-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, T/s0DW5TEYJapEpgEkDmpks3ndAcxi8ufCwjIeshvMBLx6BE+5wiFRE9WgPcgRTU s+7M51ZQbH2qdOWy6J+Fgg== 0000912057-95-000019.txt : 19950105 0000912057-95-000019.hdr.sgml : 19950105 ACCESSION NUMBER: 0000912057-95-000019 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950103 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST CENTRAL INDEX KEY: 0000876982 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06346 FILM NUMBER: 95500146 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 N-30D 1 N-30D InterCapital Quality Municipal Investment Trust Two World Trade Center New York, New York 10048 DEAR SHAREHOLDER: - -------------------------------------------------------------------------------- Strong economic growth in the fourth quarter of 1993 and a shift in Federal Reserve Board monetary policy in February of 1994 caused the fixed-income markets to reverse direction and led to the sharpest increase in interest rates in more than six years. At the beginning of the year, market concerns about inflation developed as the economy approached full employment and commodity prices moved upward. The Federal Reserve Board responded by tightening monetary policy. Since early February, the central bank has raised the federal-funds rate - -- the interest rate banks charge each other for overnight loans -- 250 basis points from 3.00 percent to 5.50 percent in six separate moves through November. Between May and November, the discount rate -- the interest rate the Federal Reserve charges member banks for loans -- increased 175 basis points to 4.75 percent. During InterCapital Quality Municipal Investment Trust's (NYSE symbol: IQT) fiscal year ended October 31, 1994, long-term municipal bond yields, as measured by THE BOND BUYER Revenue Bond Index,* rose 139 basis points from 5.56 percent to 6.95 percent. In February and March yields jumped 89 basis points from 5.50 percent to 6.39 percent in response to the Federal Reserve Board's initial tightening and subsequent municipal bond selling pressure. A semblance of stability returned to the market between June and August. After Labor Day, however, continued economic growth, aggressive tax-loss selling, heavy mutual-fund redemptions and excessive dealer inventory led to further municipal market deterioration. The total yield increase of 139 basis points during the fiscal year was equivalent to a 17 percent price decline for a 30-year municipal bond. One-third of this price decline occurred in September and October. The municipal market was influenced by supply and demand conditions. New-issue underwriting totaled a record $290 billion in 1993. The pace of new-issue activity over the first 10 months of 1994, however, slowed 44 percent. The estimated issuance for 1994 is $160 billion. By way of comparison, bond maturities and calls for redemption are expected to reach $190 billion this year resulting in a reduction in the amount of municipal debt outstanding. This scarcity would normally be expected to improve the relative performance of municipal bonds under stable-to-improving interest rate conditions. Performance The Trust's net asset value (NAV) declined from $16.53 to $14.09 per share during the fiscal year ended October 31, 1994. Based on this change and reinvestment of tax-free dividends totaling $1.23 per share, the Trust's total return for the fiscal year was -7.43 percent. Concurrently, the Trust's market price on the New York Stock Exchange declined from $16.625 to $12.75 per share. Based on this market change and reinvestment of dividends, the Trust's total return for the fiscal year was -16.77 percent. The Trust began the fiscal year trading at a 0.57 percent premium to NAV and closed at a 9.51 percent discount to NAV. Portfolio Structure As of October 31, 1994, the portfolio's long-term investments were diversified among 14 municipal sectors and 50 credits. The three largest sectors were hospital, mortgage revenue-single family, and electric revenue bonds, representing 42 percent of net assets. The average maturity and call protection of the Trust's long-term holdings was 22 years and 7 years, respectively. Bonds subject to the alternative minimum tax (AMT) represented approximately 30 percent of net assets. At the end of the period, the Trust had net assets in excess of $379 million. - ------------------ * THE BOND BUYER REVENUE BOND INDEX IS AN ARITHMETIC AVERAGE OF THE YIELDS OF 25 SELECTED MUNICIPAL REVENUE BONDS WITH 30-YEAR MATURITIES. CREDIT RATINGS OF THESE BONDS RANGE FROM AA1 TO BAA1 BY MOODY'S AND AA+ TO A- BY STANDARD & POOR'S. The credit-quality ratings of the Trust's long-term portfolio as of October 31, 1994 are summarized below:
MOODY'S OR STANDARD & POOR'S RATING PERCENT - --------------------------------------------------------------------------- ----------- Aaa or AAA................................................................. 41% Aa or AA................................................................... 29 A or A..................................................................... 29 Baa or BBB................................................................. 1
The Impact of Leveraging As reported previously, the Trust's common shares are leveraged. Leverage was created through the issuance of auction rate preferred shares (ARPS). The ARPS's auction periods normally range between one week and one year. Proceeds from ARPS underwritings were used to purchase additional long-term municipal bonds. Following the payment of ARPS dividends, the common shares earn incremental income when the portfolio yield is higher than the costs of the ARPS (yield plus operating and remarketing expenses). Although rising short-term interest rates have narrowed the yield spread this year, the ARPS continue to provide positive incremental income to common shareholders. The leveraged capital structure of closed-end municipal bond funds additionally impacts NAV. ARPS normally account for one-third of a fund's underwritten capital structure. This produces a volatility factor for common shares of 1.5 times the price change of bonds held in the portfolio. The common stock's NAV per share reflects the full price change of the portfolio's investments since the value of the preferred shares does not fluctuate. As the bond market has eroded, the degree of leverage and volatility has increased. The purchase and retirement of ARPS counteracts this trend. During the fiscal year, IQT purchased and retired $20 million in par amount of ARPS, so that $120 million in ARPS remain outstanding. Additional ARPS purchases may occur if the degree of leverage increases or ARPS profitability (spread) declines significantly. Dividend Reserves At the end of the fiscal year, IQT had undistributed net investment income of $0.139 per share available for future distributions. This dividend reserve or "cushion" helped sustain the Trust's current monthly dividend. Higher yields in future ARPS auctions and ARPS retirements may erode the cushion. Declines in the dividend reserve may cause the Trust to adjust the common share dividend. Looking Ahead The overall direction of interest rates will primarily be determined by the strength of the economy, the trend of inflation and the Federal Reserve Board's responses. These conditions may continue to move interest rates higher through mid-1995. Investor demand for municipal securities should be sustained by significant bond maturities, calls for redemption and diminished new-issue supply. Changing market conditions and the profitability of ARPS are among the factors that will determine the Trust's future level of income and influence the direction of the common stock market price. The Trust's procedure for reinvestment of all dividends and distributions on common shares is to purchase in the open market. This method helps to support the market value of the Trust's shares. In addition, the Trustees have approved a procedure whereby the Trust, when appropriate, purchases 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. Over the fiscal year, the Trust purchased 166,100 shares of common stock at a weighted average discount of 8.9 percent. We appreciate your ongoing support of InterCapital Quality Municipal Investment Trust and look forward to continuing to serve your investment needs. Very truly yours, Charles A. Fiumefreddo CHAIRMAN OF THE BOARD INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT (IN COUPON MATURITY THOUSANDS) RATE DATE VALUE - ----------- ---------- --------- --------------- MUNICIPAL BONDS (96.0%) GENERAL OBLIGATION (2.0%) $ 5,000 New York City, New York, 1991 Ser D Group C (Prerefunded)........... 8.00 % 8/ 1/18 $ 5,749,150 2,000 Seattle, Washington, Refg Ser 1993.................................. 5.65 1/ 1/20 1,696,820 --------------- - ----------- 7,445,970 7,000 --------------- - ----------- EDUCATIONAL FACILITIES REVENUE (0.6%) 2,500 Auburn University, Alabama, Ser 1993 (MBIA Insured)................. 5.25 6/ 1/13 2,103,575 --------------- - ----------- ELECTRIC REVENUE (9.6%) 6,000 Indiana Municipal Power Agency, 1990 Ser A (Prerefunded)............ 7.10 1/ 1/15 6,513,780 5,000 North Carolina Municipal Power Agency #1, Catawba Ser 1992.......... 6.25 1/ 1/17 4,564,550 2,500 South Carolina Public Service Authority, 1991 Refg & Impr Ser B (Prerefunded)..................................................... 7.10 7/ 1/21 2,742,050 10,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 - A................ 5.00 2/ 1/14 8,008,900 4,500 Intermountain Power Agency, Utah, Refg Fifth Crossover Ser.......... 7.20 7/ 1/19 4,619,205 10,000 Washington Public Power Supply System, Proj #1 Refg Ser 1991 A...... 6.875 7/ 1/17 9,992,900 --------------- - ----------- 36,441,385 38,000 --------------- - ----------- HOSPITAL REVENUE (16.7%) 10,000 Wichita, Kansas, CSJ Health System of Wichita Inc Ser 1991.......... 7.00 11/15/18 9,805,900 Massachusetts Health & Educational Facilities Authority, 10,000 Brigham & Women's Hospital Ser D.................................. 6.75 7/ 1/24 9,615,400 7,000 St Elizabeth's Hospital of Boston Ser D & E (FSA Insured)......... 6.70 8/15/21 6,921,740 5,000 Charlotte-Mecklenburg Hospital Authority, North Carolina, Ser 1992.. 6.25 1/ 1/20 4,687,100 9,000 Lorain County, Ohio, Humility of Mary Health Care Corp Ser 1991 B... 7.20 12/15/11 9,143,010 11,000 Middleburg Heights, Ohio, Southwest General Hospital Ser 1991....... 7.20 8/15/19 11,235,950 2,300 Tulsa Industrial Development Authority, Oklahoma, St Francis Hospital Ser 1991 (Prerefunded)................................... 6.75 12/15/18 2,475,030 6,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991 (AMBAC Insured).......................................................... 6.75 5/15/20 5,864,400 3,500 Arlington County, Virginia, The Arlington Hospital Ser 1991 - A (Prerefunded)..................................................... 7.125 9/ 1/21 3,845,100 --------------- - ----------- 63,593,630 63,800 --------------- - ----------- INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (8.8%) 1,000 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)... 7.15 2/ 1/23 1,012,870 9,000 Hawaii Department of Budget & Financing, Citizens Utilities Co 1991 Ser A & B (AMT)................................................... 6.66 11/ 1/21 8,789,670 5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport/Lufthansa German Airlines Inc Ser 1990 (AMT)....................................... 7.125 5/ 1/18 5,036,250 2,650 Ashland, Kentucky, Ashland Oil Inc Ser 1991 (AMT)................... 7.20 10/ 1/20 2,637,439 4,000 New York State Energy Research & Development Authority, Brooklyn Union Gas Co 1991 Ser A & B (AMT)................................. 6.952 7/ 1/26 3,999,840 12,000 Richland County, South Carolina, Union Camp Corp Ser 1991 B (AMT)... 7.125 9/ 1/21 12,064,680 --------------- - ----------- 33,540,749 33,650 --------------- - ----------- MORTGAGE REVENUE - MULTI-FAMILY (6.7%) 10,000 Illinois Housing Development Authority, 1991 Ser A.................. 8.25 7/ 1/16 10,581,300 15,000 New Jersey Housing & Mortgage Finance Agency, Presidential Plaza at Newport - FHA Insured Mortgages Refg 1991 Ser 1................... 7.00 5/ 1/30 14,825,250 --------------- - ----------- 25,406,550 25,000 --------------- - -----------
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994 (CONTINUED) - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT (IN COUPON MATURITY THOUSANDS) RATE DATE VALUE - ----------- ---------- --------- --------------- MORTGAGE REVENUE - SINGLE FAMILY (15.4%) $ 6,570 California Housing Finance Agency, Home 1991 Ser G (AMT)............ 7.05 % 8/ 1/27 $ 6,486,233 10,790 Colorado Housing Finance Authority, Refg 1991 Ser A................. 7.25 11/ 1/31 10,707,456 1,100 District of Columbia Housing Finance Agency, GNMA Collateralized Ser 1990 B (AMT).............................. 7.10 12/ 1/24 1,103,542 4,635 Maine Housing Authority, Purchase 1988 Ser D-6 (AMT)................ 7.25 11/15/19 4,655,997 3,000 Michigan Housing Development Authority, 1991 Ser B.................. 6.95 12/ 1/20 2,988,960 10,000 Nebraska Investment Finance Authority, GNMA-Backed 1991 Ser A & B (AMT).............................................. 7.025 9/15/23 9,871,000 5,000 New Hampshire Housing Finance Authority, Residential 1991 Ser D (AMT)............................................................. 7.25 7/ 1/15 4,978,050 5,900 Ohio Housing Finance Agency, GNMA-Backed Ser A 1 & 2 (AMT).......... 6.903 3/ 1/31 5,786,307 4,000 Tennessee Housing Development Agency, Homeownership Issue T (AMT)... 7.375 7/ 1/23 4,049,080 5,000 Virginia Housing Development Authority, 1992 Ser A.................. 7.15 1/ 1/33 5,019,200 3,000 Wyoming Community Development Authority, Federally Insured/ Guaranteed Loans 1988 Ser G (AMT)................................. 7.25 6/ 1/21 3,001,830 --------------- - ----------- 58,647,655 58,995 --------------- - ----------- NURSING & HEALTH RELATED FACILITIES REVENUE (7.5%) New York State Medical Care Facilities Finance Agency, 2,700 Mental Health 1991 Ser C.......................................... 7.30 2/15/21 2,784,267 9,300 Mental Health 1991 Ser C (Prerefunded)............................ 7.30 2/15/21 10,366,245 15,000 Emmaus General Authority, Pennsylvania, Local Government Ser 1988 H (FGIC Insured).................................................... 7.00 5/15/18 15,235,050 --------------- - ----------- 28,385,562 27,000 --------------- - ----------- PUBLIC FACILITIES REVENUE (3.1%) Regional Convention & Sports Complex Authority, Missouri, 6,000 St Louis County Ser 1991 B (Prerefunded).......................... 7.00 8/15/21 6,489,960 5,000 State Ser 1991 A (Prerefunded).................................... 6.90 8/15/21 5,363,200 --------------- - ----------- 11,853,160 11,000 --------------- - ----------- RESOURCE RECOVERY REVENUE (6.4%) 3,750 Broward County, Florida, SES Broward Co South Ser 1984.............. 7.95 12/ 1/08 4,038,000 Detroit Economic Development Corporation, Michigan, 5,000 Ser 1991 A (AMT) (FSA Insured).................................... 6.60 5/ 1/02 5,148,650 5,000 Ser 1991 A (AMT) (FSA Insured).................................... 6.875 5/ 1/09 5,080,200 10,000 Montgomery County Industrial Development Authority, Pennsylvania, Ser 1989.......................................................... 7.50 1/ 1/12 10,224,800 --------------- - ----------- 24,491,650 23,750 --------------- - ----------- STUDENT LOAN REVENUE (3.4%) 13,000 Pennsylvania Higher Education Assistance Agency, 1991 Ser A & B (AMT) (AMBAC Insured)............................................. 6.854 9/ 1/26 12,832,430 --------------- - ----------- TRANSPORTATION FACILITIES REVENUE (7.2%) 12,000 Hawaii, Airports Second Ser of 1991 (AMT)........................... 6.90 7/ 1/12 12,047,040 10,000 Port Authority of New York & New Jersey, Cons Ser 60 (AMT)** ....... 8.25 4/ 1/23 10,372,000 5,000 Houston, Texas, Airport Sub Lien Ser 1991 A (AMT) (FGIC Insured).... 6.75 7/ 1/21 4,872,800 --------------- - ----------- 27,291,840 27,000 --------------- - -----------
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994 (CONTINUED) - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT (IN COUPON MATURITY THOUSANDS) RATE DATE VALUE - ----------- ---------- --------- --------------- WATER & SEWER REVENUE (7.2%) Massachusetts Water Resources Authority, $ 3,500 1990 Ser A (Prerefunded).......................................... 7.00 % 4/ 1/18 $ 3,796,695 7,000 1991 Ser A (Prerefunded).......................................... 6.875 12/ 1/11 7,610,120 5,000 New York City Municipal Water Finance Authority, New York, 1991 Ser C (Prerefunded)................................................... 7.375 6/15/14 5,566,850 10,000 Seattle, Washington, Drainage & Wastewater Utility 1990............. 7.125 12/ 1/20 10,196,400 --------------- - ----------- 27,170,065 25,500 --------------- - ----------- OTHER REVENUE (1.4%) 5,000 New York Local Government Assistance Corporation, Ser 1991 C (Prerefunded)..................................................... 7.00 4/ 1/21 5,471,600 --------------- - ----------- 361,195 TOTAL MUNICIPAL BONDS (IDENTIFIED COST $362,301,916)....................................... 364,675,821 --------------- - ----------- SHORT-TERM MUNICIPAL OBLIGATIONS (1.6%) 4,500 Metropolitan Atlanta Rapid Transit Authority, Georgia, Sales Tax Ser I (Prerefunded 7/1/95)............................................ 7.00 7/ 1/16 4,669,470 1,400 Harris County Health Facilities Development Corporation, Texas, Methodist Hospital 1994 (Tender 11/1/94).......................... 3.40* 12/ 1/25 1,400,000 --------------- - ----------- TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS 5,900 (IDENTIFIED COST $5,911,729)............................................................. 6,069,470 --------------- - ----------- $ 367,095 TOTAL INVESTMENTS (IDENTIFIED COST $368,213,645)(A).................. 97.6% 370,745,291 - ----------- - ----------- CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES....................... 2.4 9,140,975 ---------- ------------- NET ASSETS........................................................... 100.0% $ 379,886,266 ---------- ------------- ---------- ------------- - ---------------- AMT ALTERNATIVE MINIMUM TAX. * VARIABLE OR FLOATING RATE SECURITIES. COUPON RATE SHOWN REFLECTS CURRENT RATE. ** JOINTLY ISSUED WITHIN NEW YORK AND NEW JERSEY. (A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $368,213,645; THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $7,076,468 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $4,544,822, RESULTING IN NET UNREALIZED APPRECIATION OF $2,531,646.
SEE NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets OCTOBER 31, 1994 - -------------------------------------------------------------------------------- Alabama............ 0.5% California......... 1.7 Colorado........... 2.8 District of Columbia.......... 0.3 Florida............ 1.3 Georgia............ 1.2 Hawaii............. 5.5 Illinois........... 4.1 Indiana............ 1.7 Kansas............. 2.6% Kentucky........... 0.7 Maine.............. 1.2 Massachusetts...... 7.4 Michigan........... 3.5 Missouri........... 3.1 Nebraska........... 2.6 New Hampshire...... 1.3 New Jersey......... 3.9 New York........... 8.9% North Carolina..... 2.4 Ohio............... 6.9 Oklahoma........... 0.7 Pennsylvania....... 10.1 South Carolina..... 3.9 Tennessee.......... 1.1 Texas.............. 3.8 Utah............... 2.8 Virginia........... 2.3% Washington......... 5.8 Wyoming............ 0.8 Jointly Issued..... 2.7 --- Total............ 97.6% --- ---
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1994 - -------------------------------------------------------------------------------- ASSETS: Investments in securities, at value (identified cost $368,213,645) (Note 1)...................................... $ 370,745,291 Cash...................................... 25,858 Receivable for: Interest................................ 7,158,218 Investments sold........................ 2,435,450 Deferred organizational expenses (Note 1)...................................... 17,143 Prepaid expenses and other assets......... 68,879 ------------- TOTAL ASSETS...................... 380,450,839 ------------- LIABILITIES: Payable for: Common shares of beneficial interest purchased............................. 358,424 Investment management fee (Note 2)...... 120,356 Accrued expenses and other payables (Note 3)...................................... 85,793 ------------- TOTAL LIABILITIES................. 564,573 ------------- NET ASSETS: Preferred shares of beneficial interest, (1,000,000 shares authorized of non- participating $.01 par value, 2,400 shares outstanding) (Note 4)............ 120,000,000 ------------- Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 18,441,013 shares outstanding) (Note 5)................................ 256,248,921 Net unrealized appreciation on investments............................. 2,531,646 Accumulated undistributed net investment income.................................. 2,572,844 Accumulated net realized loss on investments............................. (1,467,145) ------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS.............. 259,886,266 ------------- TOTAL NET ASSETS.................. $ 379,886,266 ------------- ------------- NET ASSET VALUE PER COMMON SHARE, ($259,886,266 divided by 18,441,013 common shares outstanding).............. $14.09 ------------- -------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1994 INVESTMENT INCOME: INTEREST INCOME......................... $ 27,457,611 ------------- EXPENSES Investment management fee (Note 2).... 1,490,112 Auction commission fees............... 464,952 Professional fees..................... 109,261 Transfer agent fees and expenses (Note 3).................................. 104,800 Shareholder reports and notices (Note 3)............................ 38,356 Auction agent fees.................... 32,724 Trustees' fees and expenses (Note 3).................................. 29,681 Registration fees..................... 25,924 Organizational expenses (Note 1)...... 8,990 Other................................. 27,696 ------------- TOTAL EXPENSES.................... 2,332,496 ------------- NET INVESTMENT INCOME........... 25,125,115 ------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (Note 1): Net realized loss on investments...... (1,002,781) Net change in unrealized appreciation on investments...................... (42,743,964) ------------- NET LOSS ON INVESTMENTS........... (43,746,745) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $ (18,621,630) ------------- -------------
STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 31, 1994 OCTOBER 31, 1993 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income................................................. $ 25,125,115 $ 26,504,768 Net realized loss on investments...................................... (1,002,781) (371,367) Net change in unrealized appreciation on investments.................. (42,743,964) 38,463,827 ------------------ ------------------ Net increase (decrease) in net assets resulting from operations... (18,621,630) 64,597,228 ------------------ ------------------ Dividends to preferred shareholders from net investment income.......... (4,001,354) (4,049,024) Dividends to common shareholders from net investment income............. (22,878,556) (22,886,316) ------------------ ------------------ Total dividends................................................... (26,879,910) (26,935,340) ------------------ ------------------ Decrease from transactions in shares of beneficial interest (Notes 4 & 5): Common................................................................ (2,189,774) -- Preferred............................................................. (20,000,000) -- ------------------ ------------------ Total transactions................................................ (22,189,774) -- ------------------ ------------------ Total increase (decrease)......................................... (67,691,314) 37,661,888 NET ASSETS: Beginning of period..................................................... 447,577,580 409,915,692 ------------------ ------------------ END OF PERIOD (including undistributed net investment income of $2,572,844 and $4,327,639, respectively)............................... $ 379,886,266 $ 447,577,580 ------------------ ------------------ ------------------ ------------------
SEE NOTES TO FINANCIAL STATEMENTS InterCapital Quality Municipal Investment Trust Notes to Financial Statements - -------------------------------------------------------------------------------- 1. Organization and Accounting Policies -- InterCapital Quality Municipal Investment Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Trust was organized as a Massachusetts business trust on July 2, 1991 and commenced operations on September 27, 1991. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Trust by an outside independent pricing service approved by the Trustees. The pricing service has informed the Trust that in valuing the Trust's 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 Trust's 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 on the identified cost method. The Trust amortizes premiums and discounts on securities purchased over the life of the respective securities. Interest income is accrued daily. C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations 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 $45,000 which have been reimbursed for the full amount thereof. Such expenses have been deferred and are being amortized InterCapital Quality Municipal Investment Trust Notes to Financial Statements (CONTINUED) - -------------------------------------------------------------------------------- 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 its Investment Manager a management fee, calculated weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's average weekly net assets. Under the terms of the Agreement, the Investment Manager maintains certain of the Trust's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Trust who are employees of the Investment Manager. The Investment Manager also bears the cost of telephone services, heat, light, power and other utilities provided to the Trust. 3. Security Transactions and Transactions with Affiliates -- The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended October 31, 1994 aggregated $42,343,195 and $68,694,046, respectively. Dean Witter Trust Company, an affiliate of the Investment Manager, is the Trust's transfer agent. At October 31, 1994, the Trust had transfer agent fees and expenses payable of approximately $9,100. On January 1, 1994, the Trust adopted an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Trust who will have served as an independent Trustee for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended October 31, 1994, included in Trustees' fees and expenses in the Statement of Operations amounted to $9,977. At October 31, 1994, the Trust had an accrued pension liability of $9,807 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. On November 5, 1991, the Trust issued 2,800 shares of Auction Rate Preferred Shares ("Preferred Shares") consisting of 1,400 shares each of Series A and Series B for gross total proceeds of $140,000,000. The preferred shares 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. During the year ended October 31, 1994, the Trust purchased and retired 400 shares of Series B in the amount of $20,000,000. Dividends, which are cumulative, are reset through auction procedures.
RANGE OF DIVIDEND SHARES* SERIES RATE* RESET DATE RATES** - ------ ------ ------- ---------- --------------- 1,400 A 2.92 % 1/31/95 2.92% - 3.42% 1,000 B 3.07 11/3/94 2.08 - 3.49 - -------------- * AS OF OCTOBER 31, 1994. ** FOR THE YEAR ENDED OCTOBER 31, 1994.
InterCapital Quality Municipal Investment Trust Notes to Financial Statements (CONTINUED) - -------------------------------------------------------------------------------- Subsequent to October 31, 1994 and up through December 5, 1994, the Trust paid dividends to each of the Series A and B at a rate of 2.92% and rates ranging from 3.055% and 3.70%, respectively, in the aggregate amount of $459,932. 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, 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:
CAPITAL PAID IN EXCESS OF SHARES PAR VALUE PAR VALUE ---------- --------- ------------ Balance, October 31, 1992 and October 31, 1993.............................. 18,607,113 $ 186,071 $258,252,624 Treasury shares purchased and retired (weighted average discount 8.87%)*.... (166,100) (1,661) (2,188,113) ---------- --------- ------------ Balance, October 31, 1994.............. 18,441,013 $ 184,410 $256,064,511 ---------- --------- ------------ ---------- --------- ------------ - -------------- * THE TRUSTEES HAVE VOTED TO RETIRE THE SHARES PURCHASED.
6. Federal Income Tax Status -- At October 31, 1994, the Fund had net capital loss carryovers of approximately $1,467,000 of which $4,000 will be available through October 31, 1999, $89,000 will be available through October 31, 2000, $371,000 will be available through October 31, 2001 and $1,003,000 will be available through October 31, 2002, which may be used to offset future capital gains to the extent provided by regulations. 7. Dividends to Common Shareholders -- The Trust declared the following dividends from net investment income --
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - -------------- ------------ ------------- ------------- November 1, November 11, November 25, 1994 $ 0.09 1994 1994 November 29, December 9, December 23, 1994 $ 0.09 1994 1994
InterCapital Quality Municipal Investment Trust Notes to Financial Statements (CONTINUED) - -------------------------------------------------------------------------------- 8. Selected Quarterly Financial Data -- (UNAUDITED)
QUARTERS ENDED* ----------------------------------------------------------------------------- 10/31/94 7/31/94 4/30/94 1/31/94 ----------------- ----------------- ----------------- ----------------- PER PER PER PER TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE ------- -------- ------- -------- ------- -------- ------- -------- Total investment income.................. $ 6,693 $ 0.36 $ 6,791 $ 0.37 $ 6,776 $ 0.36 $ 7,198 $ 0.39 Net investment income.... 6,120 0.33 6,231 0.34 6,195 0.33 6,579 0.35 Net realized and unrealized gain (loss) on investments.......... (16,393) (0.87) 2,444 0.13 (33,353) (1.79) 3,555 0.19 QUARTERS ENDED* ----------------------------------------------------------------------------- 10/31/93 7/31/93 4/30/93 1/31/93 ----------------- ----------------- ----------------- ----------------- PER PER PER PER TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE ------- -------- ------- -------- ------- -------- ------- -------- Total investment income.................. $ 7,320 $ 0.39 $ 7,186 $ 0.39 $ 7,276 $ 0.39 $ 7,093 $ 0.38 Net investment income.... 6,686 0.36 6,591 0.35 6,674 0.36 6,554 0.35 Net realized and unrealized gain on investments............. 8,711 0.47 5,165 0.28 11,117 0.60 13,099 0.70 - -------------- * TOTALS EXPRESSED IN THOUSANDS OF DOLLARS.
InterCapital Quality Municipal Investment Trust Financial Highlights - -------------------------------------------------------------------------------- Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
FOR THE PERIOD SEPTEMBER 27, 1991* FOR THE YEAR ENDED OCTOBER 31, THROUGH ----------------------------------------------------- OCTOBER 31, 1994** 1993** 1992** 1991** ------------- ------------- ------------- ------------- Per Share Operating Performance: Net asset value, beginning of period...... $16.53 $14.51 $14.09 $14.06 ------------- ------------- ------------- ------------- Net investment income..................... 1.35 1.42 1.41 0.06 Net realized and unrealized gain (loss) on investments............................. (2.34) 2.05 0.38 (0.01) ------------- ------------- ------------- ------------- Total from investment operations.......... (.99) 3.47 1.79 0.05 ------------- ------------- ------------- ------------- Less dividends and other charges: Dividends from net investment income................................. (1.23) (1.23) (0.97) -- Common share equivalent of dividends paid to preferred shareholders......... (0.22) (0.22) (0.25) -- Offering costs charged against capital................................ -- -- (0.15) (0.02) ------------- ------------- ------------- ------------- Total dividends and other charges......... (1.45) (1.45) (1.37) (0.02) ------------- ------------- ------------- ------------- Net asset value, end of period............ $14.09 $16.53 $14.51 $14.09 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Market value, end of period............... $12.75 $16.625 $15.00 $15.25 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Total Investment Return+.................. (16.77)% 19.68% 4.83% 1.67%(1) Ratios/Supplemental Data: Net assets, end of period (in thousands).. $379,886 $447,578 $409,916 $262,146 Ratios to average net assets of common shareholders: Total expenses.......................... 0.82% 0.81% 0.79% 0.49%(2) Net investment income before preferred stock dividends........................ 8.80% 9.05% 9.64% 5.01%(2) Preferred stock dividends............... 1.40% 1.38% 1.70% N/A Net investment income available to common shareholders.................... 7.40% 7.67% 7.94% 5.01%(2) Asset coverage on preferred shares at end of period................................ 316% 320% 293% N/A Portfolio turnover rate................... 10% 3% 9% 0%(1) - ---------------- * 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 AND DISTRIBUTIONS ARE ASSUMED TO BE REINVESTED AT THE PRICES OBTAINED UNDER THE TRUST'S DIVIDEND REINVESTMENT PLAN. TOTAL INVESTMENT RETURN DOES NOT REFLECT SALES CHARGES OR BROKERAGE COMMISSIONS. (1) NOT ANNUALIZED. (2) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS InterCapital Quality Municipal Investment Trust Report of Independent Accountants - -------------------------------------------------------------------------------- To the Shareholders and Trustees of InterCapital Quality Municipal Investment Trust 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 InterCapital Quality Municipal Investment Trust (the "Trust") at October 31, 1994, 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 three years in the period then ended and for the period September 27, 1991 (commencement of operations) through October 31, 1991, 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 owned at October 31, 1994 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP New York, New York December 5, 1994 1994 FEDERAL TAX NOTICE (UNAUDITED) During the year ended October 31, 1994, the Trust paid the following per share amounts from tax-exempt income; $1.23 to common shareholders, $1,524 to series A preferred shareholders and $1,334 to series B preferred shareholders. TRUSTEES - ------------------------------------------------- Jack F. Bennett Michael Bozic Charles A. Fiumefreddo INTERCAPITAL Edwin J. Garn QUALITY John R. Haire MUNICIPAL Dr. Manuel H. Johnson INVESTMENT Paul Kolton TRUST Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS - ------------------------------------------------- Charles A. Fiumefreddo CHAIRMAN AND CHIEF EXECUTIVE OFFICER Sheldon Curtis VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL James F. Willison 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 Annual Report October 31, 1994 -----END PRIVACY-ENHANCED MESSAGE-----