-----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, k0mpssprpGvHGfM1mFRCZOXdxmze3nWKqfHb3wseSQRehGt70+QDU3ktXBmXveK0 JinHVxAjg48pK22ov/NGbw== 0000950123-95-001779.txt : 19950622 0000950123-95-001779.hdr.sgml : 19950622 ACCESSION NUMBER: 0000950123-95-001779 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950621 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000885125 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [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: 95548201 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: - -------------------------------------------------------------------------------- Fixed-income market conditions have steadily improved since late last year. Bonds began to rally in November 1994 on signs of slower economic growth in the wake of a progressively tighter Federal Reserve monetary policy. The recent trend toward lower long-term interest rates is in marked contrast to most of 1994 when rapidly rising rates created one of the most severe bear markets for bonds in recent history. MUNICIPAL MARKET CONDITIONS Long-term municipal bond yields, as tracked by The Bond Buyer Revenue Bond Index*, dropped from a high of 7.37 percent in November 1994 to 6.29 percent at the end of April 1995. This 108 basis point decline in yield corresponded to a 13 percent price increase for 30-year municipal bonds. Short-term municipal interest rates remained basically unchanged over the past six months. Thus, the yield spread or difference between short-term and long-term municipal bond interest rates narrowed as long rates declined. The seasonal demand for municipals in December more than offset the uncertainty caused by the Orange County, California bankruptcy filing. The market anticipated cash inflows from the reinvestment of coupons and the proceeds from bond calls and maturities in January at a time of scarce supply. Tax-exempt bonds outperformed U.S. Treasury bonds through February 1995. The ratio of the Revenue Bond Index yield to the 30-year U.S. Treasury yield fell from a high of 92 percent in November to 84 percent at the end of February. A declining ratio means that municipal bond prices have been stronger than U.S. Treasury prices. Tax reform proposals that advanced the concept of a flat tax were partially responsible for municipals underperforming Treasuries in March and April. By the end of April, the Revenue/Treasury yield ratio had risen to 86 percent. The pace of new-issue underwriting over the first four months of 1995 was 40 percent below the same period last year. With bond maturities and calls estimated to exceed new issues coming to market in 1995 the outstanding supply of municipal securities is expected to decline. This imbalance should continue to strengthen municipal market conditions. PERFORMANCE The net asset value (NAV) of InterCapital Quality Municipal Income Trust (IQI) increased from $13.62 to $14.71 per share during the six month period ended April 30, 1995. Based on this NAV change plus reinvestment of tax-free dividends totaling $0.495 per share, the Trust's total NAV return for the period was 12.20 percent. Concurrently, the Trust's market price on the New York Stock Exchange rose from $11.875 to $13.75 per share. Based on this stock price change and reinvestment of dividends, the Trust's total market return for the period was 20.37 percent. The Trust began the period trading at a - --------------- * The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25 selected municipal revenue bonds with 30-year maturities. Credit ratings of these bonds range from Aa1 to Baa1 by Moody's and AA+ to A- by Standard & Poor's. 2 12.8 percent discount to NAV and closed at a 6.5 percent discount. The monthly dividend was maintained at $0.0825 per share. PORTFOLIO STRUCTURE As of April 30, 1995, IQI's long-term investments were diversified among 14 specific municipal sectors and 69 issuers. The four largest sectors -- general obligation, transportation facilities revenue, electric revenue and hospital revenue -- represented 47 percent of net assets. The average maturity and call protection of the Trust's long-term holdings were 21 years and 7 years, respectively. At the end of the period, the Trust's net assets totaled $740 million. The credit-quality ratings of the Trust's long-term portfolio are summarized below:
Moody's or Standard & Poor's Rating Percent ------------------------------------------------------------------- ------- Aaa or AAA......................................................... 36% Aa or AA........................................................... 28 A or A............................................................. 36
THE IMPACT OF LEVERAGING The Trust's common shares continue to be leveraged. As reported previously, leverage is created through the issuance of auction rate preferred shares (ARPS). The ARPS auction periods normally range between one week and one year. Proceeds from ARPS underwritings are used to purchase additional long-term municipal bonds. Following the payment of ARPS dividends, the common shares earn incremental income when the portfolio yield is higher than the cost of the preferred shares (dividends plus operating and remarketing expenses). Although higher short-term interest rates have narrowed the yield spread this year, ARPS continue to provide positive incremental income to common shareholders. Leverage also impacts NAV. ARPS normally account for one-third of a leveraged fund's underwritten capital structure. This produces a volatility factor for common shares of 1.5 times the price change of bonds held in the portfolio. Since the value of the preferred shares does not fluctuate, the NAV of the common shares reflects the full market price change of the portfolio's investments. As bond prices eroded in 1994 the degree of leverage and volatility increased. The purchase and retirement of ARPS mitigates the impact of leverage. However, as bonds rallied in 1995, leverage factor contributed to improved performance. Over the last six months, the Trust purchased and retired $33 million in par amount of ARPS. Currently, $208 million ARPS are outstanding. Additional ARPS purchases may occur if ARPS become unprofitable (a negative yield spread) or the degree of leverage increases beyond its normal range. DIVIDEND RESERVES At the end of the period, the Trust had undistributed net investment income of $0.118 per share available for future distributions. This dividend reserve or "cushion" helps sustain the Trust's current monthly dividend. Higher yields in future ARPS auctions and ARPS retirements may further erode the cushion. Future declines in IQI's cushion may lead to adjustment of the common-share dividend. 3 LOOKING AHEAD Slower economic growth in 1995 and the extent of the Federal Reserve Board's previous interest rate moves have improved bond market expectations. Investor demand for municipal securities should also be sustained by significant bond maturities, calls for redemption and diminished new-issue supply. Changing market conditions and the profitability of ARPS are among the factors that will continue to determine the Trust's future level of income and influence its market price. The Trust's procedure for reinvestment of all dividends and distributions on common shares is through purchase 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 six-month period ended April 30, 1995, the Trust purchased 1,348,300 shares of common stock at a weighted average discount of 10.52 percent. The Trust may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including their purchase in the open market or in privately negotiated transactions. We appreciate your ongoing support of InterCapital Quality Municipal Income Trust and look forward to continuing to serve your investment needs. Sincerely yours, /s/ C. FIUMEFREDDO ---------------------- Charles A. Fiumefreddo Chairman of the Board 4 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value --------- ------- --------- ------------- MUNICIPAL BONDS (98.0%) GENERAL OBLIGATION (13.6%) $ 20,000 Jefferson County School District # R-1, Colorado, Ser 1992 (AMBAC)..................................... 6.00 % 12/15/12 $ 20,349,200 7,500 District of Columbia, 1992 Ser B (MBIA)................ 6.30 06/01/12 7,441,350 Hawaii, 5,000 1992 Ser BZ.......................................... 6.00 10/01/10 5,075,250 8,000 1992 Ser BZ.......................................... 6.00 10/01/11 8,142,000 4,000 Cook County, Illinois, Ser 1992 C (FGIC)............... 6.00 11/15/09 4,030,720 Washoe County School District, Nevada, Ltd Tax 4,730 10/01/92 A (AMBAC)................................... 6.25 04/01/11 4,820,248 8,100 10/01/92 A (AMBAC)................................... 6.25 04/01/13 8,168,283 New York City, New York, 5,500 1993 Ser B........................................... 7.00 10/01/11 5,642,395 2,100 1993 Ser B........................................... 7.00 10/01/13 2,140,383 3,300 1993 Ser B........................................... 7.00 10/01/14 3,361,182 5,000 1993 Ser B........................................... 6.75 10/01/15 4,972,250 2,400 1992 Ser B........................................... 7.00 02/01/20 2,440,416 10,000 San Antonio, Texas, Refg Ser 1992...................... 5.75 08/01/13 9,691,400 15,000 Washington, Ser 1993 A................................. 5.75 10/01/17 14,256,600 --------- ------------- 100,630 100,531,677 --------- ------------- EDUCATIONAL FACILITIES REVENUE (2.6%) 10,000 District of Columbia, Howard University Refg Ser 1992 A.................................................... 6.75 10/01/12 10,166,400 2,500 University of Illinois, Auxiliary Ser 1991............. 5.75 04/01/22 2,331,850 Scranton - Lackawanna Health & Welfare Authority, Pennsylvania, 3,000 University of Scranton 1992 Ser A.................... 6.40 03/01/07 3,019,740 3,300 University of Scranton 1992 Ser A.................... 6.50 03/01/13 3,386,559 --------- ------------- 18,800 18,904,549 --------- ------------- ELECTRIC REVENUE (11.0%) 9,500 Orlando Utilities Commission, Florida, Ser 1991 A...... 5.50 10/01/26 8,608,425 10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B........................................... 6.375 01/01/16 10,016,700 5,000 Hastings, Nebraska, Refg Ser 1992...................... 6.30 01/01/19 5,015,750 10,000 Hamilton! Ohio, Refg 1992 Ser A (FGIC)................. 6.00 10/15/23 9,746,800 20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser (MBIA)...................................... 6.375 01/01/25 19,800,200 8,080 South Carolina Public Service Authority, 1986 Refg Ser C.................................................... 7.30 07/01/21 8,439,156 Grant County Public Utility District #2, Washington, 8,220 Priest Rapids Hydro Second Ser 1992 A.................. 5.00 01/01/23 6,627,457 8,000 Wanapum Hydro Second Ser 1992 A...................... 6.375 01/01/23 8,049,200 5,000 Wanapum Hydro Second Ser 1992 B (AMT)................ 6.75 01/01/23 5,141,300 --------- ------------- 83,800 81,444,988 --------- -------------
5 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) (continued) - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value --------- ------- --------- ------------- HOSPITAL REVENUE (9.0%) $ 5,000 Colorado Health Facilities Authority, Sisters of Charity Health Care Systems Inc 1992 A (AMBAC)....... 6.00 % 05/15/22 $ 4,875,800 6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991 (MBIA)...................................... 6.00 12/01/21 5,851,740 9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts General Hospital Ser F (AMBAC).............................................. 6.00 07/01/15 9,068,885 10,000 Missouri Health & Education Facilities Authority, Health Midwest Ser 1992 B (MBIA)..................... 6.25 02/15/22 10,032,200 10,000 New York State Medical Care Facilities Finance Agency, The Mount Sinai Hospital - FHA Insured Mortgage 1992 Ser C........................................... 5.75 08/15/19 9,366,400 4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992............................................. 5.50 11/15/11 4,077,360 10,000 Allegheny County Hospital Development Authority, Pennsylvania, Presbyterian University Health Ser 1992 A (MBIA)............................................. 6.25 11/01/23 10,023,500 5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA).................................... 6.25 07/01/16 5,041,000 3,000 Philadelphia Hospitals & Higher Education Facilities Authority Pennsylvania, Chestnut Hill Hospital Ser of 1992................................................. 6.375 11/15/11 2,989,230 5,000 South Dakota Health & Educational Facilities Authority, Queen of Peace Hospital Ser 1992 (MBIA).............. 6.70 07/01/17 5,198,950 --------- ------------- 67,750 66,525,065 --------- ------------- INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (7.5%) 6,000 California Pollution Control Financing Authority, Keller Cannon Landfill Co/Browning-Ferris Industries Inc Ser 1992 (AMT)................................... 6.875 11/01/27 6,026,820 5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B............................................... 6.35 02/01/22 5,048,100 3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)....................................... 7.15 02/01/23 3,660,230 5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT) (MBIA)................................ 6.65 06/01/17 5,150,250 15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co Ser 1984........................... 6.50 10/01/14 15,213,750 10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1992 B (MBIA)................................. 6.375 04/01/12 10,215,800 10,000 Mason County, West Virginia, Appalachian Power Co Ser J.................................................... 6.60 10/01/22 10,041,000 --------- ------------- 54,500 55,355,950 --------- ------------- MORTGAGE REVENUE - MULTI-FAMILY (6.1%) 7,000 Illinois Housing Development Authority, Ser I.......... 6.625 09/01/12 7,112,910 20,000 Michigan Housing Development Authority, Rental 1992 Ser A (Bifurcated FSA)................................... 6.50 04/01/23 20,223,000 Missouri Housing Development Commission, 7,845 Federally Insured Mortgage Loans Refg Ser 11/15/92... 6.50 07/01/16 7,909,957 10,000 Federally Insured Mortgage Loans Refg Ser 11/15/92... 6.60 07/01/24 10,064,300 --------- ------------- 44,845 45,310,167 --------- -------------
6 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) (continued) - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value --------- ------- --------- ------------- MORTGAGE REVENUE - SINGLE FAMILY (8.5%) $ 20,000 Connecticut Housing Finance Authority, 1992 Ser B...... 6.70 % 11/15/12 $ 20,638,800 9,325 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C........................................... 6.50 12/01/11 9,544,511 1,400 Idaho Housing Agency, 1992 Ser E (AMT)................. 6.75 07/01/12 1,442,910 Minnesota Housing & Finance Agency, 3,460 Ser 1992 D-1......................................... 6.50 01/01/17 3,509,167 7,480 Ser 1992 CD-1 (AMT).................................. 6.75 07/01/23 7,611,723 20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT)..................................... 6.80 07/01/21 20,529,395 --------- ------------- 62,025 63,276,506 --------- ------------- NURSING & HEALTH RELATED FACILITIES REVENUE (2.4%) 6,265 University of Michigan, Medical Service Plan Ser 1991................................................. 6.50 12/01/21 6,404,897 11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority, Minnesota, Group Health Plan Inc Ser 1992................................................. 6.90 10/15/22 11,542,275 --------- ------------- 17,515 17,947,172 --------- ------------- PUBLIC FACILITIES REVENUE (5.5%) 9,800 Orlando, Florida, Cap Impr Refg Ser 1992............... 6.00 10/01/22 9,479,834 10,000 Atlanta Downtown Development Authority, Georgia, Underground Atlanta Refg Ser 1992.................... 6.25 10/01/16 10,063,000 5,000 Illinois, Civic Center Ser 1990 A (AMBAC).............. 6.00 12/15/15 4,838,800 7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser 1992 D.................................. 6.75 02/01/20 7,554,103 8,550 Maine Municipal Bond Bank, 1992 Ser E.................. 6.25 11/01/12 8,647,556 --------- ------------- 40,720 40,583,293 --------- ------------- RESOURCE RECOVERY REVENUE (2.8%) 16,990 Broward County, Florida, Broward Waste Energy Co North Ser 1984............................................. 7.95 12/01/08 18,474,586 2,500 Union County Utilities Authority, New Jersey, Solid Waste 1991 Ser A (AMT)............................... 7.20 06/15/14 2,524,625 --------- ------------- 19,490 20,999,211 --------- ------------- TRANSPORTATION FACILITIES REVENUE (12.8%) Dade County, Florida, Aviation, 3,000 1992 Ser B (MBIA).................................... 6.55 10/01/13 3,097,650 5,000 1992 Ser B (AMT) (MBIA).............................. 6.60 10/01/22 5,140,750 13,250 Chicago, Illinois, Chicago O'Hare - Int'l Terminal Ser 1992 (AMT) (MBIA)................................ 6.75 01/01/12 13,799,212 20,000 Illinois Toll Highway Authority, Priority 1992 Ser A... 6.375 01/01/15 19,997,600 15,000 St Louis, Missouri, Lambert - St Louis Int'l Airport Ser 1992 (AMT) (FGIC)................................ 6.00 07/01/08 15,166,950 25,000 Clark County, Nevada, Las Vegas - McCaran Int'l Airport Passenger Facility Charge 1992 Ser B (AMT)........... 6.25 07/01/22 23,928,500 Puerto Rico Highway & Transportation Authority, 6,000 Refg Ser V........................................... 6.625 07/01/12 6,175,620 7,115 Ser T................................................ 6.625 07/01/18 7,313,294 --------- ------------- 94,365 94,619,576 --------- -------------
7 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) (continued) - --------------------------------------------------------------------------------
Principal Amount (in Coupon Maturity thousands) Rate Date Value --------- ------- --------- ------------- WATER & SEWER REVENUE (7.7%) $ 10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC).............................................. 6.50 % 10/01/14 $ 10,340,800 15,000 Massachusetts Water Resources Authority, 1992 Ser B.... 5.50 11/01/15 13,741,500 20,000 New York City Municipal Water Finance Authority, New York, Ser 1993 A..................................... 6.00 06/15/17 19,264,000 8,000 Houston, Texas, Water & Sewer Lien Jr Refg Ser 1991 C (AMBAC)................................... 6.375 12/01/17 8,139,360 6,000 Fairfax County Water Authority, Virginia, Refg Ser 1992................................................. 6.00 04/01/22 5,858,820 --------- ------------- 59,000 57,344,480 --------- ------------- REFUNDED (8.2%) 7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A.................................................... 6.60 12/01/23 7,979,925 10,000 Massachusetts Water Resources Authority, 1990 Ser A.... 6.50 12/01/19 10,947,800 15,000 New York Local Government Assistance Corporation, Ser 1991 C........................................... 7.00 04/01/21 16,712,400 15,000 Fredericksburg Industrial Development Authority, MWH Medicorp Obligated Group Ser 1991 A & B (FGIC)... 6.60 08/15/23 15,300,000 8,915 Roanoke County, Virginia, Water Ser 1991 (FGIC)........ 6.50 07/01/21 9,708,792 --------- ------------- 56,415 60,648,917 --------- ------------- OTHER REVENUE (0.3%) 2,000 New York Local Government Assistance Corporation, --------- Ser 1991 A............................................. 7.125 04/01/11 2,160,700 ------------- 721,855 TOTAL MUNICIPAL BONDS --------- (IDENTIFIED COST $704,144,575).............................................. 725,652,251 ------------- SHORT-TERM MUNICIPAL OBLIGATION (0.3%) 2,400 Massachusetts, Dedicated Income Tax Ser 1990 B --------- (Tender 05/02/95) (Identified Cost $2,400,000)....... 5.15* 12/01/97 2,400,000 ------------- $ 724,255 TOTAL INVESTMENTS ========= (IDENTIFIED COST $706,544,575)(A)............................. 98.3% 728,052,251 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.................. 1.7 12,532,163 ------ ------------- NET ASSETS...................................................... 100.0% $ 740,584,414 ====== =============
- --------------- Bond Insurance: - --------------- AMBAC AMBAC Indemnity Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation. AMT Alternative Minimum Tax. * Variable or floating rate security. Coupon rate shown reflects current rate. (a) The aggregate cost for federal income tax purposes is $706,544,575; the aggregate gross unrealized appreciation is $21,605,203 and the aggregate gross unrealized depreciation is $97,527, resulting in net unrealized appreciation of $21,507,676. See Notes to Financial Statements 8 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets April 30, 1995 (unaudited) - -------------------------------------------------------------------------------- Alaska........... 1.1% California....... 2.2 Colorado......... 3.4 Connecticut...... 2.8 District of Columbia....... 2.4 Florida.......... 8.0 Georgia.......... 4.0 Hawaii........... 1.8% Idaho............ 0.2 Illinois......... 7.0 Indiana.......... 1.0 Maine............ 1.2 Massachusetts.... 4.9 Michigan......... 3.6 Minnesota........ 3.1 Missouri......... 5.8% Nebraska......... 0.7 Nevada........... 5.7 New Jersey....... 0.3 New York......... 8.9 Ohio............. 1.9 Pennsylvania..... 3.3 South Carolina... 5.9 South Dakota..... 0.7% Texas............ 3.8 Virginia......... 6.9 Washington....... 4.6 West Virginia.... 1.3 Puerto Rico...... 1.8 ---- Total............ 98.3% ====
- -------------------------------------------------------------------------------- 9 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS
- ---------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES April 30, 1995 (unaudited) - ---------------------------------------------------------- ASSETS: Investments in securities, at value (identified cost $706,544,575)........... $ 728,052,251 Cash....................................... 207,408 Interest receivable........................ 12,630,806 Deferred organizational expenses........... 26,597 Prepaid expenses........................... 171,913 ------------- TOTAL ASSETS......................... 741,088,975 ------------- LIABILITIES: Payable for: Investment management fee................ 215,949 Common shares of beneficial interest purchased.............................. 193,420 Accrued expenses........................... 95,192 ------------- TOTAL LIABILITIES.................... 504,561 ------------- NET ASSETS: Preferred shares of beneficial interest, (1,000,000 shares authorized of non- participating $.01 par value, 4,160 shares outstanding)...................... 208,000,000 ------------- Common shares of beneficial interest, (unlimited shares authorized of $.01 par value, 36,214,313 shares outstanding).... 506,498,305 Net unrealized appreciation................ 21,507,676 Accumulated undistributed net investment income................................... 4,263,003 Accumulated undistributed net realized gain..................................... 315,430 ------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS................ 532,584,414 ------------- TOTAL NET ASSETS..................... $ 740,584,414 ============= NET ASSET VALUE PER COMMON SHARE, ($532,584,414 divided by 36,214,313 common shares outstanding)............... $14.71 ====== - ---------------------------------------------------------- STATEMENT OF OPERATIONS For the six months ended April 30, 1995 (unaudited) - ---------------------------------------------------------- NET INVESTMENT INCOME: INTEREST INCOME.......................... $ 23,237,360 ------------- EXPENSES Investment management fee.............. 1,265,368 Auction commission fees................ 335,498 Transfer agent fees and expenses....... 123,429 Professional fees...................... 49,613 Auction agent fees..................... 39,670 Shareholder reports and notices........ 28,321 Trustees' fees and expenses............ 16,163 Registration fees...................... 13,083 Organizational expenses................ 5,451 Other.................................. 24,901 ------------- TOTAL EXPENSES..................... 1,901,497 ------------- NET INVESTMENT INCOME.............. 21,335,863 ------------- NET REALIZED AND UNREALIZED GAIN: Net realized gain........................ 1,063,287 Net change in unrealized depreciation.... 37,312,149 ------------- NET GAIN........................... 38,375,436 ------------- NET INCREASE....................... $ 59,711,299 =============
See Notes to Financial Statements 10 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
For the six months For the ended April year ended 30, 1995 October 31, (unaudited) 1994 ------------- -------------- INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income.................................................. $ 21,335,863 $ 48,165,091 Net realized gain (loss)............................................... 1,063,287 (747,857) Net change in unrealized appreciation (depreciation)................... 37,312,149 (105,098,168) ------------- -------------- Net increase (decrease)............................................ 59,711,299 (57,680,934) ------------- -------------- Dividends to preferred shareholders from net investment income........... (3,796,784) (8,532,844) Dividends and distributions to common shareholders from: Net investment income.................................................. (18,209,686) (40,390,228) Net realized gain...................................................... -- (1,218,012) ------------- -------------- Total.............................................................. (22,006,470) (50,141,084) ------------- -------------- Transactions in shares of beneficial interest: Common................................................................. (16,549,916) (25,658,544) Preferred.............................................................. (33,250,000) (38,750,000) ------------- -------------- Total decrease..................................................... (12,095,087) (172,230,562) NET ASSETS:................................................................ Beginning of period...................................................... 752,679,501 924,910,063 ------------- -------------- END OF PERIOD (including undistributed net investment income of $4,263,003 and $4,933,610, respectively)............................... $ 740,584,414 $ 752,679,501 ============= ==============
See Notes to Financial Statements 11 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. The Trust was organized as a Massachusetts business trust on March 12, 1992 and commenced operations on September 29, 1992. The following is a summary of significant accounting policies: A. Valuation of Investments -- Portfolio securities are valued for the Trust by an outside independent pricing service approved by the Trustees. The pricing service has informed the Trust that in valuing the Trust's portfolio securities, it uses both a computerized matrix of tax-exempt securities and evaluations by its staff, in each case based on information concerning market transactions and quotations from dealers which reflect the bid side of the market each day. The Trust's portfolio securities are thus valued by reference to a combination of transactions and quotations for the same or other securities believed to be comparable in quality, coupon, maturity, type of issue, call provisions, trading characteristics and other features deemed to be relevant. Short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. The Trust amortizes premiums and accretes discounts on securities purchased over the life of the respective securities. Interest income is accrued daily. C. Federal Income Tax Status -- It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. Dividends and Distributions to Shareholders -- The Trust records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. E. Organizational Expenses -- Dean Witter InterCapital Inc. (the "Investment Manager") paid the organizational expenses in the amount of $55,000. Such expenses have been deferred and are being amortized by the straight-line method over a period not to exceed five years from the commencement of operations. 12 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- 2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management Agreement, the Trust pays its Investment Manager a management fee, calculated weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's average weekly net assets. Under the terms of the Agreement, 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 six months ended April 30, 1995 aggregated $284,050 and $20,186,415, respectively. Dean Witter Trust Company, an affiliate of the Investment Manager, is the Trust's transfer agent. At April 30, 1995, the Trust had transfer agent fees and expenses payable of approximately $21,000. 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, 1995 included in Trustees' fees and expenses in the Statement of Operations amounted to $5,902. At April 30, 1995, the Trust had an accrued pension liability of $15,495 which is included in accrued expenses in the Statement of Assets and Liabilities. 4. PREFERRED SHARES OF BENEFICIAL INTEREST -- The Trust is authorized to issue up to 1,000,000 non-participating preferred shares of beneficial interest having a par value of $.01 per share, in one or more series, with rights as determined by the Trustees, without approval of the common shareholders. On November 12, 1992, the Trust issued 1,120 shares each of Series One through Five 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 the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Trust may redeem such shares, in whole or in part, at the original purchase price of $50,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. During the six months ended April 30, 1995, the Trust purchased and retired preferred shares as follows:
Series Shares Amount ------ ------ ------ 2 392 $19,600,000 5 273 13,650,000
13 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- Dividends, which are cumulative, are reset through auction procedures.
Range of Reset Dividend Shares* Series Rate* Date Rates** ------ ------ ---- -------- ------------- 1,120 1 3.69 % 5/02/95 2.97 % - 3.69 % 400 2 4.19 9/06/95 3.875 - 6.15 1,120 3 4.50 5/03/95 3.39 - 4.50 1,120 4 3.85 7/05/95 3.85 400 5 4.449 7/27/95 2.95 - 5.875
- --------------- * As of April 30, 1995. ** For the six months ended April 30, 1995. Subsequent to April 30, and up through June 9, 1995 the Trust paid dividends to series 2, 4, and 5 at a rate of 4.19%, 3.85%, and 4.449%, respectively, and to each of the series 1 and 3 at rates ranging from 3.69% to 4.45% and 4.05% to 4.55%, respectively, in the aggregate amount of $1,304,581. 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. 5. COMMON SHARES OF BENEFICIAL INTEREST -- Transactions in common shares of beneficial interest were as follows:
Capital Paid in Excess of Shares Par Value Par Value ---------- --------- ------------- Balance, October 31, 1992*........................... 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 8.32%)**................ (1,894,500) (18,945) (25,639,599) ---------- --------- ------------- Balance, October 31, 1994............................ 37,562,613 375,626 522,672,595 Treasury shares purchased and retired (weighted average discount 10.52%)**............... (1,348,300) (13,483) (16,536,433) ---------- --------- ------------- Balance, April 30, 1995.............................. 36,214,313 $ 362,143 $ 506,136,162 ========== ========= =============
- --------------- * Net of offering costs of $670,362. ** The Trustees have voted to retire the shares purchased. 6. FEDERAL INCOME TAX STATUS -- At October 31, 1994, the Trust had a net capital loss carryover of approximately $747,900 which will be available through October 31, 2002 to offset future capital gains to the extent provided by regulations. 14 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- 7. DIVIDENDS TO COMMON SHAREHOLDERS -- The Trust has declared the following dividends from net investment income:
Amount Declaration per Date Share Record Date Payable Date - -------------- -------- ------------- ------------- April 25, 1995 $ 0.0825 May 5, 1995 May 19, 1995 June 6, 1995 0.0825 June 16, 1995 June 30, 1995
8. SELECTED QUARTERLY FINANCIAL DATA --
Quarters Ended ---------------------------------------- 4/30/95 1/31/95 ------------------ ----------------- Per Per Total* Share Total* Share -------- ------ -------- ------ Total investment income.................................................... $11,382 $0.31 $ 11,855 $ 0.32 Net investment income...................................................... 10,438 0.28 10,898 0.30 Net realized and unrealized gain........................................... 15,486 0.45 22,889 0.66
Quarters Ended ------------------------------------------------------------------------------------ 10/31/94 7/31/94 4/30/94 1/31/94 ------------------- ----------------- ------------------- ----------------- Per Per Per Per Total* Share Total* Share Total* Share Total* Share --------- ------- -------- ------ --------- ------- -------- ------ Total investment income........... $ 13,220 $ 0.34 $12,842 $ 0.33 $ 13,038 $ 0.34 $ 13,568 $ 0.35 Net investment income............. 12,069 0.31 11,766 0.31 11,934 0.30 12,396 0.32 Net realized and unrealized gain (loss)..................... (44,296) (1.11) 9,135 0.24 (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... 25,269 0.64 14,922 0.38 25,090 0.64 33,205 0.84
- --------------- * Totals expressed in thousands. 15 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
For the For the six For the period months year For the September ended ended year 29, 1992* April 30, October ended through 1995** 31, October October (unaudited) 1994** 31, 1993 31, 1992 --------- --------- --------- --------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period......................... $ 13.62 $ 16.34 $ 13.88 $ 14.06 --------- --------- --------- --------- Net investment income............ 0.58 1.24 1.22 0.04 Net realized and unrealized gain (loss)......................... 1.11 (2.67) 2.50 (0.20) --------- --------- --------- --------- Total from investment operations..................... 1.69 (1.43) 3.72 (0.16) --------- --------- --------- --------- Less dividends and distributions from: Net investment income.......... (0.50) (1.04) (0.91) -- Common share equivalent of dividends paid to preferred shareholders................. (0.10) (0.22) (0.21) -- Net realized gain.............. -- (0.03) -- -- --------- --------- --------- --------- Total dividends and distributions.................. (0.60) (1.29) (1.12) -- Offering costs charged against capital........................ -- -- (0.14) (0.02) --------- --------- --------- --------- Net asset value, end of period... $ 14.71 $ 13.62 $ 16.34 $ 13.88 --------- --------- --------- --------- Market value, end of period...... $ 13.75 $ 11.875 $ 15.875 $ 15.125 ========= ========= ========= ========= TOTAL INVESTMENT RETURN+......... 20.37%(1) (19.30)% 11.41% 0.83%(1) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands)................. $ 740,584 $ 752,680 $ 924,910 $ 548,350 Ratios to average net assets of common shareholders: Total expenses................. 0.74%(2) 0.75% 0.71% 0.42%(2) Net investment income before preferred stock dividends.... 8.35%(2) 8.06% 7.95% 3.29%(2) Preferred stock dividends...... 1.49%(2) 1.43% 1.35% N/A Net investment income available to common shareholders....... 6.86%(2) 6.63% 6.60% 3.29%(2) Asset coverage on preferred shares at end of period........ 355% 311% 330% N/A Portfolio turnover rate.......... 0% 2% 4% 4%(1)
- --------------- * Commencement of operations. ** The per share amounts were computed using an average number of shares outstanding during the period. + Total investment return is based upon the current market value on 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. 16 TRUSTEES - --------------------------------------------------- Jack F. Bennett Michael Bozic Charles A. Fiumefreddo Edwin J. Garn John R. Haire Dr. Manuel H. Johnson Paul Kolton Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS - --------------------------------------------------- Charles A. Fiumefreddo Chairman and Chief Executive Officer Sheldon Curtis Vice President, Secretary and General Counsel James F. Willison Vice President Thomas F. Caloia Treasurer TRANSFER AGENT - --------------------------------------------------- Dean Witter Trust Company Harborside Financial Center -- Plaza Two Jersey City, New Jersey 07311 INDEPENDENT ACCOUNTANTS - --------------------------------------------------- Price Waterhouse LLP 1177 Avenue of the Americas New York, New York 10036 INVESTMENT MANAGER - --------------------------------------------------- Dean Witter InterCapital Inc. Two World Trade Center New York, New York 10048 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST Semiannual Report April 30, 1995 -----END PRIVACY-ENHANCED MESSAGE-----