<PAGE> 1
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES Two World Trade Center
LETTER TO THE SHAREHOLDERS April 30, 2000 New York, New York 10048
</TABLE>
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion into the new year. Strong
growth pushed the unemployment rate to a 30-year low. Rising commodity prices
heightened concern about inflation. The price of oil moved above $30 per barrel
prior to ending April at $25 per barrel. Between June 1999 and March 2000, the
Federal Reserve Board raised the federal funds rate in five, 25 basis-point
moves to reach 6.00 percent. The Fed subsequently demonstrated its resistance to
inflation by raising the federal funds rate another 50 basis points to 6.50
percent in May. Economic growth and a less accommodative monetary policy caused
long-term interest rates to increase throughout 1999. In February, the U.S.
Treasury announced plans to retire debt with the federal budget surplus. This
precipitated a 50-75 basis-point rally in longer Treasury maturities.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began 1999 near a record low yield of 5.05
percent but increased to 5.97 percent by calendar year-end. This index reached a
high of 6.18 percent in January 2000 before ending April at 5.93 percent.
Because bond prices move inversely to changes in interest rates, higher yields
caused bond prices to decline significantly last year and improve modestly in
the first four months of 2000.
The ratio of municipal yields as a percentage of Treasury yields has been used
historically as a measure of relative value. Over the past five years the ratio
has ranged between an average high of 93 percent and an average low of 85
percent. The increase in the ratio from 92 percent at the end of 1999 to 99
percent at the end of April 2000 was primarily the result of the magnitude of
the rally in long Treasuries. A rising yield ratio indicates weaker relative
performance by municipals.
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent last year. Refunding activity, the most
interest-rate-sensitive component of supply, was down more than
<PAGE> 2
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 2000, continued
50 percent. In the first four months of this year, volume was 30 percent lower
than in the same period last year.
[30-YEAR BOND YIELDS 1994 - 2000 GRAPH]
30-YEAR BOND YIELDS 1994 - 2000
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.40% 6.34% 85.17%
5.40% 6.24% 86.54%
5.80% 6.66% 87.09%
6.40% 7.09% 90.27%
6.35% 7.32% 86.75%
6.25% 7.43% 84.12%
6.50% 7.61% 85.41%
6.25% 7.39% 84.57%
6.30% 7.45% 84.56%
6.55% 7.81% 83.87%
6.75% 7.96% 84.80%
7.00% 8.00% 87.50%
6.75% 7.88% 85.66%
1995 6.40% 7.70% 83.12%
6.15% 7.44% 82.66%
6.15% 7.43% 82.77%
6.20% 7.34% 84.47%
5.80% 6.66% 87.09%
6.10% 6.62% 92.15%
6.10% 6.86% 88.92%
6.00% 6.66% 90.09%
5.95% 6.48% 91.82%
5.75% 6.33% 90.84%
5.50% 6.14% 89.58%
5.35% 5.94% 90.07%
1996 5.40% 6.03% 89.55%
5.60% 6.46% 86.69%
5.85% 6.66% 87.84%
5.95% 6.89% 86.36%
6.05% 6.99% 86.55%
5.90% 6.89% 85.63%
5.85% 6.97% 83.93%
5.90% 7.11% 82.98%
5.70% 6.93% 82.25%
5.65% 6.64% 85.09%
5.50% 6.35% 86.61%
5.60% 6.63% 84.46%
1997 5.70% 6.79% 83.95%
5.65% 6.80% 83.09%
5.90% 7.10% 83.10%
5.75% 6.94% 82.85%
5.65% 6.91% 81.77%
5.60% 6.78% 82.60%
5.30% 6.30% 84.13%
5.50% 6.61% 83.21%
5.40% 6.40% 84.38%
5.35% 6.15% 86.99%
5.30% 6.05% 87.60%
5.15% 5.92% 86.99%
1998 5.15% 5.80% 88.79%
5.20% 5.92% 87.84%
5.25% 5.93% 88.53%
5.35% 5.95% 89.92%
5.20% 5.80 89.66%
5.20% 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%
6.00% 6.29% 95.39%
5.97% 6.48% 92.13%
2000 6.18% 6.49% 95.22%
6.04% 6.14% 98.37%
5.82% 5.83% 99.83%
5.91% 5.96% 99.16%
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
During the six-month period ended April 30, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter California Quality Municipal Securities (IQC)
increased from $12.89 to $13.08 per share. Based on this change, plus a
reinvestment of tax-free dividends totaling $0.39 per share, the Trust's total
NAV return was 4.81 percent. IQC's value on the New York Stock Exchange (NYSE)
increased from $12.1875 to $12.6875 per share during this period. Based on this
change plus reinvestment of tax-free dividends, IQC's total market return was
7.53 percent. On April 30, 2000, IQC's share price was at a 3.00 percent
discount to its NAV.
Monthly dividends for the second quarter of 2000, declared in March, were
unchanged at $0.065 per share. The Trust's level of undistributed net investment
income was $0.089 per share on April 30, 2000, versus $0.119 per share six
months earlier.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 2000, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 11 long-term sectors and 40
credits. At the end of April, the portfolio's average maturity was 19 years.
Average duration, a measure of sensitivity to interest rate changes, was 10.6
years. Current information on the portfolio's credit ratings and sector
distribution is provided in the accompanying charts and tables. Optional call
provisions and their respective cost (book) yields are also shown.
THE IMPACT OF LEVERAGING
As discussed in previous shareholder 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 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 six month period, ARPS leverage contributed approximately $0.02 per
share to common share earnings. Weekly ARPS yields ranged between 2.50 percent
and 5.80 percent. In comparison, the yield on 1-year municipal notes increased
from 3.77 percent at the end of October 1999 to 4.23 percent at the end of
April. The Trust's three ARPS series totaling $55 million represented 28 percent
of net assets.
LOOKING AHEAD
The Federal Reserve Board has expressed concern about consumer wealth and rising
prices. We anticipate that the central bank will continue to increase short-term
interest rates in an effort to slow the economy. We believe municipal bonds
continue to offer tax-conscious investors good long-term value.
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
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 2000, continued
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, which ever 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 six-month period ended April 30, 2000, the Trust
purchased and retired 2.2 percent of its common stock (247,700 shares) at a
weighted average market discount of 7.80 percent. The anti-dilutive effect of
acquiring treasury shares is reported in the table of financial highlights on
page 17.
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 April 30, 2000, continued
[LARGEST SECTORS BAR CHART]
LARGEST SECTORS AS OF APRIL 30, 2000
(% of Net Assets)
<TABLE>
<S> <C>
Water & Sewer 29%
Education 13%
Public Facilities 13%
Electric 10%
Transportation 9%
Tax Allocation 8%
Hospital 7%
</TABLE>
Portfolio structure is subject to change.
[CREDIT RATINGS PIE CHART]
CREDIT RATINGS AS OF APRIL 30, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
Aaa or AAA 45%
Aa or AA 37%
A or A 15%
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 April 30, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
April 30, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 4 YEARS
PERCENT CALLABLE*
<TABLE>
<CAPTION>
YEARS BONDS CALLABLE
<S> <C>
2001 0%
2002 7%
2003 67%
2004 16%
2005 0%
2006 1%
2007 3%
2008 4%
2009 1%
2010+ 1%
</TABLE>
WEIGHTED AVERAGE
BOOK YIELD: 5.47%
COST (BOOK) YIELD**
<TABLE>
<CAPTION>
<S> <C>
2001
2002 5.2%
2003 5.5%
2004 5.4%
2005
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 bonds in the
long-term portfolio that are callable in 2002.
Portfolio structure is subject to change.
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.9%)
General Obligation (0.7%)
$ 1,375 California, Various Purpose Dtd 04/01/93.................... 5.90% 04/01/23 $ 1,366,049
-------- -----------
Educational Facilities Revenue (12.5%)
California Educational Facilities Authority,
5,000 Carnegie Institute of Washington 1993 Ser A................ 5.60 10/01/23 4,872,500
1,500 Culinary Institute of America Ser 1993 (Connie Lee)........ 5.30 10/01/23 1,368,390
2,500 Pepperdine University 1993 Ser A (MBIA).................... 5.50 06/01/19 2,442,125
8,000 California Public Works Board, University of California Ser
1993 B..................................................... 5.50 06/01/14 8,034,800
University of California,
5,000 UCLA Central Chiller/Cogeneration Refg Ser 1993 COPs....... 5.50 11/01/14 4,921,500
3,000 UCLA Central Chiller/Cogeneration Refg Ser 1993 COPs....... 5.60 11/01/20 2,871,060
-------- -----------
25,000 24,510,375
-------- -----------
Electric Revenue (9.6%)
Los Angeles Department of Water & Power,
3,000 Issue of 1992.............................................. 6.375 02/01/20 3,121,740
4,000 Issue of 1993 (Secondary AMBAC)............................ 5.375 09/01/23 3,754,600
8,000 Northern California Transmission Agency, California - Oregon
Transmission Refg Ser 1993 A (MBIA)........................ 5.25 05/01/20 7,438,320
5,000 Southern California Public Power Authority, Mead - Phoenix
1994 Ser A (AMBAC)......................................... 4.875 07/01/20 4,351,800
-------- -----------
20,000 18,666,460
-------- -----------
Hospital Revenue (6.7%)
4,000 Anaheim, Anaheim Memorial Hospital Association COPs
(AMBAC).................................................... 5.00 05/15/13 3,858,680
California Health Facilities Financing Authority,
3,000 Cedars-Sinai Medical Center Ser 1997 A (MBIA).............. 5.25 08/01/27 2,686,290
5,000 Kaiser Permanente Ser 1985................................. 5.55 08/15/25 4,470,350
2,000 California Statewide Communities Development Authority,
Children's Hospital of Los Angeles Ser 1993 COPs (MBIA).... 6.00 06/01/13 2,140,620
-------- -----------
14,000 13,155,940
-------- -----------
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 7,790,000
-----------
Mortgage Revenue - Single Family (4.1%)
8,305 California Housing Finance Agency, Home 1993 Ser B.......... 5.65 08/01/14 8,090,233
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public Facilities Revenue (13.2%)
$ 3,000 Alameda County, Alameda County Medical Center, Ser 1998
(MBIA)..................................................... 5.00% 06/01/23 $ 2,630,910
7,000 California Public Works Board, Corrections 1993 Ser D....... 5.375 06/01/12 7,010,430
4,000 Irvine Unified School District - Community Facilities
District #86-1, Special Tax Ser 1998 (AMBAC)............... 5.00 11/01/19 3,607,480
5,000 Los Angeles Convention & Exhibition Center Authority, 1993
Refg Ser A (MBIA).......................................... 5.125 08/15/13 4,879,600
5,000 Los Angeles County Public Works Financing Authority, Proj IV
(MBIA)..................................................... 5.25 12/01/16 4,796,600
3,000 Redding Joint Powers Financing Authority, 1993 Ser A........ 5.50 01/01/13 2,922,360
-------- -----------
27,000 25,847,380
-------- -----------
Recreational Facilities Revenue (0.9%)
2,000 California Statewide Communities Development Authority, The
-------- J Paul Getty Trust COPs.................................... 5.00 10/01/23 1,729,740
-----------
Tax Allocation Revenue (8.4%)
6,870 Garden Grove Community Development Agency, Refg Issue of
1993....................................................... 5.875 10/01/23 6,419,122
7,000 Rosemead Redevelopment Agency, Proj # 1 Ser 1993 A.......... 5.60 10/01/33 6,382,810
4,000 San Jose Redevelopment Agency, Merged Area Ser 1993
(MBIA)..................................................... 5.00 08/01/20 3,564,320
-------- -----------
17,870 16,366,252
-------- -----------
Transportation Facilities Revenue (8.6%)
2,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999
A (MBIA)................................................... 5.25 10/01/21 1,854,420
5,000 Long Beach, Harbor Ser 1993 (AMT)........................... 5.00 05/15/10 4,869,000
2,000 Los Angeles, Harbor Issue of 1996 Ser B (AMT) (MBIA)........ 5.375 11/01/19 1,872,660
7,000 Los Angeles County Metropolitan Transportation Authority,
Sales Tax Refg Ser 1993-A (MBIA)........................... 5.625 07/01/18 6,979,630
1,500 San Francisco Bay Area Rapid Transit District, Sales Tax Ser
1998 (AMBAC)............................................... 4.75 07/01/23 1,261,830
-------- -----------
17,500 16,837,540
-------- -----------
Water & Sewer Revenue (29.2%)
8,000 California Department of Water Resources, Central Valley Ser
L.......................................................... 5.50 12/01/23 7,673,279
7,000 Eastern Municipal Water District, Ser 1993 A COPs (FGIC).... 5.25 07/01/23 6,403,880
6,000 Los Angeles, Wastewater Refg Ser 1993-D (FGIC).............. 5.20 11/01/21 5,481,720
8,000 Los Angeles County Sanitation Districts Financing Authority,
1993 Ser A................................................. 5.25 10/01/19 7,473,200
3,000 Marin County Municipal Water District, Ser 1993............. 5.65 07/01/23 2,939,010
Metropolitan Water District of Southern California,
5,000 Issue of 1992.............................................. 5.50 07/01/13 5,029,200
3,000 Waterworks Ser C........................................... 5.25 07/01/15 2,923,260
6,000 Moulton-Niguel Water District, 1993 COPs (AMBAC)............ 5.30 09/01/23 5,544,960
2,500 Rancho Water District Financing Authority, Refg Ser 1994
(AMBAC).................................................... 5.00 08/15/14 2,379,525
4,000 Sacramento County Sanitation Districts Financing Authority,
Ser 1993................................................... 5.00 12/01/16 3,677,720
8,000 San Diego Public Facilities Authority, Sewer Ser 1993 A..... 5.25 05/15/20 7,428,560
-------- -----------
60,500 56,954,314
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$201,550 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $198,757,307)...... $191,314,283
-------- ------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATION (0.4%)
700 California Health Facilities Financing Authority, Adventist
-------- Health 1998 Ser B (MBIA) (Demand 05/01/00) (Identified Cost
$700,000).................................................. 5.75*% 09/01/28 700,000
-----------
$202,250 TOTAL INVESTMENTS (Identified Cost $199,457,307) (a).................. 98.3% 192,014,283
========
OTHER ASSETS IN EXCESS OF LIABILITIES................................... 1.7 3,318,764
----- -----------
NET ASSETS............................................................. 100.0% $195,333,047
===== ============
</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 $316,597 and the aggregate gross unrealized
depreciation is $7,759,621, resulting in net unrealized
depreciation of $7,443,024.
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
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $199,457,307)............................. $192,014,283
Interest receivable......................................... 3,465,039
Cash........................................................ 11,934
Prepaid expenses and other assets........................... 61,063
------------
TOTAL ASSETS............................................ 195,552,319
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders..................... 70,823
Investment management fee............................... 57,164
Accrued expenses and other payables......................... 91,285
------------
TOTAL LIABILITIES....................................... 219,272
------------
NET ASSETS:............................................. $195,333,047
============
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, 10,726,213
shares outstanding)........................................ 154,202,522
Net unrealized depreciation................................. (7,443,024)
Accumulated undistributed net investment income............. 955,332
Accumulated net realized loss............................... (7,381,783)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS............ 140,333,047
------------
TOTAL NET ASSETS........................................ $195,333,047
============
NET ASSET VALUE PER COMMON SHARE
($140,333,047 divided by 10,726,213 common shares
outstanding)............................................... $13.08
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended April 30, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $5,469,421
----------
EXPENSES
Investment management fee................................... 342,183
Auction commission fees..................................... 84,186
Professional fees........................................... 51,239
Transfer agent fees and expenses............................ 16,269
Auction agent fees.......................................... 14,981
Shareholder reports and notices............................. 13,059
Registration fees........................................... 12,116
Trustees' fees and expenses................................. 7,966
Custodian fees.............................................. 5,680
Other....................................................... 10,539
----------
TOTAL EXPENSES.......................................... 558,218
Less: expense offset........................................ (5,666)
----------
NET EXPENSES............................................ 552,552
----------
NET INVESTMENT INCOME................................... 4,916,869
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (63,864)
Net change in unrealized depreciation....................... 2,234,337
----------
NET GAIN................................................ 2,170,473
----------
NET INCREASE................................................ $7,087,342
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2000 OCTOBER 31, 1999
------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 4,916,869 $ 9,968,405
Net realized gain (loss)............................. (63,864) 118,579
Net change in unrealized depreciation................ 2,234,337 (19,564,913)
----------- -----------
NET INCREASE (DECREASE).......................... 7,087,342 (9,477,929)
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred............................................ (1,033,066) (1,863,338)
Common............................................... (4,229,322) (8,306,745)
----------- -----------
TOTAL DIVIDENDS.................................. (5,262,388) (10,170,083)
----------- -----------
Decrease from transactions in common shares of
beneficial interest................................. (2,953,079) (841,902)
----------- -----------
NET DECREASE..................................... (1,128,125) (20,489,914)
NET ASSETS:
Beginning of period.................................. 196,461,172 216,951,086
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$955,332 and $1,300,851, respectively)........... $195,333,047 $196,461,172
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 2000 (unaudited)
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.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 2000 (unaudited) continued
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 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.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The proceeds from sales of portfolio securities, excluding short-term
investments, for the six months ended April 30, 2000 aggregated $2,862,370.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At April 30, 2000, the Fund had transfer agent fees
and expenses payable of approximately $6,400.
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 of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended April 30, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,670. At April 30, 2000, the Trust had an accrued pension liability of
$37,164 which is included in accrued expenses in the Statement of Assets and
Liabilities.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 2000 (unaudited) continued
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 3.64%
2 240 12,000 3.75 07/06/00 3.75
3 600 30,000 4.70 05/02/00 2.50 - 5.80
</TABLE>
---------------------
* As of April 30, 2000.
** For the six months ended April 30, 2000.
Subsequent to April 30, 2000 and up through June 2, 2000, the Trust paid
dividends to each of the Series 1 through 3 at rates ranging from 3.64% to 4.70%
in the aggregate amount of $213,386.
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.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 2000 (unaudited) continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR EXCESS OF
SHARES VALUE PAR VALUE
---------- -------- ------------
<S> <C> <C> <C>
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
Treasury shares purchased and retired (weighted average
discount 7.80%)*........................................... (247,700) (2,477) (2,950,602)
---------- -------- ------------
Balance, April 30, 2000..................................... 10,726,213 $107,262 $154,095,260
========== ======== ============
</TABLE>
---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
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 March 28, 2000, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ------------ -------------
<S> <C> <C>
$0.065 May 5, 2000 May 19, 2000
$0.065 June 9, 2000 June 23, 2000
</TABLE>
16
<PAGE> 17
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 SIX FOR THE YEAR ENDED OCTOBER 31*
MONTHS ENDED ------------------------------------------------------------------
APRIL 30, 2000* 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value beginning of period..... $ 12.89 $ 14.67 $ 13.90 $ 13.08 $12.70 $ 10.62
------- ------- ------- ------- ------ -------
Income (loss) from investment
operations:
Net investment income.................. 0.45 0.90 0.91 0.91 0.89 0.88
Net realized and unrealized gain
(loss)............................... 0.20 (1.77) 0.74 0.74 0.26 2.07
------- ------- ------- ------- ------ -------
Total income (loss) from investment
operations............................. 0.65 (0.87) 1.65 1.65 1.15 2.95
------- ------- ------- ------- ------ -------
Less dividends from:
Net investment income.................. (0.39) (0.75) (0.72) (0.69) (0.69) (0.74)
Common share equivalent of dividends
paid to preferred shareholders....... (0.09) (0.17) (0.17) (0.17) (0.16) (0.17)
------- ------- ------- ------- ------ -------
Total dividends......................... (0.48) (0.92) (0.89) (0.86) (0.85) (0.91)
------- ------- ------- ------- ------ -------
Anti-dilutive effect of acquiring
treasury shares........................ 0.02 0.01 0.01 0.03 0.08 0.04
------- ------- ------- ------- ------ -------
Net asset value, end of period.......... $ 13.08 $ 12.89 $ 14.67 $ 13.90 $13.08 $ 12.70
======= ======= ======= ======= ====== =======
Market value, end of period............. $12.688 $12.188 $14.188 $12.688 $11.25 $10.875
======= ======= ======= ======= ====== =======
TOTAL RETURN+........................... 7.53%(1) (9.28)% 18.01% 19.60% 10.13% 19.73%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:
Total expenses.......................... 0.79%(2) 0.76%(3) 0.74%(3) 0.76% 0.78%(3) 0.84%(3)
Net investment income before preferred
stock dividends........................ 7.00%(2) 6.35% 6.32% 6.82% 7.02% 7.57%
Preferred stock dividends............... 1.47%(2) 1.19% 1.21% 1.26% 1.26% 1.48%
Net investment income available to
common shareholders.................... 5.53%(2) 5.16% 5.11% 5.56% 5.76% 6.09%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $195,333 $196,461 $216,951 $209,990 $204,531 $206,614
Asset coverage on preferred shares at
end of period.......................... 355% 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) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER CALIFORNIA QUALITY MUNICIPAL SECURITIES
REVISED INVESTMENT POLICY (unaudited)
On January 26, 2000, the Trustees of Morgan Stanley Dean Witter California
Quality Municipal Securities (the "Trust") approved an investment policy whereby
the Trust would be permitted to invest up to 10% of its assets in inverse
floating rate municipal obligations. The inverse floating rate municipal
obligations in which the Trust will invest are typically created through a
division of a fixed rate municipal obligation into two separate instruments, a
short-term obligation and a long-term obligation. The interest rate on the
short-term obligation is set at periodic auctions. The interest rate on the
long-term obligation is the rate the issuer would have paid on the fixed income
obligation: (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. The interest rates on these obligations generally
move in the reverse direction of market interest rates. If market interest rates
fall, the interest rate on the obligation will increase and if market interest
rates increase, the interest rate on the obligation will fall. Inverse floating
rate municipal obligations offer the potential for higher income than is
available from fixed rate obligations of comparable maturity and credit rating.
They also carry greater risks. In particular, the prices of inverse floating
rate municipal obligations are more volatile, i.e., they increase and decrease
in response to changes in interest rates to a greater extent than comparable
fixed rate obligations.
18
<PAGE> 19
(This Page Intentionally Left Blank)
<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
The financial statements included herein have been taken from the records of the
Trust without examination by the independent accountants and accordingly they
do not express an opinion thereon.
MORGAN STANLEY
DEAN WITTER
CALIFORNIA
QUALITY
MUNICIPAL
SECURITIES
Semiannual Report
April 30, 2000
