<PAGE>
MORGAN STANLEY DEAN WITTER
QUALITY MUNICIPAL SECURITIES Two World Trade Center,
LETTER TO THE SHAREHOLDERS April 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Quality Municipal Securities (IQM) for the period ended
April 30, 1999.
The financial markets have begun to recover from last year's global economic
difficulties. The turmoil which included the Asian crisis, the Russian debt
default and the rescue of a major U.S. hedge fund has given way to more normal
financial conditions. The major catalyst for this return to stability was the
liquidity provided by the Federal Reserve Board's 75 basis point reduction in
the federal-funds rate during the fourth quarter of 1998.
International economic problems precipitated a "flight to quality" rally in
fixed income securities and U.S. Treasury yields reached 30-year lows in
October 1998. As the world markets recovered, foreign investors repatriated
funds and Treasury yields began to rise. Interest rates also rose in response
to the surprisingly robust domestic economic growth reported over the second
half of 1998. The bond market became concerned that the central bank might
become more restrictive by taking back some of the liquidity provided during
the crisis.
MUNICIPAL MARKET CONDITIONS
During 1998, municipal yields were less volatile than Treasury yields. This
pattern of stability continued into 1999. Long-term insured index yields stood
at 5.25 percent at the end of April, only 20 basis points higher than their
October 1998 levels. In contrast, Treasury bond yields rose 50 basis points
from 5.15 to 5.65 percent. During the past six months, the yield pick up for
extending tax-exempt maturities from one to 30 years averaged 225 basis points.
The modest rally of municipals during 1998 created a favorable relative value
relationship to Treasuries. Municipals underperformed Treasuries and the ratio
of municipal yields to Treasury yields climbed to 99 percent by December. The
higher the ratio, the more attractive municipals are relative to Treasuries.
Municipals have outperformed Treasuries this year and the ratio declined to 92
percent by April. The high-to-low annual range of municipal/Treasury yields for
the past five years has averaged 93 to 84 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
In addition to lagging 1998's Treasury rally, municipals also experienced a
glut of new-issue supply. Underwriting volume of $284 billion was up 28 percent
from the prior year and approached 1993's record. Issuers actively refinanced
at lower interest rates and refundings were 29 percent of the total volume.
This year's rise in interest rates has reduced the amount of refunding
activity. Refunding volume was down 42 percent in the first four months of 1999
while total underwriting declined 22 percent.
PERFORMANCE
The Trust's net asset value (NAV) decreased from $14.99 to $14.87 per share for
the six-month period ended April 30, 1999. Based on this change plus
reinvestment of tax-free dividends totaling $0.39 per share, the Trust's total
NAV return was 2.00 percent. IQM's value on the New York Stock Exchange
decreased from $13.9375 per share to $13.3125 per share during the same period.
Based on this change plus reinvestment of tax-free dividends, IQM's total
market return was -1.79 percent. As of April 30, 1999, IQM's share price was a
10.47 percent discount to its NAV.
[LINE CHART]
30-Year Bond Yields 1994-1999
DATE AAA INS TSY % RELATIONSHIP
12/31/93 5.40% 6.34% 85.17%
01/31/94 5.40 6.24 86.54%
02/28/94 5.80 6.66 87.09%
03/31/94 6.40 7.09 90.27%
04/29/94 6.35 7.32 86.75%
05/31/94 6.25 7.43 84.12%
06/30/94 6.50 7.61 85.41%
07/29/94 6.25 7.39 84.57%
08/31/94 6.30 7.45 84.56%
09/30/94 6.55 7.81 83.87%
10/31/94 6.75 7.96 84.80%
11/30/94 7.00 8.00 87.50%
12/30/94 6.75 7.88 85.66%
01/31/95 6.40 7.70 83.12%
02/28/95 6.15 7.44 82.66%
03/31/95 6.15 7.43 82.77%
04/28/95 6.20 7.34 84.47%
05/31/95 5.80 6.66 87.09%
06/30/95 6.10 6.62 92.15%
07/31/95 6.10 6.86 88.92%
08/31/95 6.00 6.66 90.09%
09/29/95 5.95 6.48 91.82%
10/31/95 5.75 6.33 90.84%
11/30/95 5.50 6.14 89.58%
12/29/95 5.35 5.94 90.07%
01/31/96 5.40 6.03 89.55%
02/29/96 5.60 6.46 86.69%
03/29/96 5.85 6.66 87.84%
04/30/96 5.95 6.89 86.36%
05/31/96 6.05 6.99 86.55%
06/28/96 5.90 6.89 85.63%
07/31/96 5.85 6.97 83.93%
08/30/96 5.90 7.11 82.98%
09/30/96 5.70 6.93 82.25%
10/31/96 5.65 6.64 85.09%
11/29/96 5.50 6.35 86.61%
12/31/96 5.60 6.63 84.46%
01/31/97 5.70 6.79 83.95%
02/28/97 5.65 6.80 83.09%
03/31/97 5.90 7.10 83.10%
04/30/97 5.75 6.94 82.85%
05/30/97 5.65 6.91 81.77%
06/30/97 5.60 6.78 82.60%
07/30/97 5.30 6.30 84.13%
08/31/97 5.50 6.61 83.21%
09/30/97 5.40 6.40 84.38%
10/31/97 5.35 6.15 86.99%
11/30/97 5.30 6.05 87.60%
12/31/97 5.15 5.92 86.99%
01/31/98 5.15 5.80 88.79%
02/28/98 5.20 5.92 87.84%
03/31/98 5.25 5.93 88.53%
04/30/98 5.35 5.95 89.92%
05/29/98 5.20 5.80 89.66%
06/30/98 5.20 5.65 92.04%
07/31/98 5.18 5.71 90.72%
08/31/98 5.03 5.27 95.45%
09/30/98 4.95 5.00 99.00%
10/31/98 5.05 5.16 97.87%
11/30/98 5.00 5.06 98.81%
12/31/98 5.05 5.10 99.02%
01/31/99 5.00 5.09 98.23%
02/28/99 5.10 5.58 91.40%
03/31/99 5.15 5.63 91.47%
04/30/99 5.20 5.66 91.87%
2
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
[BAR CHART]
LARGEST SECTORS AS OF APRIL 30, 1999
(% OF NET ASSETS)
General Obligation 16%
IDR/PCR* 13%
Mortgage 12%
Water & Sewer 12%
Hospital 11%
Public Facilities 8%
Education 7%
Electric 7%
Transportation 5%
*Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
[PIE CHART]
CREDIT RATINGS AS OF APRIL 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
Aaa or AAA 29%
Aa or AA 45%
A or A 26%
As measured by Moody's Investors Service, Inc.
or Standard & Poor's Corp.
Portfolio structure is subject to change.
[BAR GRAPH]
CALL STRUCTURE AS OF APRIL 30, 1999 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 6 YEARS
PERCENT CALLABLE
1999 0%
2000 0%
2001 0%
2002 2%
2003 63%
2004 20%
2005 0%
2006 0%
2007 6%
2008 1%
2009 1%
2010+ 7%
Years Bonds Callable
Portfolio structure is subject to change.
3
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
Monthly dividends for the second quarter of 1999 remained $0.065 per share. The
Trust's level of undistributed net investment income was $0.129 per share on
April 30, 1999, versus $0.133 per share on October 31, 1998.
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 13 long-term sectors and 53
credits. At the end of April, the portfolio's average maturity was 19 years.
Portfolio duration, a measure of sensitivity to interest-rate changes, was 6.0
years. Issues in the refunded bond category comprised 2.9 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 portfolio's call structure, largest sectors and mix of credit ratings.
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 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 the ARPS expenses (ARPS
auction rate and expenses). The greater the spread and the larger 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.
During this six-month period, ARPS leverage contributed approximately $0.04 per
share to common share earnings. Weekly ARPS yields ranged between 2.45 and 4.85
percent. Five ARPS series totaling $97 million represented 26 percent of net
assets.
ARPS leverage also increases the price volatility of common shares and has the
effect of extending portfolio duration.
LOOKING AHEAD
The combination of a flight to quality and the flood of new municipal issues
made the municipal-to-Treasury yield relationship more favorable late last year
than it had been in the previous 10 years. Although municipals have thus far
outperformed Treasuries in 1999, we believe that municipals still offer
investors considerable value versus their historical 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
4
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
addition, we would like to remind you that the Trustees have approved a
procedure whereby the Trust may, when appropriate, purchase shares in the open
market or in privately negotiated transactions at a price not above market
value or net asset value, 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 this six-month period, the Trust purchased and retired
142,500 shares of common stock at a weighted average market discount of 6.66
percent.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Trust's Investment Manager. He also serves as Chairman, Chief Executive Officer
and Director of Morgan Stanley Dean Witter Distributors Inc. and Morgan Stanley
Dean Witter Trust FSB.
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
5
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.7%)
General Obligation (15.9%)
$ 5,000 Florida Board of Education, Cap Outlay Refg 1993 Ser D ....................... 5.125% 06/01/18 $ 5,018,850
5,000 De Kalb County, Georgia, Refg 1993 ........................................... 5.25 01/01/20 5,052,850
10,000 Washington Suburban Sanitation District, Maryland, Refg 1993 Second Ser ...... 5.25 06/01/14 10,341,200
1,500 Michigan Municipal Bond Authority, School Ser 1998 ........................... 5.25 12/01/13 1,571,445
New York City, New York,
10,000 1994 Ser D ................................................................. 5.75 08/15/08 10,610,100
5,000 1994 Ser C ................................................................. 5.50 10/01/10 5,229,050
10,000 Metropolitan Government of Nashville & Davidson County, Tennessee,
Refg Ser 1997 .............................................................. 5.125 05/15/25 9,837,300
10,000 Seattle, Washington, Refg Ser 1993 ........................................... 5.65 01/01/20 10,371,600
-------- ------------
56,500 58,032,395
-------- ------------
Educational Facilities Revenue (7.0%)
3,500 District of Columbia, Georgetown University Ser 1993 ......................... 5.25 04/01/13 3,596,495
Illinois Educational Facilities Authority,
4,695 Illinois Wesleyan University Ser 1993 ...................................... 5.70 09/01/23 4,907,496
4,955 Northwestern University Refg Ser 1993 ........................................ 5.375 12/01/21 5,032,942
Massachusetts Health & Educational Facilities Authority,
10,000 Boston College Ser K ....................................................... 5.25 06/01/18 10,061,600
2,100 Wentworth Institute of Technology Ser B (Connie Lee) ....................... 5.50 10/01/23 2,151,177
-------- ------------
25,250 25,749,710
-------- ------------
Electric Revenue (6.7%)
5,900 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) .............. 5.50 07/01/21 6,031,924
8,000 Chelan County Public Utility District #1, Washington, Hydro Refg
Ser 1993 G ................................................................. 5.375 06/01/18 8,142,800
10,000 Snohomish County Public Utility District #1, Washington, Ser 1993 B (AMT) .... 5.80 01/01/24 10,442,400
-------- ------------
23,900 24,617,124
-------- ------------
Hospital Revenue (10.8%)
8,000 Indiana Health & Educational Facilities Authority, Wellborn Memorial
Baptist Hospital Refg Ser 1993 ............................................. 5.50 07/01/14 8,132,240
3,500 Maine Health & Higher Educational Facilities Authority, Ser 1993 D (FSA) ..... 5.50 07/01/18 3,597,720
4,000 Michigan Hospital Finance Authority, Detroit Medical Center Ser 1997 A
(AMBAC) .................................................................... 5.25 08/15/27 3,958,960
10,000 Missouri Health & Educational Facilities Authority, Barnes-Jewish Inc/
Christian Health Services Ser 1993 A ....................................... 5.25 05/15/14 10,402,700
10,000 Fairfax County Industrial Development Authority, Virginia, Inova Health
System Foundation Refg Ser 1993 A .......................................... 5.25 08/15/19 10,328,600
3,000 Wisconsin Health & Educational Facilities Authority, Catholic Health Corp
-------- Ser 1993 ................................................................... 5.375 11/15/13 3,040,320
------------
38,500 39,460,540
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development/Pollution Control Revenue (13.3%)
$ 10,000 Valdez, Alaska, BP Pipeline Inc Ser 1993 B ................................... 5.50 % 10/01/28 $ 10,150,600
10,000 Hawaii Department of Budget & Finance, Hawaiian Electric Co Inc
Ser 1993 (AMT) (MBIA) ....................................................... 5.45 11/01/23 10,103,500
4,000 Calvert County, Maryland, Baltimore Gas & Electric Co Refg Ser 1993 .......... 5.55 07/15/14 4,193,080
2,500 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMBAC) .............. 6.30 12/01/14 2,702,950
5,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1993
(MBIA) ...................................................................... 5.60 12/01/17 5,189,650
5,000 Marshall County, West Virginia, Ohio Power Co Ser B (MBIA) ................... 5.45 07/01/14 5,226,800
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993 A ............... 6.90 02/01/13 11,129,700
-------- ------------
46,500 48,696,280
-------- ------------
Mortgage Revenue -- Multi-Family (5.0%)
4,705 Illinois Housing Development Authority, 1993 Ser A ........................... 5.90 07/01/12 4,877,485
13,310 Wisconsin Housing & Economic Development Authority, 1993 Ser A ............... 5.55 11/01/15 13,619,191
-------- ------------
18,015 18,496,676
-------- ------------
Mortgage Revenue -- Single Family (6.7%)
8,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA) ........................ 6.00 06/01/27 8,432,720
3,830 Connecticut Housing Finance Authority, 1993 Subser F-1 ....................... 5.60 05/15/11 3,932,414
8,700 Kentucky Housing Corporation, Federally Insured or Gtd Loans 1993 Ser B ...... 5.40 07/01/14 8,969,265
3,000 Virginia Housing Development Authority, 1992 Ser A ........................... 7.10 01/01/25 3,093,720
-------- ------------
23,530 24,428,119
-------- ------------
Public Facilities Revenue (8.4%)
11,000 California Public Works Board, Correctional 1993 Ser D COPs .................. 5.375 06/01/18 11,254,210
4,000 Maine Municipal Bond Bank, 1993 Ser E ........................................ 5.30 11/01/13 4,155,840
5,000 Kansas City School District Building Corporation, Missouri, Elementary
Ser 1993 D (FGIC) ........................................................... 5.00 02/01/14 5,051,000
10,000 Regional Convention & Sports Complex Authority, Missouri, Refg Ser A 1993..... 5.60 08/15/17 10,396,200
-------- ------------
30,000 30,857,250
-------- ------------
Resource Recovery Revenue (2.9%)
10,000 Northeast Maryland Waste Disposal Authority, Montgomery County
-------- Ser 1993 A (AMT) ............................................................ 6.30 07/01/16 10,677,000
------------
Transportation Facilities Revenue (5.0%)
3,000 Illinois Toll Highway Authority, Priority Refg 1998 Ser A (FSA) .............. 5.50 01/01/15 3,222,360
5,000 Wayne County, Michigan, Detroit Metropolitan Wayne County Airport
Sub Lien Ser 1993 C (MBIA) .................................................. 5.25 12/01/13 5,168,300
3,000 Pennsylvania Turnpike Commission, Ser A 1998 (AMBAC) ......................... 4.75 12/01/27 2,808,570
3,000 North Texas Tollway Authority, Dallas North Tollway Ser 1998 (FGIC) .......... 4.75 01/01/29 2,805,360
4,175 Virginia Transportation Board, US Route 58 Corridor Ser 1993 B ............... 5.50 05/15/18 4,311,147
-------- ------------
18,175 18,315,737
-------- ------------
Water & Sewer Revenue (11.7%)
4,000 Phoenix Civic Improvement Corporation, Arizona, Wastewater Refg Ser 1993 ..... 5.00 07/01/18 3,980,200
5,000 Los Angeles County Sanitation Districts Financing Authority, California,
1993 Ser A .................................................................. 5.25 10/01/19 5,051,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
$ 3,000 Ser 1993 A (MBIA) ........................................................ 5.50 % 05/15/21 $ 3,088,350
5,000 Ser 1993 B (MBIA) ........................................................ 5.50 05/15/23 5,147,250
5,020 Massachusetts Water Resources Authority, 1993 Ser C ....................... 5.25 12/01/20 5,025,974
5,000 New York City Municipal Water Finance Authority, New York, 1994 Ser B ..... 5.50 06/15/19 5,116,950
10,000 Philadelphia, Pennsylvania, Water & Wastewater Ser 1993 (FSA) ............. 5.50 06/15/14 10,453,400
5,000 Norfolk, Virginia, Water Ser 1993 (AMBAC) ................................. 5.375 11/01/23 5,080,800
-------- ------------
42,020 42,944,224
-------- ------------
Other Revenue (1.4%)
5,000 New York Local Government Assistance Corporation, Ser 1993 C .............. 5.50 04/01/18 5,167,900
-------- ------------
Refunded (2.9%)
5,000 Atlanta, Georgia, Water & Sewer Ser 1993 .................................. 5.00 01/01/04+ 5,293,900
4,980 Massachusetts Water Resources Authority, 1993 Ser C ....................... 5.25 12/01/04+ 5,394,635
-------- ------------
9,980 10,688,535
-------- ------------
347,370 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $343,253,634).................................... 358,131,490
-------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (0.6%)
400 Illinois Health Facilities Authority, Northwestern Memorial Hospital
Ser 1995 (Demand 05/03/99) ............................................... 4.30* 08/15/25 400,000
1,700 Roanoke Industrial Development Authority, Virginia, Carilion Health System
Ser 1997 A (Demand 05/03/99) ............................................. 4.30* 07/01/27 1,700,000
-------- ------------
2,100 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost $2,100,000)..................... 2,100,000
-------- ------------
$349,470 TOTAL INVESTMENTS (Identified Cost $345,353,634) (a)................................ 98.3% 360,231,490
======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ..................................... 1.7 6,316,320
----- ------------
NET ASSETS ......................................................................... 100.0% $366,547,810
===== ============
</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
$15,027,650 and the aggregate gross unrealized depreciation is
$149,794, resulting in net unrealized appreciation of $14,877,856.
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
8
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1999
<S> <C> <C> <C> <C> <C>
Alaska ............... 5.1% Indiana .............. 2.2% Pennsylvania ......... 3.6%
Arizona ............ 1.1 Kentucky ........... 4.7 South Carolina ....... 1.6
California ........... 4.4 Maine ................ 2.1 Tennessee ............ 2.7
Connecticut .......... 1.1 Maryland ........... 6.9 Texas ................ 2.2
District of Columbia . 1.0 Massachusetts ........ 6.2 Virginia ........... 6.7
Florida .............. 1.4 Michigan ............. 2.9 Washington ........... 7.9
Georgia .............. 2.8 Missouri ............. 7.1 West Virginia ........ 1.4
Hawaii ............... 2.8 Nevada ............... 0.7 Wisconsin ............ 7.6
Illinois ........... 5.0 New York ............. 7.1 ----
Total .............. 98.3%
====
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
<TABLE>
<S> <C>
ASSETS :
Investments in securities, at value
(identified cost $345,353,634)......................................... $360,231,490
Cash .................................................................... 19,739
Interest receivable ..................................................... 6,557,799
Prepaid expenses ........................................................ 116,950
------------
TOTAL ASSETS .......................................................... 366,925,978
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders ................................... 149,784
Investment management fee ............................................. 123,383
Accrued expenses and other payables ..................................... 105,001
------------
TOTAL LIABILITIES ..................................................... 378,168
------------
NET ASSETS ............................................................ $366,547,810
============
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, 18,132,313 shares outstanding)......................... 266,935,111
Net unrealized appreciation ............................................. 14,877,856
Accumulated undistributed net investment income ......................... 2,348,081
Accumulated net realized loss ........................................... (14,613,238)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS .......................... 269,547,810
------------
TOTAL NET ASSETS ...................................................... $366,547,810
============
NET ASSET VALUE PER COMMON SHARE
($269,547,810 divided by 18,132,313 common shares outstanding).......... $14.87
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999 (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $9,597,658
----------
EXPENSES
Investment management fee ..................... 641,512
Auction commission fees ....................... 151,310
Professional fees ............................. 46,593
Transfer agent fees and expenses .............. 33,774
Shareholder reports and notices ............... 21,527
Auction agent fees ............................ 20,302
Registration fees ............................. 12,237
Trustees' fees and expenses ................... 9,896
Custodian fees ................................ 8,373
Other ......................................... 21,507
----------
TOTAL EXPENSES .............................. 967,031
Less: expense offset .......................... (8,312)
----------
NET EXPENSES ................................ 958,719
----------
NET INVESTMENT INCOME ....................... 8,638,939
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ............................. 121,515
Net change in unrealized appreciation ......... (2,542,776)
----------
NET LOSS .................................... (2,421,261)
----------
NET INCREASE .................................. $6,217,678
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER 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, 1999 OCTOBER 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 8,638,939 $ 17,518,556
Net realized gain ................................. 121,515 777,393
Net change in unrealized appreciation ............. (2,542,776) 11,228,100
------------ ------------
NET INCREASE .................................... 6,217,678 29,524,049
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Preferred ......................................... (1,612,592) (3,489,086)
Common ............................................ (7,106,030) (13,892,648)
------------ ------------
TOTAL DIVIDENDS ................................. (8,718,622) (17,381,734)
------------ ------------
Decrease from transactions in common shares of
beneficial interest ............................. (1,978,175) (4,624,309)
------------ ------------
NET INCREASE (DECREASE) (4,479,119) 7,518,006
NET ASSETS:
Beginning of period ............................... 371,026,929 363,508,923
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$2,348,081 and $2,427,764, respectively)......... $366,547,810 $371,026,929
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited)
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
13
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
income and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), the Trust pays the Investment Manager
a management fee, calculated weekly and payable monthly, by applying the annual
rate of 0.35% to the Trust's weekly net assets.
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, 1999
aggregated $4,830,930 and $4,915,790, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At April 30, 1999, the Trust had transfer agent
fees and expenses payable of approximately $100.
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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,012. At April 30, 1999, the Trust had an accrued pension liability of
$34,552, which is included in accrued expenses in the Statement of Assets and
Liabilities.
14
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The Trust has issued Series 1 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 IN RESET RANGE OF
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES**
------ ------- ---------- ----- ---- ----------------
<S> <C> <C> <C> <C> <C>
1 340 $17,000 3.65% 05/04/99 2.45% -- 4.70%
2 300 15,000 3.60 05/05/99 2.70 -- 4.85
3 300 15,000 3.31 05/06/99 2.45 -- 4.40
4 600 30,000 3.23 01/11/00 3.23 -- 3.70
5 400 20,000 3.63 07/06/99 3.63
</TABLE>
- ---------------
* As of April 30, 1999.
** For the six months ended April 30, 1999.
Subsequent to April 30, 1999 and up through June 4, 1999, the Trust paid
dividends to Series 1 through 5 at rates ranging from 2.849% to 3.65%, in the
aggregate amount of $432,690.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at
liquidation value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
15
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (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, 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 6.66%)* . (142,500) (1,425) (1,976,750)
---------- -------- ------------
Balance, April 30, 1999 .................................................. 18,132,313 $181,323 $266,753,788
========== ======== ============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At October 31, 1998, the Trust had a net capital loss carryover of
approximately $14,735,000, 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>
$11,074 $2,809 $716 $136
======= ====== ==== ====
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On March 30, 1999, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ---- ----
<S> <C> <C>
$0.065 May 7, 1999 May 21, 1999
$0.065 June 4, 1999 June 18, 1999
</TABLE>
16
<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 SIX FOR THE YEAR ENDED OCTOBER 31*
MONTHS ENDED ----------------------------------------------------------
APRIL 30, 1999* 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period .................... $ 14.99 $ 14.31 $13.44 $13.04 $ 10.83 $14.03
------- ------- ------ ------ ------- ------
Income (loss) from investment operations:
Net investment income .................................. 0.48 0.95 0.95 0.92 0.90 0.99
Net realized and unrealized gain (loss) ................ (0.13) 0.64 0.69 0.23 2.15 (3.15)
------- ------- ------ ------ ------- ------
Total income (loss) from investment operations .......... 0.35 1.59 1.64 1.15 3.05 (2.16)
------- ------- ------ ------ ------- ------
Less dividends from:
Net investment income .................................. (0.39) (0.75) (0.72) (0.72) (0.74) (0.77)
Common share equivalent of dividends paid to preferred
shareholders .......................................... (0.09) (0.19) (0.18) (0.17) (0.18) (0.19)
------- ------- ------ ------ ------- ------
Total dividends ......................................... (0.48) (0.94) (0.90) (0.89) (0.92) (0.96)
------- ------- ------ ------ ------- ------
Anti-dilutive effect of acquiring treasury shares ....... 0.01 0.03 0.13 0.14 0.08 0.04
------- ------- ------ ------ ------- ------
Offering costs charged against capital .................. -- -- -- -- -- (0.12)
------- ------- ------ ------ ------- ------
Net asset value, end of period .......................... $ 14.87 $ 14.99 $14.31 $13.44 $13.04 $10.83
======= ======= ====== ====== ======= ======
Market value, end of period ............................. $13.313 $13.938 $12.50 $11.25 $10.875 $ 9.50
======= ======= ====== ====== ======= ======
TOTAL RETURN+ ........................................... (1.79)%(1) 18.04% 18.11% 10.39% 22.91% (32.98)%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses .......................................... 0.72%(2)(3) 0.72%(3) 0.71% 0.72%(3) 0.77%(3) 0.83%
Net investment income before preferred stock dividends .. 6.39%(2) 6.46% 6.87% 6.94% 7.48% 7.85%
Preferred stock dividends ............................... 1.19%(2) 1.29% 1.30% 1.27% 1.48% 1.50%
Net investment income available to common shareholders .. 5.20%(2) 5.17% 5.57% 5.67% 6.00% 6.35%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................. $366,548 $371,027 $363,509 $364,858 $376,158 $382,578
Asset coverage on preferred shares at end of period ..... 377% 382% 374% 376% 388% 278%
Portfolio turnover rate ................................. 1%(1) 3% 6% --++ -- 21%
</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 investment
return does not reflect brokerage commissions.
++ 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
17
<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
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
Morgan Stanley
Dean Witter
Quality
Municipal
Securities
SEMIANNUAL REPORT
APRIL 30, 1999
