-----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, lcnWGWNIafSnF8v0kMdHQvtEMB/k27s0FehakIuVJavH9G9xEuxT1vlXVdiRMlrO iwslnFS9BaL/m+AGR29eSw== 0000950123-94-001072.txt : 19940702 0000950123-94-001072.hdr.sgml : 19940702 ACCESSION NUMBER: 0000950123-94-001072 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940430 FILED AS OF DATE: 19940622 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000885125 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 136993836 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06591 FILM NUMBER: 94535162 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123921600 FORMER COMPANY: FORMER CONFORMED NAME: INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST II DATE OF NAME CHANGE: 19600201 N-30D 1 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST 1 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST Two World Trade Center New York, New York 10048 DEAR SHAREHOLDER: - - - - - -------------------------------------------------------------------------------- When InterCapital Quality Municipal Income Trust (NYSE symbol: IQI) began its new fiscal year in November 1993, municipal yields had reached record lows in a trend that began six years ago. Strong economic growth in the fourth quarter of 1993 prompted concern about inflation and caused interest rates to rise. The Federal Reserve Board tightened monetary policy by raising the federal-funds rate -- the interest rate that banks charge each other for overnight loans -- from 3.00 percent to 3.75 percent in three separate moves between early February and April. This action was presented as a preemptive strike against inflation. However, the fixed-income markets interpreted the change in Federal policy as the beginning of a trend toward higher interest rates. In mid-May the Federal Reserve Board initiated another round of tightening with a 50 basis point increase in both the federal-funds rate and the discount rate -- the interest rate the Federal Reserve charges member banks for loans. By the end of April the bond market was battered. Interest rates were at levels not seen in over a year. Long-term municipal bond yields as measured by The Bond Buyer Revenue Bond Index* increased by 86 basis points from 5.56 percent to 6.42 percent between November and April. This corresponded to a price decline of more than 11 percent. New-issue underwriting totaled $290 billion in 1993, a 23 percent increase over the previous high of $235 billion set in 1992. Refunding issues, which are used by state and local governments to refinance higher-coupon debt, represented 66 percent of total volume last year. It is estimated that 1994's underwriting volume will decline by 30 percent to about $200 billion and that approximately $260 billion in bonds will either mature or be called. Thus, the amount of municipal debt outstanding will be reduced. In line with these projections, new-issue volume for the first four months of 1994 declined by 34 percent and totaled $59 billion. Refunding activity, the catalyst of last year's record underwriting, dropped even more sharply. PERFORMANCE For the six-month period ended April 30, 1994, the Trust paid shareholders tax-free income dividends totaling $0.545 per share, including an extra income dividend of $0.05 per share and a short-term capital gains distribution of $0.025 distributed in December. IQI's total return for this period was -11.65 percent. This calculation is based on a change in the Trust's New York Stock Exchange market price from $15.875 on October 31, 1993 to $13.50 per share on April 30, 1994 and includes the reinvestment of all dividends and distributions. Over the same period, the Trust's net asset value (NAV) declined about 11 percent from $16.34 to $14.49 per share. Although IQI is leveraged with Auction Rate Preferred Shares (as discussed below), its NAV decline was in line with the unleveraged Revenue Bond Index. The defensive nature of the high-coupon bonds in the portfolio aided performance. As of April 30, 1994, the Trust was trading at a 6.83 percent discount to NAV. PORTFOLIO STRUCTURE The portfolio's long-term investments were diversified among 11 specific municipal sectors and 77 credits. The three largest sectors were transportation revenue, housing revenue and general obligation bonds, representing 42 percent of net assets. The average maturity and call protection of the Trust's long-term holdings was 22 years and 8 years, respectively. Bonds subject to the alternative minimum tax (AMT) - - - - - --------------- * The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25 selected municipal revenue bonds with 30-year maturities. Ratings of these bonds range from Aaa to Baa1 by Moody's and AAA to A- by S&P. 2 comprised approximately 14.2 percent of net assets. At the end of the period, the Trust's net assets exceeded $842 million. The credit quality ratings of the long-term portfolio are summarized below:
Moody's or Standard & Poor's Rating Percent ----------------------------------------------------------------------------- -------- Aaa or AAA................................................................... 34.1% Aa or AA..................................................................... 27.4 A1 or A+..................................................................... 9.7 A or A....................................................................... 28.8 -------- 100.0% ======
PREFERRED SHARE LEVERAGE In addition to common shares, the Trust has also issued five $56 million series of Auction Rate Preferred Shares (ARPS). Dividend and distribution payments for these shares rank ahead of the common shares. ARPS are short-term securities with maturities normally ranging from one week to one year. The dividend rates on tax-free ARPS are established by an auction process, when the maturity is rolled over. The Trust uses the proceeds from ARPS issuance to purchase long-term municipal bonds. The common shares are impacted by the preferred shares in two ways. First, following the payment of the dividend on the ARPS, common shares receive any extra incremental income when the long-term portfolio yield is higher than the cost of the ARPS (yield plus expenses). Second, the preferred shares leverage the common shares by a factor of approximately 1.5 times, thus multiplying any market change in NAV. Over the past six months, incremental tax-free income from the ARPS leverage maintained the common share dividends and increased the level or cushion of undistributed net investment income. As of April 30, 1994, an amount equivalent to $0.116 per share had been accumulated in this cushion to help sustain the Trust's current dividend. The average ARPS rate on the Trust's five outstanding series as of April 30, 1994 was 2.75 percent, with all resets scheduled to occur within 4 months. Higher yields in future ARPS auctions may begin to erode the Trust's cushion of undistributed net investment income available for distribution to common shareholders. If the cushion were to erode significantly over time, the Trust would take appropriate action which could include an adjustment in the common dividend and/or a reduction in the amount of ARPS. Leverage was a positive influence on the overall value of the portfolio for the first one and one-half years of the Trust's existence. However, the increase in interest rates over the past few months has adversely impacted NAV. LOOKING AHEAD A continuation of low new-issue supply, coupled with significant bond calls and maturities should sustain investor demand for municipals. However, the overall direction of interest rates will primarily be determined by the strength of the economy, the trend of inflations and the Federal Reserve Board's response to economic conditions. The Trust's procedure for reinvestment of all dividends and distributions on common shares is by 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 may attempt to reduce or eliminate a market value discount from net asset value by repurchasing common shares in the open market or in privately negotiated transactions. The Trust may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including their repurchase in the open market or in privately negotiated transactions. We appreciate your support of InterCapital Quality Municipal Income Trust and look forward to continuing to serve your investment needs. Very truly yours, Charles A. Fiumefreddo Chairman of the Board 3 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) - - - - - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value - - - - - ---------- ------ -------- ------------ MUNICIPAL BONDS (94.3%) GENERAL OBLIGATION (11.8%) $ 20,000 Jefferson County School District # R-1, Colorado, Ser 1992 (AMBAC Insured)............................................ 6.00 % 12/15/12 $ 19,755,200 7,500 District of Columbia, 1992 Ser B (MBIA Insured).............. 6.30 6/ 1/12 7,521,525 Hawaii, 5,000 1992 Ser BZ................................................ 6.00 10/ 1/10 5,015,250 8,000 1992 Ser BZ................................................ 6.00 10/ 1/11 7,990,960 4,000 Cook County, Illinois, Ser 1992 C (FGIC Insured)............. 6.00 11/15/09 4,015,880 Washoe County School District, Nevada, Ltd Tax 4,730 Ser 10/1/92 A (AMBAC Insured).............................. 6.25 4/ 1/11 4,799,436 8,100 Ser 10/1/92 A (AMBAC Insured).............................. 6.25 4/ 1/13 8,158,887 New York City, New York, 5,500 1993 Ser B................................................. 7.00 10/ 1/11 5,781,930 2,100 1993 Ser B................................................. 7.00 10/ 1/13 2,215,836 3,300 1993 Ser B................................................. 7.00 10/ 1/14 3,482,028 5,000 1993 Ser B................................................. 6.75 10/ 1/15 5,046,150 2,400 1992 Ser B................................................. 7.00 2/ 1/20 2,501,184 10,000 San Antonio, Texas, Refg Ser 1992............................ 5.75 8/ 1/13 9,432,800 15,000 Washington, Ser 1993 A....................................... 5.75 10/ 1/17 14,065,500 - - - - - ---------- ------------ 100,630 99,782,566 - - - - - ---------- ------------ EDUCATIONAL FACILITIES REVENUE (2.4%) 10,000 District of Columbia, Howard University Refg Ser 1992 A...... 6.75 10/ 1/12 10,270,100 2,500 University of Illinois, Auxiliary Ser 1991................... 5.75 4/ 1/22 2,292,675 1,000 New Hampshire Higher Educational & Health Facilities Authority, University of New Hampshire Ser 1992 (MBIA Insured)................................................... 6.25 7/ 1/20 982,200 Scranton - Lackawanna Health & Welfare Authority, Pennsylvania, 3,000 University of Scranton 1992 Ser A.......................... 6.40 3/ 1/07 3,052,200 3,300 University of Scranton 1992 Ser A.......................... 6.50 3/ 1/13 3,301,947 - - - - - ---------- ------------ 19,800 19,899,122 - - - - - ---------- ------------ ELECTRIC REVENUE (10.2%) 9,500 Orlando Utilities Commission, Florida, Ser 1991 A............ 5.50 10/ 1/26 8,383,560 10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B.... 6.375 1/ 1/16 9,797,700 5,000 Hastings, Nebraska, Refg Ser 1992............................ 6.30 1/ 1/19 4,931,700 North Carolina Municipal Power Agency #1, 2,000 Catawba Ser 1992........................................... 6.00 1/ 1/10 2,007,860 3,775 Catawba Ser 1992........................................... 5.75 1/ 1/15 3,471,150 10,000 Hamilton! Ohio, Refg 1992 Ser A (FGIC Insured)............... 6.00 10/15/23 9,704,100 20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser (MBIA Insured)......................................... 6.375 1/ 1/25 19,537,200 8,080 South Carolina Public Service Authority, 1986 Refg Ser C..... 7.30 7/ 1/21 8,489,414 Grant County Public Utility District #2, Washington, 8,220 Priest Rapids Hydro Second Ser 1992 A...................... 5.00 1/ 1/23 6,616,278 8,000 Wanapum Hydro, Second Ser 1992 A........................... 6.375 1/ 1/23 7,900,400 5,000 Wanapum Hydro, Second Ser 1992 B (AMT)..................... 6.75 1/ 1/23 5,153,150 - - - - - ---------- ------------ 89,575 85,992,512 - - - - - ---------- ------------ HOSPITAL REVENUE (10.0%) 5,000 Colorado Health Facilities Authority, Sisters of Charity Health Care Systems Inc Ser 1992 A (AMBAC Insured)......... 6.00 5/15/22 4,771,900 6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991 (MBIA Insured)............................................. 6.00 12/ 1/21 5,765,460 9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts General Hospital Ser F (AMBAC Insured)....... 6.00 7/ 1/15 8,926,898 10,000 Missouri Health & Education Facilities Authority, Health Midwest Ser 1992 B (MBIA Insured).......................... 6.25 2/15/22 9,869,000 5,000 New Hampshire Higher Educational & Health Facilities Authority, Mary Hitchcock Memorial Hospital Ser 1993 (FGIC Insured)................................................... 5.25 8/15/21 4,262,000 10,000 New York State Medical Care Facilities Finance Agency, The Mount Sinai Hospital - FHA Insured Mortgage 1992 Ser C..... 5.75 8/15/19 9,131,300
4 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued) - - - - - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value - - - - - ---------- ------ -------- ------------ $ 1,000 Akron, Bath & Copley Joint Township Hospital District, Ohio, Summa Health Ser 1992 A.................................... 6.25 % 11/15/07 $ 1,003,020 4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992....................................................... 5.50 11/15/11 4,072,140 10,000 Allegheny County Hospital Development Authority, Pennsylvania, Presbyterian University Health Ser 1992 A (MBIA Insured)... 6.25 11/ 1/23 9,854,200 5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/ The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA Insured)............................................. 6.25 7/ 1/16 4,958,000 5,000 Erie County Hospital Authority, Pennsylvania, St Vincent Health Center Ser B of 1992 (MBIA Insured)................. 6.375 7/ 1/22 5,008,650 3,000 Philadelphia Hospitals & Higher Education Facilities Authority, Pennsylvania, Chesnut Hill Hospital Ser of 1992....................................................... 6.375 11/15/11 2,927,280 5,000 South Dakota Health & Educational Facilities Authority, Queen of Peace Hospital Ser 1992 (MBIA Insured).................. 6.70 7/ 1/17 5,117,800 8,500 Fredricksburg Industrial Development Authority, Virginia, MWH Medicorp Obligated Group Ser 1991 B INFLOS (FGIC Insured) ... 10.127+ 8/15/23 8,850,625 - - - - - ---------- ------------ 87,250 84,518,273 - - - - - ---------- ------------ INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (7.2%) 3,000 Valdez, Alaska, BP Pipelines Inc Refg Ser 1993 B............. 5.50 10/ 1/28 2,585,640 6,000 California Pollution Control Financing Authority, Keller Cannon Landfill Co/Browning - Ferris Industries Inc Ser 1992 (AMT)................................................. 6.875 11/ 1/27 6,087,180 5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B... 6.35 2/ 1/22 5,029,250 3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)... 7.15 2/ 1/23 3,654,280 2,500 Illinois Development Finance Authority, Central Illinois Public Service Co 1993 Ser B-2............................. 5.90 6/ 1/28 2,320,800 5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT) (MBIA Insured)............................................. 6.65 6/ 1/17 5,110,800 1,200 Salem County Pollution Control Financing Authority, New Jersey, El Du Pont de Nemours & Co 1992 Ser A (AMT)........ 6.125 7/15/22 1,163,100 15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co Ser 1984............................................ 6.50 10/ 1/14 15,026,550 10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1992 B (MBIA Insured).................................. 6.375 4/ 1/12 10,094,000 10,000 Mason County, West Virginia, Appalachian Power Co Ser J...... 6.60 10/ 1/22 9,749,000 - - - - - ---------- ------------ 61,200 60,820,600 - - - - - ---------- ------------ MORTGAGE REVENUE -- MULTI-FAMILY (5.9%) 7,000 Illinois Housing Development Authority, Ser I................ 6.625 9/ 1/12 6,958,700 25,000 Michigan Housing Development Authority, Rental 1992 Ser A (Bifurcated FSA Insured)................................... 6.50 4/ 1/23 24,772,750 Missouri Housing Development Commission, 7,845 Federally Insured Mortgage Loans Refg Ser 11/15/92......... 6.50 7/ 1/16 7,885,323 10,000 Federally Insured Mortgage Loans Refg Ser 11/15/92......... 6.60 7/ 1/24 10,051,100 - - - - - ---------- ------------ 49,845 49,667,873 - - - - - ---------- ------------ MORTGAGE REVENUE -- SINGLE FAMILY (8.4%) 7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A....... 6.60 12/ 1/23 8,217,300 20,000 Connecticut Housing Finance Authority, 1992 Ser B............ 6.70 11/15/12 20,392,400 9,325 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C................................................. 6.50 12/ 1/11 9,423,752 1,400 Idaho Housing Agency, 1992 Ser E (AMT)....................... 6.75 7/ 1/12 1,420,006 Minnesota Housing & Finance Agency, 3,460 Ser 1992 D-1............................................... 6.50 1/ 1/17 3,443,323 7,480 Ser 1992 CD-1 (AMT)........................................ 6.75 7/ 1/23 7,495,857 20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT).. 6.80 7/ 1/21 20,529,395 - - - - - ---------- ------------ 69,525 70,922,033 - - - - - ---------- ------------
5 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued) - - - - - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value - - - - - ---------- ------ -------- ------------ NURSING & HEALTH RELATED FACILITIES REVENUE (2.1%) $ 6,265 University of Michigan, Medical Service Plan Ser 1991........ 6.50 % 12/ 1/21 $ 6,344,691 11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority, Minnesota, Group Health Plan Inc Ser 1992.................. 6.90 10/15/22 11,554,875 - - - - - ---------- ------------ 17,515 17,899,566 - - - - - ---------- ------------ PUBLIC FACILITIES REVENUE (5.1%) 9,800 Orlando, Florida, Cap Impr Refg Ser 1992..................... 6.00 10/ 1/22 9,338,126 13,500 Atlanta Downtown Development Authority, Georgia, Underground Atlanta Refg Ser 1992...................................... 6.25 10/ 1/16 13,338,675 5,000 Illinois, Civic Center Ser 1990 A (AMBAC Insured)............ 6.00 12/15/15 4,789,600 7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser 1992 D................................................. 6.75 2/ 1/20 7,333,224 8,550 Maine Municipal Bond Bank, 1992 Ser E........................ 6.25 11/ 1/12 8,485,191 - - - - - ---------- ------------ 44,220 43,284,816 - - - - - ---------- ------------ RESOURCE RECOVERY REVENUE (2.6%) 17,235 Broward County, Florida, Broward Waste Energy Co North Ser 1984... 7.95 12/ 1/08 19,050,707 2,500 Union County Utilities Authority, New Jersey, Solid Waste 1991 Ser A (AMT)........................................... 7.20 6/15/14 2,579,425 - - - - - ---------- ------------ 19,735 21,630,132 - - - - - ---------- ------------ TRANSPORTATION FACILITIES REVENUE (15.5%) 10,000 Los Angeles County Transportation Commission, California, Sales Tax Second Sr Ser 1992-A (Prerefunded)............... 6.75 7/ 1/19 11,045,900 Dade County, Florida, Aviation 3,000 1992 Ser B (MBIA Insured).................................. 6.55 10/ 1/13 3,096,930 5,000 1992 Ser B (MBIA Insured) (AMT)............................ 6.60 10/ 1/22 5,136,000 13,250 Chicago, Illinois, Chicago O'Hare Int'l Airport - Int'l Terminal Ser 1992 (AMT) (MBIA Insured)..................... 6.75 1/ 1/12 13,723,820 30,000 Illinois Toll Highway Authority, Priority 1992 Ser A......... 6.37 1/ 1/15 29,472,600 15,000 St Louis, Missouri, Lambert - St Louis Int'l Airport Ser 1992 (AMT) (FGIC Insured)....................................... 6.00 7/ 1/08 14,998,200 34,595 Clark County, Nevada, Las Vegas - McCarran Int'l Airport Passenger Facility Charge 1992 Ser B (AMT)................. 6.25 7/ 1/22 32,755,238 Puerto Rico Highway & Transportation Authority, 6,000 Refg Ser V................................................. 6.625 7/ 1/12 6,121,560 7,115 Ser T (Prerefunded)........................................ 6.625 7/ 1/18 7,216,531 1,885 Ser T...................................................... 6.625 7/ 1/18 2,068,467 6,000 Refg Ser X................................................. 5.25 7/ 1/21 5,075,220 - - - - - ---------- ------------ 131,845 130,710,466 - - - - - ---------- ------------ WATER & SEWER REVENUE (10.8%) 10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC Insured)............................................ 6.50 10/ 1/14 10,196,200 9,750 DeKalb County, Georgia, Water & Sewer Ser 1993............... 5.25 10/ 1/23 8,317,433 Massachusetts Water Resources Authority, 15,000 1992 Ser B................................................. 5.50 11/ 1/15 13,338,750 15,000 1990 Ser A (Prerefunded)................................... 6.50 12/ 1/19 16,293,750 20,000 New York City Municipal Water Finance Authority, New York, Ser 1993 A................................................. 6.00 6/15/17 19,097,000 8,000 Houston, Texas, Water & Sewer Lien Jr Refg Ser 1991 C (AMBAC Insured)................................................... 6.375 12/ 1/17 7,999,360 6,000 Fairfax County Water Authority, Virginia, Refg Ser 1992...... 6.00 4/ 1/22 5,719,020 8,915 Roanoke County, Virginia, Water Ser 1991 (FGIC Insured) (Prerefunded).............................................. 6.50 7/ 1/21 9,662,523 - - - - - ---------- ------------ 92,665 90,624,036 - - - - - ---------- ------------
6 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued) - - - - - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value - - - - - ---------- ------- -------- ------------ OTHER REVENUE (2.3%) New York State Local Government Assistance Corporation, $ 2,000 Ser 1991 A................................................. 7.125 % 4/ 1/11 $ 2,125,180 15,000 Ser 1991 C (Prerefunded)................................... 7.00 4/ 1/21 16,771,350 - - - - - ---------- ------------ 17,000 18,896,530 - - - - - ---------- ------------ 800,805 TOTAL MUNICIPAL BONDS - - - - - ---------- (IDENTIFIED COST $780,556,837)...................................... 794,648,525 ------------ SHORT-TERM MUNICIPAL OBLIGATIONS (4.0%) 8,000 Louisiana Offshore Terminal Authority, Deepwater Port LOOP Inc (Tender 5/2/94)........................................ 2.85* 9/ 1/06 8,000,000 7,000 Louisiana Recovery District, Sales Tax Ser 1988 (FGIC Insured) (Tender 5/2/94)................................... 3.00* 7/ 1/97 7,000,000 6,000 New York City, New York, Subser A-8 (Tender 5/2/94).......... 2.95* 8/ 1/18 6,000,000 12,500 Salt Lake County, Utah, Service Station Holdings British Petroleum Ser 1994 (Tender 5/2/94)......................... 2.95* 2/ 1/08 12,500,000 - - - - - ---------- ------------ 33,500 TOTAL SHORT - TERM MUNICIPAL OBLIGATIONS - - - - - ---------- (IDENTIFIED COST $33,500,000)....................................... 33,500,000 ------------ $ 834,305 TOTAL INVESTMENTS (IDENTIFIED COST $814,056,837)(A)..................... ========== 98.3% 828,148,525 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 1.7 14,532,191 ------ ------------ NET ASSETS.............................................................. 100.0% $842,680,716 ------ ------------ ------ ------------
- - - - - --------------- + Current coupon rate for residual interest bonds. This rate resets periodically as the auction rate on the related short-term securities fluctuates. * Variable or floating rate securities. Coupon rate shown reflects current rate. (a) The aggregate cost for federal income tax purposes is $814,056,837; the aggregate gross unrealized appreciation is $17,304,902 and the aggregate gross unrealized depreciation is $3,213,214, resulting in net unrealized appreciation of $14,091,688. See Notes to Financial Statements GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets April 30, 1994 (unaudited) - - - - - -------------------------------------------------------------------------------- Alaska............... 1.28% Idaho................ 0.17% Nevada............... 6.03% South Dakota......... 0.61% California........... 3.24 Illinois............. 7.54 New Hampshire........ 0.62 Texas................ 3.28 Colorado............. 2.91 Louisiana............ 1.78 New Jersey........... 0.44 Utah................. 1.48 Connecticut.......... 2.42 Maine................ 1.01 New York............. 8.56 Virginia............. 5.31 District of Columbia 2.11 Massachusetts........ 4.59 North Carolina....... 0.65 Washington........... 4.00 Florida.............. 7.07 Michigan............. 3.69 Ohio................. 1.75 West Virginia........ 1.17 Georgia.............. 4.85 Minnesota............ 2.67 Pennsylvania......... 3.45 ---- Hawaii............... 1.54 Missouri............. 5.08 Puerto Rico.......... 2.43 Total................ 98.3% Indiana.............. 0.87 Nebraska............. 0.59 South Carolina....... 5.11 ====
7 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS - - - - - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES April 30, 1994 (unaudited) - - - - - -------------------------------------- ASSETS: Investments in securities, at value (identified cost $814,056,837) (Note 1)............................ $ 828,148,525 Cash.................................. 838,229 Interest receivable................... 14,147,919 Deferred organizational expenses (Note 1)............................ 37,591 Prepaid expenses...................... 285,273 ------------- TOTAL ASSETS................. 843,457,537 ------------- LIABILITIES: Payable for common shares of beneficial interest repurchased..... 381,721 Investment management fee payable (Note 2)............................ 293,876 Accrued expenses (Note 3)............. 101,224 ------------- TOTAL LIABILITIES............ 776,821 ------------- NET ASSETS: Preferred shares of beneficial interest (1,000,000 shares authorized of non-participating $.01 par value, 5,600 shares outstanding (Note 4))................................. 280,000,000 ------------- Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 38,836,913 shares outstanding (Note 5))............... 539,550,044 Accumulated undistributed net realized gain on investments................. 4,551,119 Net unrealized appreciation on investments......................... 14,091,688 Accumulated undistributed net investment income................... 4,487,865 ------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS........ 562,680,716 ------------- TOTAL NET ASSETS............. $ 842,680,716 =========== NET ASSET VALUE PER COMMON SHARE ($562,680,716 divided by 38,836,913 common shares outstanding).......... $14.49 ------ ------ STATEMENT OF OPERATIONS For the six months ended April 30, 1994 (unaudited) - - - - - -------------------------------------- INVESTMENT INCOME: INTEREST INCOME...................... $ 26,605,642 ------------- EXPENSES Investment management fee (Note 2).. 1,560,088 Auction commission fees............. 395,542 Transfer agent fees and expenses.... 147,053 Professional fees................... 48,422 Auction agent fees.................. 41,689 Shareholder reports and notices..... 26,947 Registration fees................... 18,462 Trustees' fees and expenses (Note 3)................................ 13,372 Organizational expenses (Note 1).... 5,452 Other............................... 18,558 ------------- TOTAL EXPENSES.................... 2,275,585 ------------- NET INVESTMENT INCOME........... 24,330,057 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 1): Net realized gain on investments.... 4,516,820 Net change in unrealized appreciation on investments....... (75,202,007) ------------- NET LOSS ON INVESTMENTS........... (70,685,187) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $ (46,355,130) ===========
See Notes to Financial Statements 8 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST STATEMENT OF CHANGES IN NET ASSETS - - - - - --------------------------------------------------------------------------------
For the six months ended For the year April 30, 1994 ended (unaudited) October 31, 1993 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income.......................................... $ 24,330,057 $ 48,188,896 Net realized gain on investments............................... 4,516,820 1,259,985 Net change in unrealized appreciation on investments........... (75,202,007) 97,226,437 ------------------ ------------------ Net increase (decrease) in net assets resulting from operations......................................... (46,355,130) 146,675,318 ------------------ ------------------ Dividends to preferred shareholders from net investment income... (4,117,547) (8,158,203) Dividends to common shareholders from net investment income...... (21,416,236) (35,839,484) Distribution to common shareholders from net realized gain on investments.................................................... (1,183,713) -0- ------------------ ------------------ Total dividends and distributions......................... (26,717,496) (43,997,687) ------------------ ------------------ Transactions in common shares of beneficial interest (Note 5).... (9,156,721) (6,118,244) ------------------ ------------------ Gross proceeds from issuance of preferred shares (Note 4)........ -0- 280,000,000 ------------------ ------------------ Total increase (decrease)................................. (82,229,347) 376,559,387 NET ASSETS: Beginning of period.............................................. 924,910,063 548,350,676 ------------------ ------------------ END OF PERIOD (including undistributed net investment income of $4,487,865 and $5,691,591, respectively)....................... $ 842,680,716 $ 924,910,063 =============== =================
See Notes to Financial Statements 9 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) - - - - - -------------------------------------------------------------------------------- 1. ORGANIZATION AND ACCOUNTING POLICIES -- InterCapital Quality Municipal Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. It was organized on March 12, 1992 as a Massachusetts business trust and had no operations until September 29, 1992 other than matters relating to the sale and issuance of 7,113 common shares of beneficial interest to Dean Witter Reynolds Inc., an affiliate of the Investment Manager. 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 grid 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. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). In computing net investment income, the Trust amortizes premiums and original issue discounts on fixed income securities. Additionally, with respect to market discount on bonds purchased after April 30, 1993, a portion of any capital gain realized upon disposition is recharacterized as taxable investment income. Realized gains and losses on security transactions are determined on the identified cost method. 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 reclassifications. 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 and Offering Expenses -- The Trust's Investment Manager paid the organizational and offering expenses of the Trust's common shares in the amount of $55,000 and $670,362, respectively, and paid $453,881 in offering expenses of the Trust's preferred shares. Organizational expenses have been reimbursed by the Trust of the full amount thereof and are being amortized by the straight-line method over a period not to exceed five years from the commencement of operations. Offering expenses have been reimbursed by the Trust and were charged to capital at the time of issuance of the Trust's respective shares. 10 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - - - - - -------------------------------------------------------------------------------- 2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management Agreement (the "Agreement") with Dean Witter InterCapital Inc., 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, in addition to managing the Trust's investments, the Investment Manager maintains certain of the Trust's book and records and furnishes office space and 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 the proceeds from sales of portfolio securities for the six months ended April 30, 1994, excluding short-term investments, aggregated $9,506,250 and $51,752,516, respectively. Effective 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 independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the six months ended April 30, 1994, included in Trustee's fees and expenses in the Statement of Operations, amounted to $3,945. At April 30, 1994, the Trust had an accrued pension liability of $3,913 which is included in accrued expenses in the Statement of Assets and Liabilities. Dean Witter Trust Company, an affiliate of the Investment Manager, is the Trust's transfer agent. At April 30, 1994, the Trust had transfer agent fees and expenses payable of approximately $35,000. Dean Witter Distributors Inc., the Trust's principal underwriter and an affiliate of the Investment Manager, has informed the Trust that it received $4,900,000 in underwriting discounts and commissions in connection with the offering of the preferred shares. 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 the approval of the common shareholders. On November 12, 1992, the Trust issued 1,120 shares each of Series 1 through 5 Auction Rate Preferred Shares ("Preferred Shares") for gross total proceeds of $280,000,000. The preferred shares have a liquidation value of $50,000 per share plus any accumulated but unpaid dividends plus the redemption premium, if any, and are redeemable (in whole or in part) on any dividend payment date. Dividends, which are cumulative, are reset through auction procedures:
Range of Shares Series Rate* Reset Date Dividend Rate** - - - - - ------ --- ------ ---------- ---------------- 1,120 1 2.970% 6/2/94 2.97% 1,120 2 3.049% 5/4/94 1.84% to 3.18 % 1,120 3 2.524% 8/3/94 2.75% to 2.524% 1,120 4 2.930% 7/6/94 2.93% 1,120 5 2.875% 9/1/94 2.85% to 2.875%
- - - - - --------------- * As of April 30, 1994. ** For the six months ended April 30, 1994. 11 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - - - - - -------------------------------------------------------------------------------- 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 repurchasing 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 will 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 Par Value in Excess of Shares of Shares Par Value ----------- --------- ------------- Balance (Note 1)................................................ 7,113 $ 71 $ 99,938 Shares issued at close of public offering on September 29, 1992*......................................................... 37,000,000 370,000 519,205,000 Shares issued on October 27, 1992 to cover over-allotment....... 2,500,000 25,000 35,125,000 ----------- --------- ------------- Balance, October 31, 1992....................................... 39,507,113 395,071 554,429,938 ----------- --------- ------------- Offering costs and underwriting discounts associated with the issuance of preferred shares.................................. (5,379,244) Treasury shares purchased and retired (weighted average discount 6.04%)........................................................ (50,000) (500) (738,500) ----------- --------- ------------- Balance, October 31, 1993....................................... 39,457,113 394,571 548,312,194 ========= ======== =========== Treasury shares purchased and retired (weighted average discount 5.23%)**..................................... (620,200) (6,202) (9,150,519) ----------- --------- ------------- Balance, April 30, 1994......................................... 38,836,913 $ 388,369 $ 539,161,675 ========= ======== ===========
- - - - - --------------- * Net of offering costs. ** The Trustees have voted to retire the shares repurchased. 6. DIVIDENDS TO COMMON SHAREHOLDERS -- The Trust has declared the following dividends from net investment income:
Declaration Amount Per Record Payable Date Share Date Date - - - - - --------------- ---------- -------------- -------------- April 26, 1994 $0.0825 May 6, 1994 May 20, 1994 May 31, 1994 $0.0825 June 10, 1994 June 24, 1994
12 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - - - - - -------------------------------------------------------------------------------- 7. SELECTED QUARTERLY FINANCIAL DATA:
Quarters Ended* ------------------------------------- 4/30/94 1/31/94 ----------------- ----------------- Per Per Total Share Total Share -------- ----- -------- ----- Total investment income................................................ $ 13,038 $0.34 $ 13,568 $0.35 Net investment income.................................................. 11,934 0.30 12,396 0.32 Net realized and unrealized gain (loss) on investments................. (77,138) (1.96) 6,453 0.16
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............... $13,682 $0.35 $13,417 $0.34 $13,500 $0.34 $11,879 $0.30 Net investment income................. 12,517 0.32 12,406 0.31 12,382 0.31 10,884 0.28 Net realized and unrealized gain on investments......................... 25,269 0.64 14,922 0.38 25,090 0.64 33,205 0.84
Quarters Ended* ---------------- 10/31/92** ---------------- Per Total Share ------- ----- Total investment income................................................................ $ 1,690 $0.04 Net investment income.................................................................. 1,500 0.04 Net realized and unrealized loss on investments........................................ (7,975) (0.20)
- - - - - --------------- * Totals expressed in thousands of dollars. ** For the period September 29, 1992 (commencement of operations) through October 31, 1992. 13 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL HIGHLIGHTS - - - - - -------------------------------------------------------------------------------- Selected data and ratios for a common share of beneficial interest outstanding throughout each period:
For the six For the period months ended For the year September 29, 1992* April 30, 1994** ended through (unaudited) October 31, 1993 October 31, 1992 ---------------- ---------------- ------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period........ $ 16.34 $ 13.88 $ 14.06 ---------------- ---------------- ------------------- Net investment income.................... 0.62 1.22 0.04 Realized and unrealized gain (loss) on investments - net...................... (1.80) 2.50 (0.20) ---------------- ---------------- ------------------- Total from investment operations............ (1.18) 3.72 (0.16) ---------------- ---------------- ------------------- Less: dividends, distributions and other charges: Dividends from net investment income..... (0.54) (0.91) -0- Common share equivalent of dividends paid to preferred shareholders.............. (0.10) (0.21) -0- Distributions to common shareholders..... (0.03) -0- -0- Offering costs charged against capital... -0- (0.14) (0.02) ---------------- ---------------- ------------------- Total dividends, distributions and other charges.................................. (0.67) (1.26) (0.02) ---------------- ---------------- ------------------- Net asset value, end of period.............. $ 14.49 $ 16.34 $ 13.88 ============ ============= ================ Market value, end of period................. $ 13.50 $ 15.875 $ 15.125 ------------- -------------- ---------------- ------------- -------------- ---------------- TOTAL INVESTMENT RETURN+...................... (11.65)%(1) 11.41% 0.83%(1) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands).... $ 842,681 $ 924,910 $ 548,350 Ratios to average net assets of common shareholders: Total expenses........................... 0.74%(2) 0.71% 0.42%(2) Net investment income before preferred stock dividends........................ 7.94%(2) 7.95% 3.29%(2) Preferred stock dividends................ 1.34%(2) 1.35% N/A Net investment income available to common shareholders........................... 6.60%(2) 6.60% 3.29%(2) Asset coverage on preferred shares at end of period................................... 278% 330% N/A Portfolio turnover rate..................... 1% 4% 4%
- - - - - --------------- * 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 first and 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 - - - - - -------------------------------------------------------------------------------- The financial statements included herein have been taken from the records of the Trust without examination by the independent accountants and accordingly they do not express an opinion thereon. 14 (This page has been left blank intentionally.) 15 (This page has been left blank intentionally.) 16 TRUSTEES Jack F. Bennett Michael Bozic Charles A. Fiumefreddo Edwin J. Garn John R. Haire Dr. John E. Jeuck Dr. Manuel H. Johnson Paul Kolton Michael E. Nugent Philip J. Purcell John L. Schroeder Edward R. Telling 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 LEGAL COUNSEL Sheldon Curtis Two World Trade Center New York, New York 10048 INDEPENDENT ACCOUNTANTS Price Waterhouse 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 INCOME TRUST Semiannual Report April 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----