<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- - - - - - - -----------------------------------------------------------------------------
When InterCapital Quality Municipal Securities (NYSE symbol: IQM) began
its new fiscal year in November 1993, municipal yields had reached record
lows in a trend that began six years ago. Strong economic growth in the
fourth quarter of 1993 prompted concern about inflation and caused interest
rates to rise. The Federal Reserve Board tightened monetary policy by raising
the federal-funds rate -- the interest rate that banks charge each other for
overnight loans -- from 3.00 percent to 3.75 percent in three separate moves
between early February and April. This action was presented as a preemptive
strike against inflation. However, the fixed-income markets interpreted the
change in Fed policy as the beginning of a trend toward higher interest
rates. In mid-May, the Federal Reserve Board initiated another round of
tightening with a 50 basis point increase in both the federal-funds rate and
the discount rate -- the interest rate the Federal Reserve charges member
banks for loans.
By the end of April the bond market was battered. Interest rates were at
levels not seen in over a year. Long-term municipal bond yields as measured
by The Bond Buyer Revenue Bond Index* increased by 86 basis points from 5.56
percent to 6.42 percent between November and April. This corresponded to a
price decline of more than 11 percent.
New-issue underwriting totaled $290 billion in 1993, a 23 percent increase
over the previous high of $235 billion set in 1992. Refunding issues, which
are used by state and local governments to refinance higher-coupon debt,
represented 66 percent of total volume last year. It is estimated that 1994's
underwriting volume will decline by 30 percent to about $200 billion and that
approximately $260 billion in bonds will either mature or be called. Thus,
the amount of municipal debt outstanding will be reduced. In line with these
projections, new-issue volume for the first four months of 1994 declined by
34 percent and totaled $59 billion. Refunding activity, the catalyst of last
year's record underwriting, dropped even more sharply.
PERFORMANCE
For the six-month period ended April 30, 1994, the Trust paid shareholders
tax-free income dividends totaling $0.35 per share. IQM's total return for
this period was -21.92 percent. This calculation is based on a change in the
Trust's New York Stock Exchange market price from $15.125 on October 31, 1993
to $11.50 per share on April 30, 1994 and includes the reinvestment of all
dividends and distributions. Over the same period, the Trust's net asset
value (NAV) declined about 15 percent from $14.03 to $11.97 per share. The
current-coupon bonds purchased by the Trust in 1993 declined in line with the
Revenue Bond Index. However, the preferred stock leverage (as discussed
below) caused the Trust's NAV to decline 1.3 times more than the unleveraged
Revenue Bond Index. As of April 30, 1994, the Trust was trading at a 3.93
percent discount to NAV.
- - - - - - - ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of
25 selected municipal revenue bonds with 30-year maturities. Ratings of these
bonds range from Aaa to Baa1 by Moody's and AAA to A- by S&P.
<PAGE>
<PAGE>
PORTFOLIO STRUCTURE
The portfolio's long-term investments were diversified among twelve
specific municipal sectors and 64 credits. The three largest sectors were
industrial development / pollution control revenue, general obligation and
water and sewer revenue bonds, representing 46 percent of net assets. The
average maturity and call protection of the Trust's long-term holdings was 24
years and 10 years, respectively. Bonds subject to the alternative minimum
tax (AMT) comprised approximately 10 percent of net assets. At the end of the
period, the Trust's net assets exceeded $454 million. The credit quality
ratings of the long-term portfolio are summarized below:
<TABLE>
<CAPTION>
MOODY'S OR STANDARD & POOR'S RATING PERCENT
- - - - - - - ----------------------------------- ---------
<S> <C>
Aaa or AAA ........................ 27.9%
Aa or AA .......................... 29.4
Al or A+ .......................... 24.8
A or A ............................ 17.9
-----
100.0%
=====
</TABLE>
PREFERRED SHARE LEVERAGE
In addition to common shares, the Trust has also issued five $35 million
series of Auction Rate Preferred Shares (ARPS). Dividend and distribution
payments for these shares rank ahead of the common shares. ARPS are
short-term securities with maturities normally ranging from one week to one
year. The dividend rates on tax-free ARPS are established by an auction
process, when the maturity is rolled over. The Trust uses the proceeds from
ARPS issuance to purchase long-term municipal bonds.
The common shares are impacted by the preferred shares in two ways. First,
following the payment of the dividend on the ARPS, common shares receive any
extra incremental income when the long-term portfolio yield is higher than
the cost of the ARPS (yield plus expenses). Second, the preferred shares
leverage the common shares by a factor of approximately 1.5 times, thus
multiplying any market change in NAV. Over the past six months, incremental
tax-free income from the ARPS leverage maintained common share dividends and
increased the level or cushion of undistributed net investment income. As of
April 30, 1994, an amount equivalent to $0.074 per share had been accumulated
in this cushion to help sustain the Trust's current dividend. The average
ARPS rate on the Trust's five outstanding series as of April 30, 1994 was
2.54 percent, with all resets scheduled to occur within the next 4 months.
Higher yields in future ARPS auctions may begin to erode the Trust's cushion
of undistributed net investment income available for distribution to common
shareholders. If the cushion were to erode significantly over time, the Trust
would take appropriate action which could include an adjustment in the common
dividend and/or a reduction of the amount of ARPS.
Leverage is usually a positive influence on the overall value of a
portfolio during periods of stable to declining interest rates. However, the
increase in interest rates over the past few months has adversely impacted
NAV.
LOOKING AHEAD
A continuation of low new-issue supply, coupled with significant bond
calls and maturities should sustain investor demand for municipals. However,
the overall direction of interest rates will primarily be determined by the
strength of the economy, the trend of inflation and the Federal Reserve
Board's response to economic conditions.
<PAGE>
<PAGE>
The Trust's procedure for reinvestment of all dividends and distributions
on common shares is by purchase in the open market. This method helps to
support the market value of the Trust's shares. In addition, the Trustees
have approved a procedure whereby the Trust may attempt to reduce or
eliminate a market value discount from net asset value by repurchasing common
shares in the open market or in privately negotiated transactions. The Trust
may also utilize procedures to reduce or eliminate the amount of outstanding
ARPS, including their repurchase in the open market or in privately
negotiated transactions.
We appreciate your support of InterCapital Quality Municipal Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited)
- - - - - - - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- - - - - - - ----------- -------- ---------- -------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (95.2%)
GENERAL OBLIGATION (15.8%)
$10,000 Florida Board of Education, Cap Outlay Refg 1993 Ser D ................. 5.125% 6/ 1/18 $ 8,530,900
5,000 DeKalb County, Georgia, Refg Ser 1993 .................................. 5.25 1/ 1/20 4,341,400
Chicago, Illinois,
2,500 Ser 1993 (FGIC Insured) ............................................... 5.375 1/ 1/13 2,276,050
8,000 Ser 1993 (FGIC Insured) ............................................... 5.25 1/ 1/18 6,937,600
10,000 Ser 1993 (FGIC Insured) ............................................... 5.50 1/ 1/24 8,869,700
10,000 Washington Surburban Sanitation District, Maryland, Gen Constr Refg
1993 Second Ser ....................................................... 5.25 6/ 1/14 8,980,000
New York City, New York,
10,000 1994 Ser D ............................................................ 5.75 8/15/08 9,494,600
10,000 1994 Ser C ............................................................ 5.50 10/ 1/10 9,074,000
15,000 Seattle, Washington, Refg Ser 1993 ..................................... 5.65 1/ 1/20 13,571,850
- - - - - - - ------- -------------
80,500 72,076,100
- - - - - - - ------- -------------
EDUCATIONAL FACILITIES REVENUE (5.7%)
3,500 Georgetown University, District of Columbia, Ser 1993 .................. 5.25 4/ 1/13 3,051,440
Illinois Educational Facilities Authority,
4,695 Illinois Wesleyan University Ser 1993 ................................. 5.70 9/ 1/23 4,205,076
4,955 Northwestern University Refg Ser 1993 ................................. 5.375 12/ 1/21 4,277,751
Massachusetts Health & Educational Facilities Authority,
10,000 Boston College Ser K .................................................. 5.25 6/ 1/18 8,640,200
3,000 Wentworth Institute of Technology Ser B (Connie Lee Insured) ......... 5.50 10/ 1/23 2,640,420
3,500 Pennsylvania Higher Educational Facilities Authority, Thomas Jefferson
University 1993 Ser A ................................................. 5.30 11/ 1/15 3,053,610
- - - - - - - ------- -------------
29,650 25,868,497
- - - - - - - ------- -------------
ELECTRIC REVENUE (8.0%)
5,900 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA Insured). 5.50 7/ 1/21 5,254,068
14,000 Chelan County Public Utility District #1, Washington, Hydro Refg Ser
1993 G ................................................................ 5.375 6/ 1/18 12,248,320
21,000 Snohomish County Public Utilities District #1, Washington, Ser 1993 B
(AMT) ................................................................. 5.80 1/ 1/24 19,049,520
- - - - - - - ------- -------------
40,900 36,551,908
- - - - - - - ------- -------------
HOSPITAL REVENUE (7.0%)
8,000 Indiana Health & Educational Facilities Authority, Wellborn Memorial
Baptist Hospital Refg Ser 1993 ........................................ 5.50 7/ 1/14 7,074,320
3,980 Maine Health & Higher Educational Facilities Authority, Ser 1993 D (FSA
Insured) .............................................................. 5.50 7/ 1/18 3,564,369
10,000 Missouri Health & Educational Facilities Authority, Barnes Jewish Inc/
Christian Health Services Ser 1993 A .................................. 5.25 5/15/14 8,721,200
10,000 Fairfax County Industrial Development Authority, Virginia, Inova Health
System Foundation Refg Ser 1993 A ..................................... 5.25 8/15/19 8,589,500
4,500 Wisconsin Health & Educational Facilities Authority, Catholic Health
Corp Ser 1993 ......................................................... 5.375 11/15/13 3,864,105
- - - - - - - ------- -------------
36,480 31,813,494
- - - - - - - ------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (16.9%)
10,000 Valdez, Alaska, BP Pipeline Inc Ser 1993 B ............................. 5.50 10/ 2/28 8,618,800
10,000 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc Ser
1993 (AMT) (MBIA Insured) ............................................. 5.45 11/ 1/23 8,746,800
2,000 Illinois Development Finance Authority, Citizens Utilities Co 1993 Ser
(AMT) ................................................................. 5.90 11/15/28 1,893,200
5,000 Petersburg, Indiana, Indianapolis Power & Light Co Ser 1993 B ......... 5.40 8/ 1/17 4,366,000
4,000 Calvert County, Maryland, Baltimore Gas & Electric Co Refg Ser 1993 ... 5.55 7/15/14 3,655,040
3,000 Missouri Environmental Improvement & Energy Resource Authority, Union
Electric Co (AMT) ..................................................... 5.45 10/ 1/28 2,583,330
</TABLE>
<PAGE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - - - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- - - - - - - ----------- -------- ---------- -------------
<S> <C> <C> <C> <C>
$15,000 New York State Energy Research & Development Authority, Consolidated
Edison Co of New York Inc Refg Ser 1993 B ............................. 5.25 % 8/15/20 $12,885,150
3,000 Martin County Industrial Facilities & Pollution Control Financing
Authority, North Carolina, Weyerhaeuser Co Ser 1993 (AMT) ............ 5.65 12/ 1/23 2,670,150
15,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1993
(MBIA Insured) ........................................................ 5.60 12/ 1/17 13,700,850
7,750 Marshall County, West Virginia, Ohio Power Co Ser B (MBIA Insured) .... 5.45 7/ 1/14 7,019,175
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993 A ........ 6.90 2/ 1/13 10,646,600
- - - - - - - ------- -------------
84,750 76,785,095
- - - - - - - ------- -------------
MORTGAGE REVENUE -- MULTI-FAMILY (3.7%)
5,000 Illinois Housing Development Authority, 1993 Ser A ..................... 5.90 7/ 1/12 4,687,300
13,310 Wisconsin Housing & Economic Development Authority, 1993 Ser A ........ 5.55 11/ 1/15 11,898,474
- - - - - - - ------- -------------
18,310 16,585,774
- - - - - - - ------- -------------
MORTGAGE REVENUE -- SINGLE FAMILY (4.4%)
10,000 Alaska Housing Finance Corporation, Insured 1993 First Ser ............ 5.90 12/ 1/33 8,918,200
3,830 Connecticut Housing Finance Authority, 1993 Subseries F-1 ............. 5.60 5/15/11 3,529,574
8,700 Kentucky Housing Corporation, Federally Insured or Guaranteed Loans
1993 Ser B ............................................................ 5.40 7/ 1/14 7,694,280
- - - - - - - ------- -------------
22,530 20,142,054
- - - - - - - ------- -------------
PUBLIC FACILITIES REVENUE (8.7%)
15,250 California Public Works Board, Correctional 1993 Ser D COPs ........... 5.375 6/ 1/18 13,010,538
4,000 Maine Municipal Bond Bank, 1993 Ser E .................................. 5.30 11/ 1/13 3,529,880
5,000 St Paul Housing & Redevelopment Authority, Minnesota, Civic Center Ser
1993 .................................................................. 5.45 11/ 1/13 4,542,150
8,900 Kansas City School District Building Corporation, Missouri, Elementary
Ser 1993 D (FGIC Insured) ............................................. 5.00 2/ 1/14 7,756,083
Regional Convention & Sports Complex Authority, Missouri,
2,000 Refg Ser B 1993 ....................................................... 5.50 8/15/13 1,789,700
10,000 Refg Ser A 1993 ....................................................... 5.60 8/15/17 9,138,400
- - - - - - - ------- -------------
45,150 39,766,751
- - - - - - - ------- -------------
RESOURCE RECOVERY (1.9%)
9,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 1993
A (AMT) ............................................................... 6.30 7/ 1/16 8,686,800
- - - - - - - ------- -------------
TRANSPORTATION FACILITIES REVENUE (7.9%)
2,000 Washington Metropolitan Area Transit Authority, District of Columbia,
Maryland & Virginia, Refg Ser 1993 (FGIC Insured)** ................... 5.25 7/ 1/14 1,768,080
15,000 Chicago, Illinois, Chicago -- O'Hare Intl Airport Refg 1993 Ser A ..... 5.00 1/ 1/16 12,493,650
5,000 Wayne County, Michigan, Detroit Metropolitan Wayne County Airport Sub
Lien Ser 1993 C (MBIA Insured) ........................................ 5.25 12/ 1/13 4,449,600
4,000 Rhode Island Port Authority & Economic Development Corporation, TF
Green State Airport 1993 Ser A (FSA Insured) (AMT) .................... 5.25 7/ 1/23 3,381,400
12,000 Texas Turnpike Authority, Dallas North Tollway Refg Ser 1993 (MBIA
Insured) .............................................................. 5.00 1/ 1/20 10,013,040
4,175 Virginia Transportation Board, US Route 58 Corridor Ser 1993 B ........ 5.50 5/15/18 3,778,292
- - - - - - - ------- -------------
42,175 35,884,062
- - - - - - - ------- -------------
WATER & SEWER REVENUE (12.8%)
6,500 Phoenix Civic Improvement Corporation, Arizona, Wastewater Refg Ser
1993 .................................................................. 5.00 7/ 1/18 5,373,745
5,000 Los Angeles County Sanitation Districts Financing Authority,
California, 1993 Ser A ................................................ 5.25 10/ 1/19 4,344,200
5,000 Atlanta, Georgia, Water & Sewer Ser 1993 ............................... 5.00 1/ 1/15 4,269,400
Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
3,000 Ser 1993 A (MBIA Insured) ............................................. 5.50 5/15/21 2,693,670
5,000 Ser 1993 B (MBIA Insured) ............................................. 5.50 5/15/23 4,475,700
</TABLE>
<PAGE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - - - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- - - - - - - ----------- -------- ---------- -------------
<S> <C> <C> <C> <C>
$ 20,000 Massachusetts Water Resources Authority, 1993 Ser C .................... 5.25 % 12/ 1/20 $ 16,988,000
5,000 New York City Municipal Water Finance Authority, New York, 1994 Ser B... 5.50 6/15/19 4,455,100
10,000 Philadelphia, Pennsylvania, Water & Wastewater Ser 1993 (Capital
Guaranty Insured) ..................................................... 5.50 6/15/14 9,114,900
Norfolk, Virginia, Water
2,500 Ser 1993 (AMBAC Insured) .............................................. 5.25 11/ 1/13 2,252,925
5,000 Ser 1993 (AMBAC Insured) .............................................. 5.375 11/ 1/23 4,383,550
- - - - - - - -------- -------------
67,000 58,351,190
- - - - - - - -------- -------------
OTHER REVENUE (2.4%)
2,000 Illinois, Sales Tax 1993 Ser R ......................................... 5.50 6/15/18 1,809,580
10,000 New York Local Government Assistance Corporation, Ser 1993 C .......... 5.50 4/ 1/18 8,932,600
- - - - - - - -------- -------------
12,000 10,742,180
- - - - - - - -------- -------------
488,445 TOTAL MUNICIPAL BONDS (IDENTIFIED COST $479,306,183) ................... 433,253,905
- - - - - - - -------- -------------
SHORT-TERM MUNICIPAL OBLIGATIONS (2.5%)
5,000 Louisiana Offshore Terminal Authority, LOOP Inc Ser 1992 A (Tender
5/2/94) ............................................................... 2.70* 9/ 1/08 5,000,000
3,000 Massachusetts, Dedicated Income Tax Ser 1990 E (Tender 5/2/94) ........ 3.00* 12/ 1/97 3,000,000
3,200 Gulf Coast Waste Disposal Authority, Texas, Amoco Oil Co Ser 1992
(Tender 5/2/94) ....................................................... 2.60* 10/ 1/17 3,200,000
- - - - - - - -------- -------------
11,200 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (IDENTIFIED COST $11,200,000) .. 11,200,000
- - - - - - - -------- -------------
$499,645 TOTAL INVESTMENTS (IDENTIFIED COST $490,506,183) (a) ................... 97.7% 444,453,905
======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ......................... 2.3 10,520,050
----- -------------
NET ASSETS ............................................................. 100.0% $454,973,955
===== =============
<FN>
- - - - - - - ---------------
* Variable or floating rate securities. Coupon rate shown reflects current
rate.
** Jointly issued by District of Columbia, Maryland and Virginia.
(a) The aggregate cost for federal income tax purposes is $490,506,183;
the aggregate gross and net unrealized depreciation is $46,052,278.
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1994 (unaudited)
- - - - - - - -----------------------------------------------------------------------------
<S> <C>
Alaska ..................... 3.9%
Arizona .................... 1.2
California ................. 3.8
Connecticut ................ 0.7
District of Columbia........ 0.6
Florida .................... 1.9
Georgia .................... 1.9
Hawaii ..................... 1.9
Illinois .................. 10.4
Indiana .................... 2.5
Kentucky .................. 3.3
Louisiana ................. 1.8
Maine ...................... 1.6
Maryland .................. 4.7
Massachusetts .............. 6.9
Michigan ................... 1.0
Minnesota .................. 1.0
Missouri ................... 6.6
New York ................... 9.9
North Carolina ............. 0.6
Pennsylvania .............. 2.7
Rhode Island .............. 0.7
South Carolina ............ 1.1
Texas ...................... 5.2
Virginia ................... 4.2
Washington ................. 9.9
West Virginia .............. 1.5
Wisconsin .................. 5.8
Joint Ventures ............ 0.4
----
Total ...................... 97.7
====
</TABLE>
<PAGE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
- - - - - - - -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1994 (unaudited)
- - - - - - - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $490,506,183) (Note 1) ................... $ 444,453,905
Cash ....................................................... 377,001
Interest receivable ........................................ 10,510,267
Deferred organizational expenses (Note 1) .................. 31,800
Prepaid expenses and other assets .......................... 98,820
-------------
TOTAL ASSETS ............................................. 455,471,793
-------------
LIABILITIES:
Payable for common shares of beneficial interest
repurchased ............................................... 242,089
Offering expenses payable (Note 1) ......................... 53,271
Investment management fee payable (Note 2) ................ 158,802
Accrued expenses (Note 3) .................................. 43,676
-------------
TOTAL LIABILITIES ........................................ 497,838
-------------
NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of
non-participating $.01 par value,
3,500 shares outstanding (Note 4)) ........................ 175,000,000
-------------
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 23,380,513 shares
outstanding (Note 5)) ..................................... 325,794,196
Accumulated net realized loss on investments ............... (1,504,962)
Net unrealized depreciation on investments ................ (46,052,278)
Accumulated undistributed net investment income ........... 1,736,999
-------------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS .................................... 279,973,955
-------------
TOTAL NET ASSETS ........................................ $ 454,973,955
=============
NET ASSET VALUE PER COMMON SHARE, ($ 279,973,955 divided by
23,380,513 common shares outstanding) ..................... $11.97
======
</TABLE>
STATEMENT OF OPERATIONS For the six months
ended April 30, 1994 (unaudited)
- - - - - - - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME ......................... $ 12,528,441
------------
EXPENSES
Investment management fee (Note 2) .... 827,738
Auction commission fees ................ 132,080
Professional fees ...................... 69,182
Transfer agent fees and expenses ...... 59,768
Auction agent fees ..................... 37,318
Shareholder reports and notices ....... 20,130
Registration fees ...................... 18,443
Trustees' fees and expenses (Note 3) .. 13,696
Organizational expenses (Note 1) ...... 3,569
Other .................................. 7,024
------------
TOTAL EXPENSES ........................ 1,188,948
------------
NET INVESTMENT INCOME ................ 11,339,493
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (Note 1):
Net realized loss on investments ....... (1,504,962)
Net change in unrealized depreciation on
investments ............................ (45,197,016)
------------
NET LOSS ON INVESTMENTS ............... (46,701,978)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........... $(35,362,485)
============
</TABLE>
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FEBRUARY 26, 1993
APRIL 30, 1994 THROUGH OCTOBER
(UNAUDITED) 31, 1993 (NOTE 1)
-------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ........................................ $ 11,339,493 $ 678,364
Net realized loss on investments ............................. (1,504,962) -0-
Net change in unrealized depreciation on investments ........ (45,197,016) (855,262)
------------ ------------
Net decrease in net assets resulting from operations ....... (35,362,485) (176,898)
------------ ------------
Dividends to preferred shareholders from net investment income (1,989,800) -0-
Dividends to common shareholders from net investment income .. (8,291,058) -0-
------------ ------------
Total dividends ............................................. (10,280,858) -0-
------------ ------------
Transactions in common shares of beneficial interest (Note 5).. (8,365,813) 334,060,000
------------ ------------
Gross proceeds from issuance of preferred shares (Note 4) .... 175,000,000 -0-
------------ ------------
Total increase .............................................. 120,990,844 333,883,102
NET ASSETS:
Beginning of period ........................................... 333,983,111 100,009
------------ ------------
END OF PERIOD (including undistributed net investment income
of $1,736,999 and $678,364, respectively) ..................... $454,973,955 $333,983,111
============ ============
</TABLE>
See Notes to Financial Statements
<PAGE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS (unaudited)
- - - - - - - -------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- InterCapital Quality Municipal
Securities (the "Trust") is registered under the Investment Company Act of
1940, as amended, as a diversified, closed-end management investment company.
It was organized on March 3, 1993 as a Massachusetts business trust and had
no operations until September 29, 1993 other than matters related to the sale
and issuance of 7,113 common shares of beneficial interest to Dean Witter
InterCapital Inc. (the "Investment Manager").
The following is a summary of significant accounting policies:
A. Valuation of Investments -- Portfolio securities are valued for the
Trust by an outside independent pricing service approved by the
Trustees. The pricing service has informed the Trust that in valuing the
Trust's portfolio securities, it uses both a computerized grid matrix of
tax-exempt securities and evaluations by its staff, in each case based
on information concerning market transactions and quotations from
dealers which reflect the bid side of the market each day. The Trust's
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.
B. Accounting for Investments -- Security transactions are accounted
for on the trade date (date the order to buy or sell is executed). In
computing net investment income, the Trust amortizes premiums and
original issue discounts on fixed income securities. Additionally, with
respect to market discount on bonds, a portion of any capital gain
realized upon disposition is recharacterized as taxable investment
income. Realized gains and losses on security transactions are
determined on the identified cost method. 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 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 reclassifications. 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.
E. Organizational and Offering Expenses -- The Trust's Investment
Manager paid the organizational and offering expenses of the Trust's
common shares in the amount of approximately $36,000 and $568,000,
respectively, and approximately $353,000 in offering expenses of the
Trust's preferred shares. Organizational expenses have been reimbursed
by the Trust for the full amount thereof and are being amortized by the
straight-line method over a period not to exceed five years from the
commencement of operations. Offering expenses will be reimbursed by the
Trust and were charged to capital at the time of issuance of the Trust's
respective shares.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc., the Trust
pays its Investment Manager a management
<PAGE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - - - -------------------------------------------------------------------------------
fee, calculated weekly and payable monthly, by applying the annual rate of
0.35% to the Trust's average 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 office space and 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 the proceeds from sales of portfolio securities for the six
months ended April 30, 1994, excluding short-term investments, aggregated
$287,373,260 and $16,470,267, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At April 30, 1994, the Trust had transfer agent fees
and expenses payable of approximately $15,000.
Dean Witter Distributors Inc., the Trust's principal underwriter and an
affiliate of the Investment Manager, has informed the Trust that it received
approximately $2,625,000 in underwriting discounts and commissions in
connection with the offering of the preferred shares.
On January 1, 1994, the Trust adopted 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, 1994, included in Trustee's fees and
expenses in the Statement of Operations, amounted to $3,945. At April 30,
1994, the Trust had an accrued pension liability of $3,937 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 the approval of the common
shareholders. On November 16, 1993, the Trust issued 3,500 shares of Auction
Rate Preferred Shares ("Preferred Shares") consisting of 700 shares each of
series 1 through 5 for gross total proceeds of $175,000,000. Underwriting
discounts and commissions were charged to capital at the time of issuance.
The preferred shares have a liquidation value of $50,000 per share plus any
accumulated but unpaid dividends plus the redemption premium, if any, and are
redeemable (in whole or in part) on any dividend payment date.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
RESET RANGE OF
SHARES SERIES RATE* DATE DIVIDEND RATES**
- - - - - - - -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C>
700 1 2.799% 5/2/94 2.00% to 2.799%
700 2 3.04 % 5/3/94 2.00% to 3.04 %
700 3 3.05 % 5/4/94 1.84% to 3.05 %
700 4 2.699% 8/8/94 2.70% to 2.699%
700 5 2.90 % 5/9/94 2.90%
<FN>
- - - - - - - ---------------
* As of April 30, 1994.
** For the six months ended April 30, 1994.
</TABLE>
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 repurchasing
common shares and/or could trigger the mandatory redemption of preferred
shares at liquidation value.
<PAGE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - - - -------------------------------------------------------------------------------
The preferred shares, which are entitled to one vote per share, generally
vote with the common share but vote separately as a class to elect two
Trustees and on any matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST -- Transactions in common shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID
PAR VALUE IN EXCESS OF
SHARES OF SHARES PAR VALUE
------------ ----------- -------------
<S> <C> <C> <C>
Balance (Note 1) ........................................ 7,113 $ 71 $ 99,938
Shares issued at close of public offering on September
29, 1993* .............................................. 21,000,000 210,000 294,482,000
Shares issued on October 12, 1993 and October 27, 1993
to cover over-allotment ................................ 2,800,000 28,000 39,340,000
---------- -------- ------------
Balance, October 31, 1993 ............................... 23,807,113 238,071 333,921,938
---------- -------- ------------
Offering costs and underwriting discounts associated
with the issuance of preferred shares .................. (2,978,000)
Treasury shares purchased and retired (weighted average
discount 3.31%)** ...................................... (426,600) (4,266) (5,383,547)
---------- -------- ------------
Balance, April 30, 1994 ................................. 23,380,513 $233,805 $325,560,391
========== ======== ============
<FN>
- - - - - - - ---------------
* Net of offering costs of $568,000.
** The Trustees have voted to retire the shares repurchased.
</TABLE>
6. DIVIDENDS TO COMMON SHAREHOLDERS -- The Trust has declared the following
dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT PER
DATE SHARE RECORD DATE PAYABLE DATE
- - - - - - - -------------- ------------ --------------- --------------
<S> <C> <C> <C>
April 26, 1994 $0.07 May 6, 1994 May 20, 1994
May 31, 1994 $0.07 June 10, 1994 June 24, 1994
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA --
<TABLE>
<CAPTION>
QUARTERS ENDED*
---------------------------------------
4/30/94 1/31/94
-------------------- -----------------
PER PER
TOTAL SHARE TOTAL SHARE
---------- -------- -------- -------
<S> <C> <C> <C> <C>
Total investment income ............................... $ 6,744 $ 0.29 $ 5,784 $0.24
Net investment income ................................. 6,121 0.26 5,218 0.22
Net realized and unrealized gain (loss) on investments. (57,675) (2.43) 10,973 0.46
<CAPTION>
QUARTER ENDED*
10/31/93**
-----------------
PER
TOTAL SHARE
-------- -------
<S> <C> <C>
Total investment income ..................................................... $ 809 $ 0.03
Net investment income ....................................................... 678 0.03
Net unrealized loss on investments .......................................... (855) (0.04)
<FN>
- - - - - - - ---------------
* Total expressed in thousands of dollars.
** For the period September 29, 1993 (commencement of operations) through
October 31, 1993.
</TABLE>
<PAGE>
<PAGE>
INTERCAPITAL 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 PERIOD
MONTHS ENDED SEPTEMBER 29, 1993*
APRIL 30, 1994** THROUGH OCTOBER 31,
(UNAUDITED) 1993
---------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............... $ 14.03 $ 14.06
-------- --------
Net investment income ............................. 0.48 0.03
Net realized and unrealized loss on investments .. (1.97) (0.04)
-------- --------
Total from investment operations ................... (1.49) (0.01)
-------- --------
Less dividends and other charges:
Dividends from net investment income .............. (0.35) 0.00
Common share equivalent of dividends paid to
preferred shareholders ........................... (0.09) 0.00
Offering costs charged against capital ............ (0.13) (0.02)
-------- --------
Total dividends and other charges .................. (0.57) (0.02)
-------- --------
Net asset value, end of period ..................... $ 11.97 $ 14.03
======== ========
Market value, end of period ........................ $ 11.50 $ 15.125
======== ========
TOTAL INVESTMENT RETURN+ ............................ (21.92)%(1) 0.83%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ........... $454,974 $333,983
Ratios to average net assets of common
shareholders:
Total expenses .................................... 0.75% (2) 0.48%(2)
Net investment income before preferred stock
dividends ........................................ 7.15% (2) 2.51%(2)
Preferred stock dividends ......................... 1.25% (2) N/A
Net investment income available to common
shareholders ..................................... 5.90% (2) 2.51%(2)
Asset coverage on preferred shares at end of period. 260% N/A
Portfolio turnover rate ............................ 4% 0%
<FN>
- - - - - - - ---------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on the
first and last day of each period reported. Dividends and distributions
are assumed to be reinvested at the prices obtained under the Trust's
dividend reinvestment plan. Total investment return does not reflect
sales charges or brokerage commissions.
(1) Not annualized.
(2) Annualized.
</TABLE>
See Notes to Financial Statements
- - - - - - - -----------------------------------------------------------------------------
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.
<PAGE>
<PAGE>
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center--Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
QUALITY
MUNICIPAL
SECURITIES
SEMIANNUAL REPORT
APRIL 30, 1994
