-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TETgbZiu9z/isxZrHxdeY9amFIpbTs1nbxY5N588BJgVYrL4/5aUf18zk0Bir4iQ 4p60uDZl4eFn7rSkXvpr3Q== 0000950123-96-003206.txt : 19960625 0000950123-96-003206.hdr.sgml : 19960625 ACCESSION NUMBER: 0000950123-96-003206 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960624 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: 96584751 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, LETTER TO THE SHAREHOLDERS April 30, 1996 New York 10048 DEAR SHAREHOLDER: During the first six months of InterCapital Quality Municipal Income Trust's current fiscal year, interest rates initially declined, but reversed direction in February and began to move higher. Last year's favorable bond market environment was created by proposals to achieve a balanced federal budget within five to seven years and by continued easing of Federal Reserve Board monetary policy. However, budget negotiations reached a political impasse early in 1996 and federal offices were partially closed. This had an adverse impact on bonds. Concerns also developed about an increase in the pace of the economic recovery, which was marked by unexpectedly strong job growth in March and rising commodity prices. The bond market reacted to these developments by pushing yields sharply higher. MUNICIPAL MARKET CONDITIONS Long-term municipal revenue bond yields as tracked by The Bond Buyer Revenue Bond Index* moved from 6.02 percent in October 1995 to a low of 5.63 percent in January 1996. Interest rates subsequently began to rise in mid-February on signs of stronger economic growth and renewed inflationary fears. The Index yield reached 6.16 percent in April. Yields on one-year municipal notes declined from 3.82 percent to 3.70 percent over the past six months. The yield pickup for extending maturities from one-to-thirty years was 246 basis points at the end of April. The risk of flat-tax legislation had caused the ratio of Revenue Bond Index yields to 30-year U.S. Treasury bond yields to rise from 85 to 94 percent between March and September 1995. However, as the prospects of a flat tax faded, the ratio improved to 92 percent by the end of April. A declining ratio means that municipal bond prices have outperformed U.S. - --------------------- *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 Investors Service, Inc., and AA+ to A- by Standard & Poor's Corp. 2 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1996, continued Treasury prices. Over the previous eight year period prior to the flat-tax debate, long-term municipal yields averaged 89 percent of U.S. Treasury yields. Municipal underwriting activity was fueled by the trend of lower interest rates in 1995. Between November 1995 and April 1996, new-issue volume increased 45 percent versus the same period a year ago. Despite a resurgence in underwriting, dealers have continued to withdraw from the municipal business. PERFORMANCE The Trust's net asset value (NAV) declined from $15.33 to $15.01 per share during the six-month period ended April 30, 1996. Based on this NAV change plus reinvestment of tax-free dividends totaling $0.495 per share and a long-term capital gains distribution totaling $0.035 per share, the Trust's total return was 1.65 percent. Over the same period, the Trust's market price on the New York Stock Exchange increased from $13.75 to $13.875 per share. Based on this market price change and reinvestment of tax-free dividends and distributions, the Trust's total return was 4.76 percent. The Trust began the period trading at a 10 percent discount to NAV and closed at an 8 percent discount. Undistributed net investment income totaled $0.084 per share on April 30, 1996 versus $0.098 per share six months ago. PORTFOLIO STRUCTURE On April 30, 1996, the Trust's $729 million of net assets were diversified among 14 long-term municipal sectors and 69 credits. The five largest sectors represented 63 percent of net assets. The portfolio has consistently maintained investment grade quality with 96 percent of its long-term holdings rated "A" or better. The average maturity and call protection of the Trust's long-term portfolio were 21 and 6 years, respectively. 3 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1996, continued FIVE LARGEST SECTORS MOODY'S OR STANDARD & POOR'S CREDIT RATINGS AS OF APRIL 30, 1996 AS OF APRIL 30, 1996 (% OF NET ASSETS) (% OF TOTAL LONG-TERM INVESTMENTS) MORTGAGE 15% Aaa or AAA 37% GENERAL OBLIGATION 14% A or A 35% HOSPITAL 12% Aa or AA 24% TRANSPORTATION 12% Baa or BBB 4% ELECTRIC 10% OTHER 37% THE IMPACT OF LEVERAGING As discussed in previous reports, the total income available for distribution to common shareholders includes incremental income provided by the Trust's outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect prevailing short-term interest rates on maturities normally ranging from one week to one year. Incremental income to common shares depends on two factors: first, the spread between interest earned on the long-term bonds in the established portfolio of investments and the ARPS auction rate plus ARPS expenses; second, the amount of ARPS outstanding. The greater the amount of ARPS outstanding, the greater the amount of incremental income available for distribution to common shareholders. ARPS yields ranged between 3.42 and 4.54 percent during the six months ended April 30, 1996. Over the same period, ARPS leverage contributed $0.05 per share to common share earnings. As of April 30, 1996, $208 million in ARPS were outstanding, which represented 29 percent of net assets. 4 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1996, continued LOOKING AHEAD Tax-reduction proposals may receive additional publicity. However, the balance between the supply of new issues and demand created by maturities and calls for redemption should remain positive for the municipal market. Long-term municipal securities currently yield 90 percent of the yield on U.S. Treasury securities and may be expected to move in tandem with the Treasury market. The Trust's procedure for reinvestment of all dividends and distributions on common shares is through purchases in the open market. This method helps to support the market value of the Trust's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Trust, when appropriate, may purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. During the six-month period ended April 30, 1996, the Trust purchased and retired 793,700 shares of common stock at a weighted average market discount of 8.26 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. Very truly yours, /s/ CHARLES A. FIUMEFREDDO CHARLES A. FIUMEFREDDO Chairman of the Board 5 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (98.1%) General Obligation (14.1%) $ 20,000 Jefferson County School District #R-1, Colorado, Ser 1992 (AMBAC)..... 6.00 % 12/15/12 $ 20,581,200 7,500 District of Columbia, 1992 Ser B (MBIA)............................... 6.30 06/01/12 7,627,575 Hawaii, 5,000 1992 Ser BZ........................................................... 6.00 10/01/10 5,236,250 8,000 1992 Ser BZ........................................................... 6.00 10/01/11 8,335,520 4,000 Cook County, Illinois, Ser 1992 C (FGIC).............................. 6.00 11/15/09 4,216,520 Washoe County School District, Nevada, 4,730 Ltd Tax Ser 10/01/92 A (AMBAC)........................................ 6.25 04/01/11 4,905,861 8,100 Ltd Tax Ser 10/01/92 A (AMBAC)........................................ 6.25 04/01/13 8,385,525 New York City, New York, 5,500 1993 Ser B............................................................ 7.00 10/01/11 5,759,160 2,100 1993 Ser B............................................................ 7.00 10/01/13 2,191,980 3,300 1993 Ser B............................................................ 7.00 10/01/14 3,444,540 5,000 1993 Ser B............................................................ 6.75 10/01/15 5,082,950 2,400 1992 Ser B............................................................ 7.00 02/01/20 2,491,056 10,000 San Antonio, Texas, Refg Ser 1992..................................... 5.75 08/01/13 9,869,900 15,000 Washington, Ser 1993 A................................................ 5.75 10/01/17 14,567,850 - -------- ---------- 100,630 102,695,887 - -------- ----------- Educational Facilities Revenue (2.6%) 10,000 District of Columbia, Howard University Refg Ser 1992 A............... 6.75 10/01/12 10,323,900 2,500 University of Illinois, Auxiliary Ser 1991............................ 5.75 04/01/22 2,364,900 Scranton-Lackawanna Health & Welfare Authority, Pennsylvania, 3,000 University of Scranton 1992 Ser A..................................... 6.40 03/01/07 3,094,620 3,300 University of Scranton 1992 Ser A..................................... 6.50 03/01/13 3,414,114 - -------- ---------- 18,800 19,197,534 - -------- ----------- Electric Revenue (10.2%) 9,500 Orlando Utilities Commission, Florida, Ser 1991 A..................... 5.50 10/01/26 8,801,560 10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B............. 6.375 01/01/16 10,055,000 5,000 Hastings, Nebraska, Refg Ser 1992..................................... 6.30 01/01/19 5,041,950 10,000 Hamilton!, Ohio, Refg 1992 Ser A (FGIC)............................... 6.00 10/15/23 10,098,600 20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser (MBIA)............................................................... 6.375 01/01/25 19,880,400 Grant County Public Utility District #2, Washington, 8,220 Priest Rapids Hydro Second Ser 1992 A................................. 5.00 01/01/23 6,949,928 8,000 Wanapum Hydro Second Ser 1992 A....................................... 6.375 01/01/23 8,054,480 5,000 Wanapum Hydro Second Ser 1992 B (AMT)................................. 6.75 01/01/23 5,202,350 - -------- ---------- 75,720 74,084,268 - -------- ----------- Hospital Revenue (12.4%) 8,000 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)........... 5.875 08/15/15 7,836,560 4,500 Colorado Health Facilities Authority, Sisters of Charity Health Care Systems Inc Ser 1992 A (AMBAC)....................................... 6.00 05/15/22 4,517,775 6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991 (MBIA)............................................................... 6.00 12/01/21 6,003,240 9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts General Hospital Ser F (MBIA)........................................ 6.00 07/01/15 9,166,010 10,000 Missouri Health & Education Facilities Authority, Health Midwest Ser 1992 B (MBIA)........................................................ 6.25 02/15/22 10,177,600 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 9,530,900
SEE NOTES TO FINANCIAL STATEMENTS 6 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE $ 4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992...... 5.50 % 11/15/11 $ 4,278,825 10,000 Allegheny County Hospital Development Authority, Pennsylvania, Presbyterian University Health Ser 1992 A (MBIA)..................... 6.25 11/01/23 10,143,700 5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA)................. 6.25 07/01/16 5,108,400 3,000 Philadelphia Hospitals & Higher Education Facilities Authority, Pennsylvania, Chestnut Hill Hospital Ser of 1992..................... 6.375 11/15/11 3,008,700 5,000 South Dakota Health & Educational Facilities Authority, Queen of Peace Hospital Ser 1992 (MBIA)............................................. 6.70 07/01/17 5,252,500 15,000 Fredericksburg Industrial Development Authority, Virginia, MWH Medicorp Ser 1991 A & B (FGIC)....................................... 6.60 08/15/23 15,514,050 - -------- ------------ 90,250 90,538,260 - -------- ------------ Industrial Development/Pollution Control Revenue (7.8%) 6,000 California Pollution Control Financing Authority, Keller Cannon Landfill Co/ Browning-Ferris Industries Inc Ser 1992 (AMT)........... 6.875 11/01/27 6,281,880 5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B............ 6.35 02/01/22 5,103,200 3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)..... 7.15 02/01/23 3,773,700 5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT) (MBIA)............................................................... 6.65 06/01/17 5,196,000 15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co Ser 1984................................................................. 6.50 10/01/14 15,848,700 10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1992 B (MBIA)............................................................... 6.375 04/01/12 10,425,500 10,000 Mason County, West Virginia, Appalachian Power Co Ser J............... 6.60 10/01/22 10,191,700 - -------- ------------ 54,500 56,820,680 - -------- ------------ Mortgage Revenue - Multi-Family (6.2%) 7,000 Illinois Housing Development Authority, Ser I......................... 6.625 09/01/12 7,170,590 20,000 Michigan Housing Development Authority, Rental 1992 Ser A (Bifurcated FSA)..................................................... 6.50 04/01/23 20,348,400 Missouri Housing Development Commission, 7,845 Federally Insured Mortgage Loans Refg Ser 11/15/92.................... 6.50 07/01/16 7,958,282 10,000 Federally Insured Mortgage Loans Refg Ser 11/15/92.................... 6.60 07/01/24 10,111,400 - -------- ------------ 44,845 45,588,672 - -------- ------------ Mortgage Revenue - Single Family (8.4%) 20,000 Connecticut Housing Finance Authority, 1992 Ser B..................... 6.70 11/15/12 20,762,000 7,245 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C........ 6.50 12/01/11 7,387,509 1,345 Idaho Housing Agency, 1992 Ser E (AMT)................................ 6.75 07/01/12 1,392,062 Minnesota Housing Finance Agency, 3,365 Ser 1992 D-1.......................................................... 6.50 01/01/17 3,436,069 7,265 Ser 1992 CD-1 (AMT)................................................... 6.75 07/01/23 7,402,308 20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT)... 6.80 07/01/21 20,672,730 - -------- ------------ 59,580 61,052,678 - -------- ------------ Nursing & Health Related Facilities Revenue (2.5%) 6,265 University of Michigan, Medical Service Plan Ser 1991................. 6.50 12/01/21 6,518,983 11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority, Minnesota, Group Health Plan Inc Ser 1992....................................... 6.90 10/15/22 11,947,275 - -------- ------------ 17,515 18,466,258 - -------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 7 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE Public Facilities Revenue (5.7%) $ 9,800 Orlando, Florida, Cap Impr Refg Ser 1992.............................. 6.00 % 10/01/22 $ 9,747,962 10,000 Atlanta Downtown Development Authority, Georgia, Underground Atlanta Refg Ser 1992........................................................ 6.25 10/01/16 10,247,700 5,000 Illinois, Civic Center Ser 1990 A (AMBAC)............................. 6.00 12/15/15 5,001,600 7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser 1992 D.................................................................... 6.75 02/01/20 7,813,305 8,550 Maine Municipal Bond Bank, 1992 Ser E................................. 6.25 11/01/12 8,816,931 - -------- ------------ 40,720 41,627,498 - -------- ------------ Resource Recovery Revenue (2.8%) 16,525 Broward County, Florida, Broward Waste Energy Co North Ser 1984....... 7.95 12/01/08 18,170,725 2,500 Union County Utilities Authority, New Jersey, Solid Waste 1991 Ser A (AMT)................................................................ 7.20 06/15/14 2,538,175 - -------- ------------ 19,025 20,708,900 - -------- ------------ Transportation Facilities Revenue (12.2%) Dade County, Florida, 3,000 Aviation 1992 Ser B (MBIA)............................................ 6.55 10/01/13 3,143,970 5,000 Aviation 1992 Ser B (AMT) (MBIA)...................................... 6.60 10/01/22 5,202,400 13,250 Chicago, Illinois, Chicago-O'Hare Int'l Terminal Ser 1992 (AMT) (MBIA)............................................................... 6.75 01/01/12 13,852,345 20,000 Illinois Toll Highway Authority, Priority 1992 Ser A.................. 6.375 01/01/15 20,337,000 15,000 St Louis, Missouri, Lambert - St Louis Int'l Airport Ser 1992 (AMT) (FGIC)............................................................... 6.00 07/01/08 15,427,200 25,000 Clark County, Nevada, Las Vegas - McCaran Int'l Airport Passenger Facility Charge 1992 Ser B (AMT)..................................... 6.25 07/01/22 24,648,750 6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V............ 6.625 07/01/12 6,294,000 - -------- ------------ 87,250 88,905,665 - -------- ------------ Water & Sewer Revenue (7.3%) 10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC)........... 6.50 10/01/14 10,528,500 10,000 Massachusetts Water Resources Authority, 1992 Ser B................... 5.50 11/01/15 9,278,100 20,000 New York City Municipal Water Finance Authority, New York, Ser 1993 A.................................................................... 6.00 06/15/17 19,623,000 8,000 Houston, Texas, Water & Sewer Lien Jr Refg Ser 1991 C (AMBAC)......... 6.375 12/01/17 8,258,800 6,000 Fairfax County Water Authority, Virginia, Refg Ser 1992............... 6.00 04/01/22 5,952,900 - -------- ------------ 54,000 53,641,300 - -------- ------------ Other Revenue (0.3%) 2,000 New York Local Government Assistance Corporation, Ser 1991 A.......... 7.125 04/01/11 2,189,780 - -------- ------------ Refunded (5.6%) 7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A................ 6.60 12/01/02++ 7,995,450 10,000 Massachusetts Water Resources Authority, 1990 Ser A................... 6.50 12/01/01++ 11,029,100 12,000 New York Local Government Assistance Corporation, Ser 1991 C.......... 7.00 04/01/01++ 13,440,720 7,115 Puerto Rico Highway & Transportation Authority, Ser T................. 6.625 07/01/02++ 7,908,536 - -------- ------------ 36,615 40,373,806 - -------- ------------ 701,450 TOTAL MUNICIPAL BONDS (Identified Cost $684,065,808)........................................... 715,891,186 - --------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 8 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM MUNICIPAL OBLIGATION (0.3%) $ 2,000 Sabine River Authority, Texas, Texas Utilities Co Ser 1996 A (AMBAC) - -------- (Demand 05/01/96) (Identified Cost $2,000,000)....................... 4.10*% 03/01/26 $ 2,000,000 ------------ $703,450 TOTAL INVESTMENTS (Identified Cost $686,065,808) (a).................................. 98.4% 717,891,186 ======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 1.6 11,572,917 ----- ------------- NET ASSETS............................................................................. 100.0% $729,464,103 ===== =============
- --------------------- AMT Alternative Minimum Tax. ++ Prerefunded to call date shown. * Current coupon of variable rate security. (a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation was $31,938,929 and the aggregate gross unrealized depreciation was $113,551, resulting in net unrealized appreciation of $31,825,378. Bond Insurance: AMBAC AMBAC Indemnity Corporation. Connie Lee Connie Lee Insurance Company. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation.
- -------------------------------------------------------------------------------- GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets April 30, 1996 Alabama.................. 1.1% Alaska................... 1.1 California............... 2.3 Colorado................. 3.4 Connecticut.............. 2.8 District of Columbia..... 2.5 Florida.................. 8.2 Georgia.................. 3.8 Hawaii................... 1.9 Idaho.................... 0.2 Illinois................. 7.3 Indiana.................. 1.1% Maine.................... 1.2 Massachusetts............ 4.0 Michigan................. 3.7 Minnesota................ 3.1 Missouri................. 6.0 Nebraska................. 0.7 Nevada................... 5.9 New Jersey............... 0.3 New York................. 8.7 Ohio..................... 2.0 Pennsylvania............. 3.4% Puerto Rico.............. 1.9 South Carolina........... 4.9 South Dakota............. 0.7 Texas.................... 4.2 Virginia................. 5.8 Washington............... 4.8 West Virginia............ 1.4 --- Total.................... 98.4% ====
SEE NOTES TO FINANCIAL STATEMENTS 9 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES April 30, 1996 (unaudited) ASSETS: Investments in securities, at value (identified cost $686,065,808).......... $717,891,186 Cash..................................... 143,582 Interest receivable...................... 12,157,086 Deferred organizational expenses......... 15,573 Prepaid expenses......................... 98,476 ------------ TOTAL ASSETS......................... 730,305,903 ------------ LIABILITIES: Payable for: Dividends to preferred shareholders........................ 312,756 Investment management fee............ 224,730 Common shares of beneficial interest repurchased......................... 196,420 Accrued expenses......................... 107,894 ------------ TOTAL LIABILITIES.................... 841,800 ------------ 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, 34,739,613 shares outstanding)............................ 485,934,293 Net unrealized appreciation.............. 31,825,378 Accumulated undistributed net investment income.................................. 2,907,138 Accumulated undistributed net realized gain.................................... 797,294 ------------ NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS........................ 521,464,103 ------------ TOTAL NET ASSETS..................... $729,464,103 ============ NET ASSET VALUE PER COMMON SHARE ($521,464,103 divided by 34,739,613 common shares outstanding).............. $15.01 ====== STATEMENT OF OPERATIONS For the six months ended April 30, 1996 (unaudited) NET INVESTMENT INCOME: INTEREST INCOME.......................... $ 22,595,291 ------------ EXPENSES Investment management fee................ 1,316,491 Auction commission fees.................. 259,450 Transfer agent fees and expenses......... 99,207 Professional fees........................ 61,225 Shareholder reports and notices.......... 26,909 Auction agent fees....................... 16,994 Custodian fees........................... 16,596 Registration fees........................ 16,400 Trustees' fees and expenses.............. 14,577 Organizational expenses.................. 5,481 Other.................................... 24,827 ------------ TOTAL EXPENSES BEFORE EXPENSE OFFSET............................... 1,858,157 LESS: EXPENSE OFFSET................. (16,466) ------------ TOTAL EXPENSES AFTER EXPENSE OFFSET............................... 1,841,691 ------------ NET INVESTMENT INCOME................ 20,753,600 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain........................ 797,306 Net change in unrealized appreciation.... (11,141,184) ------------ NET LOSS............................. (10,343,878) ------------ NET INCREASE............................. $ 10,409,722 ============
SEE NOTES TO FINANCIAL STATEMENTS 10 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED FOR THE YEAR APRIL 30, ENDED 1996 OCTOBER 31, 1995 - ---------------------------------------------------------------------------------------- (unaudited) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income................................. $ 20,753,600 $ 42,557,950 Net realized gain..................................... 797,306 1,992,474 Net change in unrealized appreciation/depreciation.... (11,141,184) 58,771,035 ------------ ------------- NET INCREASE...................................... 10,409,722 103,321,459 ------------ ------------- DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET INVESTMENT INCOME..................................... (3,872,660) (8,062,139) ------------ ------------- DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income................................. (17,441,981) (35,961,242) Net realized gain..................................... (1,244,629) -- ------------ ------------- TOTAL............................................. (18,686,610) (35,961,242) ------------ ------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Preferred............................................. -- (33,250,000) Common................................................ (11,226,814) (25,887,114) ------------ ------------- TOTAL............................................. (11,226,814) (59,137,114) ------------ ------------- TOTAL INCREASE (DECREASE)......................... (23,376,362) 160,964 NET ASSETS: Beginning of period................................... 752,840,465 752,679,501 ------------ ------------- END OF PERIOD (Including undistributed net investment income of $2,907,138 and $3,468,179, respectively).......... $729,464,103 $ 752,840,465 ============ =============
SEE NOTES TO FINANCIAL STATEMENTS 11 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1996 (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 by an outside independent pricing service approved by the Trustees. The pricing service has informed the Trust that in valuing the portfolio securities, it uses both a computerized matrix of tax-exempt securities and evaluations by its staff, in each case based on information concerning market transactions and quotations from dealers which reflect the bid side of the market each day. The portfolio securities are thus valued by reference to a combination of transactions and quotations for the same or other securities believed to be comparable in quality, coupon, maturity, type of issue, call provisions, trading characteristics and other features deemed to be relevant. Short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. The Trust amortizes premiums and accretes discounts over the life of the respective securities. Interest income is accrued daily. C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net 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 12 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) continued distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment Manager") paid the organizational expenses of the Trust's common shares in the amount of $55,000 which have been reimbursed for the full amount thereof. 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. 2. INVESTMENT MANAGEMENT AGREEMENT Pursuant to an Investment Management Agreement, the Trust pays a management fee, calculated weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's weekly net assets. Under the terms of the Agreement, in addition to managing the Trust's investments, the Investment Manager maintains certain of the Trust's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Trust who are employees of the Investment Manager. The Investment Manager also bears the cost of telephone services, heat, light, power and other utilities provided to the Trust. 3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended April 30, 1996 aggregated $18,448,656. Dean Witter Trust Company, an affiliate of the Investment Manager, is the Trust's transfer agent. At April 30, 1996, the Trust had transfer agent fees and expenses payable of approximately $9,000. The Trust has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Trust who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the six months ended April 30, 1996 included in Trustees' fees and expenses in the Statement of Operations amounted to $6,785. At April 30, 1996, the Trust had an accrued pension liability of $27,652 which is included in accrued expenses in the Statement of Assets and Liabilities. 13 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) continued 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 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 the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Trust may redeem such shares, in whole or in part, at the original purchase price of $50,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures.
RESET RANGE OF SHARES* SERIES RATE* DATE DIVIDEND RATES** - ------- ------ ------ -------- ---------------- 1,120 1 3.675% 05/07/96 3.32 % - 5.50 % 400 2 3.345 09/04/96 3.489 - 3.345 1,120 3 3.64 05/08/96 3.32 - 5.00 1,120 4 3.49 07/03/96 3.80 - 3.49 400 5 3.41 07/11/96 3.648 - 3.41
- --------------------- * As of April 30, 1996. ** For the six months ended April 30, 1996. Subsequent to April 30, 1996 and up through June 5, 1996, the Trust paid dividends to Series 2, 4, and 5 at a rate of 3.35%, 3.49% and 3.41%, respectively, and to each of the Series 1 and 3 at rates ranging from 3.45% to 3.825% and 3.59% to 3.83%, respectively, in the amount of $1,007,074. 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. 14 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) continued 5. COMMON SHARES OF BENEFICIAL INTEREST Transactions in common shares of beneficial interest were as follows:
CAPITAL PAID IN PAR EXCESS OF SHARES VALUE PAR VALUE ---------- -------- ------------ Balance, October 31, 1994....................................................... 37,562,613 $375,626 $522,672,595 Treasury shares purchased and retired (weighted average discount 10.05%)*....... (2,029,300) (20,293) (25,866,821) ---------- -------- ------------ Balance, October 31, 1995....................................................... 35,533,313 355,333 496,805,774 Treasury shares purchased and retired (weighted average discount 8.26%)*........ (793,700) (7,937) (11,218,877) ---------- -------- ------------ Balance, April 30, 1996......................................................... 34,739,613 $347,396 $485,586,897 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 6. FEDERAL INCOME TAX STATUS During the year ended October 31, 1995, the Trust utilized all of its net capital loss carryover of approximately $747,900. 7. DIVIDENDS TO COMMON SHAREHOLDERS The Trust declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - --------------- --------- ------------ ------------- April 23, 1996. $0.0825 May 3, 1996 May 17, 1996 May 28, 1996... $0.0825 June 7, 1996 June 21, 1996
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 SIX FOR THE PERIOD MONTHS ENDED FOR THE YEAR ENDED OCTOBER 31** SEPTEMBER 29, 1992* APRIL 30, ----------------------------- THROUGH 1996** 1995 1994++ 1993 OCTOBER 31, 1992** - ------------------------------------------------------------------------------------------------------------------------------------ (unaudited) PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period......................... $ 15.33 $13.62 $ 16.34 $ 13.88 $ 14.06 ------- ------ ------- ------- ------- Net investment income........... 0.59 1.18 1.24 1.22 0.04 Net realized and unrealized gain (loss)......................... (0.30) 1.66 (2.73) 2.50 (0.20) ------- ------ ------- ------- ------- Total from investment operations..................... 0.29 2.84 (1.49) 3.72 (0.16) ------- ------ ------- ------- ------- Less dividends and distributions from: Net investment income........ (0.49) (0.99) (1.04) (0.91) -- Common share equivalent of dividends paid to preferred shareholders................ (0.11) (0.22) (0.22) (0.21) -- Net realized gain............ (0.04) -- (0.03) -- -- ------- ------ ------- ------- ------- Total dividends and distributions.................. (0.64) (1.21) (1.29) (1.12) -- Anti-dilutive effect of acquiring treasury shares...... 0.03 0.08 0.06 -- -- Offering costs charged against capital........................ -- -- -- (0.14) (0.02) ------- ------ ------- ------- ------- Net asset value, end of period......................... $ 15.01 $15.33 $ 13.62 $ 16.34 $ 13.88 ======= ====== ======= ======= ======= Market value, end of period..... $13.875 $13.75 $11.875 $15.875 $15.125 ======= ====== ======= ======= ======= TOTAL INVESTMENT RETURN+........ 4.76%(1) 24.77% (19.30)% 11.41% 0.83%(1) RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS: Total expenses before expense offset......................... 0.68%(2)(4) 0.72%(3) 0.75% 0.71% 0.42%(2) Net investment income before preferred stock dividends...... 7.62%(2) 8.05%(3) 8.06% 7.95% 3.29%(2) Preferred stock dividends....... 1.42%(2) 1.53% 1.43% 1.35% N/A Net investment income available to common shareholders......... 6.20%(2) 6.52% 6.63% 6.60% 3.29%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands...................... $729,464 $752,840 $752,680 $924,910 $548,350 Asset coverage on preferred shares at end of period........ 350% 361% 311% 330% N/A Portfolio turnover rate......... --%(1) 1% 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 brokerage commissions. ++ Restated for comparative purposes. (1) Not annualized. (2) Annualized. (3) The above expense and net investment income ratios would have been 0.71% and 8.06%, respectively, which reflects 0.01% effect for custody cash credits. (4) The above annualized ratio would have been 0.68% after expense offset. SEE NOTES TO FINANCIAL STATEMENTS 16 TRUSTEES 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 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. DEAN WITTER INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST [PHOTO] SEMIANNUAL REPORT APRIL 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----