<PAGE> 1
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES Two World
Trade Center
LETTER TO THE SHAREHOLDERS October 31, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Morgan Stanley
Dean Witter New York Quality Municipal Securities (IQN) for the fiscal year
ended October 31, 1998.
On December 21, 1998, after the close of the period under review, the Trust
changed its name from InterCapital New York Quality Municipal Securities to
Morgan Stanley Dean Witter New York Quality Municipal Securities. Information on
the name change was mailed to the shareholders in mid-December under separate
cover.
Since our last report six months ago, global financial turmoil, including the
Russian currency crisis, has continued to affect the securities markets. This
led to a flight-to-quality rally for U.S. Treasury bonds, with yields falling to
30-year lows. Municipal bond yields declined but lagged the downward trend of
Treasury yields.
The deflationary impact of the international financial crisis began to temper
U.S. economic growth prior to the summer's tumultuous market
BOND YIELDS 1994-1998
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.4% 6.34% 85.17%
5.4 6.24 86.54
5.8 6.66 87.09
6.4 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.5 7.61 85.41
6.25 7.39 84.57
6.3 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.2 7.34 84.47
5.8 6.66 87.09
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.9 6.89 85.63
5.85 6.97 83.93
5.9 7.11 82.98
5.7 6.93 82.25
5.65 6.64 85.09
5.5 6.35 86.61
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
activity. Lower commodity prices, cheaper imports and improved productivity
offset the potential inflationary impact of strong domestic employment. With
inflation held in check, the Federal Reserve Board provided liquidity to the
markets by lowering short-term interest rates. Since the end of September, the
Federal Reserve Open Market Committee cut the federal funds rate 75 basis points
from 5.50 percent to 4.75 percent in three separate moves.
MUNICIPAL MARKET CONDITIONS
Municipal bond yields followed the downward trend of Treasury yields at a more
moderate pace. At the end of October, long-term insured municipal index yields
stood at 5.05 percent, index yields declined 30 basis points over the last 12
months. In contrast, 30-year U.S. Treasury bond yields fell 100 basis points
during the same period.
As municipals lagged the rally in Treasuries, the ratio of municipal yields to
Treasury yields rose sharply to 98 percent. (A rising ratio means that
municipals have underperformed Treasuries and have become more attractive on a
relative basis.) This increase was similar to the jump witnessed in 1986, when
tax-reform proposals threatened the favorable tax advantage of municipal bonds.
The overall decline in interest rates has led to a substantial increase in new
issue municipal volume. Municipal issuance is on a pace to challenge 1993's
underwriting record of $292 billion. Year-to-date, total municipal volume of
$234 billion is up 32 percent. Half the underwriting volume was enhanced with
bond insurance. Refundings represented 30 percent of total new issuance. New
York new issue underwriting accounted for 13 percent of national volume.
PERFORMANCE
The Trusts' net asset value (NAV) increased from $14.08 to $14.73 per share
during the fiscal year ended October 31, 1998 . Based on this NAV change plus
reinvestment of tax-free dividends of $0.695 per share, the Trust's total NAV
return was 10.36 percent. IQN's price on the New York Stock Exchange moved from
$12.6875 to $14.0625 per share. Based on this change in market price plus
reinvestment of dividends, the Trust's total market return was 16.92 percent. On
October 31, 1998, the Trust traded at a 4.53 percent discount to NAV.
Monthly dividends for the fourth quarter of 1998 were declared in September.
Beginning with the October 1998 dividend, the monthly dividend was raised from
$0.0575 per share to $0.0625 per share, to more closely reflect the Trust's
anticipated income. The level of undistributed net investment income increased
from $0.093 to $0.125 per share.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
<TABLE>
<CAPTION>
LARGEST SECTORS as of October 31, 1998 (% of Net Assets)
<S> <C>
Education 16%
Hospital 16%
General Obligation 10%
Mortgage 9%
Transportation 9%
Electric 7%
Nursing & Health 7%
Water & Sewer 6%
IDR/PCR* 6%
All Others 14%
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
</TABLE>
<TABLE>
<CAPTION>
CREDIT RATINGS as of October 31, 1998 (% of Total Long-Term Portfolio)
<S> <C>
Aaa or AAA 29%
Aa or AA 15%
A or A 39%
Baa or BBB 17%
As measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp.
Portfolio structure is subject to change.
</TABLE>
<TABLE>
<CAPTION>
CALL STRUCTURE as of October 31, 1998
(% of Total Long-Term Portfolio)
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
Years Bonds Callable Percent Callable
<S> <C>
1999 0%
2000 0%
2001 0%
2002 2%
2003 50%
2004 24%
2005 1%
2006 5%
2007 0%
2008 13%
2009+ 5%
Portfolio structure is subject to change.
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
PORTFOLIO STRUCTURE
The Trust remained fully invested in long-term municipal bonds during the fiscal
year. Investments were diversified among 13 long-term sectors and 28 credits. As
illustrated in the accompanying chart, the distribution of call dates in the
portfolio produced 6 years of weighted average call protection.
The Trust's weighted average maturity was 19 years. Average duration (a measure
of price volatility to interest rate changes) was 7 years. Throughout the fiscal
period, credit quality was maintained, with 83 percent of the Trust's long-term
holdings rated single "A" or better.
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 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.
During the 12-month period, ARPS leverage contributed approximately $0.05 per
share to common share earnings. Weekly ARPS yields ranged between 2.5 and 5.0
percent. Two ARPS series totaling $24 million represented 24 percent of net
assets.
LOOKING AHEAD
Global economic conditions seem likely to keep inflationary pressures under
control and have contributed to lower interest rates. The fixed-income markets
have also begun to anticipate the possibility of additional monetary easing by
the Fed. With the municipal relationship to Treasuries more favorable than it
has been in the last 10 years, the outlook for municipal bonds is positive.
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 may,
when appropriate, purchase shares in the open market or in privately negotiated
transactions at a
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
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, the Trust purchased
and retired 40,800 shares of common stock at a weighted average market discount
of 9.86 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter New York
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
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 23, 1998, 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 TRUSTEE BY ALL SHAREHOLDERS:
<TABLE>
<S> <C>
Michael Bozic
For......................................................... 3,596,002
Withheld.................................................... 87,525
</TABLE>
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
<TABLE>
<S> <C>
Charles A. Fiumefreddo
For......................................................... 325
Withheld.................................................... 0
</TABLE>
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, John R. Haire, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E.
Nugent, Philip J. Purcell and John L. Schroeder.
(3) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP (THE SUCCESSOR
FIRM TO PRICE WATERHOUSE LLP AS OF JULY 1, 1998) AS THE TRUST'S INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 3,577,297
Against..................................................... 43,805
Abstain..................................................... 62,425
</TABLE>
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK TAX-EXEMPT MUNICIPAL BONDS (95.4%)
General Obligation (9.6%)
New York City,
$ 3,000 1994 Ser C................................................. 5.50% 10/01/08 $3,175,290
4,000 1994 Ser D................................................. 5.75 08/15/09 4,265,120
2,000 Puerto Rico, Pub Impr Refg Ser 1993......................... 5.25 07/01/18 2,024,520
- -------- ----------
9,000 9,464,930
- -------- ----------
Educational Facilities Revenue (15.5%)
2,500 New York State, City University - John Jay College Ser 1995
A COPs..................................................... 6.00 08/15/06 2,771,700
New York State Dormitory Authority,
4,000 City University Ser 1993 F................................. 5.50 07/01/12 4,185,760
1,000 Ithaca College Ser 1998 (AMBAC)............................ 5.00 07/01/21 989,230
5,000 State University Ser 1993 C................................ 5.375 05/15/13 5,192,800
2,200 University of Rochester Ser 1998 A (MBIA).................. 5.00 07/01/18 2,203,718
- -------- ----------
14,700 15,343,208
- -------- ----------
Electric Revenue (6.9%)
3,000 Long Island Power Authority, New York, Ser 1998 A (FSA)..... 5.125 12/01/22 3,006,360
4,000 Puerto Rico Electric Power Authority, Power Ser DD (FSA).... 4.50 07/01/19 3,783,320
- -------- ----------
7,000 6,789,680
- -------- ----------
Hospital Revenue (16.3%)
2,000 New York State Dormitory Authority, Rochester General
Hospital - FHA Insured Mtge Ser 1993....................... 5.70 08/01/33 2,078,060
New York State Medical Care Facilities Finance Agency,
3,410 Hospital & Nursing Home - FHA Insured Mtge 1993 Ser B...... 5.50 02/15/22 3,517,040
4,000 Hospital & Nursing Home - FHA Insured Mtge 1993 Ser A...... 5.90 08/15/33 4,223,641
4,000 Presbyterian Hospital - FHA Insured Mtge Ser 1994 A........ 5.25 08/15/14 4,159,240
2,000 St Lukes-Roosevelt Hospital - FHA Insured Mtge Ser A....... 5.625 08/15/18 2,074,560
- -------- ----------
15,410 16,052,541
- -------- ----------
Industrial Development/Pollution Control Revenue (6.2%)
New York State Energy Research & Development Authority,
3,000 Consolidated Edison Co of New York Inc Refg Ser 1993-B..... 5.25 08/15/20 3,027,570
3,000 New York State Electric & Gas Co Ser A (AMT)............... 5.95 12/01/27 3,101,790
- -------- ----------
6,000 6,129,360
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Mortgage Revenue - Multi-Family (5.3%)
$ 3,000 New York City Housing Development Corporation, FHA Ins Mtge
Ser 1993-B................................................. 5.85% 05/01/26 $3,124,890
1,975 New York State Housing Finance Agency, Mortgage 1996 Ser A
Refg (FSA)................................................. 6.10 11/01/15 2,153,678
- -------- ----------
4,975 5,278,568
- -------- ----------
Mortgage Revenue - Single Family (3.6%)
3,500 New York State Mortgage Agency, Homeowner Ser 29 A.......... 5.25 04/01/15 3,539,025
- -------- ----------
Nursing & Health Related Facilities Revenue (7.4%)
2,990 New York State Dormitory Authority, Department of Health Ser
1993....................................................... 5.70 07/01/09 3,215,924
New York Medical Care Facilities Finance Agency,
2,000 Mental Health 1993 Ser F................................... 5.375 02/15/14 2,052,580
2,000 Mental Health 1993 Ser D................................... 5.25 08/15/23 2,005,500
- -------- ----------
6,990 7,274,004
- -------- ----------
Public Facilities Revenue (4.2%)
4,000 New York State Dormitory Authority, Court Facilities Ser
1993 A..................................................... 5.625 05/15/13 4,165,080
- -------- ----------
Tax Allocation Revenue (2.0%)
2,000 Grand Central District Management Association Inc, Cap Impr
Refg Ser 1994.............................................. 5.25 01/01/22 2,011,720
- -------- ----------
Transportation Facilities Revenue (9.2%)
1,000 Buffalo & Fort Erie Public Bridge Authority, Toll Bridge Ser
1995 (MBIA)................................................ 5.75 01/01/25 1,073,770
3,000 New York State Thruway Authority, Local Hwy & Bridge Ser
1993....................................................... 5.125 04/01/08 3,113,580
3,000 Triborough Bridge & Tunnel Authority, Ser 1993 B............ 5.00 01/01/20 3,027,210
2,000 Puerto Rico Highway & Transportation Authority, Ser A....... 4.75 07/01/38 1,910,660
- -------- ----------
9,000 9,125,220
- -------- ----------
Water & Sewer Revenue (6.1%)
New York City Municipal Water Finance Authority,
2,000 1993 Ser A................................................. 5.50 06/15/11 2,091,620
2,000 1994 Ser B................................................. 5.50 06/15/19 2,071,640
2,000 1999 Ser A (FGIC).......................................... 4.75 06/15/31 1,904,420
- -------- ----------
6,000 6,067,680
- -------- ----------
Other Revenue (3.1%)
3,000 New York Local Government Assistance Corporation, Ser 1993 B
Refg....................................................... 5.50 04/01/21 3,086,340
- -------- ----------
91,575 TOTAL NEW YORK TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $89,681,836)......... 94,327,356
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATION (3.1%)
$ 3,100 New York State Dormitory Authority, Cornell University Ser
- -------- 1990 B
(Demand 11/02/98) (Identified Cost $3,100,000)............. 3.70*% 07/01/25 $3,100,000
----------
$ 94,675 TOTAL INVESTMENTS (Identified Cost $92,781,836) (a).................... 98.5% 97,427,356
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 1.5 1,434,942
----- ----------
NET ASSETS.............................................................. 100.0% $98,862,298
===== ===========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
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
$4,645,520.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
ASSETS:
Investments in securities, at value
(identified cost $92,781,836).............................. $97,427,356
Cash........................................................ 90,986
Interest receivable......................................... 1,438,462
Prepaid expenses............................................ 19,563
----------
TOTAL ASSETS............................................ 98,976,367
----------
LIABILITIES:
Investment management fee payable........................... 34,360
Accrued expenses............................................ 79,709
----------
TOTAL LIABILITIES....................................... 114,069
----------
NET ASSETS.............................................. $98,862,298
==========
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares
authorized of non-participating $.01 par value, 480 shares
outstanding)............................................... $24,000,000
----------
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 5,081,813 shares
outstanding)............................................... 72,211,195
Net unrealized appreciation................................. 4,645,520
Accumulated undistributed net investment income............. 633,232
Accumulated net realized loss............................... (2,627,649)
----------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS............ 74,862,298
----------
TOTAL NET ASSETS........................................ $98,862,298
==========
NET ASSET VALUE PER COMMON SHARE
($74,862,298 divided by 5,081,813 common shares
outstanding)............................................... $14.73
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $5,163,988
---------
EXPENSES
Investment management fee................................... 342,208
Professional fees........................................... 95,507
Auction commission fees..................................... 58,955
Shareholder reports and notices............................. 36,567
Transfer agent fees and expenses............................ 22,822
Auction agent fees.......................................... 20,123
Registration fees........................................... 16,197
Trustees' fees and expenses................................. 7,968
Organizational expenses..................................... 6,360
Custodian fees.............................................. 5,442
Other....................................................... 22,214
---------
TOTAL EXPENSES.......................................... 634,363
Less: expense offset........................................ (5,369)
---------
NET EXPENSES............................................ 628,994
---------
NET INVESTMENT INCOME................................... 4,534,994
---------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 788,894
Net change in unrealized appreciation....................... 2,336,084
---------
NET GAIN................................................ 3,124,978
---------
NET INCREASE................................................ $7,659,972
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $4,534,994 $4,628,648
Net realized gain (loss)............................. 788,894 (22,490)
Net change in unrealized appreciation/depreciation... 2,336,084 4,725,514
---------- ----------
NET INCREASE..................................... 7,659,972 9,331,672
---------- ----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred............................................ (835,297) (808,176)
Common............................................... (3,544,386) (3,595,364)
---------- ----------
TOTAL............................................ (4,379,683) (4,403,540)
---------- ----------
Decrease from transactions in common shares of
beneficial interest................................. (528,543) (1,867,629)
---------- ----------
NET INCREASE..................................... 2,751,746 3,060,503
NET ASSETS:
Beginning of period.................................. 96,110,552 93,050,049
---------- ----------
END OF PERIOD
(Including undistributed net investment income of
$633,232 and $477,921, respectively)............. $98,862,298 $96,110,552
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter New York Quality Municipal Securities (the "Trust"),
formerly InterCapital New York Quality Municipal Securities (the Trust changed
its name effective December 21, 1998), 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 federal, New York State and New York City 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.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
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 -- Morgan Stanley Dean Witter Advisors Inc. (the
"Investment Manager"), formerly Dean Witter InterCapital Inc., paid the
organizational expenses of the Trust's common shares in the amount of $35,000
which have been reimbursed for the full amount thereof. Such expenses were
deferred and fully amortized as of September 29, 1998.
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 year ended October 31, 1998 aggregated
$13,487,200 and $15,973,359, respectively.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At October 31, 1998, the Trust had transfer agent
fees and expenses payable of approximately $800.
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 and 2 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>
1 260 $13,000 3.40% 11/03/98 2.50% - 4.35%
2 220 11,000 3.30 11/06/98 2.75 - 5.00
</TABLE>
- ---------------------
* As of October 31, 1998.
** For the year ended October 31, 1998.
Subsequent to October 31, 1998 and up through December 21, 1998, the Trust paid
dividends to Series 1 and 2 at rates ranging from 2.50% to 3.50%, in the
aggregate amount of $96,779.
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> 16
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
NOTES TO FINANCIAL STATEMENTS October 31, 1998, 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, 1996................................... 5,282,113 $52,821 $74,554,546
Treasury shares purchased and retired (weighted average
discount 13.07%)*.......................................... (159,500) (1,595) (1,866,034)
--------- ------- -----------
Balance, October 31, 1997................................... 5,122,613 51,226 72,688,512
Treasury shares purchased and retired (weighted average
discount 9.86%)*........................................... (40,800) (408) (528,135)
--------- ------- -----------
Balance, October 31, 1998................................... 5,081,813 $50,818 $72,160,377
========= ======= ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1998, the Trust utilized approximately
$789,000 of its net capital loss carryover. At October 31, 1998, the Trust had a
net capital loss carryover of approximately $2,627,000, which may be used to
offset future capital gains to the extent provided by regulations, which is
available through October 31 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ------------------------------------------
2002 2003 2004 2005
---- ---- ---- ----
<S> <C> <C> <C>
$1,419 $854 $332 $22
====== ==== ==== ===
</TABLE>
7. DIVIDENDS TO COMMON SHAREHOLDERS
On September 29, 1998, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ---------------- -----------------
<S> <C> <C>
$0.0625 November 6, 1998 November 20, 1998
$0.0625 December 4, 1998 December 18, 1998
</TABLE>
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER NEW YORK 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*
----------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 14.08 $ 13.07 $ 12.86 $ 10.90 $ 13.99
------- ------- ------- ------- -------
Net investment income....................................... 0.89 0.89 0.88 0.87 0.92
Net realized and unrealized gain (loss)..................... 0.61 0.92 0.15 1.98 (2.98)
------- ------- ------- ------- -------
Total from investment operations............................ 1.50 1.81 1.03 2.85 (2.06)
------- ------- ------- ------- -------
Less dividends from:
Net investment income...................................... (0.70) (0.69) (0.72) (0.73) (0.72)
Common share equivalent of dividends paid to preferred
shareholders............................................. (0.16) (0.16) (0.16) (0.16) (0.17)
------- ------- ------- ------- -------
Total dividends............................................. (0.86) (0.85) (0.88) (0.89) (0.89)
------- ------- ------- ------- -------
Anti-dilutive effect of acquiring treasury shares........... 0.01 0.05 0.06 -- --
------- ------- ------- ------- -------
Offering costs charged against capital...................... -- -- -- -- (0.14)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 14.73 $ 14.08 $ 13.07 $ 12.86 $ 10.90
======= ======= ======= ======= =======
Market value, end of period................................. $14.063 $12.688 $ 11.25 $ 11.25 $ 9.75
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN+.................................... 16.92% 19.65% 6.52% 23.58% (32.18)%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses.............................................. 0.86%(1) 0.89%(1) 0.93%(1) 0.99% 1.08%
Net investment income before preferred stock dividends...... 6.15% 6.64% 6.74% 7.31% 7.31%
Preferred stock dividends................................... 1.13% 1.16% 1.22% 1.37% 1.31%
Net investment income available to common shareholders...... 5.02% 5.48% 5.52% 5.94% 6.00%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $98,862 $96,111 $93,050 $94,591 $92,671
Asset coverage on preferred shares at end of period......... 412% 400% 389% 394% 297%
Portfolio turnover rate..................................... 14% -- 5% 1% 17%
</TABLE>
- ---------------------
* 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.
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER NEW YORK QUALITY MUNICIPAL SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER NEW YORK 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 New York
Quality Municipal Securities (the "Trust"), formerly InterCapital New York
Quality Municipal Securities, at October 31, 1998, 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, 1998 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 21, 1998
--------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
For the year ended October 31, 1998, 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.
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- -------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
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
NEW YORK
QUALITY
MUNICIPAL
SECURITIES
Annual Report
October 31, 1998
