Based on this change plus reinvestment of tax-free dividends, IQC's total market
return was -9.28 percent. On October 31, 1999, IQC's NYSE market price
represented a 5.45 percent discount to its NAV.
Monthly dividends for the fourth quarter of 1999 were declared in September.
Beginning with the October payment, the dividend was increased from $0.0625 to
$0.065 per share. The new dividend rate reflects the Trust's estimated earnings
over the next 6 -12 months and its $0.119 per share cushion of undistributed net
investment income on October 31, 1999.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 10 long-term sectors and 40
credits. At the end of October, the portfolio's average maturity was 20 years.
Average duration, a measure of sensitivity to interest rate changes, was 11
years. The accompanying charts provide current information on the portfolios
credit quality and sector distribution. Optional call provisions by year with
their respective cost (book) yields are also charted.
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution to
common shareholders includes incremental income provided by the Trust's
outstanding Auction Rate Preferred shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second is
the spread between the portfolio's cost yield and ARPS expenses (ARPS auction
rate and expenses). The greater the spread and the amount of ARPS outstanding,
the greater the amount of incremental income available for distribution to
common shareholders. The level of net investment income available for
distribution to common shareholders varies with the level of short-term interest
rates. ARPS leverage also increases the price volatility of common shares and
has the effect of extending portfolio duration.
During the 12-month period, ARPS leverage contributed approximately $0.06 per
share to common share earnings. Weekly ARPS yields ranged between 2.00 and 4.75
percent. In comparison, the yield on 1-year municipal notes increased from 3.04
percent at the end of 1998, to 3.77 percent at the end of October 1999. The
Trust's three ARPS series totaling $55 million represented 28 percent of net
assets.
LOOKING AHEAD
The Federal Reserve Board raised interest rates twice in the summer and again in
November. This confirmed its previously disclosed bias of becoming less
accommodative in the face of continued strong domestic economic growth.
Depending on the impact of tight labor markets and higher commodity prices on
inflation, the central bank may raise short-term interest rates further.
However, we believe municipal bonds continue to offer long-term investors good
value especially in relationship to Treasuries.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps support
the market value of the Trust's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Trust may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. The Trust may also utilize procedures to reduce
or eliminate the amount of outstanding ARPS, including their purchase in the
open market or in privately negotiated transactions. During the fiscal year
ended October 31, 1999 the Trust purchased and retired 67,900 shares of common
stock at a weighted average market discount of 6.19 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter California
Quality Municipal Securities and look forward to continuing to serve your
investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
<TABLE>
<CAPTION>
LARGEST SECTORS as of October 31, 1999
(% of Net Assets)
<S> <C>
WATER & SEWER 29%
PUBLIC FACILITIES 13%
EDUCATION 13%
ELECTRIC 10%
TRANSPORTATION 8%
TAX ALLOCATION 8%
HOSPITAL 8%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
<TABLE>
<CAPTION>
CREDIT RATINGS as of October 31, 1999
(% of Total Long-Term Portfolio)
<S> <C>
Aaa or AAA 43%
Aa or AA 40%
A or A 14%
Baa or BBB 3%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR
STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
CALL AND COST (BOOK) YIELD STRUCTURE
October 31, 1999
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CALL PROTECTION: 4 YEARS
Years Bonds Callable Percent Callable*
<S> <C>
1999 0%
2000 0%
2001 0%
2002 7%
2003 66%
2004 17%
2005 0%
2006 1%
2007 3%
2008 4%
2009 1%
2010+ 1%
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
BOOK YIELD: 5.5%
Cost (Book) Yield**
<S> <C>
1999 0%
2000 0%
2001 0%
2002 5.2%
2003 5.5%
2004 5.4%
2005 0%
2006 5.7%
2007 5.4%
2008 5.2%
2009 5.0%
2010+ 5.4%
</TABLE>
* % Based on Long-Term Portfolio.
** Cost or "book" yield is the annual income earned on a portfolio
investment based on its original purchase price before Trust operating
expenses. For example, the Trust earned a book yield of 5.2% on 7% of the
long-term portfolio that is callable in 2002.
Portfolio structure is subject to change.
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 22, 1999, an annual meeting of the Trust's shareholders was held for the
purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
<TABLE>
<S> <C>
Wayne E. Hedien
For..................................................... 9,297,497
Withheld................................................ 199,216
John L. Schroeder
For..................................................... 9,297,451
Withheld................................................ 199,262
</TABLE>
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
<TABLE>
<S> <C>
Dr. Manuel H. Johnson
For..................................................... 818
Withheld................................................ 0
</TABLE>
The following Trustees were not standing for reelection at this meeting: Michael
Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent and Philip J.
Purcell.
(3) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 9,304,202
Against..................................................... 33,242
Abstain..................................................... 159,269
</TABLE>
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.7%)
General Obligation (0.7%)
$ 1,375 California, Various Purpose Dtd 04/01/93.................... 5.90% 04/01/23 $ 1,361,154
- -------- -----------
Educational Facilities Revenue (12.7%)
California Educational Facilities Authority,
6,000 Carnegie Institute of Washington 1993 Ser A................ 5.60 10/01/23 5,724,720
1,500 Culinary Institute of America Ser 1993 (Connie Lee)........ 5.30 10/01/23 1,349,580
2,500 Pepperdine University 1993 Ser A (MBIA).................... 5.50 06/01/19 2,393,000
8,000 California Public Works Board, University of California Ser
1993 B..................................................... 5.50 06/01/14 7,912,640
University of California,
5,000 UCLA Central Chiller/Cogeneration Refg Ser 1993 COPs....... 5.50 11/01/14 4,793,050
3,000 UCLA Central Chiller/Cogeneration Refg Ser 1993 COPs....... 5.60 11/01/20 2,830,440
- -------- -----------
26,000 25,003,430
- -------- -----------
Electric Revenue (9.9%)
Los Angeles Department of Water & Power,
3,000 Issue of 1992.............................................. 6.375 02/01/20 3,110,970
5,000 Issue of 1993 (Secondary AMBAC)............................ 5.375 09/01/23 4,623,850
8,000 Northern California Transmission Agency, California - Oregon
Transmission Refg Ser 1993 A (MBIA)........................ 5.25 05/01/20 7,306,320
5,000 Southern California Public Power Authority, Mead - Phoenix
- -------- 1994 Ser A (AMBAC)......................................... 4.875 07/01/20 4,327,650
-----------
21,000 19,368,790
- -------- -----------
Hospital Revenue (7.9%)
3,000 Alameda County, Alameda County Medical Center, Ser 1998
(MBIA)..................................................... 5.00 06/01/23 2,613,600
4,000 Anaheim, Anaheim Memorial Hospital Association COPs
(AMBAC).................................................... 5.00 05/15/13 3,777,800
California Health Facilities Financing Authority,
3,000 Cedars Sinai Medical Center Ser 1997 A (MBIA).............. 5.25 08/01/27 2,671,500
5,000 Kaiser Permanente Ser 1985................................. 5.55 08/15/25 4,466,150
2,000 California Statewide Communities Development Authority,
- -------- Children's Hospital of Los Angeles Ser 1993 COPs (MBIA).... 6.00 06/01/13 2,094,720
-----------
17,000 15,623,770
- -------- -----------
Industrial Development/Pollution Control Revenue (4.0%)
8,000 California Pollution Control Financing Authority, Pacific
- -------- Gas & Electric Co 1993 Ser B (AMT)......................... 5.85 12/01/23 7,788,080
-----------
Mortgage Revenue - Single Family (4.2%)
8,305 California Housing Finance Agency, Home 1993 Ser B.......... 5.65 08/01/14 8,206,087
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public Facilities Revenue (13.1%)
$ 7,000 California Public Works Board, Corrections 1993 Ser D....... 5.375% 06/01/12 $ 6,933,430
2,000 California Statewide Communities Development Authority, The
J Paul Getty Trust COPs.................................... 5.00 10/01/23 1,722,660
4,000 Irvine Unified School District - Community Facilities
District #86-1, Special Tax Ser 1998 (AMBAC)............... 5.00 11/01/19 3,563,240
6,000 Los Angeles Convention & Exhibition Center Authority, 1993
Refg Ser A (MBIA).......................................... 5.125 08/15/13 5,789,580
5,000 Los Angeles County Public Works Financing Authority, Proj IV
(MBIA)..................................................... 5.25 12/01/16 4,719,600
3,000 Redding Joint Powers Financing Authority, 1993 Ser A........ 5.50 01/01/13 2,941,950
- -------- -----------
27,000 25,670,460
- -------- -----------
Tax Allocation Revenue (8.3%)
6,870 Garden Grove Community Development Agency, Refg Issue of
1993....................................................... 5.875 10/01/23 6,430,870
7,000 Rosemead Redevelopment Agency, Proj # 1 Ser 1993 A.......... 5.60 10/01/33 6,444,480
4,000 San Jose Redevelopment Agency, Merged Area Ser 1993
(MBIA)..................................................... 5.00 08/01/20 3,528,400
- -------- -----------
17,870 16,403,750
- -------- -----------
Transportation Facilities Revenue (8.4%)
2,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999
A (MBIA)................................................... 5.25 10/01/21 1,831,960
5,000 Long Beach, Harbor Ser 1993 (AMT)........................... 5.00 05/15/10 4,856,300
2,000 Los Angeles, Harbor Issue of 1996 Ser B (AMT) (MBIA)........ 5.375 11/01/19 1,827,260
7,000 Los Angeles County Metropolitan Transportation Authority,
Sales Tax Refg Ser 1993-A (MBIA)........................... 5.625 07/01/18 6,814,150
1,500 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1998 (AMBAC)............................................... 4.75 07/01/23 1,254,525
- -------- -----------
17,500 16,584,195
- -------- -----------
Water & Sewer Revenue (28.5%)
8,000 California Department of Water Resources, Central Valley Ser
L.......................................................... 5.50 12/01/23 7,493,360
7,000 Eastern Municipal Water District, Ser 1993 A COPs (FGIC).... 5.25 07/01/23 6,332,130
6,000 Los Angeles, Wastewater Refg Ser 1993-D (FGIC).............. 5.20 11/01/21 5,434,080
8,000 Los Angeles County Sanitation Districts Financing Authority,
1993 Ser A................................................. 5.25 10/01/19 7,351,120
3,000 Marin County Municipal Water District, Ser 1993............. 5.65 07/01/23 2,842,530
Metropolitan Water District of Southern California,
5,000 Issue of 1992.............................................. 5.50 07/01/13 5,013,850
3,000 Waterworks Ser C........................................... 5.25 07/01/15 2,879,070
6,000 Moulton-Niguel Water District, 1993 COPs (AMBAC)............ 5.30 09/01/23 5,469,120
2,500 Rancho Water District Financing Authority, Refg Ser 1994
(AMBAC).................................................... 5.00 08/15/14 2,350,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,000 Sacramento County Sanitation Districts Financing Authority,
Ser 1993................................................... 5.00% 12/01/16 $ 3,639,600
8,000 San Diego Public Facilities Authority, Sewer Ser 1993 A..... 5.25 05/15/20 7,183,520
- -------- -----------
60,500 55,988,630
- -------- -----------
204,550 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $201,675,707)...... 191,998,346
- -------- -----------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (0.6%)
600 California Pollution Control Financing Authority, Pacific
Gas & Electric Co
Ser 1996 F (Demand 11/01/99)............................... 3.55* 11/01/26 600,000
500 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
- -------- (Demand 11/01/99).......................................... 3.55* 10/01/22 500,000
-----------
1,100 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
- -------- (Identified Cost $1,100,000).................................................... 1,100,000
-----------
$205,650 TOTAL INVESTMENTS (Identified Cost $202,775,707) (a).................. 98.3% 193,098,346
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 1.7 3,362,826
----- -----------
NET ASSETS............................................................. 100.0% $196,461,172
===== ===========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $68,919 and the aggregate gross unrealized
depreciation is $9,746,280, resulting in net unrealized
depreciation of $9,677,361.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of AMBAC
Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
ASSETS:
Investments in securities, at value
(identified cost $202,775,707)............................. $193,098,346
Cash........................................................ 20,852
Interest receivable......................................... 3,512,283
Prepaid expenses and other assets........................... 103,629
------------
TOTAL ASSETS............................................ 196,735,110
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders..................... 78,411
Investment management fee............................... 71,028
Shares of beneficial interest repurchased............... 15,876
Accrued expenses and other payables......................... 108,623
------------
TOTAL LIABILITIES....................................... 273,938
------------
NET ASSETS.............................................. $196,461,172
============
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares
authorized of non-participating $.01 par value, 1,100 shares
outstanding)............................................... $ 55,000,000
------------
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 10,973,913 shares outstanding) 157,155,601
Net unrealized depreciation................................. (9,677,361)
Accumulated undistributed net investment income............. 1,300,851
Accumulated net realized loss............................... (7,317,919)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS............ 141,461,172
------------
TOTAL NET ASSETS........................................ $196,461,172
============
NET ASSET VALUE PER COMMON SHARE
($141,461,172 divided by 10,973,913 common shares
outstanding)............................................... $12.89
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 11,146,903
------------
EXPENSES
Investment management fee................................... 742,061
Auction commission fees..................................... 173,219
Professional fees........................................... 112,375
Transfer agent fees and expenses............................ 39,774
Shareholder reports and notices............................. 26,867
Auction agent fees.......................................... 24,193
Registration fees........................................... 19,181
Trustees' fees and expenses................................. 19,018
Custodian fees.............................................. 9,403
Other....................................................... 21,723
------------
TOTAL EXPENSES.......................................... 1,187,814
Less: expense offset........................................ (9,316)
------------
NET EXPENSES............................................ 1,178,498
------------
NET INVESTMENT INCOME................................... 9,968,405
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 118,579
Net change in unrealized appreciation....................... (19,564,913)
------------
NET LOSS................................................ (19,446,334)
------------
NET DECREASE................................................ $ (9,477,929)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 9,968,405 $10,052,871
Net realized gain.................................... 118,579 611,511
Net change in unrealized appreciation................ (19,564,913) 7,675,755
----------- -----------
NET INCREASE (DECREASE).......................... (9,477,929) 18,340,137
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred............................................ (1,863,338) (1,917,382)
Common............................................... (8,306,745) (8,017,122)
----------- -----------
TOTAL DIVIDENDS.................................. (10,170,083) (9,934,504)
----------- -----------
Decrease from transactions in common shares of
beneficial interest................................. (841,902) (1,444,960)
----------- -----------
NET INCREASE (DECREASE).......................... (20,489,914) 6,960,673
NET ASSETS:
Beginning of period.................................. 216,951,086 209,990,413
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$1,300,851 and $1,502,529, respectively)......... $196,461,172 $216,951,086
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter California Quality Municipal Securities (the "Trust")
is registered under the Investment Company Act of 1940, as amended, as a
non-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 March 3, 1993 and commenced operations on September 29, 1993.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
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 financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), the Trust pays the Investment Manager
a management fee, calculated weekly and payable monthly, by applying the annual
rate of 0.35% to the Trust's weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
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, 1999 aggregated
$5,252,510 and $5,878,410, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At October 31, 1999, the Fund had transfer agent
fees and expenses payable of approximately $2,300.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time or retirement. Benefits under this
plan are based on years of service and compensation during the last
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
five years of service. Aggregate pension costs for the year ended October 31,
1999 included in Trustees' fees and expenses in the Statement of Operations
amounted to $5,712. At October 31, 1999, the Trust had an accrued pension
liability of $35,873 which is included in accrued expenses in the Statement of
Assets and Liabilities.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The Trust has issued Series 1 through 3 Auction Rate
Preferred Shares ("Preferred Shares") which 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.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
AMOUNT IN RESET RANGE OF
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES**
- ------ ------- ---------- ----- -------- ----------------
<S> <C> <C> <C> <C> <C>
1 260 $13,000 3.64% 07/11/00 2.00% - 3.64%
2 240 12,000 3.75 07/06/00 2.45 - 4.75
3 600 30,000 3.55 11/02/99 3.15 - 4.20
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* As of October 31, 1999.
** For the year ended October 31, 1999.
</TABLE>
Subsequent to October 31, 1999 and up through December 3, 1999, the Trust paid
dividends to each of the Series 1 through 3 at rates ranging from 3.45% to 3.75%
in the aggregate amount of $176,674.
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.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, October 31, 1997................................... 11,151,113 $111,511 $159,330,952
Treasury shares purchased and retired (weighted average
discount 7.28%)*........................................... (109,300) (1,093) (1,443,867)
---------- -------- ------------
Balance, October 31, 1998................................... 11,041,813 110,418 157,887,085
Treasury shares purchased and retired (weighted average
discount 6.19%)*........................................... (67,900) (679) (841,223)
---------- -------- ------------
Balance, October 31, 1999................................... 10,973,913 $109,739 $157,045,862
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1999, the Trust utilized approximately
$118,000 of its net capital loss carryover. At October 31, 1999, the Trust had a
net capital loss carryover of approximately $7,318,000 which may be used to
offset future capital gains to the extent provided by regulations, which is
available through October 31 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- -------------------------------
2002 2003 2004 2005
- ------ ------ ---- ------
<S> <C> <C> <C>
$5,005 $1,012 $113 $1,188
====== ====== ==== ======
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 28, 1999, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ---------------- -----------------
<S> <C> <C>
$0.065 November 5, 1999 November 19, 1999
$0.065 December 3, 1999 December 17, 1999
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31*
------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
Net asset value beginning of period......................... $ 14.67 $ 13.90 $ 13.08 $ 12.70 $ 10.62
------- -------- -------- ---------- --------
Income (loss) from investment operations:
Net investment income...................................... 0.90 0.91 0.91 0.89 0.88
Net realized and unrealized gain (loss).................... (1.77) 0.74 0.74 0.26 2.07
------- -------- -------- ---------- --------
Total income (loss) from investment operations.............. (0.87) 1.65 1.65 1.15 2.95
------- -------- -------- ---------- --------
Less dividends from:
Net investment income...................................... (0.75) (0.72) (0.69) (0.69) (0.74)
Common share equivalent of dividends paid to preferred
shareholders............................................. (0.17) (0.17) (0.17) (0.16) (0.17)
------- -------- -------- ---------- --------
Total dividends............................................. (0.92) (0.89) (0.86) (0.85) (0.91)
------- -------- -------- ---------- --------
Anti-dilutive effect of acquiring treasury shares........... 0.01 0.01 0.03 0.08 0.04
------- -------- -------- ---------- --------
Net asset value, end of period.............................. $ 12.89 $ 14.67 $ 13.90 $ 13.08 $ 12.70
======= ======== ======== ========== ========
Market value, end of period................................. $12.188 $ 14.188 $ 12.688 $ 11.25 $ 10.875
======= ======== ======== ========== ========
TOTAL RETURN+............................................... (9.28)% 18.01% 19.60% 10.13% 19.73%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses.............................................. 0.76%(1) 0.74%(1) 0.76% 0.78%(1) 0.84%(1)
Net investment income before preferred stock dividends...... 6.35% 6.32% 6.82% 7.02% 7.57%
Preferred stock dividends................................... 1.19% 1.21% 1.26% 1.26% 1.48%
Net investment income available to common shareholders...... 5.16% 5.11% 5.56% 5.76% 6.09%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $196,461 $216,951 $209,990 $204,531 $206,614
Asset coverage on preferred shares at end of period......... 357% 394% 382% 372% 376%
Portfolio turnover rate..................................... 3% 4% 6% -- 1%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total return is based upon the current market value on the last day of each
period reported. Dividends 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
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
California Quality Municipal Securities (the "Trust") at October 31, 1999, 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
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 8, 1999
--------------------------------------------------------------------
1999 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1999 all of the Trust's
dividends from net investment income received by both common
and preferred shareholder classes were exempt interest
dividends excludable from gross income for Federal income tax
purposes.
19
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
CALIFORNIA
QUALITY
MUNICIPAL
SECURITIES
Annual Report
October 31, 1999
