-----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, OGW+7FNWef5sLREagkuSpHqYPOAIbxmhAiMAv/HgkHOwC4BiRrz9x0OUDGKB4Gwc Kn/qPcLyxiY+BcCn+X7PrA== 0000950136-98-001153.txt : 19980622 0000950136-98-001153.hdr.sgml : 19980622 ACCESSION NUMBER: 0000950136-98-001153 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980619 SROS: NASD 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: SEC FILE NUMBER: 811-06591 FILM NUMBER: 98651239 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, 1998 Two World Trade Center, New York, New York 10048 DEAR SHAREHOLDER: We are pleased to present the semiannual report on the operations of InterCapital Quality Municipal Income Trust (IQI) for the period ended April 30, 1998. Since last fall domestic economic growth has been tempered by the deflationary impact of the Asian financial crisis. U.S. employment conditions strengthened and the unemployment rate declined to its lowest level since 1970. Inflation remained subdued despite the robust economy. In part this was the result of productivity gains and the lower costs of oil and other imports. Foreign currency turmoil strengthened the value of the U.S. dollar and created demand for U.S. Treasury securities. Municipal bonds followed the trend of Treasuries and yields declined to levels last seen 20 years ago. The bond market rally was also aided by prospects of the first federal budget surplus in more than two decades. MUNICIPAL MARKET CONDITIONS Long-term insured index yields ended April 1998 at 5.35 percent after reaching a low of 5.15 percent in December and January. Over the past 12 months the insured index yield has declined from 5.75 percent. [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.] [LINE CHART] MMD 30 YEAR AAA INSURED AND TREASURY YIELD DATE AAA INS TSY % RELATIONSHIP - ---- ------- --- -------------- 12/31/93 5.40% 6.34% 85.17% 01/31/94 5.40 6.24 86.54% 02/28/94 5.80 6.66 87.09% 03/31/94 6.40 7.09 90.27% 04/29/94 6.35 7.32 86.75% 05/31/94 6.25 7.43 84.12% 06/30/94 6.50 7.61 85.41% 07/29/94 6.25 7.39 84.57% 08/31/94 6.30 7.45 84.56% 09/30/94 6.55 7.81 83.87% 10/31/94 6.75 7.96 84.80% 11/30/94 7.00 8.00 87.50% 12/30/94 6.75 7.88 85.66% 01/31/95 6.40 7.70 83.12% 02/28/95 6.15 7.44 82.66% 03/31/95 6.15 7.43 82.77% 04/28/95 6.20 7.34 84.47% 05/31/95 5.80 6.66 87.09% 06/30/95 6.10 6.62 92.15% 07/31/95 6.10 6.86 88.92% 08/31/95 6.00 6.66 90.09% 09/29/95 5.95 6.48 91.82% 10/31/95 5.75 6.33 90.84% 11/30/95 5.50 6.14 89.58% 12/29/95 5.35 5.94 90.07% 01/31/96 5.40 6.03 89.55% 02/29/96 5.60 6.46 86.69% 03/29/96 5.85 6.66 87.84% 04/30/96 5.95 6.89 86.36% 05/31/96 6.05 6.99 86.55% 06/28/96 5.90 6.89 85.63% 07/31/96 5.85 6.97 83.93% 08/30/96 5.90 7.11 82.98% 09/30/96 5.70 6.93 82.25% 10/31/96 5.65 6.64 85.09% 11/29/96 5.50 6.35 86.61% 12/31/96 5.60 6.63 84.46% 01/31/97 5.70 6.79 83.95% 02/28/97 5.65 6.80 83.09% 03/31/97 5.90 7.10 83.10% 04/30/97 5.75 6.94 82.85% 05/30/97 5.65 6.91 81.77% 06/30/97 5.60 6.78 82.60% 07/30/97 5.30 6.30 84.13% 08/31/97 5.50 6.61 83.21% 09/30/97 5.40 6.40 84.38% 10/31/97 5.35 6.15 86.99% 11/30/97 5.30 6.05 87.60% 12/31/97 5.15 5.92 86.99% 01/31/98 5.15 5.80 88.79% 02/28/98 5.20 5.92 87.84% 03/31/98 5.25 5.93 88.53% 04/30/98 5.35 5.95 89.92% INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1998, continued The yield on one-year notes was 3.75 percent at the end of April 1998. Thus, the yield pickup for extending maturities from 1 to 30 years was 160 basis points. The overall decline in interest rates led to an increase in new-issue municipal volume. In contrast, the U.S. Treasury's borrowing needs declined with the reduction in the deficit. Under these conditions, the municipal rally lagged the rally in Treasuries. The ratio of municipal yields to Treasury yields improved from 87 percent in October to almost 90 percent in April. A year ago the ratio was a relatively rich 83 percent. A rising ratio means that municipals have underperformed Treasuries but have become relatively more attractive. Total municipal volume increased 20 percent in 1997. New-issue supply totaled $220 billion last year, with half the underwritings enhanced with bond insurance. Refundings represented one-quarter of total new issues. For the year-to-date, municipal underwriting is up 60 percent with refunding issues comprising one-third of the total. PERFORMANCE During the six-month period ended April 30, 1998, the Trust's net asset value (NAV) moved from $15.91 to $15.92. Based on this NAV change plus reinvestment of tax-free dividends of $0.46 per share and taxable capital gains distributions of $0.03 per share, the Trust's total NAV return was 3.32 percent. IQI's price on the New York Stock Exchange declined from $14.875 to $14.75 per share. Based on this change in market price plus reinvestment of dividends and distributions, the Trust's total market return was 2.38 percent. On April 30, 1998, IQI was trading at a 7.35 percent discount to NAV. This means that the market price of the common stock was lower than the NAV. Monthly dividends for the second quarter of 1998 were declared in March and remained unchanged at $0.0775 per share. The level of undistributed net investment income increased from $0.064 to $0.073 per share over the past six months. 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 may, when appropriate, 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, 1998, IQI purchased and retired 92,000 shares of common stock at a weighted average market discount of 5.67 percent. The Trust may also utilize procedures to reduce or eliminate the amount of outstanding Auction Rate Preferred Shares (ARPS), including their purchase in the open market or in privately negotiated transactions. 2 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1998, 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.] LARGEST SECTORS as of April 30, 1998 (% of Net Assets) Refunded 22% Mortgage 14% Transportation 13% Hospital 9% Electric 8% IDR/PCR* 8% General Obligation 8% All Other 18% *Industrial Development/Pollution Control Revenue. Portfolio Structure is subject to change. CREDIT RATINGS as of April 30, 1998 (% of Total Long-Term Portfolio) Aaa or AAA 40% Aa or AA 28% A or A 28% Baa or BBB 4% As measured by Moody's Investors Service Inc. or Standard & Poor's Corp. Portfolio Structure is subject to change. - ------------------------------------------------------------------------------- CALL STRUCTURE Weighted Average (% of Total Long-Term Portfolio) Call Protection: 4 Years Year Percent Callable Callable 1998 0% 1999 2% 2000 1% 2001 12% 2002 64% 2003 16% 2004 0% 2005 1% 2006 0% 2007 1% 2008 0% 2009+ 3% Portfolio structure is subject to change. - ------------------------------------------------------------------------------- 3 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS April 30, 1998, continued 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. As illustrated in the accompanying chart, refunded bonds that will be called within 10 years comprised 22 percent of net assets. IQI's weighted average maturity was 18 years. The distribution of call dates in the portfolio produced 4 years of weighted average call protection. Throughout the fiscal period, high credit quality was maintained, with 68 percent of its long-term holdings rated double or triple "A." THE IMPACT OF LEVERAGING As discussed in previous reports, the total income available for distribution to common shareholders includes incremental income provided by the Trust's outstanding ARPS. ARPS dividends reflect prevailing short-term interest rates on maturities normally ranging from one week to one year. Incremental income to common shareholders depends on two factors. The first is the amount of ARPS outstanding, the 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. During the six-month period, ARPS leverage contributed approximately $0.06 per share to common share earnings. Weekly ARPS yields ranged between 3.30 and 5.00 percent. IQI's five ARPS series totaled $208 million and represented 28 percent of net assets. LOOKING AHEAD The economic fundamentals are in place for another year of solid, albeit less spectacular, domestic growth in 1998. Events in Asia have strengthened the U.S. dollar and contributed to lower interest rates. The Asian financial crisis seems likely to moderate U.S. economic growth and inflationary pressures. While this outlook is favorable for municipal bonds it is possible that the Federal Reserve Board may begin to tighten monetary policy if capacity and labor constraints cause cost pressures to mount. 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 4 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- TAX-EXEMPT MUNICIPAL BONDS (98.0%) General Obligation (7.7%) $ 7,500 District of Columbia, 1992 Ser B (MBIA) ......................... 6.30 % 06/01/12 $ 8,123,475 Hawaii, 5,000 1992 Ser BZ .................................................... 6.00 10/01/10 5,497,150 8,000 1992 Ser BZ .................................................... 6.00 10/01/11 8,791,360 4,000 Cook County, Illinois, Ser 1992 C (FGIC) ........................ 6.00 11/15/09 4,436,480 New York City, New York, 310 1993 Ser B ..................................................... 7.00 10/01/11 340,364 110 1993 Ser B ..................................................... 7.00 10/01/13 120,543 320 1993 Ser B ..................................................... 7.00 10/01/14 351,344 1,150 1993 Ser B ..................................................... 6.75 10/01/15 1,249,878 2,400 1992 Ser B ..................................................... 7.00 02/01/20 2,604,936 10,000 San Antonio, Texas, Refg Ser 1992 .............................. 5.75 08/01/13 10,403,600 15,000 Washington, Ser 1993 A ......................................... 5.75 10/01/17 15,543,900 - ----------- -------------- 53,790 57,463,030 - ----------- -------------- Educational Facilities Revenue (1.2%) 2,500 University of Illinois, Auxiliary Ser 1991 ..................... 5.75 04/01/22 2,571,975 Scranton-Lackawanna Health & Welfare Authority, Pennsylvania, 3,000 University of Scranton 1992 Ser A .............................. 6.40 03/01/07 3,205,230 3,300 University of Scranton 1992 Ser A .............................. 6.50 03/01/13 3,520,407 - ----------- -------------- 8,800 9,297,612 - ----------- -------------- Electric Revenue (7.8%) 9,500 Orlando Utilities Commission, Florida, Ser 1991 A .............. 5.50 10/01/26 9,531,730 10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B (Secondary MBIA) ............................................... 6.375 01/01/16 10,855,100 5,000 Hastings, Nebraska, Refg Ser 1992 ............................... 6.30 01/01/19 5,327,300 10,000 Hamilton!, Ohio, Refg 1992 Ser A (FGIC) ......................... 6.00 10/15/23 10,617,400 Grant County Public Utility District #2, Washington, 8,220 Priest Rapids Hydro Second Ser 1992 A ......................... 5.00 01/01/23 7,806,287 8,000 Wanapum Hydro Second Ser 1992 A ................................ 6.375 01/01/23 8,472,480 5,000 Wanapum Hydro Second Ser 1992 B (AMT) .......................... 6.75 01/01/23 5,360,800 - ----------- -------------- 55,720 57,971,097 - ----------- -------------- Hospital Revenue (9.1%) 5,000 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee) ..... 5.875 08/15/15 5,236,350 2,500 Fulco Hospital Authority, Georgia, Catholic Health East Ser 1998 A (MBIA) ....................................................... 4.875 11/15/18 2,350,050 9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts General Hospital Ser F (AMBAC) ................... 6.00 07/01/15 9,721,288 10,000 Missouri Health & Education Facilities Authority, Health Midwest Ser 1992 B (MBIA) .............................................. 6.25 02/15/22 10,699,400 SEE NOTES TO FINANCIAL STATEMENTS 5 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- $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 $10,183,700 4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992 5.50 11/15/11 4,614,030 10,000 Allegheny County Hospital Development Authority, Pennsylvania, Presbyterian University Health Ser 1992 A (MBIA) ............... 6.25 11/01/23 10,605,800 5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/ The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA) ....... 6.25 07/01/16 5,372,350 3,000 Philadelphia Hospitals & Higher Education Facilities Authority, Pennsylvania, Chestnut Hill Hospital Ser of 1992 ............... 6.375 11/15/11 3,211,080 5,000 South Dakota Health & Educational Facilities Authority, Queen of Peace Hospital Ser 1992 (MBIA) ................................. 6.70 07/01/17 5,436,750 - ----------- -------------- 64,250 67,430,798 - ----------- -------------- Industrial Development/Pollution Control Revenue (7.9%) 6,000 California Pollution Control Financing Authority, Keller Cannon Landfill Co/ Browning-Ferris Industries Inc Ser 1992 (AMT) ..... 6.875 11/01/27 6,547,200 5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B ...... 6.35 02/01/22 5,380,200 3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT) ......................................................... 7.15 02/01/23 3,787,840 5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT)(MBIA) ................................................... 6.65 06/01/17 5,433,150 15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co Ser 1984 .................................................... 6.50 10/01/14 16,218,300 10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1992 B (MBIA) ................................................. 6.375 04/01/12 10,834,300 10,000 Mason County, West Virginia, Appalachian Power Co Ser J ......... 6.60 10/01/22 10,725,800 - ----------- -------------- 54,500 58,926,790 - ----------- -------------- Mortgage Revenue-Multi-Family (5.9%) 7,000 Illinois Housing Development Authority, Ser I ................... 6.625 09/01/12 7,418,530 18,405 Michigan Housing Development Authority, Rental 1992 Ser A (Bifurcated FSA) ............................................... 6.50 04/01/23 19,459,054 Missouri Housing Development Commission, 7,155 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............. 6.50 07/01/16 7,394,907 9,130 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............. 6.60 07/01/24 9,442,885 - ----------- -------------- 41,690 43,715,376 - ----------- -------------- Mortgage Revenue-Single Family (7.9%) 16,915 Connecticut Housing Finance Authority, 1992 Ser B ............... 6.70 11/15/12 18,247,056 6,990 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C .. 6.50 12/01/11 7,395,140 1,255 Idaho Housing Agency, 1992 Ser E (AMT) .......................... 6.75 07/01/12 1,333,387 Minnesota Housing Finance Agency, 3,115 Ser 1992 D-1 ................................................... 6.50 01/01/17 3,295,545 6,755 Ser 1992 CD-1 (AMT) ............................................ 6.75 07/01/23 7,124,161 20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT) ......................................................... 6.80 07/01/21 21,379,629 - ----------- -------------- 55,390 58,774,918 - ----------- -------------- SEE NOTES TO FINANCIAL STATEMENTS 6 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- Nursing & Health Related Facilities Revenue (2.6%) $6,265 University of Michigan, Medical Service Plan Ser 1991 ........... 6.50 % 12/01/21 $ 6,758,369 11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority, Minnesota, Group Health Plan Inc Ser 1992 ...................... 6.90 10/15/22 12,285,450 - ----------- -------------- 17,515 19,043,819 - ----------- -------------- Public Facilities Revenue (5.9%) 9,800 Orlando, Florida, Cap Impr Refg Ser 1992 ........................ 6.00 10/01/22 10,326,652 10,000 Atlanta Downtown Development Authority, Georgia, Underground Atlanta Refg Ser 1992 .......................................... 6.25 10/01/16 10,782,800 5,000 Illinois, Civic Center Ser 1990 A (AMBAC) ....................... 6.00 12/15/15 5,097,850 7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser 1992 D ........................................................ 6.75 02/01/20 8,121,003 8,550 Maine Municipal Bond Bank, 1992 Ser E ........................... 6.25 11/01/12 9,364,559 - ----------- -------------- 40,720 43,692,864 - ----------- -------------- Resource Recovery Revenue (2.0%) 13,580 Broward County, Florida, Broward Waste Energy Co North Ser 1984 . 7.95 12/01/08 14,642,771 - ----------- -------------- Transportation Facilities Revenue (12.5%) Dade County, Florida, 3,000 Aviation 1992 Ser B (AMT)(MBIA) ................................ 6.55 10/01/13 3,254,100 5,000 Aviation 1992 Ser B (AMT)(MBIA) ................................ 6.60 10/01/22 5,433,350 13,000 Chicago, Illinois, Chicago -O'Hare Int'l Terminal Ser 1992 (AMT) (MBIA) ........................................................ 6.75 01/01/12 13,969,800 20,000 Illinois Toll Highway Authority, Priority 1992 Ser A ............ 6.375 01/01/15 21,500,600 5,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997 Ser A (MBIA) ....................................................... 5.00 01/01/37 4,691,800 15,000 St Louis, Missouri, Lambert-St Louis Int'l Airport Ser 1992 (AMT)(FGIC) .................................................... 6.00 07/01/08 15,912,000 20,000 Clark County, Nevada, Las Vegas-McCaran Int'l Airport Passenger Facility Charge 1992 Ser B (AMT) ............................... 6.25 07/01/22 21,122,400 6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V ...... 6.625 07/01/12 6,554,100 - ----------- -------------- 87,000 92,438,150 - ----------- -------------- Water & Sewer Revenue (5.9%) 10,000 Massachusetts Water Resources Authority, 1992 Ser B ............. 5.50 11/01/15 10,086,900 20,000 New York City Municipal Water Finance Authority, New York, Ser 1993 A ........................................................ 6.00 06/15/17 21,057,000 7,510 Houston, Texas, Water & Sewer Jr Lien Refg Ser 1991 C (AMBAC) ... 6.375 12/01/17 8,047,491 3,895 Fairfax County Water Authority, Virginia, Refg Ser 1992 ......... 6.00 04/01/22 4,205,899 - ----------- -------------- 41,405 43,397,290 - ----------- -------------- Refunded (21.6%) 7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A .......... 6.60 12/01/02+ 8,262,150 10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) ..... 6.50 10/01/02+ 11,057,100 3,000 Colorado Health Facilities Authority, Sisters of Charity Health Care Systems Inc Ser 1992 A (AMBAC) ............................ 6.00 05/15/03+ 3,214,860 20,000 Jefferson County School District #R-1, Colorado, Ser 1992 (AMBAC) ....................................................... 6.00 12/15/02+ 21,558,800 10,000 District of Columbia, Howard University Refg Ser 1992 A ......... 6.75 10/01/02+ 11,088,400 SEE NOTES TO FINANCIAL STATEMENTS 7 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- $ 6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991 (MBIA) ........................................................ 6.00 % 12/01/01+ $ 6,448,800 10,000 Massachusetts Water Resources Authority, 1990 Ser A ............. 6.50 12/01/01+ 10,919,600 Washoe County School District, Nevada, 4,730 Ser 10/01/92 A (AMBAC) ......................................... 6.25 10/01/02+ 5,127,698 7,000 Ser 10/01/92 A (AMBAC) ......................................... 6.25 10/01/02+ 7,588,560 New York City, New York, 5,190 1993 Ser B ..................................................... 7.00 10/01/02+ 5,789,497 1,990 1993 Ser B ..................................................... 7.00 10/01/02+ 2,219,865 2,980 1993 Ser B ..................................................... 7.00 10/01/02+ 3,324,220 3,850 1993 Ser B ..................................................... 6.75 10/01/02+ 4,259,717 12,000 New York Local Government Assistance Corporation, Ser 1991 C .... 7.00 04/01/01+ 13,122,720 5,000 Puerto Rico Highway & Transportation Authority, Ser T ........... 6.625 07/01/02+ 5,503,850 20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser . 6.375 01/01/03+ 21,922,400 2,105 Fairfax County Water Authority, Virginia, Reg Ser 1992 .......... 6.00 04/01/07+ 2,348,233 15,000 Fredericksburg Industrial Development Authority, Virginia, MWH Medicorp Ser 1991 A & B (FGIC) ................................. 6.60 08/15/01+ 16,308,750 - ----------- -------------- 146,345 160,065,220 - ----------- -------------- 680,705 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $663,835,206) ...................... 726,859,735 - ----------- -------------- SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (0.5%) 1,200 Massachusetts Health & Educational Facilities Authority, Capital Asset Program Ser D (MBIA)(Demand 05/01/98) .................... 4.15 * 01/01/35 1,200,000 2,300 Harris County Health Facilities Development Corporation, Texas, Methodist Hospital Ser 1994 (Demand 05/01/98) .................. 4.25 * 12/01/25 2,300,000 - ----------- -------------- 3,500 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost $3,500,000) ......................................................... 3,500,000 - ----------- -------------- $684,205 TOTAL INVESTMENTS (Identified Cost $667,335,206)(a) ...................... 98.5% 730,359,735 =========== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.5 11,086,492 ----------- -------------- NET ASSETS ............................................................... 100.0% $741,446,227 =========== ==============
- -------------- 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 unrealized appreciation is $63,103,404 and the aggregate gross unrealized depreciation is $78,875, resulting in net unrealized appreciation of $63,024,529. 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 8 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1998 (unaudited) continued - ----------------------------------------------------------------------------- GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets April 30, 1998
Alabama 0.7% Alaska 1.1 California 2.4 Colorado 3.3 Connecticut 2.5 District of Columbia 2.6 Florida 7.9 Georgia 4.2 Hawaii 1.9 Idaho 0.2 Illinois 7.4% Indiana 1.1 Maine 1.3 Massachusetts 4.9 Michigan 3.5 Minnesota 3.1 Missouri 5.9 Nebraska 0.7 Nevada 5.3 New York 8.8 Ohio 2.1% Puerto Rico 1.6 Pennsylvania 3.5 South Carolina 5.1 South Dakota 0.7 Texas 4.3 Virginia 6.0 Washington 5.0 West Virginia 1.4 ------ Total 98.5% ======
- ----------------------------------------------------------------------------- SEE NOTES TO FINANCIAL STATEMENTS 9 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES April 30, 1998 (unaudited)
ASSETS: Investments in securities, at value (identified cost $667,335,206).......................................... $730,359,735 Cash..................................................................... 87,374 Interest receivable...................................................... 11,656,116 Prepaid expenses ........................................................ 300,510 ------------ TOTAL ASSETS .......................................................... 742,403,735 ------------ LIABILITIES: Payable for: Dividends to preferred shareholders.................................... 537,137 Investment management fee.............................................. 243,768 Common shares of beneficial interest repurchased....................... 66,229 Accrued expenses ........................................................ 110,374 ------------ TOTAL LIABILITIES ..................................................... 957,508 ------------ NET ASSETS ............................................................ $741,446,227 ============ COMPOSITION OF 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, 33,510,513 shares outstanding).......................... 468,094,654 Net unrealized appreciation ............................................. 63,024,529 Accumulated undistributed net investment income.......................... 2,430,023 Net realized loss........................................................ (102,979) ------------ NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS .......................... 533,446,227 ------------ TOTAL NET ASSETS ...................................................... $741,446,227 ============ NET ASSET VALUE PER COMMON SHARE ($533,446,227 divided by 33,510,513 common shares outstanding) ......... $ 15.92 ============
SEE NOTES TO FINANCIAL STATEMENTS 10 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the six months ended April 30, 1998 (unaudited)
NET INVESTMENT INCOME: INTEREST INCOME ........................ $21,666,784 ----------- EXPENSES Investment management fee............... 1,298,307 Auction commission fees................. 348,857 Transfer agent fees and expenses ....... 96,652 Professional fees....................... 52,926 Shareholder reports and notices......... 26,951 Auction agent fees...................... 20,167 Registration fees....................... 16,895 Custodian fees.......................... 15,067 Trustees' fees and expenses............. 9,371 Other................................... 23,218 ----------- TOTAL EXPENSES ....................... 1,908,411 Less: expense offset ................... (15,021) ----------- NET EXPENSES ......................... 1,893,390 ----------- NET INVESTMENT INCOME ................ 19,773,394 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized loss....................... (102,939) Net change in unrealized appreciation .. 1,137,663 ----------- NET GAIN.............................. 1,034,724 ----------- NET INCREASE ........................... $20,808,118 ===========
SEE NOTES TO FINANCIAL STATEMENTS 11 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, 1998 OCTOBER 31, 1997 - ---------------------------------------------------------------------------------------- (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ................................. $ 19,773,394 $ 40,320,782 Net realized gain (loss)............................... (102,939) 998,600 Net change in unrealized appreciation.................. 1,137,663 16,110,421 ------------ ------------ NET INCREASE ........................................ 20,808,118 57,429,803 ------------ ------------ Dividends to preferred shareholders from net investment income..................................... (3,874,580) (7,700,761) ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income ................................. (15,608,807) (33,266,944) Net realized gain ..................................... (998,640) (1,064,923) ------------ ------------ TOTAL ............................................... (16,607,447) (34,331,867) ------------ ------------ Decrease from transactions in common shares of beneficial interest................................... (1,383,822) (7,692,332) ------------ ------------ NET INCREASE (DECREASE).............................. (1,057,731) 7,704,843 NET ASSETS: Beginning of period.................................... 742,503,958 734,799,115 ------------ ------------ END OF PERIOD (Including undistributed net investment income of $2,430,023 and $2,140,016, respectively)............. $741,446,227 $742,503,958 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 12 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1998 (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 13 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1998 (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. 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, 1998 aggregated $3,653,087 and $5,820,000, respectively. Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's transfer agent. At April 30, 1998, the Trust had transfer agent fees and expenses payable of approximately $4,200. 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, 1998 included in Trustees' fees and expenses in the Statement of Operations amounted to $2,293. At April 30, 1998, the Trust had an accrued pension liability of $34,253 which is included in accrued expenses in the Statement of Assets and Liabilities. 14 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1998 (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. 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 3.845% 09/09/98 3.845% 2 400 20,000 3.63 05/07/98 3.63-3.70 3 1,120 56,000 3.85 07/02/98 3.85 4 1,120 56,000 3.65 01/07/99 3.65-3.80 5 400 20,000 3.90 05/01/98 3.30-5.00
- ------------ * As of April 30, 1998. ** For the six months ended April 30, 1998. Subsequent to April 30, 1998 and up through June 5, 1998, the Trust paid dividends to each of the Series 1 through 5 at rates ranging from 3.63% to 3.99% in the aggregate amount of $1,271,508. 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. 15 INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS April 30, 1998 (unaudited) continued 5. COMMON SHARES OF BENEFICIAL INTEREST Transactions in common shares of beneficial interest were as follows:
CAPITAL PAID IN EXCESS OF SHARES PAR VALUE PAR VALUE ------ --------- --------- Balance, October 31, 1996 ............................................... 34,126,413 $341,264 $476,829,942 Treasury shares purchased and retired (weighted average discount 5.10%)* (523,900) (5,239) (7,687,491) ---------- -------- ------------ Balance, October 31, 1997 ............................................... 33,602,513 336,025 469,142,451 Treasury shares purchased and retired (weighted average discount 5.67%)*................................................................. (92,000) (920) (1,382,902) ---------- -------- ------------ Balance, April 30, 1998 ................................................. 33,510,513 $335,105 $467,759,549 ========== ======== ============
- ------------ * The Trustees have voted to retire the shares purchased. 6. DIVIDENDS TO COMMON SHAREHOLDERS On March 24, 1998, the Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE --------- ---- ---- $0.0775 May 8, 1998 May 22, 1998 $0.0775 June 5, 1998 June 19, 1998
16 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 YEAR ENDED OCTOBER 31* MONTHS ENDED APRIL 30, 1998* 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period................ $15.91 $ 15.44 $ 15.33 $13.62 $ 16.34 $ 13.88 ------ ------- ------- ------ ------- -------- Net investment income............................... 0.59 1.20 1.19 1.18 1.24 1.22 Net realized and unrealized gain (loss)............. 0.03 0.51 0.13 1.66 (2.73) 2.50 ------ ------- ------- ------ ------- -------- Total from investment operations.................... 0.62 1.71 1.32 2.84 (1.49) 3.72 ------ ------- ------- ------ ------- -------- Less dividends and distributions from: Net investment income.............................. (0.46) (0.99) (0.99) (0.99) (1.04) (0.91) Common share equivalent of dividends paid to preferred shareholders............................ (0.12) (0.23) (0.22) (0.22) (0.22) (0.21) Net realized gain.................................. (0.03) (0.03) (0.04) -- (0.03) -- ------ ------- ------- ------ ------- -------- Total dividends and distributions................... (0.61) (1.25) (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) ------ ------- ------- ------ ------- -------- Net asset value, end of period...................... $15.92 $ 15.91 $ 15.44 $15.33 $ 13.62 $ 16.34 ====== ======= ======= ====== ======= ======== Market value, end of period......................... $14.75 $14.875 $14.625 $13.75 $11.875 $ 15.875 ====== ======= ======= ====== ======= ======== TOTAL INVESTMENT RETURN+............................ 2.38%(1) 8.84% 14.27% 24.77% (19.30)% 11.41% RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS: Total expenses...................................... 0.71%(2) 0.70%(3) 0.69%(3) 0.72%(3) 0.75% 0.71% Net investment income before preferred stock dividends.......................................... 7.39%(2) 7.68% 7.73% 8.05% 8.06% 7.95% Preferred stock dividends........................... 1.45%(2) 1.47% 1.41% 1.53% 1.43% 1.35% Net investment income available to common shareholders....................................... 5.94%(2) 6.21% 6.32% 6.52% 6.63% 6.60% SUPPLEMENTAL DATA: Net assets, end of period, in thousands............. $741,446 $742,504 $734,799 $752,840 $752,680 $924,910 Asset coverage on preferred shares at end of period............................................. 355% 356% 353% 361% 311% 330% Portfolio turnover rate............................. 1%(1) 2% -- 1% 2% 4%
- ------------ * 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. (1) Not annualized. (2) Annualized. (3) Does not reflect the effect of the expense offset of 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 17 (This page had been left blank intentionally.) (This page had been left blank intentionally.) 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-----