-----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, FqYQVfqGYJ2kfAuVdn0uavbAXdhnjORflILP8OM3U78PZLYeFXscCvH2gye+nD/M LtgNKWuxZzF5qOZJjAq7XA== 0000950136-97-000772.txt : 19970627 0000950136-97-000772.hdr.sgml : 19970627 ACCESSION NUMBER: 0000950136-97-000772 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970626 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: 97630489 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 SEMIANNUAL REPORT INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1997 Two World Trade Center, New York, New York 10048 DEAR SHAREHOLDER: We are pleased to present the semi-annual report on the operations of InterCapital Quality Municipal Income Trust (IQI) for the period ended April 30, 1997. Economic growth moderated during the third quarter of 1996, causing fixed-income yields to move lower through November. However, an acceleration of economic activity led by consumer spending developed in the fourth quarter of 1996 and continued into the first quarter of 1997. This contributed to rising interest rates between December and April. On March 25, 1997, the Federal Reserve Board raised the federal-funds rate 25 basis points to 5.50 percent in a preemptive move against a possible acceleration in the rate of inflation. Subsequently, the fixed-income markets began to anticipate the possibility of additional rate hikes by the Fed. MUNICIPAL MARKET CONDITIONS Municipal yields followed the trend of Treasury yields, but were less volatile. Long-term insured revenue bond yields moved as low as 5.45 percent in November 1996, before rising to 5.75 percent in April 1997. Similarly, yields on one-year municipal notes moved from 3.70 to 3.95 percent over the past six months. The yield curve pick-up for extending maturities from 1 to 30 years increased to 180 basis points. [THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR FILING.] BOND YIELDS 1994-1997
Insured Municipal 30-Year Insured Revenue Yields Municipal 30-year U.S. as a Percentage of Revenue Yields Treasury Yields U.S. Treasury Yields 5.45 6.35 0.8586 Jan '94 5.29 6.24 0.8481 5.64 6.66 0.8468 6.19 7.09 0.8728 6.24 7.31 0.854 6.23 7.43 0.8387 6.31 7.61 0.8293 6.15 7.4 0.8314 6.17 7.45 0.828 6.42 7.82 0.8212 6.66 7.97 0.8356 6.99 8 0.8738 6.65 7.88 0.8438 Jan '95 6.42 7.7 0.834 6.12 7.44 0.8222 6.07 7.43 0.8167 6.05 7.34 0.8245 5.84 6.65 0.8784 6 6.62 0.9066 5.99 6.85 0.875 5.98 6.65 0.8997 5.97 6.5 0.9184 5.79 6.33 0.915 5.61 6.13 0.9151 5.49 5.95 0.923 Jan '96 5.42 6.03 0.8989 5.55 6.47 0.8577 5.89 6.67 0.8835 5.94 6.91 0.8601 5.99 6.99 0.8571 5.86 6.87 0.8529 5.77 6.97 0.8278 5.82 7.12 0.8176 5.71 6.92 0.8248 5.6 6.64 0.8431 5.45 6.35 0.8583 5.56 6.64 0.8372 Jan '97 5.63 6.79 0.8293 5.53 6.8 0.8129 5.83 7.1 0.8216 5.74 6.96 0.8251
Source: Bloomberg L.P. INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1997, continued [THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR FILING.] FIVE LARGEST SECTORS AS OF APRIL 30, 1997 (% OF NET ASSETS) HOUSING 14% GENERAL OBLIGATION 14% TRANSPORTATION 12% ELECTRIC 10% HOSPITAL 10% ALL OTHERS 40% PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. CREDIT RATINGS AS OF APRIL 30, 1997 (% OF TOTAL LONG-TERM PORTFOLIO) AAA or Aaa 39% AA or Aa 29% A or A 25% BBB or Baa 7% AS MEASURED BY STANDARD & POOR'S CORP. OR MOODY'S INVESTORS SERVICE, INC. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. CALL STRUCTURE AS OF APRIL 30, 1997 (% OF TOTAL LONG-TERM PORTFOLIO) 1999 2.5% 2000 0.7% 2001 12.3% 2002 64.3% 2003 16.1% 2004 0.0% 2005 0.7% 2006+ 3.4% X-AXIS LABEL: "YEAR CALLABLE" Y-AXIS LABEL: "PERCENT CALLABLE" WEIGHTED AVERAGE CALL PROTECTION: 5 YEARS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1997, continued The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields declined from 86 percent at the end of October 1996 to 82 percent in April 1997. A declining ratio means that municipals have outperformed Treasuries, but have become relatively more expensive. The ratio has ranged from 81 to 92 percent over the past three years. New-issue municipal volume was down 6 percent during the first four months of 1997. However, underwriting volume for the full year is expected to exceed bond maturities and redemptions. PERFORMANCE Over the six-month period ended April 30, 1997, the Trust's net asset value (NAV) moved from $15.44 to $15.27. Based on this NAV change plus reinvestment of tax-free dividends totaling $0.50 per share and a long-term capital gain distribution of $0.03 per share, the Trust's total NAV return was 2.50 percent. IQI's market price on the New York Stock Exchange moved from $14.625 to $14.50 per share. Based on this change in market price plus reinvestment of tax-free dividends and the long-term capital gain distribution, IQI's total market return was 2.76 percent. On April 30, 1997, the Trust was trading at a 5 percent discount to NAV. Undistributed net investment income available for dividends declined from $0.082 to $0.072 per share. PORTFOLIO STRUCTURE The Trust remained fully invested in long-term municipal bonds during the period. Investments were diversified among 13 long-term sectors and 66 credits. The average maturity of the portfolio was 18 years. The distribution of call dates in the portfolio produced an average call protection of 5 years. The portfolio has consistently sought to maintain quality, with nearly 70 percent of its long-term holdings rated double "A" or better. THE IMPACT OF LEVERAGING As we have discussed previously, 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 amount of ARPS outstanding, and second, the spread between the portfolio's cost yield and ARPS expenses (ARPS auction rate and expenses). The greater the spread and the amount of ARPS outstanding, the greater the amount of incremental income available for distribution to common shareholders. The level of net investment income available for distribution to common shareholders varies with the level of short-term interest rates. INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1997, continued ARPS yields ranged between 3.44 and 3.92 percent during the six months ended April 30, 1997. Over the same period, ARPS leverage contributed $0.07 per share to common share earnings. Five ARPS series totaled $208 million and represented 29 percent of net assets. LOOKING AHEAD With the collapse of flat-tax proposals, municipal bonds have improved relative to U.S. Treasury securities. Although tax-free yields are currently somewhat "rich" in their historical relationship with Treasury yields, the long-term benefit of tax-exemption remains intact. The Trust's procedure for reinvestment of all dividends and distributions on common shares is through purchases in the open market. This method helps to support the market value of the Trust's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Trust, when appropriate, may purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. During the six-month period ended April 30, 1997, IQI purchased and retired 439,400 shares of beneficial interest at a weighted average market discount of 5.12 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 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (97.7%) General Obligation (14.4%) $20,000 Jefferson County School District #R-1, Colorado, Ser 1992 (AMBAC) ....................................................... 6.00 % 12/15/12 $20,639,600 7,500 District of Columbia, 1992 Ser B (MBIA) ........................ 6.30 06/01/12 7,707,000 Hawaii, 5,000 1992 Ser BZ ................................................... 6.00 10/01/10 5,298,250 8,000 1992 Ser BZ ................................................... 6.00 10/01/11 8,459,760 4,000 Cook County, Illinois, Ser 1992 C (FGIC) ....................... 6.00 11/15/09 4,238,960 Washoe County School District, Nevada, 4,730 Ser 10/01/92 A (AMBAC) ........................................ 6.25 04/01/11 4,942,850 8,100 Ser 10/01/92 A (AMBAC) ........................................ 6.25 04/01/13 8,421,651 New York City, New York, 5,500 1993 Ser B .................................................... 7.00 10/01/11 5,826,480 2,100 1993 Ser B .................................................... 7.00 10/01/13 2,222,661 3,300 1993 Ser B .................................................... 7.00 10/01/14 3,492,753 5,000 1993 Ser B .................................................... 6.75 10/01/15 5,227,650 2,400 1992 Ser B .................................................... 7.00 02/01/20 2,537,088 10,000 San Antonio, Texas, Refg Ser 1992 .............................. 5.75 08/01/13 10,012,400 15,000 Washington, Ser 1993 A ......................................... 5.75 10/01/17 14,786,550 - ----------- -------------- 100,630 103,813,653 - ----------- -------------- Educational Facilities Revenue (2.7%) 10,000 District of Columbia, Howard University Refg Ser 1992 A ........ 6.75 10/01/12 10,534,700 2,500 University of Illinois, Auxiliary Ser 1991 ..................... 5.75 04/01/22 2,435,325 Scranton-Lackawanna Health & Welfare Authority, Pennsylvania, 3,000 University of Scranton 1992 Ser A ............................. 6.40 03/01/07 3,139,680 3,300 University of Scranton 1992 Ser A ............................. 6.50 03/01/13 3,443,616 - ----------- -------------- 18,800 19,553,321 - ----------- -------------- Electric Revenue (10.4%) 9,500 Orlando Utilities Commission, Florida, Ser 1991 A .............. 5.50 10/01/26 8,971,800 10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B (Secondary MBIA) .............................................. 6.375 01/01/16 10,426,300 5,000 Hastings, Nebraska, Refg Ser 1992 .............................. 6.30 01/01/19 5,079,000 10,000 Hamilton!, Ohio, Refg 1992 Ser A (FGIC) ........................ 6.00 10/15/23 10,149,600 20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser (MBIA) ........................................................ 6.375 01/01/25 20,015,800 Grant County Public Utility District #2, Washington, 8,220 Priest Rapids Hydro Second Ser 1992 A ......................... 5.00 01/01/23 7,346,872 8,000 Wanapum Hydro Second Ser 1992 A ............................... 6.375 01/01/23 8,052,960 5,000 Wanapum Hydro Second Ser 1992 B (AMT) ......................... 6.75 01/01/23 5,256,300 - ----------- -------------- 75,720 75,298,632 - ----------- -------------- SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- Hospital Revenue (10.0%) $5,000 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee) .... 5.875% 08/15/15 $5,018,650 3,000 Colorado Health Facilities Authority, Sisters of Charity Health Care Systems Inc Ser 1992 A (AMBAC) ........................... 6.00 05/15/22 3,016,470 6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991 (MBIA) ........................................................ 6.00 12/01/21 6,028,740 9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts General Hospital Ser F (MBIA) ................... 6.00 07/01/15 9,368,122 10,000 Missouri Health & Education Facilities Authority, Health Midwest Ser 1992 B (MBIA) ............................................. 6.25 02/15/22 10,362,000 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 9,765,900 4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992 5.50 11/15/11 4,420,440 10,000 Allegheny County Hospital Development Authority, Pennsylvania, Presbyterian University Health Ser 1992 A (MBIA) .............. 6.25 11/01/23 10,256,700 5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/ The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA) ...... 6.25 07/01/16 5,180,350 3,000 Philadelphia Hospitals & Higher Education Facilities Authority, Pennsylvania, Chestnut Hill Hospital Ser of 1992 .............. 6.375 11/15/11 3,063,690 5,000 South Dakota Health & Educational Facilities Authority, Queen of Peace Hospital Ser 1992 (MBIA) ................................ 6.70 07/01/17 5,369,950 - ----------- -------------- 70,750 71,851,012 - ----------- -------------- Industrial Development/Pollution Control Revenue (8.0%) 6,000 California Pollution Control Financing Authority, Keller Cannon Landfill Co/ Browning-Ferris Industries Inc Ser 1992 (AMT) .... 6.875 11/01/27 6,439,200 5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B ..... 6.35 02/01/22 5,170,850 3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT) ......................................................... 7.15 02/01/23 3,789,555 5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT) (MBIA) ........................................................ 6.65 06/01/17 5,309,600 15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co Ser 1984 .................................................... 6.50 10/01/14 16,075,500 10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1992 B (MBIA) ................................................. 6.375 04/01/12 10,607,800 10,000 Mason County, West Virginia, Appalachian Power Co Ser J ........ 6.60 10/01/22 10,318,200 - ----------- -------------- 54,500 57,710,705 - ----------- -------------- Mortgage Revenue - Multi-Family (6.3%) 7,000 Illinois Housing Development Authority, Ser I .................. 6.625 09/01/12 7,243,110 20,000 Michigan Housing Development Authority, Rental 1992 Ser A (Bifurcated FSA) .............................................. 6.50 04/01/23 20,638,800 Missouri Housing Development Commission, 7,705 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............ 6.50 07/01/16 7,872,199 9,845 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............ 6.60 07/01/24 10,057,947 - ----------- -------------- 44,550 45,812,056 - ----------- -------------- SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- Mortgage Revenue - Single Family (8.1%) $17,595 Connecticut Housing Finance Authority, 1992 Ser B .............. 6.70 % 11/15/12 $18,463,137 7,245 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C . 6.50 12/01/11 7,471,624 1,275 Idaho Housing Agency, 1992 Ser E (AMT) ......................... 6.75 07/01/12 1,330,564 Minnesota Housing Finance Agency, 3,275 Ser 1992 D-1 .................................................. 6.50 01/01/17 3,386,317 7,070 Ser 1992 CD-1 (AMT) ........................................... 6.75 07/01/23 7,308,047 20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT) ......................................................... 6.80 07/01/21 20,838,460 - ----------- -------------- 56,820 58,798,149 - ----------- -------------- Nursing & Health Related Facilities Revenue (2.6%) 6,265 University of Michigan, Medical Service Plan Ser 1991 .......... 6.50 12/01/21 6,628,119 11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority, Minnesota, Group Health Plan Inc Ser 1992 ..................... 6.90 10/15/22 12,119,063 - ----------- -------------- 17,515 18,747,182 - ----------- -------------- Public Facilities Revenue (5.9%) 9,800 Orlando, Florida, Cap Impr Refg Ser 1992 ....................... 6.00 10/01/22 9,929,458 10,000 Atlanta Downtown Development Authority, Georgia, Underground Atlanta Refg Ser 1992 ......................................... 6.25 10/01/16 10,397,000 5,000 Illinois, Civic Center Ser 1990 A (AMBAC) ...................... 6.00 12/15/15 5,028,650 7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser 1992 D ........................................................ 6.75 02/01/20 7,914,790 8,550 Maine Municipal Bond Bank, 1992 Ser E .......................... 6.25 11/01/12 9,004,262 - ----------- -------------- 40,720 42,274,160 - ----------- -------------- Resource Recovery Revenue (2.4%) 16,035 Broward County, Florida, Broward Waste Energy Co North Ser 1984 7.95 12/01/08 17,456,182 - ----------- -------------- Transportation Facilities Revenue (11.8%) Dade County, Florida, 3,000 Aviation 1992 Ser B (AMT)(MBIA) ............................... 6.55 10/01/13 3,197,730 5,000 Aviation 1992 Ser B (AMT)(MBIA) ............................... 6.60 10/01/22 5,306,100 13,250 Chicago, Illinois, Chicago - O'Hare Int'l Terminal Ser 1992 (AMT)(MBIA) ................................................... 6.75 01/01/12 14,105,685 20,000 Illinois Toll Highway Authority, Priority 1992 Ser A ........... 6.375 01/01/15 20,877,800 15,000 St Louis, Missouri, Lambert - St Louis Int'l Airport Ser 1992 (AMT)(FGIC) .................................................... 6.00 07/01/08 15,554,850 20,000 Clark County, Nevada, Las Vegas - McCaran Int'l Airport Passenger Facility Charge 1992 Ser B (AMT) .............................. 6.25 07/01/22 19,847,400 6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V ..... 6.625 07/01/12 6,403,860 - ----------- -------------- 82,250 85,293,425 - ----------- -------------- SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- Water & Sewer Revenue (6.0%) $10,000 Massachusetts Water Resources Authority, 1992 Ser B ............ 5.50 % 11/01/15 $9,607,500 20,000 New York City Municipal Water Finance Authority, New York, Ser 1993 A ........................................................ 6.00 06/15/17 20,044,200 7,510 Houston, Texas, Water & Sewer Jr Lien Refg Ser 1991 C (AMBAC) .. 6.375 12/01/17 7,830,677 6,000 Fairfax County Water Authority, Virginia, Refg Ser 1992 ........ 6.00 04/01/22 6,101,880 - ----------- -------------- 43,510 43,584,257 - ----------- -------------- Refunded (9.1%) 7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A ......... 6.60 12/01/02++ 8,203,575 10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) .... 6.50 10/01/02++ 10,987,200 10,000 Massachusetts Water Resources Authority, 1990 Ser A ............ 6.50 12/01/01++ 10,874,300 12,000 New York Local Government Assistance Corporation, Ser 1991 C ... 7.00 04/01/01++ 13,195,080 5,000 Puerto Rico Highway & Transportation Authority, Ser T .......... 6.625 07/01/02++ 5,490,950 490 Houston, Texas, Water & Sewer Jr Lien Refg Ser 1991 C (AMBAC) .. 6.375 12/01/01++ 530,557 15,000 Fredericksburg Industrial Development Authority, Virginia, MWH Medicorp Ser 1991 A & B (FGIC) ................................ 6.60 08/15/01++ 16,327,500 - ----------- -------------- 59,990 65,609,162 - ----------- -------------- 681,790 TOTAL MUNICIPAL BONDS (Identified Cost $665,256,821) ................................ 705,801,896 - ----------- -------------- SHORT-TERM MUNICIPAL OBLIGATIONS (0.7%) 1,200 Ascension Parish, Louisiana, Shell Oil Co (Demand 05/01/97) .... 3.80 * 09/01/23 1,200,000 3,900 Lincoln County, Wyoming, Exxon Corp Ser 1984 D (Demand 05/01/97) 4.05 * 11/01/14 3,900,000 - ----------- -------------- 5,100 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $5,100,000) ................. 5,100,000 - ----------- -------------- $686,890 TOTAL INVESTMENTS (Identified Cost $670,356,821) (a) ................... 98.4% 710,901,896 =========== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.6 11,584,154 ------- -------------- NET ASSETS .............................................................. 100.0% $722,486,050 ======= ==============
- ------------ AMT Alternative Minimum Tax. ++ Prerefunded to call date shown. * Current coupon of variable rate demand obligation. (a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross and net unrealized appreciation is $40,545,075. 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. SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets April 30, 1997
Alabama .............. 0.7% Alaska ............... 1.1 California ........... 2.4 Colorado ............. 3.3 Connecticut .......... 2.6 District of Columbia . 2.5 Florida .............. 8.4 Georgia .............. 3.9 Hawaii ............... 1.9 Idaho ................ 0.2 Illinois ............. 7.5 Indiana .............. 1.1% Louisiana ............ 0.2 Maine ................ 1.2 Massachusetts ........ 4.1 Michigan ............. 3.8 Minnesota ............ 3.2 Missouri ............. 6.1 Nebraska ............. 0.7 Nevada ............... 5.3 New York ............. 8.6 Ohio ................. 2.0 Puerto Rico .......... 1.6% Pennsylvania ......... 3.5 South Carolina ....... 5.0 South Dakota ......... 0.7 Texas ................ 4.0 Virginia ............. 6.0 Washington ........... 4.9 West Virginia ........ 1.4 Wyoming .............. 0.5 ------ Total ................ 98.4% ======
SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES April 30, 1997 (unaudited)
ASSETS: Investments in securities, at value (identified cost $670,356,821)........................................ $710,901,896 Cash................................................................... 460,078 Interest receivable.................................................... 11,678,443 Deferred organizational expenses....................................... 4,579 Prepaid expenses ...................................................... 106,305 -------------- TOTAL ASSETS......................................................... 723,151,301 -------------- LIABILITIES: Payable for: Dividends to preferred shareholders.................................. 324,935 Investment management fee ........................................... 234,562 Accrued expenses ...................................................... 105,754 -------------- TOTAL LIABILITIES.................................................... 665,251 -------------- 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, 33,687,013 shares outstanding)........................ 470,737,534 Net unrealized appreciation ........................................... 40,545,075 Accumulated undistributed net investment income........................ 2,410,282 Accumulated undistributed net realized gain............................ 793,159 -------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................ 514,486,050 -------------- TOTAL NET ASSETS .................................................... $722,486,050 =============== NET ASSET VALUE PER COMMON SHARE ($514,486,050 divided by 33,687,013 common shares outstanding) ....... $15.27 ===============
SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the six months ended April 30, 1997 (unaudited)
NET INVESTMENT INCOME: INTEREST INCOME......................... $21,914,319 ------------- EXPENSES Investment management fee............... 1,268,702 Auction commission fees................. 265,087 Transfer agent fees and expenses ....... 91,039 Professional fees....................... 55,078 Shareholder reports and notices......... 27,227 Auction agent fees...................... 20,353 Registration fees....................... 16,419 Custodian fees.......................... 15,816 Trustees' fees and expenses............. 9,382 Organizational expenses................. 5,452 Other................................... 23,295 ------------- TOTAL EXPENSES ....................... 1,797,850 LESS: EXPENSE OFFSET ................ (15,706) ------------- NET EXPENSES ......................... 1,782,144 ------------- NET INVESTMENT INCOME ................ 20,132,175 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain....................... 793,145 Net change in unrealized appreciation .. (5,231,370) ------------- NET LOSS.............................. (4,438,225) ------------- NET INCREASE............................ $15,693,950 =============
SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED APRIL 30, 1997 OCTOBER 31, 1996 - -------------------------------------------------- -------------- ---------------- (unaudited) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.............................. $ 20,132,175 $ 41,385,306 Net realized gain.................................. 793,145 1,064,949 Net change in unrealized appreciation.............. (5,231,370) 2,809,883 -------------- ---------------- NET INCREASE..................................... 15,693,950 45,260,138 -------------- ---------------- DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET INVESTMENT INCOME.............................. (3,732,330) (7,560,813) -------------- ---------------- DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income.............................. (16,776,090) (34,506,145) Net realized gain.................................. (1,064,923) (1,244,629) -------------- ---------------- TOTAL ........................................... (17,841,013) (35,750,774) -------------- ---------------- Decrease from transactions in common shares of beneficial interest............................... (6,433,672) (19,989,901) -------------- ---------------- NET DECREASE..................................... (12,313,065) (18,041,350) NET ASSETS: Beginning of period................................ 734,799,115 752,840,465 -------------- ---------------- END OF PERIOD (Including undistributed net investment income of $2,410,282 and $2,786,527, respectively) ..... $722,486,050 $734,799,115 ============== ================
SEE NOTES TO FINANCIAL STATEMENTS INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1997 (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's investment objective is to provide current income which is exempt from federal income tax. The Trust was organized as a Massachusetts business trust on March 12, 1992 and commenced operations on September 29, 1992. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside independent pricing service approved by the Trustees. The pricing service has informed the Trust that in valuing the portfolio securities, it uses both a computerized matrix of tax-exempt securities and evaluations by its staff, in each case based on information concerning market transactions and quotations from dealers which reflect the bid side of the market each day. The portfolio securities are thus valued by reference to a combination of transactions and quotations for the same or other securities believed to be comparable in quality, coupon, maturity, type of issue, call provisions, trading characteristics and other features deemed to be relevant. Short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. The Trust amortizes premiums and accretes discounts over the life of the respective securities. Interest income is accrued daily. C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued 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 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 the Investment Manager a management fee, calculated weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's weekly net assets. Under the terms of the Agreement, in addition to managing the Trust's investments, the Investment Manager maintains certain of the Trust's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Trust who are employees of the Investment Manager. The Investment Manager also bears the cost of telephone services, heat, light, power and other utilities provided to the Trust. 3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended April 30, 1997 aggregated $10,423,900 and $21,206,703, respectively. Dean Witter Trust Company, an affiliate of the Investment Manager, is the Trust's transfer agent. At April 30, 1997, the Trust had transfer agent fees and expenses payable of approximately $10,000. 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 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued 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, 1997 included in Trustees' fees and expenses in the Statement of Operations amounted to $2,548. At April 30, 1997, the Trust had an accrued pension liability of $30,960 which is included in accrued expenses in the Statement of Assets and Liabilities. 4. PREFERRED SHARES OF BENEFICIAL INTEREST The Trust is authorized to issue up to 1,000,000 non-participating preferred shares of beneficial interest having a par value of $.01 per share, in one or more series, with rights as determined by the Trustees, without approval of the common shareholders. The Trust has issued Series 1 through 5 Auction Rate Preferred Shares ("Preferred Shares") which have a liquidation value of $50,000 per share plus the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Trust may redeem such shares, in whole or in part, at the original purchase price of $50,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures.
AMOUNT IN RESET RANGE OF SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES** - -------- --------- ------------ ----------- ---------- ---------------- 1 1,120 $56,000 4.05 % 05/07/97 3.299% -4.25% 2 400 20,000 3.799 09/04/97 3.799 3 1,120 56,000 4.084 05/08/97 3.19 -4.125 4 1,120 56,000 3.482 07/03/97 3.482 -3.54 5 400 20,000 3.55 06/27/97 3.55 -3.61
- ------------ * As of April 30, 1997. ** For the six months ended April 30, 1997. Subsequent to April 30, 1997 and up through June 6, 1997, the Trust paid dividends to each of the Series 1 through 5 at rates ranging from 3.482% to 4.05% in the aggregate amount of $1,039,197. 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. INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued 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 PAR EXCESS OF SHARES VALUE PAR VALUE ------------- ---------- -------------- Balance, October 31, 1995 .............................................. 35,533,313 $355,333 $496,805,774 Treasury shares purchased and retired (weighted average discount 6.93%)*................................................................ (1,406,900) (14,069) (19,975,832) ------------- ---------- -------------- Balance, October 31, 1996 .............................................. 34,126,413 341,264 476,829,942 Treasury shares purchased and retired (weighted average discount 5.12%)*................................................................ (439,400) (4,394) (6,429,278) ------------- ---------- -------------- Balance, April 30, 1997 ................................................ 33,687,013 $336,870 $470,400,664 ============= ========== ==============
- ------------ * The Trustees have voted to retire the shares purchased. 6. DIVIDENDS TO COMMON SHAREHOLDERS The Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE DECLARATION DATE PER SHARE DATE DATE - ---------------- ----------- --------------- --------------- April 29, 1997 $0.0825 May 9, 1997 May 23, 1997 May 27, 1997 $0.0825 June 6, 1997 June 20, 1997
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 PERIOD FOR THE SIX FOR THE YEAR ENDED OCTOBER 31** SEPTEMBER 29, 1992* MONTHS ENDED ------------------------------------------- THROUGH APRIL 30, 1997** 1996 1995 1994+ 1993 OCTOBER 31, 1992** - ----------------------------------------------------------------------------------------------------------------------------------- (unaudited) PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............... $15.44 $ 15.33 $13.62 $ 16.34 $ 13.88 $ 14.06 ---------------- ---------- ---------- ---------- ---------- --------------- Net investment income.............................. 0.60 1.19 1.18 1.24 1.22 0.04 Net realized and unrealized gain (loss)............ (0.14) 0.13 1.66 (2.73) 2.50 (0.20) ---------------- ---------- ---------- ---------- ---------- ----------------- Total from investment operations................... 0.46 1.32 2.84 (1.49) 3.72 (0.16) ---------------- ---------- ---------- ---------- ---------- ----------------- Less dividends and distributions from: Net investment income............................. (0.50) (0.99) (0.99) (1.04) (0.91) -- Common share equivalent of dividends paid to preferred shareholders........................... (0.11) (0.22) (0.22) (0.22) (0.21) -- Net realized gain ................................ (0.03) (0.04) -- (0.03) -- -- ---------------- ---------- ---------- ---------- ---------- ----------------- Total dividends and distributions.................. (0.64) (1.25) (1.21) (1.29) (1.12) -- ---------------- ---------- ---------- ---------- ---------- ----------------- Anti-dilutive effect of acquiring treasury shares . 0.01 0.04 0.08 0.06 -- -- ---------------- ---------- ---------- ---------- ---------- ----------------- Offering costs charged against capital............. -- -- -- -- (0.14) (0.02) ---------------- ---------- ---------- ---------- ---------- ----------------- Net asset value, end of period..................... $15.27 $ 15.44 $15.33 $ 13.62 $ 16.34 $ 13.88 ================ ========== ========== ========== ========== ================= Market value, end of period........................ $14.50 $14.625 $13.75 $11.875 $15.875 $15.125 ================ ========== ========== ========== ========== ================= TOTAL INVESTMENT RETURN+........................... 2.76%(1) 14.27% 24.77% (19.30)% 11.41% 0.83%(1) RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS: Total expenses..................................... 0.69%(2)(3) 0.69%(3) 0.72%(3) 0.75% 0.71% 0.42%(2) Net investment income before preferred stock dividends ........................................ 7.77%(2) 7.73% 8.05% 8.06% 7.95% 3.29%(2) Preferred stock dividends ......................... 1.44%(2) 1.41% 1.53% 1.43% 1.35% N/A Net investment income available to common shareholders ..................................... 6.33%(2) 6.32% 6.52% 6.63% 6.60% 3.29%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands............ $722,486 $734,799 $752,840 $752,680 $924,910 $548,350 Asset coverage on preferred shares at end of period............................................ 347% 353% 361% 311% 330% N/A Portfolio turnover rate............................ 1%(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) Does not reflect the effect of the expense offset of 0.01%. SEE NOTES TO FINANCIAL STATEMENTS TRUSTEES - ----------------------------------------------------------------------------- Michael Bozic Charles A. Fiumefreddo Edwin J. Garn John R. Haire Dr. Manuel H. Johnson Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS - ----------------------------------------------------------------------------- Charles A. Fiumefreddo Chairman and Chief Executive Officer Barry Fink Vice President, Secretary and General Counsel James 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. INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST Semiannual Report April 30, 1997 -----END PRIVACY-ENHANCED MESSAGE-----