<PAGE> 1
INTERCAPITAL QUALITY MUNICIPAL SECURITIES Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS April 30, 1996 New York 10048
DEAR SHAREHOLDER:
During the first six months of the InterCapital Quality Municipal Securities's
current fiscal year, interest rates initially declined, but reversed direction
in February and began to move higher. Last year's favorable bond market
environment was created by proposals to achieve a balanced federal budget within
five to seven years and by continued easing of Federal Reserve Board monetary
policy. However, budget negotiations reached a political impasse early in 1996
and federal offices were partially closed. This had an adverse impact on bonds.
Concerns also developed about an increase in the pace of the economic recovery,
which was marked by unexpectedly strong job growth in March and rising commodity
prices. The bond market reacted to these developments by pushing yields sharply
higher.
MUNICIPAL MARKET CONDITIONS
Long-term municipal revenue bond yields as tracked by The Bond Buyer Revenue
Bond Index* moved from 6.02 percent in October 1995 to a low of 5.63 percent in
January 1996. Interest rates subsequently began to rise in mid-February on signs
of stronger economic growth and renewed inflationary fears. The Index yield
reached 6.16 percent in April. Yields on one-year municipal notes declined from
3.82 percent to 3.70 percent over the past six months. The yield pickup for
extending maturities from one-to-thirty years was 246 basis points at the end of
April.
The risk of flax-tax legislation had caused the ratio of Revenue Bond Index
yields to 30-year U.S. Treasury bond yields to rise from 85 to 94 percent
between March and September 1995. However, as the prospects of a flat tax faded,
the ratio improved to 92 percent by the end of April. A declining ratio means
that municipal bond prices have
- ---------------------
*The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1996, continued
outperformed U.S. Treasury prices. Over the previous eight-year period prior to
the flat-tax debate, long-term municipal yields averaged 89 percent of U.S.
Treasury yields.
Municipal underwriting activity was fueled by the trend of lower interest rates
in 1995. Between November 1995 and April 1996, new issue volume increased 45
percent versus the same period a year ago. Despite a resurgence in underwriting,
dealers have continued to withdraw from the municipal business.
PERFORMANCE
The Trust's net asset value (NAV) declined from $13.04 to $12.67 per share
during the six-month period ended April 30, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.36 per share, the Trust's total
return was 0.34 percent. Over the same period, the Trust's market price on the
New York Stock Exchange declined from $10.875 to $10.50 per share. Based on this
market price change and reinvestment of tax-free dividends, the Trust's total
return was -0.29 percent. The Trust began and ended the period trading at a 17
percent discount to NAV. Undistributed net investment income improved to $0.057
per share on April 30, 1996 versus $0.047 per share six months ago.
PORTFOLIO STRUCTURE
On April 30, 1996, the Trust's $360 million of net assets were diversified among
13 long-term municipal sectors and 49 credits. The five largest sectors
represented 61 percent of net assets. The portfolio has consistently maintained
investment grade quality with 96 percent of its long-term holdings rated "A" or
better. The average maturity and call protection of the Trust's long-term
portfolio were 22 and 8 years, respectively.
<TABLE>
<CAPTION>
FIVE LARGEST SECTORS AS OF APRIL 30, 1996
(% OF NET ASSETS)
<S> <C>
GENERAL OBLIGATION 14%
WATER & SEWER 14%
IDR/PCR* 13%
MORTGAGE 11%
HOSPITAL 9%
OTHER 39%
</TABLE>
* Industrial Development/Pollution Control
<TABLE>
<CAPTION>
MOODY'S OR STANDARD & POOR'S CREDIT RATINGS
AS OF APRIL 30, 1996 (% OF TOTAL LONG-TERM
INVESTMENTS)
<S> <C>
A OR A 40%
Aa OR AA 32%
Aaa OR AAA 24%
Baa OR BBB 4%
</TABLE>
<PAGE> 3
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1996, continued
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 shares depends on two factors:
first, the spread between interest earned on the long-term bonds in the
established portfolio of investments and the ARPS auction rate plus ARPS
expenses; second, the amount of ARPS outstanding. The greater the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders.
ARPS yields ranged between 3.31 and 4.80 percent during the six months ended
April 30, 1996. Over the same period, ARPS leverage contributed $0.03 per share
to common share earnings. As of April 30, 1996, $97 million in ARPS were
outstanding, which represents 27 percent of net assets.
LOOKING AHEAD
Tax-reduction proposals may receive additional publicity. However, the balance
between the supply of new issues and demand created by maturities and calls for
redemption should remain positive for the municipal market. Long-term municipal
securities currently yield 90 percent of the yield on U.S. Treasury securities
and may be expected to move in tandem with the Treasury market.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
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, when
appropriate, may 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. During the six-month period ended April 30, 1996,
the Trust purchased and retired 671,600 shares of common stock at a weighted
average market discount of 15.56 percent. 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.
<PAGE> 4
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1996, continued
We appreciate your ongoing support of InterCapital Quality Municipal Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 5
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (96.8%)
General Obligation (14.2%)
$ 10,000 Florida Board of Education, Capital Outlay Refg 1993 Ser D.............. 5.125% 06/01/18 $ 8,970,100
5,000 De Kalb County, Georgia, Refg 1993...................................... 5.25 01/01/20 4,540,500
10,000 Washington Suburban Sanitation District, Maryland, Gen Constr Refg 1993
Second Ser............................................................. 5.25 06/01/14 9,452,600
New York City, New York,
10,000 1994 Ser D............................................................. 5.75 08/15/08 9,516,800
5,000 1994 Ser C............................................................. 5.50 10/01/10 4,558,100
15,000 Seattle, Washington, Refg Ser 1993...................................... 5.65 01/01/20 14,158,950
- -------- ------------
55,000 51,197,050
- -------- ------------
Educational Facilities Revenue (7.6%)
3,500 District of Columbia, Georgetown University Ser 1993.................... 5.25 04/01/13 3,240,755
Illinois Educational Facilities Authority,
4,695 Illinois Wesleyan University Ser 1993.................................. 5.70 09/01/23 4,364,003
4,955 Northwestern University Refg Ser 1993.................................. 5.375 12/01/21 4,534,221
Massachusetts Health & Educational Facilities Authority,
10,000 Boston College Ser K................................................... 5.25 06/01/18 9,191,200
3,000 Wentworth Institute of Technology Ser B (Connie Lee)................... 5.50 10/01/23 2,727,180
3,500 Pennsylvania Higher Educational Facilities Authority, Thomas Jefferson
University 1993 Ser A.................................................. 5.30 11/01/15 3,235,715
- -------- ------------
29,650 27,293,074
- -------- ------------
Electric Revenue (6.7%)
5,900 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA)......... 5.50 07/01/21 5,511,603
10,000 Chelan County Public Utility District #1, Washington, Hydro Refg Ser
1993 G................................................................. 5.375 06/01/18 9,171,500
10,000 Snohomish County Public Utilities District #1, Washington, Ser 1993 B
(AMT).................................................................. 5.80 01/01/24 9,372,800
- -------- ------------
25,900 24,055,903
- -------- ------------
Hospital Revenue (9.1%)
8,000 Indiana Health & Educational Facilities Authority, Wellborn Memorial
Baptist Hospital Refg Ser 1993......................................... 5.50 07/01/14 7,336,800
3,500 Maine Health & Higher Educational Facilities Authority, Ser 1993 D
(FSA).................................................................. 5.50 07/01/18 3,254,300
10,000 Missouri Health & Educational Facilities Authority, Barnes Jewish
Inc/Christian Health Services Ser 1993 A............................... 5.25 05/15/14 9,077,500
10,000 Fairfax County Industrial Development Authority, Virginia, Inova Health
System Foundation Refg Ser 1993 A...................................... 5.25 08/15/19 9,041,300
4,500 Wisconsin Health & Educational Facilities Authority, Catholic Health
Corp Ser 1993.......................................................... 5.375 11/15/13 4,057,290
- -------- ------------
36,000 32,767,190
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Development/Pollution Control Revenue (13.0%)
$ 10,000 Valdez, Alaska, BP Pipeline Inc Ser 1993 B.............................. 5.50 % 10/01/28 $ 9,094,700
10,000 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc Ser 1993
(AMT) (MBIA)........................................................... 5.45 11/01/23 9,150,900
4,000 Calvert County, Maryland, Baltimore Gas & Electric Co Refg Ser 1993..... 5.55 07/15/14 3,848,080
5,000 New York State Energy Research & Development Authority, Consolidated
Edison Co of New York Inc Refg Ser 1993 B.............................. 5.25 08/15/20 4,519,050
5,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1993
(MBIA)................................................................. 5.60 12/01/17 4,736,300
5,000 Marshall County, West Virginia, Ohio Power Co Ser B (MBIA).............. 5.45 07/01/14 4,807,850
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993 A.......... 6.90 02/01/13 10,742,400
- -------- ------------
49,000 46,899,280
- -------- ------------
Mortgage Revenue - Multi-Family (4.8%)
5,000 Illinois Housing Development Authority, 1993 Ser A...................... 5.90 07/01/12 4,902,650
13,310 Wisconsin Housing & Economic Development Authority, 1993 Ser A.......... 5.55 11/01/15 12,367,120
- -------- ------------
18,310 17,269,770
- -------- ------------
Mortgage Revenue - Single Family (5.9%)
10,000 Alaska Housing Finance Corporation, 1993 First Ser...................... 5.90 12/01/33 9,439,800
3,830 Connecticut Housing Finance Authority, 1993 Subser F-1.................. 5.60 05/15/11 3,749,953
8,700 Kentucky Housing Corporation, Federally Insured or Gtd Loans 1993 Ser
B...................................................................... 5.40 07/01/14 8,153,814
- -------- ------------
22,530 21,343,567
- -------- ------------
Public Facilities Revenue (7.9%)
12,000 California Public Works Board, Correctional 1993 Ser D COPs............. 5.375 06/01/18 10,777,200
4,000 Maine Municipal Bond Bank, 1993 Ser E................................... 5.30 11/01/13 3,787,800
5,000 Kansas City School District Building Corporation, Missouri, Elementary
Ser 1993 D (FGIC)...................................................... 5.00 02/01/14 4,539,200
10,000 Regional Convention & Sports Complex Authority, Missouri, Refg Ser A
1993................................................................... 5.60 08/15/17 9,206,400
- -------- ------------
31,000 28,310,600
- -------- ------------
Resource Recovery Revenue (2.5%)
9,000 Northeast Maryland Waste Disposal Authority, Montgomery County
- -------- Ser 1993 A (AMT)....................................................... 6.30 07/01/16 8,948,250
------------
Transportation Facilities Revenue (8.3%)
10,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Refg 1993 Ser A......... 5.00 01/01/16 8,843,000
5,000 Wayne County, Michigan, Detroit Metropolitan Wayne County Airport Sub
Lien Ser 1993 C (MBIA)................................................. 5.25 12/01/13 4,652,150
4,000 Rhode Island Port Authority & Economic Development Corporation, TF Green
State Airport 1993 Ser A (AMT) (FSA)................................... 5.25 07/01/23 3,503,400
10,000 Texas Turnpike Authority, Dallas North Tollway Refg Ser 1993 (AMBAC).... 5.00 01/01/20 8,812,600
4,175 Virginia Transportation Board, US Route 58 Corridor Ser 1993 B.......... 5.50 05/15/18 3,931,180
- -------- ------------
33,175 29,742,330
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Water & Sewer Revenue (13.5%)
$ 5,000 Phoenix Civic Improvement Corporation, Arizona, Wastewater Refg Ser
1993................................................................... 5.00 % 07/01/18 $ 4,368,800
5,000 Los Angeles County Sanitation Districts Financing Authority, California,
1993 Ser A............................................................. 5.25 10/01/19 4,496,550
5,000 Atlanta, Georgia, Water & Sewer Ser 1993................................ 5.00 01/01/15 4,468,450
Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
3,000 Ser 1993 A (MBIA)...................................................... 5.50 05/15/21 2,810,490
5,000 Ser 1993 B (MBIA)...................................................... 5.50 05/15/23 4,686,400
10,000 Massachusetts Water Resources Authority, 1993 Ser C..................... 5.25 12/01/20 8,900,800
5,000 New York City Municipal Water Finance Authority, New York, 1994 Ser B... 5.50 06/15/19 4,601,350
10,000 Philadelphia, Pennsylvania, Water & Wastewater Ser 1993 (FSA)........... 5.50 06/15/14 9,536,200
5,000 Norfolk, Virginia, Water Ser 1993 (AMBAC)............................... 5.375 11/01/23 4,594,200
- -------- ------------
53,000 48,463,240
- -------- ------------
Other Revenue (2.0%)
8,000 New York Local Government Assistance Corporation, Ser 1993 C............ 5.50 04/01/18 7,405,280
- --------
------------
Refunded (1.3%)
5,000 St Paul Housing & Redevelopment Authority, Minnesota, Civic Center
- -------- Ser 1993 (ETM)......................................................... 5.45 11/01/13 4,825,150
------------
375,565 TOTAL MUNICIPAL BONDS (Identified Cost $369,449,519)............................................. 348,520,684
- -------- ------------
SHORT-TERM MUNICIPAL OBLIGATIONS (1.3%)
3,600 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1993 (Demand
05/01/96).............................................................. 4.00* 03/01/22 3,600,000
1,000 Sabine River Authority, Texas, Texas Utilities Co Ser 1996 A (AMBAC)
(Demand 05/01/96)...................................................... 4.10* 03/01/26 1,000,000
- -------- ------------
4,600 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $4,600,000).............................. 4,600,000
- -------- ------------
$380,165 TOTAL INVESTMENTS (Identified Cost $374,049,519) (a).................................... 98.1% 353,120,684
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 1.9 6,706,342
------ ------------
NET ASSETS............................................................................... 100.0% $359,827,026
====== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross and net unrealized
depreciation was $20,928,835.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1996
<TABLE>
<S> <C>
Alaska................... 5.2%
Arizona.................. 1.2
California............... 4.3
Connecticut.............. 1.0
District of Columbia..... 0.9
Florida.................. 2.5
Georgia.................. 2.5
Hawaii................... 2.6
Illinois................. 6.3
Indiana.................. 2.0
Kentucky................. 4.3%
Louisiana................ 1.0
Maine.................... 2.0
Maryland................. 6.2
Massachusetts............ 5.8
Michigan................. 1.3
Minnesota................ 1.3
Missouri................. 6.3
New York................. 8.5
Pennsylvania............. 3.5
Rhode Island............. 1.0%
South Carolina........... 1.5
Texas.................... 4.0
Virginia................. 4.9
Washington............... 9.1
West Virginia............ 1.3
Wisconsin................ 7.6
----
Total.................... 98.1%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $374,049,519).......... $353,120,684
Cash..................................... 118,400
Interest receivable...................... 7,015,711
Deferred organizational expenses......... 17,384
Prepaid expenses......................... 41,986
------------
TOTAL ASSETS......................... 360,314,165
------------
LIABILITIES:
Payable for:
Common shares of beneficial interest
repurchased......................... 282,858
Investment management fee............ 111,491
Dividends to preferred
shareholders........................ 11,004
Accrued expenses......................... 81,786
------------
TOTAL LIABILITIES.................... 487,139
------------
NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of
non-participating $.01 par value, 1,940
shares outstanding)..................... 97,000,000
------------
Common shares of beneficial interest
(unlimited shares authorized of $.01 par
value, 20,743,613 shares outstanding)... 297,779,193
Net unrealized depreciation.............. (20,928,835)
Accumulated undistributed net investment
income.................................. 1,172,675
Accumulated net realized loss............ (15,196,007)
------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS......................... 262,827,026
------------
TOTAL NET ASSETS..................... $359,827,026
============
NET ASSET VALUE PER COMMON SHARE
($262,827,026 divided by 20,743,613
common shares outstanding).............. $12.67
======
STATEMENT OF OPERATIONS
For the six months ended April 30, 1996 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................... $10,515,447
-----------
EXPENSES
Investment management fee................. 660,037
Auction commission fees................... 121,773
Professional fees......................... 54,844
Transfer agent fees and expenses.......... 42,106
Auction agent fees........................ 22,492
Registration fees......................... 15,759
Shareholder reports and notices........... 14,428
Trustees' fees and expenses............... 12,046
Custodian fees............................ 9,164
Organizational expenses................... 3,589
Other..................................... 21,731
-----------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET................................ 977,969
LESS: EXPENSE OFFSET.................. (9,036)
-----------
TOTAL EXPENSES AFTER EXPENSE OFFSET... 968,933
-----------
NET INVESTMENT INCOME................. 9,546,514
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss......................... (535,668)
Net change in unrealized depreciation..... (8,406,800)
-----------
NET LOSS.............................. (8,942,468)
-----------
NET INCREASE.............................. $ 604,046
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED OCTOBER 31,
APRIL 30, 1996 1995
- ---------------------------------------------------------------------------------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 9,546,514 $ 19,671,518
Net realized loss................................ (535,668) (2,809,491)
Net change in unrealized depreciation............ (8,406,800) 49,844,714
----------- -----------
NET INCREASE................................. 604,046 66,706,741
----------- -----------
DIVIDENDS FROM NET INVESTMENT INCOME:
Preferred........................................ (1,768,697) (3,902,385)
Common........................................... (7,605,572) (16,270,606)
----------- -----------
TOTAL........................................ (9,374,269) (20,172,991)
----------- -----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred........................................ -- (40,200,000)
Common........................................... (7,560,326) (12,754,282)
----------- -----------
TOTAL........................................ (7,560,326) (52,954,282)
----------- -----------
TOTAL DECREASE............................... (16,330,549) (6,420,532)
NET ASSETS:
Beginning of period.............................. 376,157,575 382,578,107
----------- -----------
END OF PERIOD
(Including undistributed net investment
income of
$1,172,675 and $1,000,430, respectively)..... $ 359,827,026 $376,157,575
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (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. The Trust was organized as a Massachusetts
business trust on March 3, 1993 and commenced operations on September 29, 1993.
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 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
<PAGE> 12
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) continued
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 EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Trust's common shares in the
amount of $36,000 which have been reimbursed for the full amount thereof. Such
expenses have been deferred and are being amortized by the straight-line method
over a period not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc., the Trust pays 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, 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 proceeds from sales of portfolio securities, excluding short-term
investments, for the six months ended April 30, 1996 aggregated $11,015,600.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At April 30, 1996, the Trust had transfer agent fees and
expenses payable of approximately $7,500.
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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $4,105. At April 30, 1996, the Trust had an accrued pension liability of
$20,942 which is included in accrued expenses in the Statement of Assets and
Liabilities.
<PAGE> 13
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (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. 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. The preferred
shares have a liquidation value of $50,000 per share plus the redemption
premium, if any, plus accumulated but unpaid dividends, whether or not declared,
thereon to the date of distribution.
The Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or not
declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
RESET RANGE OF
SHARES* SERIES RATE* DATE DIVIDEND RATES**
- -------- ------ ------ -------- ----------------
<C> <C> <C> <C> <S>
340 1 3.75% 05/06/96 3.00% - 4.90 %
300 2 3.55 05/07/96 3.00 - 4.60
300 3 4.00 05/01/96 3.30 - 5.375
600 4 3.79 05/06/96 3.00 - 5.125
400 5 4.05 05/06/96 3.00 - 5.00
</TABLE>
- ---------------------
* As of April 30, 1996.
** For the six months ended April 30, 1996.
Subsequent to April 30, 1996 and up through June 5, 1996, the Trust paid
dividends to Series 1 through 5 at rates ranging from 3.49% to 4.05%,
respectively, in the aggregate amount of $353,910.
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.
<PAGE> 14
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) 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, 1994....................................................... 22,663,113 $226,631 $317,867,170
Treasury shares purchased and retired (weighted average discount 12.29%)*....... (1,247,900) (12,479) (12,741,803)
---------- -------- ------------
Balance, October 31, 1995....................................................... 21,415,213 214,152 305,125,367
Treasury shares purchased and retired (weighted average discount 15.56%)*....... (671,600) (6,716) (7,553,610)
---------- -------- ------------
Balance, April 30, 1996......................................................... 20,743,613 $207,436 $297,571,757
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1995, the Trust had a net capital loss carryover of approximately
$14,660,000 of which $11,851,000 will be available through October 31, 2002 and
$2,809,000 will be available through October 31, 2003 which may be used to
offset future capital gains to the extent provided by regulations.
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- --------------- --------- ------------- --------------
<S> <C> <C> <C>
April 23, 1996. $0.06 May 3, 1996 May 17, 1996
May 28, 1996... $0.06 June 7, 1996 June 21, 1996
</TABLE>
<PAGE> 15
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 YEAR FOR THE PERIOD
MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 29, 1993*
APRIL 30, ENDED OCTOBER 31, THROUGH
1996** OCTOBER 31, 1995** 1994**++ OCTOBER 31, 1993**
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $13.04 $ 10.83 $14.03 $ 14.06
------ ------- ------ -------
Net investment income..................... 0.45 0.90 0.99 0.03
Net realized and unrealized gain (loss)... (0.45) 2.15 (3.15) (0.04)
------ ------- ------ -------
Total from investment operations.......... -- 3.05 (2.16) (0.01)
------ ------- ------ -------
Less dividends from:
Net investment income.................. (0.36) (0.74) (0.77) --
Common share equivalent of dividends
paid to preferred shareholders........ (0.08) (0.18) (0.19) --
------ ------- ------ -------
Total dividends........................... (0.44) (0.92) (0.96) --
Anti-dilutive effect of acquiring treasury
shares................................... 0.07 0.08 0.04 --
Offering costs charged against capital.... -- -- (0.12) (0.02)
------ ------- ------ -------
Net asset value, end of period............ $12.67 $ 13.04 $10.83 $ 14.03
====== ======= ====== =======
Market value, end of period............... $10.50 $10.875 $ 9.50 $15.125
====== ======= ====== =======
TOTAL INVESTMENT RETURN+.................. (0.29)%(1) 22.91% (32.98)% 0.83%(1)
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:
Total expenses before expense offset...... 0.70%(2)(4) 0.77%(3) 0.83% 0.48%(2)
Net investment income before preferred
stock dividends.......................... 6.87%(2) 7.48%(3) 7.85% 2.51%(2)
Preferred stock dividends................. 1.27%(2) 1.48% 1.50% N/A
Net investment income available to common
shareholders............................. 5.60%(2) 6.00% 6.35% 2.51%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands... $359,827 $376,158 $382,578 $333,983
Asset coverage on preferred shares at end
of period................................ 371% 388% 278% N/A
Portfolio turnover rate................... -- %(1) -- 21% --
</TABLE>
- ---------------------
* 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 last
day of each period reported. Dividends are assumed to be reinvested at the
prices obtained under the Trust's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) The above expense and net investment income ratios would have been 0.76%
and 7.48%, respectively, which reflects 0.01% effect for custody cash
credits.
(4) The above annualized expense ratio would have been 0.70% after expense
offset.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
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
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.
DEAN WITTER
INTERCAPITAL
QUALITY
MUNICIPAL
SECURITIES
SEMIANNUAL REPORT
APRIL 30, 1996
