<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1997
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semi-annual report on the operations of
InterCapital Quality Municipal Securities (IQM) for the period ended April
30, 1997.
Economic growth moderated during the third quarter of 1996, causing
fixed-income yields to move lower through November. However, an acceleration
of economic activity led by consumer spending developed in the fourth quarter
of 1996 and continued into the first quarter of 1997. This contributed to
rising interest rates between December and April. On March 25, 1997, the
Federal Reserve Board raised the federal-funds rate 25 basis points to 5.50
percent in a preemptive move against a possible acceleration in the rate of
inflation. Subsequently, the fixed-income markets began to anticipate the
possibility of additional rate hikes by the Fed.
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields, but were less
volatile. Long-term insured revenue bond yields moved as low as
5.45 percent in November 1996, before rising to 5.75 percent in April 1997.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
BOND YIELDS 1994-1997
<TABLE>
<CAPTION>
Insured Municipal
30-Year Insured Revenue Yields
Municipal 30-year U.S. as a Percentage of
Revenue Yields Treasury Yields U.S. Treasury Yields
<S> <C> <C> <C>
5.45 6.35 0.8586
Jan '94 5.29 6.24 0.8481
5.64 6.66 0.8468
6.19 7.09 0.8728
6.24 7.31 0.854
6.23 7.43 0.8387
6.31 7.61 0.8293
6.15 7.4 0.8314
6.17 7.45 0.828
6.42 7.82 0.8212
6.66 7.97 0.8356
6.99 8 0.8738
6.65 7.88 0.8438
Jan '95 6.42 7.7 0.834
6.12 7.44 0.8222
6.07 7.43 0.8167
6.05 7.34 0.8245
5.84 6.65 0.8784
6 6.62 0.9066
5.99 6.85 0.875
5.98 6.65 0.8997
5.97 6.5 0.9184
5.79 6.33 0.915
5.61 6.13 0.9151
5.49 5.95 0.923
Jan '96 5.42 6.03 0.8989
5.55 6.47 0.8577
5.89 6.67 0.8835
5.94 6.91 0.8601
5.99 6.99 0.8571
5.86 6.87 0.8529
5.77 6.97 0.8278
5.82 7.12 0.8176
5.71 6.92 0.8248
5.6 6.64 0.8431
5.45 6.35 0.8583
5.56 6.64 0.8372
Jan '97 5.63 6.79 0.8293
5.53 6.8 0.8129
5.83 7.1 0.8216
5.74 6.96 0.8251
</TABLE>
Source: Bloomberg L.P.
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
Similarly, yields on one-year municipal notes moved from 3.70 to 3.95 percent
over the past six months. The yield curve pick-up for extending maturities
from 1 to 30 years increased to 180 basis points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury
yields declined from 86 percent at the end of October 1996 to 82 percent in
April 1997. A declining ratio means that municipals have outperformed
Treasuries, but have become relatively more expensive. The ratio has ranged
from 81 to 92 percent over the past three years.
New-issue municipal volume was down 6 percent during the first four months of
1997. However, underwriting volume for the full year is expected to exceed
bond maturities and redemptions.
PERFORMANCE
Over the six-month period ended April 30, 1997, the Fund's net asset value
(NAV) moved from $13.44 to $13.31. Based on this NAV change plus reinvestment
of tax-free dividends totaling $0.36 per share, the Trust's total NAV return
was 2.21 percent. IQM's market price on the New York Stock Exchange began and
ended the period at $11.25 per share. Based on this market price plus
reinvestment of tax-free dividends, IQM's total market return was 3.21
percent. On April 30, 1997, the Trust was trading at a 15 percent discount to
NAV. Undistributed net investment income available for dividends increased
from $0.077 to $0.100 per share.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
FIVE LARGEST SECTORS AS OF APRIL 30, 1997
(% OF NET ASSETS)
WATER & SEWER 14%
GENERAL OBLIGATION 14%
IDR/PCR* 12%
HOUSING 11%
HOSPITAL 9%
ALL OTHERS 40%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT RATINGS AS OF APRIL 30, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
AAA or Aaa 26%
AA or Aa 31%
A or A 39%
BBB or Baa 4%
AS MEASURED BY STANDARD & POOR'S CORP. OR
MOODY'S INVESTORS SERVICE, INC.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
PORTFOLIO STRUCTURE
The Trust remained fully invested in long-term municipal bonds during the
period. Investments were diversified among 13 long-term sectors and 50
credits. IQM's average maturity and call protection were
20 years and 7 years, respectively. The portfolio has consistently sought to
maintain quality, with nearly 60 percent of its long-term holdings rated
double-"A" or better.
THE IMPACT OF LEVERAGING
As we have discussed previously, 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 amount of ARPS outstanding, and second, the spread between the
portfolio's cost yield and ARPS expenses (ARPS auction rate and expenses).
The greater the spread and the amount of ARPS outstanding, the greater the
amount of incremental income available for distribution to common
shareholders. The level of net investment income available for distribution
to common shareholders varies with the level of short-term interest rates.
ARPS yields ranged between 2.40 and 4.25 percent during the six months ended
April 30, 1997. Over the same period, ARPS leverage contributed $0.04 per
share to common share earnings. Five ARPS series totaled $97 million and
represented 27 percent of net assets.
LOOKING AHEAD
With the collapse of flat-tax proposals, municipal bonds have improved
relative to U.S. Treasury securities. Although tax-free yields are currently
somewhat "rich" in their historical relationship with Treasury yields, the
long-term benefit of tax-exemption remains intact.
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, 1997, IQM purchased and retired 677,900 shares of beneficial
interest at a weighted average market discount of 15.77 percent. Acquiring
these treasury shares had the anti-dilutive effect of adding $0.07 per share
to the net asset value. 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>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1997, 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>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (96.6%)
General Obligation (13.6%)
$ 10,000 Florida Board of Education, Capital Outlay Refg 1993 Ser D ...... 5.125% 06/01/18 $ 9,230,000
5,000 De Kalb County, Georgia, Refg 1993 .............................. 5.25 01/01/20 4,685,050
10,000 Washington Suburban Sanitation District, Maryland, Gen Constr
Refg 1993 Second Ser ........................................... 5.25 06/01/14 9,681,800
New York City, New York,
10,000 1994 Ser D ..................................................... 5.75 08/15/08 9,909,100
5,000 1994 Ser C ..................................................... 5.50 10/01/10 4,758,250
10,000 Seattle, Washington, Refg Ser 1993 .............................. 5.65 01/01/20 9,640,400
- ----------- --------------
50,000 47,904,600
- ----------- --------------
Educational Facilities Revenue (7.9%)
3,500 District of Columbia, Georgetown University Ser 1993 ............ 5.25 04/01/13 3,350,550
Illinois Educational Facilities Authority,
4,695 Illinois Wesleyan University Ser 1993 .......................... 5.70 09/01/23 4,521,285
4,955 Northwestern University Refg Ser 1993 .......................... 5.375 12/01/21 4,613,303
Massachusetts Health & Educational Facilities Authority,
10,000 Boston College Ser K ........................................... 5.25 06/01/18 9,312,200
3,000 Wentworth Institute of Technology Ser B (Connie Lee) ........... 5.50 10/01/23 2,798,520
3,500 Pennsylvania Higher Educational Facilities Authority, Thomas
Jefferson University 1993 Ser A ................................ 5.30 11/01/15 3,322,025
- ----------- --------------
29,650 27,917,883
- ----------- --------------
Electric Revenue (6.4%)
5,900 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) . 5.50 07/01/21 5,612,139
8,000 Chelan County Public Utility District #1, Washington, Hydro Refg
Ser 1993 G ..................................................... 5.375 06/01/18 7,496,560
10,000 Snohomish County Public Utilities District #1, Washington, Ser
1993 B (AMT) ................................................... 5.80 01/01/24 9,555,600
- ----------- --------------
23,900 22,664,299
- ----------- --------------
Hospital Revenue (9.3%)
8,000 Indiana Health & Educational Facilities Authority, Wellborn
Memorial Baptist Hospital Refg Ser 1993 ........................ 5.50 07/01/14 7,656,800
3,500 Maine Health & Higher Educational Facilities Authority, Ser 1993
D (FSA) ....................................................... 5.50 07/01/18 3,319,540
10,000 Missouri Health & Educational Facilities Authority, Barnes
Jewish Inc/Christian Health Services Ser 1993 A ............... 5.25 05/15/14 9,544,600
10,000 Fairfax County Industrial Development Authority, Virginia, Inova
Health System Foundation Refg Ser 1993 A ....................... 5.25 08/15/19 9,339,600
3,000 Wisconsin Health & Educational Facilities Authority, Catholic
Health Corp Ser 1993 ........................................... 5.375 11/15/13 2,847,120
- ----------- --------------
34,500 32,707,660
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
Industrial Development/Pollution Control Revenue (12.2%)
$ 10,000 Valdez, Alaska, BP Pipeline Inc Ser 1993 B ...................... 5.50 % 10/01/28 $ 9,296,200
10,000 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc
Ser 1993 (AMT)(MBIA) ........................................... 5.45 11/01/23 9,249,700
4,000 Calvert County, Maryland, Baltimore Gas & Electric Co Refg Ser
1993 ........................................................... 5.55 07/15/14 3,909,520
5,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser
1993 (MBIA) .................................................... 5.60 12/01/17 4,862,900
5,000 Marshall County, West Virginia, Ohio Power Co Ser B (MBIA) ...... 5.45 07/01/14 4,898,100
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993 A .. 6.90 02/01/13 10,954,900
- ----------- --------------
44,000 43,171,320
- ----------- --------------
Mortgage Revenue - Multi-Family (5.0%)
5,000 Illinois Housing Development Authority, 1993 Ser A .............. 5.90 07/01/12 5,002,900
13,310 Wisconsin Housing & Economic Development Authority, 1993 Ser A .. 5.55 11/01/15 12,646,097
- ----------- --------------
18,310 17,648,997
- ----------- --------------
Mortgage Revenue - Single Family (5.7%)
8,000 Alaska Housing Finance Corporation, 1993 First Ser .............. 6.00 06/01/27 7,955,360
3,830 Connecticut Housing Finance Authority, 1993 Subser F-1 .......... 5.60 05/15/11 3,785,917
8,700 Kentucky Housing Corporation, Federally Insured or Gtd Loans
1993 Ser B ..................................................... 5.40 07/01/14 8,342,343
- ----------- --------------
20,530 20,083,620
- ----------- --------------
Public Facilities Revenue (8.0%)
11,000 California Public Works Board, Correctional 1993 Ser D COPs ..... 5.375 06/01/18 10,270,150
4,000 Maine Municipal Bond Bank, 1993 Ser E ........................... 5.30 11/01/13 3,813,880
5,000 Kansas City School District Building Corporation, Missouri,
Elementary Ser 1993 D (FGIC) ................................... 5.00 02/01/14 4,645,400
10,000 Regional Convention & Sports Complex Authority, Missouri,
Refg Ser A 1993 ................................................ 5.60 08/15/17 9,635,400
- ----------- --------------
30,000 28,364,830
- ----------- --------------
Resource Recovery Revenue (2.9%)
10,000 Northeast Maryland Waste Disposal Authority, Montgomery County
Ser 1993 A (AMT) ............................................... 6.30 07/01/16 10,158,200
- ----------- --------------
Transportation Facilities Revenue (8.1%)
10,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Refg 1993 Ser A. 5.00 01/01/16 9,051,900
5,000 Wayne County, Michigan, Detroit Metropolitan Wayne County
Airport Sub Lien Ser 1993 C (MBIA) ............................. 5.25 12/01/13 4,760,400
2,000 Rhode Island Port Authority & Economic Development Corporation,
TF Green State Airport 1993 Ser A (AMT)(FSA) ................... 5.25 07/01/23 1,788,540
10,000 Texas Turnpike Authority, Dallas North Tollway Refg Ser 1993
(AMBAC) ........................................................ 5.00 01/01/20 8,916,400
4,175 Virginia Transportation Board, US Route 58 Corridor Ser 1993 B .. 5.50 05/15/18 4,018,855
- ----------- --------------
31,175 28,536,095
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
Water & Sewer Revenue (14.0%)
$5,000 Phoenix Civic Improvement Corporation, Arizona, Wastewater Refg
Ser 1993 ....................................................... 5.00 % 07/01/18 $4,521,150
5,000 Los Angeles County Sanitation Districts Financing Authority,
California, 1993 Ser A ......................................... 5.25 10/01/19 4,633,600
5,000 Atlanta, Georgia, Water & Sewer Ser 1993 ........................ 5.00 01/01/15 4,649,900
Louisville & Jefferson County Metropolitan Sewer District,
Kentucky,
3,000 Ser 1993 A (MBIA) .............................................. 5.50 05/15/21 2,861,580
5,000 Ser 1993 B (MBIA) .............................................. 5.50 05/15/23 4,760,950
10,000 Massachusetts Water Resources Authority, 1993 Ser C ............. 5.25 12/01/20 9,118,100
5,000 New York City Municipal Water Finance Authority, New York, 1994
Ser B .......................................................... 5.50 06/15/19 4,730,700
10,000 Philadelphia, Pennsylvania, Water & Wastewater Ser 1993 (FSA) ... 5.50 06/15/14 9,761,100
5,000 Norfolk, Virginia, Water Ser 1993 (AMBAC) ....................... 5.375 11/01/23 4,650,350
- ----------- --------------
53,000 49,687,430
- ----------- --------------
Other Revenue (2.1%)
8,000 New York Local Government Assistance Corporation, Ser 1993 C .... 5.50 04/01/18 7,581,120
- ----------- --------------
Refunded (1.4%)
5,000 St Paul Housing & Redevelopment Authority, Minnesota, Civic
- ----------- Center Ser 1993 (ETM) .......................................... 5.45 11/01/13 4,957,050
--------------
358,065 TOTAL MUNICIPAL BONDS (Identified Cost $352,557,516) ................................ 341,383,104
- ----------- --------------
SHORT-TERM MUNICIPAL OBLIGATIONS (1.5%)
3,700 Missouri Health & Educational Facilities Authority, Washington
University Ser 1996 D (Demand 05/01/97) ........................ 4.00 * 02/01/30 3,700,000
1,700 Pennsylvania Higher Educational Facilities Authority, Carnegie
Mellon University Ser C (Demand 05/01/97) ..................... 3.85 * 11/01/29 1,700,000
- ----------- --------------
5,400 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $5,400,000) ................. 5,400,000
- ----------- --------------
$363,465 TOTAL INVESTMENTS (Identified Cost $357,957,516) (a) ..................... 98.1% 346,783,104
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.9 6,526,805
---------- --------------
NET ASSETS .............................................................. 100.0% $353,309,909
========== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
* 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
$179,882 and the aggregate gross unrealized depreciation is
$11,354,294, resulting in net unrealized depreciation of
$11,174,412.
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.
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Alaska 4.9%
Arizona 1.3
California 4.2
Connecticut 1.1
District of Columbia 0.9
Florida 2.6
Georgia 2.6
Hawaii 2.6
Illinois 6.6
Indiana 2.2%
Kentucky 4.5
Maine 2.0
Maryland 6.7
Massachusetts 6.0
Michigan 1.3
Minnesota 1.4
Missouri 7.8
New York 7.6
Pennsylvania 4.2%
Rhode Island 0.5
South Carolina 1.6
Texas 3.9
Virginia 5.1
Washington 7.6
West Virginia 1.4
Wisconsin 7.5
------
Total 98.1%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $357,957,516).......... $346,783,104
Cash..................................... 130,958
Interest receivable ..................... 6,574,775
Deferred organizational expenses ....... 10,187
Prepaid expenses ........................ 37,163
--------------
TOTAL ASSETS .......................... 353,536,187
--------------
LIABILITIES:
Payable for:
Investment management fee ............. 114,157
Dividends to preferred shareholders ... 11,076
Accrued expenses ........................ 101,045
--------------
TOTAL LIABILITIES ..................... 226,278
--------------
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, 19,251,213 shares
outstanding) ........................... 281,172,636
Net unrealized depreciation ............. (11,174,412)
Accumulated undistributed net investment
income.................................. 1,921,976
Accumulated net realized loss ........... (15,610,291)
--------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS .......................... 256,309,909
--------------
TOTAL NET ASSETS ...................... $353,309,909
==============
NET ASSET VALUE PER COMMON SHARE
($256,309,909 divided by 19,251,213
common shares outstanding) ............. $13.31
==============
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $10,028,540
-------------
EXPENSES
Investment management fee.............. 624,025
Auction commission fees................ 120,391
Professional fees ..................... 56,810
Transfer agent fees and expenses ...... 42,698
Auction agent fees..................... 27,311
Shareholder reports and notices ...... 24,905
Registration fees ..................... 13,512
Custodian fees......................... 9,178
Trustees' fees and expenses............ 8,979
Organizational expenses................ 3,569
Other.................................. 21,204
-------------
TOTAL EXPENSES....................... 952,582
LESS: EXPENSE OFFSET ................ (9,012)
-------------
NET EXPENSES......................... 943,570
-------------
NET INVESTMENT INCOME................ 9,084,970
-------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ..................... (234,039)
Net change in unrealized depreciation (4,036,739)
-------------
NET LOSS ............................ (4,270,778)
-------------
NET INCREASE........................... $ 4,814,192
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1997 OCTOBER 31, 1996
- -------------------------------------------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 9,084,970 $ 18,938,172
Net realized loss.................................. (234,039) (715,913)
Net change in unrealized depreciation ............. (4,036,739) 5,384,362
-------------- ----------------
NET INCREASE..................................... 4,814,192 23,606,621
-------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred.......................................... (1,651,254) (3,457,244)
Common............................................. (7,051,318) (14,941,780)
-------------- ----------------
TOTAL............................................ (8,702,572) (18,399,024)
-------------- ----------------
Decrease from transactions in common shares of
beneficial interest............................... (7,660,133) (16,506,750)
-------------- ----------------
NET DECREASE..................................... (11,548,513) (11,299,153)
NET ASSETS:
Beginning of period................................ 364,858,422 376,157,575
-------------- ----------------
END OF PERIOD
(Including undistributed net investment income
of $1,921,976 and $1,539,578, respectively) ..... $353,309,909 $364,858,422
============== ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (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's investment objective is to provide
current income which is exempt from federal income tax. The Trust was
organized as a Massachusetts business trust on March 3, 1993 and commenced
operations on September 29, 1993.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts over the life of
the respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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.
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 the Investment Manager,
the Trust pays the Investment Manager a management fee, calculated weekly and
payable monthly, by applying the annual rate of 0.35% to the Trust's weekly
net assets.
Under the terms of the Agreement, the Investment Manager maintains certain of
the Trust's books and records and furnishes, at its own expense, office
space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the
Trust who are employees of the Investment Manager. The Investment Manager
also bears the cost of telephone services, heat, light, power and other
utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended April 30, 1997
aggregated $8,000,000 and $19,552,400, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At April 30, 1997, the Trust had transfer agent fees
and expenses payable of approximately $15,000.
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, 1997 included in Trustees'
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
fees and expenses in the Statement of Operations amounted to $2,296. At April
30, 1997, the Trust had an accrued pension liability of $24,067 which is
included in accrued expenses in the Statement of Assets and Liabilities.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of
the common shareholders. The Trust has issued Series 1 though 5 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 RESET RANGE OF
SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES**
- -------- --------- --------------- ------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
1 340 $17,000 3.90 % 05/06/97 2.95% -4.00%
2 300 15,000 3.733 05/07/97 2.40 -4.25
3 300 15,000 3.85 05/08/97 2.50 -4.25
4 600 30,000 4.10 05/06/97 2.50 -4.19
5 400 20,000 4.10 05/06/97 3.00 -4.19
</TABLE>
- ------------
* As of April 30, 1997.
** For the six months ended April 30, 1997.
Subsequent to April 30, 1997 and up through June 6, 1997, the Trust paid
dividends to Series 1 through 5 at rates ranging from 3.308% to 4.10%, in the
aggregate amount of $360,943.
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>
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (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, 1995 ............................................... 21,415,213 $214,152 $305,125,367
Treasury shares purchased and retired (weighted average discount
15.38%)*................................................................ (1,486,100) (14,861) (16,491,889)
------------- ---------- ---------------
Balance, October 31, 1996 ............................................... 19,929,113 199,291 288,633,478
Treasury shares purchased and retired (weighted average discount
15.77%)*................................................................ (677,900) (6,779) (7,653,354)
------------- ---------- ---------------
Balance, April 30, 1997 ................................................. 19,251,213 $192,512 $280,980,124
============= ========== ===============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Trust had a net capital loss carryover of
approximately $15,376,000, to offset future capital gains to the extent
provided by regulations, which is available through October 31 of the
following years:
AMOUNT IN THOUSANDS
- -------------------------
2002 2003 2004
- --------- ------- ------
$11,851 $2,809 $716
========= ======== ======
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 29, 1997 $0.06 May 9, 1997 May 23, 1997
May 27, 1997 $0.06 June 6, 1997 June 20, 1997
</TABLE>
<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 PERIOD
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31, SEPTEMBER 29, 1993*
MONTHS ENDED ------------------------------ THROUGH
APRIL 30, 1997** 1996 1995 1994++ OCTOBER 31, 1993**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(unaudited)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 13.44 $13.04 $ 10.83 $ 14.03 $ 14.06
---------------- ---------- ---------- --------- -----------
Net investment income............................................... 0.47 0.92 0.90 0.99 0.03
Net realized and unrealized gain (loss)............................. (0.23) 0.23 2.15 (3.15) (0.04)
---------------- ---------- ---------- --------- ------------
Total from investment operations.................................... 0.24 1.15 3.05 (2.16) (0.01)
---------------- ---------- ---------- ---------- -----------
Less dividends from:
Net investment income.............................................. (0.36) (0.72) (0.74) (0.77) --
Common share equivalent of dividends paid to preferred
shareholders...................................................... (0.08) (0.17) (0.18) (0.19) --
---------------- ---------- ---------- ---------- -----------
Total dividends..................................................... (0.44) (0.89) (0.92) (0.96) --
---------------- ---------- ---------- ---------- -----------
Anti-dilutive effect of acquiring treasury shares................... 0.07 0.14 0.08 0.04 --
---------------- ---------- ---------- ---------- ----------
Offering costs charged against capital.............................. -- -- -- (0.12) (0.02)
---------------- ---------- ---------- ---------- ----------
Net asset value, end of period...................................... $ 13.31 $13.44 $ 13.04 $ 10.83 $14.03
================ ========== ========== ========== ==========
Market value, end of period......................................... $ 11.25 $11.25 $10.875 $ 9.50 $15.125
================ ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+............................................ 3.21%(1) 10.39% 22.91% (32.98)% 0.83%(1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses...................................................... 0.73%(2)(3) 0.72%(3) 0.77%(3) 0.83% 0.48%(2)
Net investment income before preferred stock dividends ............. 6.99%(2) 6.94% 7.48% 7.85% 2.51%(2)
Preferred stock dividends........................................... 1.27%(2) 1.27% 1.48% 1.50% N/A
Net investment income available to common shareholders ............. 5.72%(2) 5.67% 6.00% 6.35% 2.51%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................. $353,310 $364,858 $376,158 $382,578 $333,983
Asset coverage on preferred shares at end of period................. 364% 376% 388% 278% N/A
Portfolio turnover rate............................................. 2%(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.
# Less than 0.5%
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
- -----------------------------------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- -----------------------------------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
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.
INTERCAPITAL
QUALITY
MUNICIPAL
SECURITIES
Semiannual Report
April 30, 1997
