-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JxbVA8utfjKHuCvq9ZkdbO8bY146/NMoyHObTgqyZeEOAn+LWgKJzbOVYuoC0QT5 sEQU8xp/ipO/NLxkYqSQTA== 0000950123-98-000021.txt : 19980106 0000950123-98-000021.hdr.sgml : 19980106 ACCESSION NUMBER: 0000950123-98-000021 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980105 SROS: NYSE 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: SEC FILE NUMBER: 811-06346 FILM NUMBER: 98500986 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 N-30D 1 INTERCAPITAL QUALITY MUNI INVESTMENT TRUST 1 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST Two World Trade Center, New York, New York 10048 LETTER TO THE SHAREHOLDERS October 31, 1997 DEAR SHAREHOLDER: We are pleased to present the annual report on the operations of InterCapital Quality Municipal Investment Trust (IQT) for the fiscal year ended October 31, 1997. Stimulated by a resurgence of consumer spending in late 1996, the economy grew at a rapid pace in the first quarter of 1997. This prompted the Federal Reserve Board to tighten its monetary policy in March in a preemptive move against a possible increase in the rate of inflation. Economic growth slowed in the second quarter and the bond market rallied. In addition to more moderate economic growth, low inflation and stable monetary policy, the bond rally through July was supported by a shrinking federal budget deficit and a strong dollar. However, by August the bond market retreated on fears that stronger employment conditions might prompt the Federal Reserve Board to tighten further. Yields declined in October when turmoil in the global stock markets precipitated "flight-to-quality" demand for U.S. Treasuries. BOND YIELDS 1994-1997
30-Year 30-Year Insured Municipal U.S. Treasury Revenue Yields Yields Dec '93 5.4 6.34 5.4 6.24 5.8 6.66 6.4 7.09 6.35 7.32 6.25 7.43 Jun '94 6.5 7.61 6.25 7.39 6.3 7.45 6.55 7.81 6.75 7.96 7 8 Dec '94 6.75 7.88 6.4 7.7 6.15 7.44 6.15 7.43 6.2 7.34 5.8 6.66 Jun '95 6.1 6.62 6.1 6.86 6 6.66 5.95 6.48 5.75 6.33 5.5 6.14 Dec '95 5.35 5.94 5.4 6.03 5.8 6.46 5.85 6.66 5.95 6.89 6.05 6.99 Jun '96 5.9 6.89 5.85 6.97 5.9 7.11 5.7 6.93 5.65 6.64 5.5 6.35 Dec '96 5.6 6.63 5.7 6.79 5.65 6.8 5.9 7.1 5.75 6.94 5.65 6.91 Jun '97 5.6 6.78 5.3 6.3 5.5 6.61 5.4 6.4 5.35 6.15
Insured Municipal Revenue Yields as a Percentage of U.S. Treasury Yields Dec '93 85.17% 86.54% 87.09% 90.27% 86.75% 84.12% Jun '94 85.41% 84.57% 84.56% 83.87% 84.80% 87.50% Dec '94 85.66% 83.12% 82.66% 82.77% 84.47% 87.09% Jun '95 92.15% 88.92% 90.08% 91.82% 90.84% 89.56% Dec '95 90.07% 89.55% 86.69% 87.84% 86.36% 86.55% Jun '96 85.63% 83.93% 82.98% 82.25% 85.09% 86.61% Dec '96 84.46% 83.95% 83.08% 83.10% 82.85% 81.77% Jun '97 82.60% 84.00% 83.00% 84.40% 86.90%
2 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST LETTER TO THE SHAREHOLDERS October 31, 1997, continued MUNICIPAL MARKET CONDITIONS Municipal yields followed the trend of Treasury yields, but with less volatility. Long-term insured revenue index yields increased from 5.65 percent to 5.90 percent between October 1996 and March 1997. The bond rally over the past seven months pushed 30-year yields down to 5.35 percent by the end of October 1997. Yields on one-year notes were little changed at 3.75 percent over the 12-month period. Consequently, the yield pickup for extending maturities from 1 to 30 years narrowed from 190 basis points to 160 basis points. The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields rose from 83 percent at the end of March 1997 to 87 percent in October. A rising ratio means that municipals have underperformed Treasuries and have become relatively more attractive. Over the past four years, this ratio has annually ranged from an average low of 83 percent to an average high of 90 percent. New-issue underwriting volume was slightly ahead in the first half of 1997. The decline in interest rates subsequently led to a surge in refunding activity. As a result, new-issue municipal volume was up 17 percent during the first 10 months of 1997. Refundings accounted for more than 25 percent of total volume. PERFORMANCE During the fiscal year ended October 31, 1997, the Trust's net asset value (NAV) improved from $15.18 to $15.50. Based on this NAV change plus reinvestment of tax-free dividends of $0.96 per share and taxable capital gains of $0.05 per share, the Trust's total NAV return was 9.38 percent. IQT's market price on the New York Stock Exchange moved from $14.625 to $15.3125 per share. Based on this change in market price plus reinvestment of dividends and distributions, the Trust's total market return was 12.16 percent. On October 31, 1997, IQT traded at a 1 percent discount to NAV. Monthly dividends for the fourth quarter of 1997 declared in September remained unchanged at $0.08 per share. Over the past 12 months the level of undistributed net investment income increased from $0.032 to $0.058 per share. 3 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST LETTER TO THE SHAREHOLDERS October 31, 1997, continued LARGEST SECTORS as of October 31, 1997 (% of Net Assets) Mortgage 24% Refunded 21% IDR/PCR* 9% Resource Recovery 7% Transportation 7% Electric 5% Hospital 5% All Others 22%
*Industrial Development/Pollution Control Revenue Portfolio structure is subject to change. CREDIT RATINGS as of October 31, 1997 (% of Total Long-Term Portfolio) Aaa or AAA 51% Aa or AA 25% A or A 24%
As measured by Moody's Investor Service, Inc. or Standard & Poor's Corp. Portfolio structure is subject to change. CALL STRUCTURE as of October 31, 1997 (% of Total Long-Term Portfolio) Percent Callable WEIGHTED AVERAGE CALL PROTECTION: 5.4 YEARS
Years Bonds Callable 1999 3 2000 0 2001 63 2002 3 2003 6 2004 1 2005 11 2006 5 2007 3 2008 1 2009+ 4
4 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST LETTER TO THE SHAREHOLDERS October 31, 1997, continued PORTFOLIO STRUCTURE IQT remained fully invested in long-term municipal bonds during the period. Investments were diversified among 14 long-term sectors and 53 credits. The Trust's weighted average maturity was 20 years. The distribution of call dates in the portfolio produced 5 years of average weighted call protection. Throughout the fiscal year, high credit quality was maintained with 75 percent of its long-term holdings rated double or triple "A". 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 fiscal year, ARPS leverage contributed approximately $0.13 per share to common share earnings. Weekly ARPS yields ranged between 3.30 and 4.125 percent. Two ARPS series totaling $105 million and representing 27 percent of net assets were outstanding. LOOKING AHEAD So far this year, long-term municipal bonds have followed the trend of Treasuries toward lower yields. The recent enactment of the Taxpayer Relief Act of 1997 did not impact municipals directly and the long-term benefits of tax-exempt income have remained 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 12-month period ended October 31, 1997, the Trust purchased and retired 102,900 shares of common stock at a weighted average market discount of 5.71 percent. The Trust may also utilize procedures to 5 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST LETTER TO THE SHAREHOLDERS October 31, 1997, continued reduce or eliminate the amount of outstanding ARPS, including their purchase in the open market or in privately negotiated transactions. We appreciate your ongoing support of InterCapital Quality Municipal Investment Trust and look forward to continuing to serve your investment needs. Very truly yours, /S/ CHARLES A. FIUMEFREDDO CHARLES A. FIUMEFREDDO Chairman of the Board 6 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST RESULTS OF MEETINGS (unaudited) * * * On May 20, 1997, a special meeting of the Trust's shareholders was held for the purpose of voting on two separate matters, the results of which were as follows: (1) ELECTION OF TRUSTEE: Wayne E. Hedien For................................................................ 13,092,185 Withheld........................................................... 346,225
The following Trustees were not standing for reelection at this meeting: Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and John L. Schroeder (2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY GROUP INC. WITH DEAN WITTER, DISCOVER & CO.: For................................................................ 12,491,069 Against............................................................ 347,092 Abstain............................................................ 600,249
On October 24, 1997, an annual meeting of the Trust's shareholders was held for the purpose of voting on two separate matters, the results of which were as follows: (1) ELECTION OF TRUSTEES: Wayne E. Hedien For............................................................... 13,965,827 Withheld.......................................................... 522,972 Dr. Manuel H. Johnson For............................................................... 13,967,264 Withheld.......................................................... 521,535 John L. Schroeder For............................................................... 13,981,474 Withheld.......................................................... 507,325
The following Trustees were not standing for reelection at this meeting: Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael E. Nugent and Philip J. Purcell (2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS: For................................................................ 13,858,456 Against............................................................ 297,409 Abstain............................................................ 332,934
7 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST PORTFOLIO OF INVESTMENTS October 31, 1997
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (97.4%) General Obligation (4.4%) $ 2,000 Chicago, Illinois, Refg Ser 1995 B (FGIC)............................... 5.125% 01/01/25 $ 1,916,460 10,000 Chicago School Reform Board, Illinois, Dedicated Tax Ser 1997 (AMBAC)... 5.75 12/01/27 10,334,100 4,705 Oregon, Veterans' Welfare Ser 75........................................ 6.00 04/01/27 4,879,085 - -------- ------------ 16,705 17,129,645 - -------- ------------ Educational Facilities Revenue (0.9%) 3,480 Indiana University, Student Fee Ser K (MBIA)............................ 5.875 08/01/20 3,611,718 - -------- ------------ Electric Revenue (5.1%) 5,000 North Carolina Municipal Power Agency #1 Catawba Ser 1992............... 6.25 01/01/17 5,210,150 5,000 South Carolina Public Service Authority, 1997 Refg Ser A (MBIA) (WI).... 5.00 01/01/29 4,742,900 5,000 San Antonio, Texas, Electric & Gas Refg Ser 1994-A...................... 5.00 02/01/14 4,896,150 5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)....... 5.00 07/01/21 4,766,300 - -------- ------------ 20,000 19,615,500 - -------- ------------ Hospital Revenue (5.4%) 10,000 Wichita, Kansas, CSJ Health System of Wichita Inc Ser 1991.............. 7.00 11/15/18 10,875,300 7,000 Massachusetts Health & Educational Facilities Authority, St Elizabeth's Hospital of Boston Ser D & E (FSA)..................................... 6.70 08/15/21 7,604,170 2,195 Charlotte-Mecklenburg Hospital Authority, North Carolina, Ser 1992...... 6.25 01/01/20 2,354,072 - -------- ------------ 19,195 20,833,542 - -------- ------------ Industrial Development/Pollution Control Revenue (9.3%) 1,000 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)....... 7.15 02/01/23 1,081,250 9,000 Hawaii Department Budget & Finance, Citizen Utilities Co 1991 Ser A & B (AMT).................................................................. 6.66 11/01/21 9,661,681 5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport/ Lufthansa German Airlines Inc Ser 1990 (AMT)............................................ 7.125 05/01/18 5,446,200 2,000 Chicago, Illinois, Peoples Gas Light & Coke Co Refg 1995 Ser A.......... 6.10 06/02/25 2,111,220 4,000 New York State Energy Research & Development Authority, Brooklyn Union Gas Co 1991 Ser A & B (AMT)............................................ 6.952 07/01/26 4,546,280 12,000 Richland County, South Carolina, Union Camp Corp Ser 1991 B (AMT)....... 7.125 09/01/21 13,087,200 - -------- ------------ 33,000 35,933,831 - -------- ------------ Mortgage Revenue - Multi-Family (7.6%) 10,000 Illinois Housing Development Authority, 1991 Ser A...................... 8.25 07/01/16 10,756,900 15,000 New Jersey Housing & Mortgage Finance Agency, Presidential Plaza at Newport-FHA Insured Mortgages Refg 1991 Ser 1.......................... 7.00 05/01/30 16,208,100 2,000 New York State Housing Finance Agency, 1996 Ser A Refg (FSA)............ 6.10 11/01/15 2,109,460 - -------- ------------ 27,000 29,074,460 - -------- ------------ Mortgage Revenue - Single Family (16.3%) 2,245 Alaska Housing Finance Agency, Housing GNMA Collateralized 1990 Ser A Subser A-2............................................................. 7.05 06/01/25 2,384,392 6,170 California Housing Finance Agency, Home 1991 Ser G (AMT)................ 7.05 08/01/27 6,518,975 9,940 Colorado Housing Finance Authority, Refg 1991 Ser A..................... 7.25 11/01/31 10,551,310
SEE NOTES TO FINANCIAL STATEMENTS 8 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE $ 1,100 District of Columbia Housing Finance Agency, GNMA Collateralized Ser 1990 B (AMT)........................................................... 7.10% 12/01/24 $ 1,156,837 4,635 Maine Housing Authority, Purchase 1988 Ser D-6 (AMT).................... 7.25 11/15/19 4,876,901 2,580 Michigan Housing Development Authority, 1991 Ser B...................... 6.95 12/01/20 2,727,576 8,600 Nebraska Investment Finance Authority, GNMA-Backed 1991 Ser A & B (AMT).................................................................. 7.025 09/15/23 9,093,984 4,210 New Hampshire Housing Finance Authority, Residential 1991 Ser D (AMT)... 7.25 07/01/15 4,432,583 Ohio Housing Finance Agency, 5,200 GNMA-Backed Ser A 1& 2 (AMT)............................................ 6.903 03/01/31 5,508,516 2,000 Residential 1996 Ser B-2 (AMT).......................................... 6.10 09/01/28 2,093,160 4,500 Tennessee Housing Development Agency, Homeownership Issue T (AMT)....... 7.375 07/01/23 4,756,095 5,000 Virginia Housing Development Authority, 1992 Ser A...................... 7.15 01/01/33 5,263,300 3,000 Wyoming Community Development Authority, Federally Insured/Gtd Loans 1988 Ser G (AMT)....................................................... 7.25 06/01/21 3,206,460 - -------- ------------ 59,180 62,570,089 - -------- ------------ Nursing & Health Related Facilities Revenue (0.3%) 940 New York State Medical Care Facilities Finance Agency, Mental Health - -------- 1991 Ser C............................................................. 7.30 02/15/21 1,042,018 ------------ Resource Recovery Revenue (7.1%) 5,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 1993 A (AMT)................................................................ 6.30 07/01/16 5,298,300 Detroit Economic Development Corporation, Michigan, 5,000 Ser 1991 A (AMT) (FSA)................................................. 6.60 05/01/02 5,420,400 5,000 Ser 1991 A (AMT) (FSA)................................................. 6.875 05/01/09 5,425,450 10,000 Montgomery County Industrial Development Authority, Pennsylvania, Ser 1989................................................................... 7.50 01/01/12 10,997,600 - -------- ------------ 25,000 27,141,750 - -------- ------------ Student Loan Revenue (3.6%) 13,000 Pennsylvania Higher Education Assistance Agency, 1991 Ser A & B (AMT) - -------- (AMBAC)................................................................ 6.854 09/01/26 13,954,200 ------------ Transportation Facilities Revenue (7.3%) 10,000 Hillsborough County Port District, Florida, Tampa Port Authority, Spl & Refg Ser 1995 (AMT) (FSA).............................................. 6.00 06/01/20 10,527,900 4,000 Lee County, Florida, Ser 1995 (MBIA).................................... 5.75 10/01/22 4,137,240 7,000 Hawaii, Airports Second Ser of 1991 (AMT)............................... 6.90 07/01/12 8,139,180 5,000 Houston, Texas, Airport Sub Lien Ser 1991 A (AMT) (FGIC)................ 6.75 07/01/21 5,400,850 - -------- ------------ 26,000 28,205,170 - -------- ------------ Water & Sewer Revenue (1.1%) 4,000 Cleveland, Ohio, Waterworks Improvements Refg Ser H 1996 (MBIA)......... 5.75 01/01/21 4,139,760 - -------- ------------ Other Revenue (8.0%) 10,000 New York Local Government Assistance Corporation, Ser 1995 A............ 6.00 04/01/24 10,573,900 15,000 Emmaus General Authority, Pennsylvania, Local Government Ser 1988 H (FGIC)................................................................. 7.00 05/15/18 16,323,450 4,000 Houston, Texas, Sr Lien Hotel Occupancy Tax Refg Ser 1995 (FSA)......... 5.50 07/01/15 4,063,040 - -------- ------------ 29,000 30,960,390 - -------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 9 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------ Refunded (21.0%) $ 10,000 Massachusetts Health & Educational Facilities Authority, Brigham & Woman's Hospital Ser D......................................................... 6.75% 07/01/01++ $ 11,018,400 5,000 Massachusetts Water Resources Authority, 1991 Ser A..................... 6.875 12/01/01++ 5,585,250 5,000 New York City Municipal Water Finance Authority, New York, 1991 Ser C... 7.375 06/15/01++ 5,605,050 5,000 New York Local Government Assistance Corporation, Ser 1991 C............ 7.00 04/01/01++ 5,543,050 2,805 Charlotte-Mecklenburg Hospital Authority, North Carolina, Ser 1992...... 6.25 01/01/02++ 3,062,918 9,000 Lorain County, Ohio, Humility of Mary Health Care Corp Ser 1991 B (ETM).................................................................. 7.20 12/15/11 10,265,490 10,000 Middleburg Heights, Ohio, Southwest General Hospital Ser 1991........... 7.20 08/15/01++ 11,207,000 6,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991 (AMBAC) (ETM)..... 6.75 05/15/20 6,542,700 10,000 Seattle, Washington, Drainage & Wastewater Utility 1990................. 7.125 12/01/99++ 10,798,200 10,000 Washington Public Power Supply System, Proj #1 Refg Ser 1991 A.......... 6.875 07/01/01++ 11,053,200 - -------- ------------ 72,805 80,681,258 - -------- ------------ 349,305 TOTAL MUNICIPAL BONDS (Identified Cost $347,394,921)........................................... 374,893,331 - -------- ------------ SHORT TERM MUNICIPAL OBLIGATIONS (2.0%) 1,400 St Charles Parish, Louisiana, Shell Oil Co Ser 1995 (Demand 11/03/97)... 4.00* 10/01/25 1,400,000 3,800 Massachusetts Health & Educational Facilities Authority, Capital Asset Ser D (MBIA) (Demand 11/03/97)......................................... 3.85* 01/01/35 3,800,000 2,300 Missouri Health & Educational Facilities Authority, Washington University Ser 1996 D (Demand 11/03/97)................................ 4.10* 02/01/30 2,300,000 - -------- ------------ 7,500 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $7,500,000)............................ 7,500,000 - -------- ------------ $356,805 TOTAL INVESTMENTS (Identified Cost $354,894,921) (a).................................. 99.4% ======== 382,393,331 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 0.6 2,379,403 ---- ------------ NET ASSETS............................................................................. 100.0% $384,772,734 ====== ============
- --------------------- AMT Alternative Minimum Tax. ETM Escrowed to maturity. WI Security purchased on a when issued basis. ++ Prerefunded to call date shown. * Current coupon of variable rate demand obligation. (a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $27,520,454 and aggregate gross unrealized depreciation is $22,044, resulting in net unrealized appreciation of $27,498,410. Bond Insurance: AMBAC AMBAC Indemnity Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS 10 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST PORTFOLIO OF INVESTMENTS October 31, 1997, continued GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets October 31, 1997 Alaska................... 0.6% California............... 1.7 Colorado................. 2.7 District of Columbia..... 0.3 Florida.................. 4.1 Hawaii................... 4.6 Illinois................. 7.9 Indiana.................. 0.9 Kansas................... 2.8 Louisiana................ 0.4 Maine.................... 1.3 Maryland................. 1.4 Massachusetts............ 7.3 Michigan................. 3.5 Missouri................. 0.6 Nebraska................. 2.4 New Hamphire............. 1.2 New Jersey............... 4.2 New York................. 7.6 North Carolina........... 2.8 Ohio..................... 8.6 Oregon................... 1.4 Pennsylvania............. 10.7 South Carolina........... 4.6 Tennessee................ 1.3 Texas.................... 3.7 Utah..................... 2.9 Virginia................. 1.4 Washington............... 5.7 Wyoming.................. 0.8 ---- Total.................... 99.4% ====
SEE NOTES TO FINANCIAL STATEMENTS 11 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES October 31, 1997 ASSETS: Investments in securities, at value (identified cost $354,894,921)....................................... $382,393,331 Cash.................................................................. 363,591 Receivable for: Interest.......................................................... 6,855,657 Investment sold................................................... 200,000 Prepaid expenses and other assets..................................... 121,239 ------------ TOTAL ASSETS...................................................... 389,933,818 ------------ LIABILITIES: Payable for: Investment purchased.............................................. 4,789,056 Investment management fee......................................... 128,888 Dividends to preferred shareholders............................... 119,616 Accrued expenses...................................................... 123,524 ------------ TOTAL LIABILITIES................................................. 5,161,084 ------------ NET ASSETS........................................................ $384,772,734 ============ COMPOSITION OF NET ASSETS: Preferred shares of beneficial interest (1,000,000 shares authorized of non-participating $.01 par value, 2,100 shares outstanding)....... $105,000,000 ------------ Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 18,049,013 shares outstanding)....................... 251,024,923 Net unrealized appreciation........................................... 27,498,410 Accumulated undistributed net investment income....................... 1,054,114 Accumulated undistributed net realized gain........................... 195,287 ------------ NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS...................... 279,772,734 ------------ TOTAL NET ASSETS.................................................. $384,772,734 ============ NET ASSET VALUE PER COMMON SHARE ($279,772,734 divided by 18,049,013 common shares outstanding)....... $15.50 ======
SEE NOTES TO FINANCIAL STATEMENTS 12 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the year ended October 31, 1997 NET INVESTMENT INCOME: INTEREST INCOME........................................................ $23,705,950 ----------- EXPENSES Investment management fee.............................................. 1,331,551 Auction commission fees................................................ 306,600 Professional fees...................................................... 103,469 Transfer agent fees and expenses....................................... 71,128 Shareholder reports and notices........................................ 45,820 Registration fees...................................................... 25,041 Auction agent fees..................................................... 17,442 Custodian fees......................................................... 15,750 Trustees' fees and expenses............................................ 13,684 Other.................................................................. 27,165 ----------- TOTAL EXPENSES..................................................... 1,957,650 Less: expense offset................................................... (15,666) ----------- NET EXPENSES....................................................... 1,941,984 ----------- NET INVESTMENT INCOME.............................................. 21,763,966 ----------- NET REALIZED AND UNREALIZED GAIN: Net realized gain...................................................... 195,281 Net change in unrealized appreciation.................................. 6,054,065 ----------- NET GAIN........................................................... 6,249,346 ----------- NET INCREASE........................................................... $28,013,312 ===========
SEE NOTES TO FINANCIAL STATEMENTS 13 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 1997 OCTOBER 31, 1996 - ---------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income................................ $ 21,763,966 $ 21,950,197 Net realized gain.................................... 195,281 964,359 Net change in unrealized appreciation................ 6,054,065 38,946 ------------ ------------ NET INCREASE..................................... 28,013,312 22,953,502 ------------ ------------ Dividends to preferred shareholders from net investment income................................... (3,950,695) (3,965,633) ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income................................ (17,354,713) (18,527,196) Net realized gain.................................... (964,357) (3,012,944) ------------ ------------ TOTAL............................................ (18,319,070) (21,540,140) ------------ ------------ Decrease from transactions in common shares of beneficial interest................................. (1,458,787) (879,600) ------------ ------------ NET INCREASE (DECREASE).......................... 4,284,760 (3,431,871) NET ASSETS: Beginning of period.................................. 380,487,974 383,919,845 ------------ ------------ END OF PERIOD (Including undistributed net investment income of $1,054,114 and $595,556, respectively)........... $384,772,734 $380,487,974 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 14 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1997 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's investment objective is to provide current income which is exempt from federal income tax. The Trust was organized as a Massachusetts business trust on July 2, 1991 and commenced operations on September 27, 1991. 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 15 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1997, 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. 2. INVESTMENT MANAGEMENT AGREEMENT Pursuant to an Investment Management Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the Trust pays 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, 1997 aggregated $18,876,000 and $21,745,082, respectively. Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's transfer agent. At October 31, 1997, the Trust had transfer agent fees and expenses payable of approximately $5,400. 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 year ended October 31, 1997 included in 16 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued Trustees' fees and expenses in the Statement of Operations amounted to $4,156. At October 31, 1997, the Trust had an accrued pension liability of $37,070 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 A and Series B 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.
AMOUNT RESET RANGE OF SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES** - ------- ------- ------------- ----- -------- ---------------- A 1,400 $70,000 3.70% 11/15/97 3.30% - 4.125% B 700 35,000 3.78 9/04/98 3.78 - 3.885
- --------------------- * As of October 31, 1997. ** For the year ended October 31, 1997. Subsequent to October 31, 1997 and up through December 5, 1997 the Trust paid dividends to Series A and B at rates ranging from 3.58% to 3.79% in the aggregate amount of $349,713. 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. 17 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued 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, 1995....................................................... 18,212,813 $182,128 $253,181,182 Treasury shares purchased and retired (weighted average discount 5.61%)*........ (60,900) (609) (878,991) ---------- -------- ------------ Balance, October 31, 1996....................................................... 18,151,913 181,519 252,302,191 Treasury shares purchased and retired (weighted average discount 5.71%)*........ (102,900) (1,029) (1,457,758) ---------- -------- ------------ Balance, October 31, 1997....................................................... 18,049,013 $180,490 $250,844,433 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 6. DIVIDENDS TO COMMON SHAREHOLDERS On September 23, 1997, the Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE - --------- ---------------- ----------------- $0.08 November 7, 1997 November 21, 1997 $0.08 December 5, 1997 December 19, 1997
18 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 YEAR ENDED OCTOBER 31* ------------------------------------------------------------ 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............................. $ 15.18 $ 15.31 $ 14.09 $ 16.53 $ 14.51 ------- ------- ------- ------ ------- Net investment income............................................ 1.20 1.21 1.22 1.35 1.42 Net realized and unrealized gain (loss).......................... 0.34 0.06 1.30 (2.34) 2.05 ------- ------- ------- ------ ------- Total from investment operations................................. 1.54 1.27 2.52 (0.99) 3.47 ------- ------- ------- ------ ------- Less dividends and distributions from: Net investment income......................................... (0.96) (1.02) (1.08) (1.23) (1.23) Common share equivalent of dividends paid to preferred shareholders................................................. (0.22) (0.22) (0.22) (0.22) (0.22) Net realized gain............................................. (0.05) (0.16) -- -- -- ------- ------- ------- ------ ------- Total dividends and distributions................................ (1.23) (1.40) (1.30) (1.45) (1.45) ------- ------- ------- ------ ------- Anti-dilutive effect of acquiring treasury shares................ 0.01 -- -- -- -- ------- ------- ------- ------ ------- Net asset value, end of period................................... $ 15.50 $ 15.18 $ 15.31 $ 14.09 $ 16.53 ======= ======= ======= ====== ======= Market value, end of period...................................... $ 15.313 $ 14.625 $ 14.625 $ 12.75 $ 16.625 ======= ======= ======= ====== ======= TOTAL INVESTMENT RETURN+......................................... 12.16% 8.44% 23.76% (16.77)% 19.68% RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS: Total expenses................................................... 0.71% 0.72% 0.74% 0.82% 0.81% Net investment income before preferred stock dividends........... 7.93% 8.02% 8.31% 8.80% 9.05% Preferred stock dividends........................................ 1.44% 1.45% 1.50% 1.40% 1.38% Net investment income available to common shareholders........... 6.49% 6.57% 6.81% 7.40% 7.67% SUPPLEMENTAL DATA: Net assets, end of period, in thousands.......................... $384,773 $380,488 $383,920 $379,886 $447,578 Asset coverage on preferred shares at end of period.............. 366% 362% 365% 316% 320% Portfolio turnover rate.......................................... 5% 7% 12% 10% 3%
- --------------------- * 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. SEE NOTES TO FINANCIAL STATEMENTS 19 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, 1997, 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 October 31, 1997 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 December 9, 1997 -------------------------------------------------------------------- 1997 FEDERAL TAX NOTICE (unaudited) During the year ended October 31, 1997, the Trust paid the following per share amounts from tax-exempt income: $0.96 to common shareholders, $1,746 to Series A preferred shareholders and $1,893 to Series B preferred shareholders. For the year ended October 31, 1997, the Trust paid the following per share amounts from long-term capital gains, $0.04 to common shareholders, $86 to Series A preferred shareholders' and $82 to Series B preferred shareholders. 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 E. Willison Vice President Thomas F. Caloia Treasurer TRANSFER AGENT - ----------------------------------------------- Dean Witter Trust FSB 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 INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST ANNUAL REPORT OCTOBER 31, 1997 -----END PRIVACY-ENHANCED MESSAGE-----