<PAGE> 1
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES Two World Trade Center,
New York, New York 10048
LETTER TO THE SHAREHOLDERS April 30, 1997
DEAR SHAREHOLDER:
We are pleased to present the semi-annual report on the operations of
InterCapital California Quality Municipal Securities (IQC) 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. 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.
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> 2
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
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. California new-issue underwriting represented 11
percent of national volume.
PERFORMANCE
Over the six-month period ended April 30, 1997, the Trust's net asset value
(NAV) declined from $13.08 to $12.87. Based on this NAV change plus reinvestment
of tax-free dividends totaling $0.35 per share, the Trust's total NAV return was
1.43 percent. IQC's market price on the New York Stock Exchange moved from
$11.25 to $11.375 per share. Based on this change in market price plus
reinvestment of tax-free dividends, IQC's total market return was 4.23 percent.
On April 30, 1997, the Trust was trading at a 12 percent discount to NAV.
Undistributed net investment income available for dividends increased from
$0.077 to $0.10 per share.
PORTFOLIO STRUCTURE
The Trust remained fully invested in long-term municipal bonds during the
period. Investments were diversified among 11 long-term sectors and 38 credits.
IQC's average maturity and call protection were 22 years and 7 years,
respectively. The portfolio has consistently sought to maintain quality, with 70
percent of its long-term holdings rated double "A" or better.
FIVE LARGEST SECTORS AS OF APRIL 30, 1997
[% OF NET ASSETS]
<TABLE>
<S> <C>
WATER & SEWER 29%
EDUCATION 15%
PUBLIC FACILITIES 10%
TAX ALLOCATION 9%
ELECTRIC 8%
ALL OTHERS 29%
</TABLE>
Portfolio structure is subject to change.
CREDIT RATING AS OF APRIL 30, 1997
[% OF TOTAL LONG-TERM PORTFOLIO]
<TABLE>
<S> <C>
AAA or Aaa 42%
AA or Aa 31%
A or A 24%
BBB OR Baa 3%
</TABLE>
As measured by Standard & Poor's Corp. or Moody's Investors Service, Inc.
Portfolio structure is subject to change.
<PAGE> 3
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
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 1/2 and 5 1/8 percent during the six months ended
April 30, 1997. Over the same period, ARPS leverage contributed $0.03 per share
to common share earnings. Three ARPS series totaled $55 million and represented
28 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,
IQC purchased and retired 187,900 shares of beneficial interest at a weighted
average market discount of 15.73 percent. Acquiring these treasury shares had
the antidilutive effect of adding $0.03 per share to 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> 4
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
We appreciate your ongoing support of InterCapital California Quality Municipal
Securities and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 5
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.9%)
General Obligation (2.0%)
$ 4,000 California, Various Purpose Dtd 04/01/93................................ 5.90% 04/01/23 $ 4,012,320
- -------- ------------
Educational Facilities Revenue (14.9%)
California Educational Facilities Authority,
6,000 Carnegie Institute of Washington 1993 Ser A............................. 5.60 10/01/23 5,752,500
1,500 Culinary Institute of America Ser 1993 (Connie Lee)..................... 5.30 10/01/23 1,350,660
2,500 Pepperdine University 1993 Ser A (MBIA)................................. 5.50 06/01/19 2,383,225
4,465 St Mary's College of California Refg Ser 1993........................... 5.00 10/01/12 4,146,958
8,000 California Public Works Board, University of California Ser 1993 B...... 5.50 06/01/14 7,674,640
University of California,
5,750 UCLA Central Chiller/Cogeneration, Refg Ser 1993 COPs................... 5.50 11/01/14 5,519,195
3,000 UCLA Central Chiller/Cogeneration, Refg Ser 1993 COPs................... 5.60 11/01/20 2,853,450
- -------- ------------
31,215 29,680,628
- -------- ------------
Electric Revenue (8.2%)
5,000 Los Angeles Department of Water & Power, Issue of 1993 (Secondary
AMBAC)................................................................. 5.375 09/01/23 4,663,500
8,000 Northern California Transmission Agency, California - Oregon
Transmission Refg Ser 1993 A (MBIA).................................... 5.25 05/01/20 7,368,880
5,000 Southern California Public Power Authority, Mead - Phoenix 1994 Ser A
(AMBAC)................................................................ 4.875 07/01/20 4,334,100
- -------- ------------
18,000 16,366,480
- -------- ------------
Hospital Revenue (6.4%)
4,000 Anaheim, Anaheim Memorial Hospital Association COPs (AMBAC)............. 5.00 05/15/13 3,727,960
5,000 California Health Facilities Financing Authority, Kaiser Permanente Ser
1985................................................................... 5.55 08/15/25 4,701,400
California Statewide Communities Development Authority,
2,000 Children's Hospital of Los Angeles Ser 1993 COPs (MBIA)................. 6.00 06/01/13 2,092,640
2,500 Motion Picture & Television Fund COPs (AMBAC)........................... 5.375 01/01/20 2,328,000
- -------- ------------
13,500 12,850,000
- -------- ------------
Industrial Development/Pollution Control Revenue (3.9%)
8,000 California Pollution Control Financing Authority, Pacific Gas & Electric
Co
- -------- 1993 Ser B (AMT)........................................................ 5.85 12/01/23 7,786,160
------------
Mortgage Revenue - Single Family (4.1%)
8,305 California Housing Finance Agency, Home 1993 Ser B...................... 5.65 08/01/14 8,125,197
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public Facilities Revenue (10.1%)
$ 7,000 California Public Works Board, Corrections 1993 Ser D................... 5.375% 06/01/12 $ 6,737,220
6,400 Los Angeles Convention & Exhibition Center Authority, 1993 Refg Ser A
(MBIA)................................................................. 5.125 08/15/13 6,045,312
5,000 Los Angeles County Public Works Financing Authority, Proj #IV (MBIA).... 5.25 12/01/16 4,663,700
3,000 Redding Joint Powers Financing Authority, 1993 Ser A.................... 5.50 01/01/13 2,839,980
- -------- ------------
21,400 20,286,212
- -------- ------------
Tax Allocation (9.2%)
6,870 Garden Grove Community Development Agency, Refg Issue of 1993........... 5.875 10/01/23 6,624,397
7,000 Rosemead Redevelopment Agency, Proj #1 Ser 1993 A....................... 5.60 10/01/33 6,367,550
6,000 San Jose Redevelopment Agency, Merged Area Ser 1993 (MBIA).............. 5.00 08/01/20 5,341,800
- -------- ------------
19,870 18,333,747
- -------- ------------
Transportation Facilities Revenue (7.6%)
5,000 Long Beach, Harbor Ser 1993 (AMT)....................................... 5.00 05/15/10 4,689,600
7,000 Los Angeles County Metropolitan Transportation Authority, Sales Tax Refg
Ser 1993-A (MBIA)...................................................... 5.625 07/01/18 6,793,010
2,000 Los Angeles Harbor Department, Issue of 1996 Ser B (AMT)................ 5.375 11/01/19 1,872,480
2,000 San Diego County Regional Transportation Commission, Sales Tax
1994 Ser A (FGIC)...................................................... 4.75 04/01/08 1,909,600
- -------- ------------
16,000 15,264,690
- -------- ------------
Water & Sewer Revenue (29.3%)
8,000 California Department of Water Resources, Central Valley Ser L.......... 5.50 12/01/23 7,613,920
7,000 Eastern Municipal Water District, Ser 1993 A COPs (FGIC)................ 5.25 07/01/23 6,370,630
7,000 Los Angeles, Wastewater Refg Ser 1993-D (FGIC).......................... 5.20 11/01/21 6,386,170
8,000 Los Angeles County Sanitation Districts Financing Authority, 1993 Ser
A...................................................................... 5.25 10/01/19 7,413,760
3,000 Marin County Municipal Water District, Ser 1993......................... 5.65 07/01/23 2,908,140
Metropolitan Water District of Southern California,
5,000 Issue of 1992........................................................... 5.50 07/01/13 4,939,000
3,330 Waterworks Ser C........................................................ 5.25 07/01/15 3,179,651
7,000 Moulton-Niguel Water District, 1993 COPs (AMBAC)........................ 5.30 09/01/23 6,415,290
2,500 Rancho Water District Financing Authority, Refg Ser 1994 (AMBAC)........ 5.00 08/15/14 2,308,950
4,000 Sacramento County Sanitation Districts Financing Authority, Ser 1993.... 5.00 12/01/16 3,619,440
8,000 San Diego Public Facilities Authority, Ser 1993 A....................... 5.25 05/15/20 7,302,320
- -------- ------------
62,830 58,457,271
- -------- ------------
Other Revenue (2.2%)
5,000 California Statewide Communities Development Authority, The J Paul Getty
Trust COPs............................................................. 5.00 10/01/23 4,450,050
- -------- ------------
208,120 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $204,512,225)..................... 195,612,755
- -------- ------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATION (0.2%)
400 Newport Beach, Hoag Memorial Hospital Ser B (Demand 05/01/97)
- -------- (Identified Cost $400,000)............................................. 3.95* 10/01/26 400,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$208,520 TOTAL INVESTMENTS (Identified Cost $204,912,225) (a).................................. 98.1%
======== $196,012,755
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 1.9 3,787,464
---- ------------
NET ASSETS............................................................................. 100.0% $199,800,219
==== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* 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
$26,328 and the aggregate gross unrealized depreciation is
$8,925,798, resulting in net unrealized depreciation of
$8,899,470.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $204,912,225)....................................... $196,012,755
Cash.................................................................. 553,936
Interest receivable................................................... 3,394,122
Deferred organizational expenses...................................... 11,020
Prepaid expenses and other assets..................................... 30,232
------------
TOTAL ASSETS...................................................... 200,002,065
------------
LIABILITIES:
Payable for:
Investment management fee......................................... 64,437
Common shares of beneficial interest repurchased.................. 34,215
Dividends to preferred shareholders............................... 9,322
Accrued expenses and other payables................................... 93,872
------------
TOTAL LIABILITIES................................................. 201,846
------------
NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized
of non-participating $.01 par value, 1,100 shares outstanding)....... 55,000,000
------------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 11,247,913 shares outstanding)....................... 160,627,611
Net unrealized depreciation........................................... (8,899,470)
Accumulated undistributed net investment income....................... 1,125,290
Accumulated net realized loss......................................... (8,053,212)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS...................... 144,800,219
------------
TOTAL NET ASSETS.................................................. $199,800,219
============
NET ASSET VALUE PER COMMON SHARE
($144,800,219 divided by 11,247,913 common shares outstanding)....... $12.87
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $ 5,653,195
------------
EXPENSES
Investment management fee.............................................. 352,206
Auction commission fees................................................ 68,266
Professional fees...................................................... 58,993
Transfer agent fees and expenses....................................... 21,257
Shareholder reports and notices........................................ 14,431
Auction agent fees..................................................... 13,794
Registration fees...................................................... 12,243
Trustees' fees and expenses............................................ 8,754
Custodian fees......................................................... 5,382
Organizational expenses................................................ 3,865
Other.................................................................. 10,027
------------
TOTAL EXPENSES..................................................... 569,218
LESS: EXPENSE OFFSET............................................... (5,334)
------------
NET EXPENSES....................................................... 563,884
------------
NET INVESTMENT INCOME.............................................. 5,089,311
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss...................................................... (1,192,994)
Net change in unrealized depreciation.................................. (1,647,948)
------------
NET LOSS........................................................... (2,840,942)
------------
NET INCREASE........................................................... $ 2,248,369
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
APRIL 30, ENDED
1997 OCTOBER 31, 1996
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 5,089,311 $ 10,448,231
Net realized loss.................................... (1,192,994) (112,902)
Net change in unrealized depreciation................ (1,647,948) 3,042,883
------------ ------------
NET INCREASE..................................... 2,248,369 13,378,212
------------ ------------
DIVIDENDS FROM NET INVESTMENT INCOME:
Preferred............................................ (931,713) (1,875,384)
Common............................................... (3,917,988) (8,064,705)
------------ ------------
TOTAL............................................ (4,849,701) (9,940,089)
------------ ------------
Decrease from transactions in common shares of
beneficial interest................................. (2,129,612) (5,520,981)
------------ ------------
NET DECREASE..................................... (4,730,944) (2,082,858)
NET ASSETS:
Beginning of period.................................. 204,531,163 206,614,021
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$1,125,290 and $885,680, respectively)........... $199,800,219 $204,531,163
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital California Quality Municipal Securities (the "Trust") is registered
under the Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The Trust's investment objective is to
provide current income which is exempt from both federal and California income
taxes. 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
<PAGE> 12
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
investment income and net realized capital gains are determined in accordance
with federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and 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 $39,000 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, 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, in addition to managing the Trust's
investments, 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
$9,863,967 and $11,282,355, 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 $10,500.
<PAGE> 13
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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' fees and expenses in the Statement of Operations amounted
to $2,226. At April 30, 1997, the Trust had an accrued pension liability of
$24,068 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 through 3 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>
RANGE OF
AMOUNT RESET DIVIDEND
SERIES SHARES* IN THOUSANDS* RATE* DATE RATES**
- ------ ------- ------------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C>
1 260 $13,000 4.10% 05/06/97 2.50% - 4.10%
2 240 12,000 3.98 05/08/97 2.80 - 4.375
3 600 30,000 4.10 05/06/97 2.895 - 5.125
</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 each of the Series 1 through 3 at rates ranging from 3.25% to 4.10%
in the aggregate amount of $197,678.
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.
<PAGE> 14
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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.
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, 1995....................................................... 11,940,213 $119,402 $168,158,802
Treasury shares purchased and retired (weighted average discount 14.12%)*....... (504,400) (5,044) (5,515,937)
---------- -------- ------------
Balance, October 31, 1996....................................................... 11,435,813 114,358 162,642,865
Treasury shares purchased and retired (weighted average discount 15.73%)*....... (187,900) (1,879) (2,127,733)
---------- -------- ------------
Balance, April 30, 1997......................................................... 11,247,913 $112,479 $160,515,132
========== ======== ============
</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
$6,860,000 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
- ---------------------------
<S> <C> <C>
2002 2003 2004
- ------- ------- -----
$5,735 $1,012 $113
======= ======= =====
</TABLE>
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 $0.0575 May 9, 1997 May 23, 1997
May 27, 1997 $0.0575 June 6, 1997 June 20, 1997
</TABLE>
<PAGE> 15
INTERCAPITAL CALIFORNIA 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
MONTHS ENDED OCTOBER 31**
APRIL 30, ----------------------------------------------
1997** 1996 1995 1994++
-------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value beginning of period........................... $ 13.08 $ 12.70 $ 10.62 $ 13.96
-------- -------- -------- --------
Net investment income......................................... 0.45 0.89 0.88 0.95
Net realized and unrealized gain (loss)....................... (0.26) 0.26 2.07 (3.25)
-------- -------- -------- --------
Total from investment operations.............................. 0.19 1.15 2.95 (2.30)
-------- -------- -------- --------
Less dividends from:
Net investment income...................................... (0.35) (0.69) (0.74) (0.74)
Common share equivalent of dividends paid to preferred
shareholders.............................................. (0.08) (0.16) (0.17) (0.18)
-------- -------- -------- --------
Total dividends............................................... (0.43) (0.85) (0.91) (0.92)
-------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares............. 0.03 0.08 0.04 0.01
-------- -------- -------- --------
Offering costs charged against capital........................ -- -- -- (0.13)
-------- -------- -------- --------
Net asset value, end of period................................ $ 12.87 $ 13.08 $ 12.70 $ 10.62
======== ======== ======== ========
Market value, end of period................................... $ 11.375 $ 11.25 $ 10.875 $ 9.75
======== ======== ======== ========
TOTAL INVESTMENT RETURN+...................................... 4.23%(1) 10.13% 19.73% (30.89)%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses................................................ 0.80%(2)(3) 0.78%(3) 0.84%(3) 0.93%
Net investment income before preferred stock dividends........ 7.14%(2) 7.02% 7.57% 7.63%
Preferred stock dividends..................................... 1.31%(2) 1.26% 1.48% 1.43%
Net investment income available to common shareholders........ 5.83%(2) 5.76% 6.09% 6.20%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands....................... $199,800 $204,531 $206,614 $203,662
Asset coverage on preferred shares at end of period........... 363% 372% 376% 281%
Portfolio turnover rate....................................... 5%(1) -- 1% 20%
<CAPTION>
FOR THE PERIOD
SEPTEMBER 29, 1993*
THROUGH
OCTOBER 31, 1993**
-------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value beginning of period........................... $ 14.06
--------
Net investment income......................................... 0.03
Net realized and unrealized gain (loss)....................... (0.10)
--------
Total from investment operations.............................. (0.07)
--------
Less dividends from:
Net investment income...................................... --
Common share equivalent of dividends paid to preferred
shareholders.............................................. --
--------
Total dividends............................................... --
--------
Anti-dilutive effect of acquiring treasury shares............. --
--------
Offering costs charged against capital........................ (0.03)
--------
Net asset value, end of period................................ $ 13.96
========
Market value, end of period................................... $ 15.00
========
TOTAL INVESTMENT RETURN+...................................... --
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses................................................ 0.52%(2)
Net investment income before preferred stock dividends........ 2.32%(2)
Preferred stock dividends..................................... N/A
Net investment income available to common shareholders........ 2.32%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands....................... $176,317
Asset coverage on preferred shares at end of period........... N/A
Portfolio turnover rate....................................... --
</TABLE>
- ---------------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends are assumed to be reinvested at the
prices obtained under the Trust's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
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
INTERCAPITAL
Barry Fink CALIFORNIA
Vice President, Secretary and General Counsel QUALITY
MUNICIPAL
James F. Willison SECURITIES
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 Semiannual Report
examination by the independent accountants and April 30, 1997
accordingly they do not express an opinion thereon.
