Halliday & Matthiessen (1999: 111):
But there is another variable intersecting with the above. We pointed out in Chapter 2, Section 2.2 that whenever two figures are related in a sequence, they may be either equal or unequal in semantic weight. We illustrated this interdependency system with reference to expansion; but it applies also to projection. The projecting and the projected figures may have equal status in the sequence: this relation is that of quoting, as in Harriet said/thought "Shall I feed the cat?". Or they may have unequal status: this relation is that of reporting, as in (Harriet asked/wondered) whether she should feed the cat.
We can relate this to the fact that projection is the creating of a second-order reality. In reporting, the status of the two parts is unequal — the projected figure is dependent on the projecting: hence the projected figure is clearly construed as belonging to a different, second-order plane of reality — a reality that is made of meaning, as it were. In quoting, on the other hand, the two have equal status as independent figures; the projected figure is thus projected as if it was still part of the same first-order reality.