<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES Two World Trade Center,
LETTER TO THE SHAREHOLDERS October 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, continued to experience robust growth
this year. The fixed-income markets anticipated that the Federal Reserve Board
would remove the liquidity it provided during last year's international economic
crises. The Fed changed monetary policy and raised the federal-funds rate 50
basis points to 5.25 percent during the summer. By October long-term interest
rates had risen to levels last seen two years ago. Subsequently, the Fed raised
the federal-funds rate an additional 25 basis points, to 5.50 percent in
November.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal index yields began 1999 near a record low of 5.05
percent. By the end of October, municipal index yields had increased 100 basis
points to 6.05 percent. Since bond prices move inversely to changes in interest
rates, these higher yields resulted in significantly lower bond prices. The
increase in yields translated into a 13 percent price decline for a generic
insured municipal bond with a 30-year maturity.
The municipal market outperformed U.S. Treasury bonds early in the year, but
gradually gave ground. The ratio of long-term insured municipal index yields to
benchmark 30-year Treasury yields is a measure of relative performance. The
ratio declined from 99 percent at the end of 1998 to 91 percent in May before
rising to 98 percent by the end of October. A declining ratio means that
municipals have outperformed Treasuries. Over the past five years the ratio has
ranged from a high of 99 percent, to a low of 82 percent.
Higher interest rates led to a reduction in municipal market underwriting this
year. New issue volume declined 20 percent in the first ten months of 1999.
Refunding activity, the most interest rate sensitive component of supply, was
down 50 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
[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.]
30-YEAR BOND YIELDS 1994-1999
AAA AAA
Date Ins Tsy % Relationship Date Ins Tsy % Relationship
12/31/93 5.40% 6.34% 85.17% 11/29/96 5.50 6.35 86.61%
01/31/94 5.40 6.24 86.54% 12/31/96 5.60 6.63 84.46%
02/28/94 5.80 6.66 87.09% 01/31/97 5.70 6.79 83.95%
03/31/94 6.40 7.09 90.27% 02/28/97 5.65 6.80 83.09%
04/29/94 6.35 7.32 86.75% 03/31/97 5.90 7.10 83.10%
05/31/94 6.25 7.43 84.12% 04/30/97 5.75 6.94 82.85%
06/30/94 6.50 7.61 85.41% 05/30/97 5.65 6.91 81.77%
07/29/94 6.25 7.39 84.57% 06/30/97 5.60 6.78 82.60%
08/31/94 6.30 7.45 84.56% 07/30/97 5.30 6.30 84.13%
09/30/94 6.55 7.81 83.87% 08/31/97 5.50 6.61 83.21%
10/31/94 6.75 7.96 84.80% 09/30/97 5.40 6.40 84.38%
11/30/94 7.00 8.00 87.50% 10/31/97 5.35 6.15 86.99%
12/30/94 6.75 7.88 85.66% 11/30/97 5.30 6.05 87.60%
01/31/95 6.40 7.70 83.12% 12/31/97 5.15 5.92 86.99%
02/28/95 6.15 7.44 82.66% 01/31/98 5.15 5.80 88.79%
03/31/95 6.15 7.43 82.77% 02/28/98 5.20 5.92 87.84%
04/28/95 6.20 7.34 84.47% 03/31/98 5.25 5.93 88.53%
05/31/95 5.80 6.66 87.09% 04/30/98 5.35 5.95 89.92%
06/30/95 6.10 6.62 92.15% 05/29/98 5.20 5.80 89.66%
07/31/95 6.10 6.86 88.92% 06/30/98 5.20 5.65 92.04%
08/31/95 6.00 6.66 90.09% 07/31/98 5.18 5.71 90.72%
09/29/95 5.95 6.48 91.82% 08/31/98 5.03 5.27 95.45%
10/31/95 5.75 6.33 90.84% 09/30/98 4.95 5.00 99.00%
11/30/95 5.50 6.14 89.58% 10/31/98 5.05 5.16 97.87%
12/29/95 5.35 5.94 90.07% 11/30/98 5.00 5.06 98.81%
01/31/96 5.40 6.03 89.55% 12/31/98 5.05 5.10 99.02%
02/29/96 5.60 6.46 86.69% 01/31/99 5.00 5.09 98.23%
03/29/96 5.85 6.66 87.84% 02/28/99 5.10 5.58 91.40%
04/30/96 5.95 6.89 86.36% 03/31/99 5.15 5.63 91.47%
05/31/96 6.05 6.99 86.55% 04/30/99 5.20 5.66 91.87%
06/28/96 5.90 6.89 85.63% 05/31/99 5.30 5.83 90.91%
07/31/96 5.85 6.97 83.93% 06/30/99 5.47 5.96 91.78%
08/30/96 5.90 7.11 82.98% 07/31/99 5.55 6.10 90.98%
09/30/96 5.70 6.93 82.25% 08/31/99 5.75 6.06 94.88%
10/31/96 5.65 6.64 85.09% 09/30/99 5.85 6.05 96.69%
10/31/99 6.03 6.16 97.89%
Source: Municipal Market Data-A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
In this interest rate environment, the net asset value (NAV) of Morgan Stanley
Dean Witter Quality Municipal Securities (IQM) declined from $14.99 to $13.45
per share for the fiscal year ended October 31, 1999. Based on this change plus
reinvestment of tax-free dividends totaling $0.7825 per share, the Trust's total
NAV return was -4.85 percent. IQM's value on the New York Stock Exchange (NYSE)
fell from $13.9375 to $12.0625 per share during the same period. Based on this
change plus reinvestment of tax-free dividends, IQM's total market return was
- -8.22 percent. On October 31, 1999, IQM's NYSE market price represented a 10.32
percent discount to its NAV.
Monthly dividends for the fourth quarter of 1999 were declared in September.
Beginning with the October payment, the dividend was increased from $0.065 to
$0.0675 per share. The new dividend rate reflects the Trust's estimated earnings
over the next 6 - 12 months and its $0.124 per share cushion of undistributed
net investment income on October 31, 1999.
2
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 13 long-term sectors and 54
credits. At the end of October, the portfolio's average maturity was 17 years.
Average duration, a measure of sensitivity to interest rate changes, was 9.7
years. Issues in the refunded bond category comprised 5 percent of net assets.
These bonds have been refinanced and will be redeemed on the dates shown in the
portfolio. The accompanying charts provide current information on the portfolios
credit quality, sector distribution and geographic diversification. Optional
call provisions by year with their respective cost (book) yields are also
charted.
THE IMPACT OF LEVERAGING
As discussed in previous shareholder reports, the total income available for
distribution to common shareholders includes incremental income provided by the
Trust's outstanding Auction Rate Preferred shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second is
the spread between the portfolio's cost yield and ARPS expenses (ARPS auction
rate and expenses). The greater the spread and amount of ARPS outstanding, the
greater the amount of incremental income available for distribution to common
shareholders. The level of net investment income available for distribution to
common shareholders varies with the level of short-term interest rates. ARPS
leverage also increases the price volatility of common shares and has the effect
of extending portfolio duration.
During the 12-month period, ARPS leverage contributed approximately $0.08 per
share to common share earnings. Weekly ARPS yields ranged between 2.45 and 4.85
percent. In comparison, the yield on 1-year municipal notes increased from 3.04
percent at the end of 1998, to 3.77 percent at the end of October 1999. The
Trust's five ARPS series totaled $97 million and represented 29 percent of net
assets.
LOOKING AHEAD
The Federal Reserve Board raised interest rates twice in the summer and again in
November 1999. This confirmed its previously disclosed bias of becoming less
accommodative in the face of continued strong domestic economic growth.
Depending on the impact of tight labor markets and higher commodity prices on
inflation, the central bank may raise short-term interest rates further.
However, we believe municipal bonds continue to offer long-term investors good
value especially in relationship to Treasuries.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps
support the market value of the Trust's shares. In
3
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
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. The Trust may
also utilize procedures to reduce or eliminate the amount of outstanding ARPS,
including their purchase in the open market or in privately negotiated
transactions. During the fiscal year ended October 31, 1999 the Trust purchased
and retired 556,400 shares of common stock at a weighted average market discount
of 9.41 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Quality
Municipal Securities and look forward to continuing to serve your investment
needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
- -------------------------- ---------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
4
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
LARGEST SECTORS (BAR GRAPH)
as of October 31, 1999
(% of Net Assets)
- -----------------
General Obligation 15%
Mortgage 12%
IDR/PCR* 11%
Water & Sewer 10%
Transportation 8%
Public Facilities 8%
Hospital 7%
Education 7%
Electric 7%
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT RATINGS (PIE CHART)
as of October 31, 1999
(% of Total Long-Term Portfolio)
- --------------------------------
Aaa or AAA 33%
Aa or AA 41%
A or A 26%
As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp.
Portfolio structure is subject to change.
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1999
<TABLE>
<S> <C>
Alaska ....................... 2.3%
Arizona ...................... 1.0
California ................... 5.4
Connecticut .................. 1.1
District of Columbia ......... 1.0
Florida ...................... 0.9
Georgia ...................... 2.9
Hawaii ....................... 2.7
Illinois ..................... 5.0
Indiana ...................... 2.5
Kentucky ..................... 4.8
Maine ........................ 2.1
Maryland ..................... 8.1
Massachusetts ................ 4.6
Michigan ..................... 1.4
Minnesota .................... 1.3
Missouri ..................... 6.6
Nevada ....................... 0.8
New York ..................... 7.3
Pennsylvania ................. 4.7
South Carolina ............... 4.2
Tennessee .................... 2.6
Texas ........................ 2.5
Virginia ..................... 5.9
Washington ................... 7.1
West Virginia ................ 1.5
Wisconsin .................... 7.9
----
Total ........................ 98.2%
====
</TABLE>
Portfolio structure is subject to change.
5
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
CALL AND COST (BOOK) YIELD STRUCTURE
OCTOBER 31, 1999
PERCENT CALLABLE* (BAR CHART)
1999 0%
2000 0%
2001 0%
2002 3%
2003 59%
2004 18%
2005 0%
2006 0%
2007 5%
2008 1%
2009 7%
2010+ 7%
Years Bonds Callable
Weighted Average Call Protection: 5 Years
COST (BOOK) YIELD** (BAR GRAPH)
1999 0.0%
2000 0.0%
2001 0.0%
2002 4.9%
2003 5.6%
2004 5.6%
2005 0.0%
2006 0.0%
2007 5.7%
2008 5.2%
2009 5.3%
2010+ 5.3%
Weighted Average Book Yield: 5.6%
* % Based on Long-Term Portfolio.
** Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before Trust operating expenses. For
example, the Trust earned a book yield of 5.6% on 59% of the long-term
portfolio that are callable in 2003.
Portfolio structure is subject to change.
6
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 22, 1999, an annual meeting of the Trust's shareholders was held for the
purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
Wayne E. Hedien
For .............. 15,155,768
Withheld ......... 181,197
John L. Schroeder
For .............. 15,155,718
Withheld ......... 181,247
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
Dr. Manuel H. Johnson
For .............. 1,660
Withheld ......... 0
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent and
Philip J. Purcell.
(3) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
For ............. 14,987,655
Against ......... 88,645
Abstain ......... 260,665
7
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- -------------
<S> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.2%)
General Obligation (15.3%) <C> <C> <C>
$ 5,000 DeKalb County, Georgia, Refg 1993 .............................................. 5.25% 01/01/20 $ 4,575,150
4,000 Anne Arundel County, Maryland, Ser 1999 ........................................ 5.00 05/15/19 3,560,040
10,000 Washington Suburban Sanitation District, Maryland, Refg 1993 Second Ser ........ 5.25 06/01/14 9,624,800
New York City, New York,
10,000 1994 Ser D .................................................................... 5.75 08/15/08 10,221,100
5,000 1994 Ser C .................................................................... 5.50 10/01/10 5,002,250
10,000 Metropolitan Government of Nashville & Davidson County, Tennessee, Refg
Ser 1997 ....................................................................... 5.125 05/15/25 8,710,900
10,000 Seattle, Washington, Refg Ser 1993 ............................................. 5.65 01/01/20 9,638,000
- --------- ------------
54,000 51,332,240
- --------- ------------
Educational Facilities Revenue (6.9%)
3,500 District of Columbia, Georgetown University Ser 1993 ........................... 5.25 04/01/13 3,272,430
Illinois Educational Facilities Authority,
4,695 Illinois Wesleyan University Ser 1993 ......................................... 5.70 09/01/23 4,435,460
4,955 Northwestern University Refg Ser 1993 .......................................... 5.375 12/01/21 4,567,024
Massachusetts Health & Educational Facilities Authority,
10,000 Boston College Ser K .......................................................... 5.25 06/01/18 9,082,700
2,100 Wentworth Institute of Technology Ser B (Connie Lee) .......................... 5.50 10/01/23 1,927,590
- --------- ------------
25,250 23,285,204
- --------- ------------
Electric Revenue (6.6%)
3,000 Los Angeles Department of Water & Power, California, Issue of 1992 ............. 6.375 02/01/20 3,110,970
5,000 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) ................ 5.50 07/01/21 4,635,800
5,000 Chelan County Public Utility District #1, Washington, Hydro Refg
Ser 1993 G .................................................................... 5.375 06/01/18 4,568,800
10,000 Snohomish County Public Utility District #1, Washington, Ser 1993 B (AMT) ...... 5.80 01/01/24 9,708,300
- --------- ------------
23,000 22,023,870
- --------- ------------
Hospital Revenue (7.4%)
3,500 Maine Health & Higher Educational Facilities Authority, Ser 1993 D (FSA) ....... 5.50 07/01/18 3,274,915
10,000 Missouri Health & Educational Facilities Authority, Barnes-Jewish Inc/
Christian Health Services Ser 1993 A .......................................... 5.25 05/15/14 9,587,700
10,000 Fairfax County Industrial Development Authority, Virginia, Inova Health Refg
Ser 1993 A .................................................................... 5.25 08/15/19 9,126,100
3,000 Wisconsin Health & Educational Facilities Authority, Catholic Health Corp
- --------- Ser 1993 ...................................................................... 5.375 11/15/13 2,796,660
------------
26,500 24,785,375
- --------- ------------
Industrial Development/Pollution Control Revenue (10.7%)
10,000 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc
Ser 1993 (AMT) (MBIA) ......................................................... 5.45 11/01/23 9,088,100
4,000 Calvert County, Maryland, Baltimore Gas & Electric Co Refg Ser 1993 ............ 5.55 07/15/14 3,920,920
2,500 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMBAC) ................ 6.30 12/01/14 2,575,600
</TABLE>
See Notes to Financial Statements
8
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
$ 5,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1993
(MBIA) ...................................................................... 5.60% 12/01/17 $ 4,802,050
5,000 Marshall County, West Virginia, Ohio Power Co Ser B (MBIA) ................... 5.45 07/01/14 4,833,050
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993 A ............... 6.90 02/01/13 10,766,000
------- ------------
36,500 35,985,720
------- ------------
Mortgage Revenue - Multi-Family (5.2%)
4,705 Illinois Housing Development Authority, 1993 Ser A ........................... 5.90 07/01/12 4,721,420
13,310 Wisconsin Housing & Economic Development Authority, 1993 Ser A ............... 5.55 11/01/15 12,818,329
------- ------------
18,015 17,539,749
------- ------------
Mortgage Revenue - Single Family (6.9%)
8,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA) ........................ 6.00 06/01/27 7,768,720
3,830 Connecticut Housing Finance Authority, 1993 Subser F-1 ....................... 5.60 05/15/11 3,769,218
8,700 Kentucky Housing Corporation, Federally Insured or Gtd Loans 1993 Ser B ...... 5.40 07/01/14 8,425,341
3,000 Virginia Housing Development Authority, 1992 Ser A ........................... 7.10 01/01/25 3,070,500
------- ------------
23,530 23,033,779
------- ------------
Public Facilities Revenue (8.0%)
11,000 California Public Works Board, Correctional 1993 Ser D COPs .................. 5.375 06/01/18 10,258,710
4,000 Maine Municipal Bond Bank, 1993 Ser E ........................................ 5.30 11/01/13 3,871,000
3,000 Kansas City School District Building Corporation, Missouri, Elementary
Ser 1993 D (FGIC) ........................................................... 5.00 02/01/14 2,774,580
10,000 Regional Convention & Sports Complex Authority, Missouri, Refg Ser A 1993 .... 5.60 08/15/17 9,833,300
------- ------------
28,000 26,737,590
------- ------------
Resource Recovery Revenue (3.0%)
10,000 Northeast Maryland Waste Disposal Authority, Montgomery County
======= Ser 1993 A (AMT) ............................................................ 6.30 07/01/16 10,223,200
------------
Transportation Facilities Revenue (8.4%)
3,000 Illinois Toll Highway Authority, Priority Refg 1998 Ser A (FSA) .............. 5.50 01/01/15 2,924,490
5,000 Wayne County, Michigan, Detroit Metropolitan Wayne County Airport
Sub Lien Ser 1993 C (MBIA) .................................................. 5.25 12/01/13 4,774,500
5,000 Minneapolis-St Paul Metropolitan Airports Commission, Minnesota,
Ser 1999 A (FGIC) ........................................................... 5.125 01/01/31 4,330,000
3,000 Pennsylvania Turnpike Commission, Ser A 1998 (AMBAC) ......................... 4.75 12/01/27 2,444,910
9,965 South Carolina Transportation Infrastructure Bank, Ser 1999 A (AMBAC) ........ 5.50 10/01/16 9,593,007
4,175 Virginia Transportation Board, US Route 58 Corridor Ser 1993 B ............... 5.50 05/15/18 3,988,085
------- ------------
30,140 28,054,992
------- ------------
Water & Sewer Revenue (10.2%)
4,000 Phoenix Civic Improvement Corporation, Arizona, Wastewater Refg Ser 1993 ..... 5.00 07/01/18 3,517,280
5,000 Los Angeles County Sanitation Districts Financing Authority, California,
1993 Ser A .................................................................. 5.25 10/01/19 4,594,450
Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
3,000 Ser 1993 A (MBIA) ........................................................... 5.50 05/15/21 2,830,230
5,000 Ser 1993 B (MBIA) ........................................................... 5.50 05/15/23 4,692,750
5,020 Massachusetts Water Resources Authority, 1993 Ser C .......................... 5.25 12/01/20 4,478,995
</TABLE>
See Notes to Financial Statements
9
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
$ 5,000 New York City Municipal Water Finance Authority, New York, 1994 Ser B ......... 5.50% 06/15/19 $ 4,680,700
5,905 Philadelphia, Pennsylvania, Water & Wastewater Ser 1993 (FSA) ................. 5.50 06/15/14 5,742,789
4,000 Norfolk, Virginia, Water Ser 1993 (AMBAC) ..................................... 5.375 11/01/23 3,684,120
- -------- -------------
36,925 34,221,314
- -------- -------------
Other Revenue (3.3%)
3,000 Florida Department of Environment Protection, Preservation 2000
Ser 1999 A (FGIC) ............................................................ 5.25 07/01/13 2,914,320
5,000 New York Local Government Assistance Corporation, Ser 1993 C .................. 5.50 04/01/18 4,686,250
4,000 Philadelphia, Pennsylvania, Gas Works Second Ser 1998 (FSA) ................... 5.00 07/01/23 3,425,560
- -------- -------------
12,000 11,026,130
- -------- -------------
Refunded (5.3%)
5,000 Atlanta, Georgia, Water & Sewer Ser 1993 ...................................... 5.00 01/01/04+ 5,149,850
8,000 Indiana Health & Educational Facilities Authority, Wellborn Memorial Baptist
Hospital Refg Ser 1993 ....................................................... 5.50 07/01/03+ 8,353,440
4,095 Philadelphia, Pennsylvania, Water & Wastewater Ser 1993 (FSA) ................. 5.50 06/15/03+ 4,300,118
- -------- -------------
17,095 17,803,408
- -------- -------------
340,955 TOTAL TAX-EXEMPT MUNICIPAL BONDS
======== (Identified Cost $337,332,628)......................................................................... 326,052,571
-------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (1.0%)
3,400 Harris County Health Facilities Development Corporation, Texas, Methodist
======== Hospital Ser 1994 (Demand 11/01/99) (Identified Cost $3,400,000).............. 3.60* 12/01/25 3,400,000
-------------
$344,355 TOTAL INVESTMENTS (Identified Cost $340,732,628) (a) ...................................... 98.2% 329,452,571
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................................ 1.8 5,922,009
------ ------------
NET ASSETS ................................................................................ 100.0% $335,374,580
====== ============
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Prerefunded to call date shown.
* 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 $1,633,040
and the aggregate gross unrealized depreciation is $12,913,097, resulting
in net unrealized depreciation of $11,280,057.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of AMBAC
Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
10
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $340,732,628).......................................... $329,452,571
Cash ..................................................................... 26,967
Interest receivable ...................................................... 6,448,237
Prepaid expenses ......................................................... 110,157
-------------
TOTAL ASSETS .......................................................... 336,037,932
-------------
LIABILITIES:
Payable for:
Common shares of beneficial interest repurchased ...................... 243,306
Dividends to preferred shareholders ................................... 185,189
Investment management fee ............................................. 120,699
Accrued expenses ......................................................... 114,158
-------------
TOTAL LIABILITIES ..................................................... 663,352
-------------
NET ASSETS ............................................................ $335,374,580
=============
COMPOSITION OF 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, 17,718,413 shares outstanding).......................... 261,745,004
Net unrealized depreciation .............................................. (11,280,057)
Accumulated undistributed net investment income .......................... 2,194,835
Accumulated net realized loss ............................................ (14,285,202)
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS .......................... 238,374,580
-------------
TOTAL NET ASSETS ...................................................... $335,374,580
=============
NET ASSET VALUE PER COMMON SHARE
($238,374,580 divided by 17,718,413 common shares outstanding).......... $13.45
=======
</TABLE>
See Notes to Financial Statements
11
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $ 19,124,919
-------------
EXPENSES
Investment management fee ..................... 1,263,942
Auction commission fees ....................... 309,458
Professional fees ............................. 110,193
Transfer agent fees and expenses .............. 72,079
Auction agent fees ............................ 40,353
Shareholder reports and notices ............... 38,505
Registration fees ............................. 25,129
Trustees' fees and expenses ................... 19,124
Custodian fees ................................ 17,437
Other.......................................... 42,296
-------------
TOTAL EXPENSES ............................. 1,938,516
Less: expense offset .......................... (17,298)
-------------
NET EXPENSES ............................... 1,921,218
-------------
NET INVESTMENT INCOME ...................... 17,203,701
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ............................. 449,551
Net change in unrealized appreciation ......... (28,700,689)
-------------
NET LOSS ................................... (28,251,138)
-------------
NET DECREASE .................................. $ (11,047,437)
=============
</TABLE>
See Notes to Financial Statements
12
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
------------------ -----------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income ................................... $ 17,203,701 $ 17,518,556
Net realized gain ....................................... 449,551 777,393
Net change in unrealized appreciation ................... (28,700,689) 11,228,100
------------- -------------
NET INCREASE (DECREASE) .............................. (11,047,437) 29,524,049
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred ............................................... (3,265,064) (3,489,086)
Common .................................................. (14,171,566) (13,892,648)
------------- -------------
TOTAL DIVIDENDS ...................................... (17,436,630) (17,381,734)
------------- -------------
Decrease from transactions in common shares of beneficial
interest .............................................. (7,168,282) (4,624,309)
------------- -------------
NET INCREASE (DECREASE) .............................. (35,652,349) 7,518,006
NET ASSETS:
Beginning of period ..................................... 371,026,929 363,508,923
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$2,194,835 and $2,427,764, respectively).............. $ 335,374,580 $ 371,026,929
============= =============
</TABLE>
See Notes to Financial Statements
13
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter 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
14
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, 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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), the Trust pays the Investment Manager
a management fee, calculated weekly and payable monthly, by applying the annual
rate of 0.35% to the Trust's weekly net assets.
Under the terms of the Agreement, the Investment Manager maintains certain of
the Trust's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and pays
the salaries of all personnel, including officers of the Trust who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1999 aggregated
$33,610,266 and $39,899,220, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At October 31, 1999, the Trust had transfer agent
fees and expenses payable of approximately $800.
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 year ended October 31, 1999 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$6,574. At October 31, 1999, the Trust had an accrued pension liability of
$36,735, which is included in accrued expenses in the Statement of Assets and
Liabilities.
15
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The Trust has issued Series 1 through 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 3.65% 07/11/00 2.45% - 4.70%
2 300 15,000 3.25 11/03/99 2.70 - 4.85
3 300 15,000 3.85 07/06/00 2.45 - 4.40
4 600 30,000 3.23 01/11/00 3.23 - 3.70
5 400 20,000 3.25 11/02/99 3.00 - 3.63
</TABLE>
- ------------
* As of October 31, 1999.
** For the year ended October 31, 1999.
Subsequent to October 31, 1999 and up through December 3, 1999, the Trust paid
dividends to Series 1 through 5 at rates ranging from 3.129% to 3.9%, in the
aggregate amount of $480,438.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at liquidation
value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
16
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1999, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
-------------- ----------- ---------------
<S> <C> <C> <C>
Balance, October 31, 1997 ................................................ 18,625,513 $186,255 $273,351,340
Treasury shares purchased and retired (weighted average discount 10.25%)* (350,700) (3,507) (4,620,802)
---------- -------- ------------
Balance, October 31, 1998 ................................................ 18,274,813 182,748 268,730,538
Treasury shares purchased and retired (weighted average discount 9.41%)* . (556,400) (5,564) (7,162,718)
---------- -------- ------------
Balance, October 31, 1999 ................................................ 17,718,413 $177,184 $261,567,820
========== ======== ============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1999, the Trust utilized approximately
$450,000 of its net capital loss carryover. At October 31, 1999, the Trust had a
net capital loss carryover of approximately $14,285,000, which may be used to
offset future capital gains to the extent provided by regulations, which will be
available through October 31 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- -------------------------------------------
2002 2003 2004 2005
- ------------ --------- ------ -------
<S> <C> <C> <C>
$ 10,624 $2,809 $716 $136
========= ====== ==== ====
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 28, 1999, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- -------------- ------------------ ------------------
<S> <C> <C>
$ 0.0675 November 5, 1999 November 19, 1999
$ 0.0675 December 3, 1999 December 17, 1999
</TABLE>
17
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31*
------------------------------------
1999 1998
--------------- --------------------
<S> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....................... $ 14.99 $ 14.31
-------- --------
Income (loss) from investment operations:
Net investment income ..................................... 0.95 0.95
Net realized and unrealized gain (loss) ................... (1.57) 0.64
-------- --------
Total income (loss) from investment operations ............. (0.62) 1.59
-------- --------
Less dividends from:
Net investment income ..................................... (0.78) (0.75)
Common share equivalent of dividends paid to preferred
shareholders ............................................. (0.18) (0.19)
-------- --------
Total dividends ............................................ (0.96) (0.94)
-------- --------
Anti-dilutive effect of acquiring treasury shares .......... 0.04 0.03
-------- --------
Net asset value, end of period ............................. $ 13.45 $ 14.99
======== ========
Market value, end of period ................................ $12.063 $13.938
======== ========
TOTAL RETURN\ ............................................. (8.22)% 18.04%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ............................................. 0.73%(1) 0.72%(1)
Net investment income before preferred stock dividends ..... 6.52% 6.46%
Preferred stock dividends .................................. 1.24% 1.29%
Net investment income available to common shareholders ..... 5.28% 5.17%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .................... $335,375 $371,027
Asset coverage on preferred shares at end of period ........ 345% 382%
Portfolio turnover rate .................................... 10% 3%
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31*
-----------------------------------------------------
1997 1996 1995
-------------- ----------------- --------------------
<S> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....................... $ 13.44 $ 13.04 $ 10.83
--------- ---------- ----------
Income (loss) from investment operations:
Net investment income ..................................... 0.95 0.92 0.90
Net realized and unrealized gain (loss) ................... 0.69 0.23 2.15
--------- ---------- ----------
Total income (loss) from investment operations ............. 1.64 1.15 3.05
--------- ---------- ----------
Less dividends from:
Net investment income ..................................... (0.72) (0.72) (0.74)
Common share equivalent of dividends paid to preferred
shareholders ............................................. (0.18) (0.17) (0.18)
---------- ---------- ----------
Total dividends ............................................ (0.90) (0.89) (0.92)
---------- ---------- ----------
Anti-dilutive effect of acquiring treasury shares .......... 0.13 0.14 0.08
---------- ---------- ----------
Net asset value, end of period ............................. $ 14.31 $ 13.44 $ 13.04
========== ========== ==========
Market value, end of period ................................ $ 12.50 $ 11.25 $ 10.875
========== ========== ==========
TOTAL RETURN+............................................. 18.11% 10.39% 22.91%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ............................................. 0.71% 0.72%(1) 0.77%(1)
Net investment income before preferred stock dividends ..... 6.87% 6.94% 7.48%
Preferred stock dividends .................................. 1.30% 1.27% 1.48%
Net investment income available to common shareholders ..... 5.57% 5.67% 6.00%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .................... $363,509 $364,858 $376,158
Asset coverage on preferred shares at end of period ........ 374% 376% 388%
Portfolio turnover rate .................................... 6% - -
</TABLE>
- -------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total return is based upon the current market value on the last day of each
period reported. Dividends are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan. Total return does not
reflect brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
See Notes to Financial Statements
18
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Quality
Municipal Securities (the "Trust") at October 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 9, 1999
1999 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1999, all of the Trust's dividends from net
investment income received by both common and preferred shareholder
classes were exempt interest dividends, excludable from gross income for
Federal income tax purposes.
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
QUALITY
MUNICIPAL SECURITIES
ANNUAL REPORT
OCTOBER 31, 1999
