<PAGE> 1
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST Two World Trade Center, New
York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of InterCapital
Quality Municipal Investment Trust (IQT) for the fiscal year ended October 31,
1997.
Stimulated by a resurgence of consumer spending in late 1996, the economy grew
at a rapid pace in the first quarter of 1997. This prompted the Federal Reserve
Board to tighten its monetary policy in March in a preemptive move against a
possible increase in the rate of inflation. Economic growth slowed in the second
quarter and the bond market rallied. In addition to more moderate economic
growth, low inflation and stable monetary policy, the bond rally through July
was supported by a shrinking federal budget deficit and a strong dollar.
However, by August the bond market retreated on fears that stronger employment
conditions might prompt the Federal Reserve Board to tighten further. Yields
declined in October when turmoil in the global stock markets precipitated
"flight-to-quality" demand for U.S. Treasuries.
BOND YIELDS 1994-1997
<TABLE>
<CAPTION>
30-Year 30-Year
Insured Municipal U.S. Treasury
Revenue Yields Yields
<S> <C> <C>
Dec '93 5.4 6.34
5.4 6.24
5.8 6.66
6.4 7.09
6.35 7.32
6.25 7.43
Jun '94 6.5 7.61
6.25 7.39
6.3 7.45
6.55 7.81
6.75 7.96
7 8
Dec '94 6.75 7.88
6.4 7.7
6.15 7.44
6.15 7.43
6.2 7.34
5.8 6.66
Jun '95 6.1 6.62
6.1 6.86
6 6.66
5.95 6.48
5.75 6.33
5.5 6.14
Dec '95 5.35 5.94
5.4 6.03
5.8 6.46
5.85 6.66
5.95 6.89
6.05 6.99
Jun '96 5.9 6.89
5.85 6.97
5.9 7.11
5.7 6.93
5.65 6.64
5.5 6.35
Dec '96 5.6 6.63
5.7 6.79
5.65 6.8
5.9 7.1
5.75 6.94
5.65 6.91
Jun '97 5.6 6.78
5.3 6.3
5.5 6.61
5.4 6.4
5.35 6.15
</TABLE>
<TABLE>
<CAPTION>
Insured Municipal Revenue
Yields as a Percentage of
U.S. Treasury Yields
<S> <C>
Dec '93 85.17%
86.54%
87.09%
90.27%
86.75%
84.12%
Jun '94 85.41%
84.57%
84.56%
83.87%
84.80%
87.50%
Dec '94 85.66%
83.12%
82.66%
82.77%
84.47%
87.09%
Jun '95 92.15%
88.92%
90.08%
91.82%
90.84%
89.56%
Dec '95 90.07%
89.55%
86.69%
87.84%
86.36%
86.55%
Jun '96 85.63%
83.93%
82.98%
82.25%
85.09%
86.61%
Dec '96 84.46%
83.95%
83.08%
83.10%
82.85%
81.77%
Jun '97 82.60%
84.00%
83.00%
84.40%
86.90%
</TABLE>
<PAGE> 2
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields, but with less
volatility. Long-term insured revenue index yields increased from 5.65 percent
to 5.90 percent between October 1996 and March 1997. The bond rally over the
past seven months pushed 30-year yields down to 5.35 percent by the end of
October 1997. Yields on one-year notes were little changed at 3.75 percent over
the 12-month period. Consequently, the yield pickup for extending maturities
from 1 to 30 years narrowed from 190 basis points to 160 basis points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields
rose from 83 percent at the end of March 1997 to 87 percent in October. A rising
ratio means that municipals have underperformed Treasuries and have become
relatively more attractive. Over the past four years, this ratio has annually
ranged from an average low of 83 percent to an average high of 90 percent.
New-issue underwriting volume was slightly ahead in the first half of 1997. The
decline in interest rates subsequently led to a surge in refunding activity. As
a result, new-issue municipal volume was up 17 percent during the first 10
months of 1997. Refundings accounted for more than 25 percent of total volume.
PERFORMANCE
During the fiscal year ended October 31, 1997, the Trust's net asset value (NAV)
improved from $15.18 to $15.50. Based on this NAV change plus reinvestment of
tax-free dividends of $0.96 per share and taxable capital gains of $0.05 per
share, the Trust's total NAV return was 9.38 percent. IQT's market price on the
New York Stock Exchange moved from $14.625 to $15.3125 per share. Based on this
change in market price plus reinvestment of dividends and distributions, the
Trust's total market return was 12.16 percent. On October 31, 1997, IQT traded
at a 1 percent discount to NAV.
Monthly dividends for the fourth quarter of 1997 declared in September remained
unchanged at $0.08 per share. Over the past 12 months the level of undistributed
net investment income increased from $0.032 to $0.058 per share.
<PAGE> 3
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
LARGEST SECTORS as of October 31, 1997
(% of Net Assets)
<TABLE>
<S> <C>
Mortgage 24%
Refunded 21%
IDR/PCR* 9%
Resource Recovery 7%
Transportation 7%
Electric 5%
Hospital 5%
All Others 22%
</TABLE>
*Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT RATINGS as of October 31, 1997
(% of Total Long-Term Portfolio)
<TABLE>
<S> <C>
Aaa or AAA 51%
Aa or AA 25%
A or A 24%
</TABLE>
As measured by Moody's Investor Service, Inc.
or Standard & Poor's Corp.
Portfolio structure is subject to change.
CALL STRUCTURE as of October 31, 1997
(% of Total Long-Term Portfolio)
Percent Callable
WEIGHTED AVERAGE
CALL PROTECTION: 5.4 YEARS
<TABLE>
<CAPTION>
Years
Bonds
Callable
<S> <C>
1999 3
2000 0
2001 63
2002 3
2003 6
2004 1
2005 11
2006 5
2007 3
2008 1
2009+ 4
</TABLE>
<PAGE> 4
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
PORTFOLIO STRUCTURE
IQT remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 14 long-term sectors and 53 credits. The
Trust's weighted average maturity was 20 years. The distribution of call dates
in the portfolio produced 5 years of average weighted call protection.
Throughout the fiscal year, high credit quality was maintained with 75 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 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 shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second is
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 fiscal year, ARPS leverage contributed approximately $0.13 per share
to common share earnings. Weekly ARPS yields ranged between 3.30 and 4.125
percent. Two ARPS series totaling $105 million and representing 27 percent of
net assets were outstanding.
LOOKING AHEAD
So far this year, long-term municipal bonds have followed the trend of
Treasuries toward lower yields. The recent enactment of the Taxpayer Relief Act
of 1997 did not impact municipals directly and the long-term benefits of
tax-exempt income have remained 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 12-month period ended October 31,
1997, the Trust purchased and retired 102,900 shares of common stock at a
weighted average market discount of 5.71 percent. The Trust may also utilize
procedures to
<PAGE> 5
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
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 Investment
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
<PAGE> 6
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
RESULTS OF MEETINGS (unaudited)
* * *
On May 20, 1997, a special meeting of the Trust's shareholders was held for the
purpose of voting on two separate matters, the results of which were as follows:
(1) ELECTION OF TRUSTEE:
<TABLE>
<S> <C>
Wayne E. Hedien
For................................................................ 13,092,185
Withheld........................................................... 346,225
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Dr.
Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and John L. Schroeder
(2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For................................................................ 12,491,069
Against............................................................ 347,092
Abstain............................................................ 600,249
</TABLE>
On October 24, 1997, an annual meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Wayne E. Hedien
For............................................................... 13,965,827
Withheld.......................................................... 522,972
Dr. Manuel H. Johnson
For............................................................... 13,967,264
Withheld.......................................................... 521,535
John L. Schroeder
For............................................................... 13,981,474
Withheld.......................................................... 507,325
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael
E. Nugent and Philip J. Purcell
(2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................ 13,858,456
Against............................................................ 297,409
Abstain............................................................ 332,934
</TABLE>
<PAGE> 7
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.4%)
General Obligation (4.4%)
$ 2,000 Chicago, Illinois, Refg Ser 1995 B (FGIC)............................... 5.125% 01/01/25 $ 1,916,460
10,000 Chicago School Reform Board, Illinois, Dedicated Tax Ser 1997 (AMBAC)... 5.75 12/01/27 10,334,100
4,705 Oregon, Veterans' Welfare Ser 75........................................ 6.00 04/01/27 4,879,085
- -------- ------------
16,705 17,129,645
- -------- ------------
Educational Facilities Revenue (0.9%)
3,480 Indiana University, Student Fee Ser K (MBIA)............................ 5.875 08/01/20 3,611,718
- -------- ------------
Electric Revenue (5.1%)
5,000 North Carolina Municipal Power Agency #1 Catawba Ser 1992............... 6.25 01/01/17 5,210,150
5,000 South Carolina Public Service Authority, 1997 Refg Ser A (MBIA) (WI).... 5.00 01/01/29 4,742,900
5,000 San Antonio, Texas, Electric & Gas Refg Ser 1994-A...................... 5.00 02/01/14 4,896,150
5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)....... 5.00 07/01/21 4,766,300
- -------- ------------
20,000 19,615,500
- -------- ------------
Hospital Revenue (5.4%)
10,000 Wichita, Kansas, CSJ Health System of Wichita Inc Ser 1991.............. 7.00 11/15/18 10,875,300
7,000 Massachusetts Health & Educational Facilities Authority, St Elizabeth's
Hospital of Boston Ser D & E (FSA)..................................... 6.70 08/15/21 7,604,170
2,195 Charlotte-Mecklenburg Hospital Authority, North Carolina, Ser 1992...... 6.25 01/01/20 2,354,072
- -------- ------------
19,195 20,833,542
- -------- ------------
Industrial Development/Pollution Control Revenue (9.3%)
1,000 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)....... 7.15 02/01/23 1,081,250
9,000 Hawaii Department Budget & Finance, Citizen Utilities Co 1991 Ser A & B
(AMT).................................................................. 6.66 11/01/21 9,661,681
5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport/ Lufthansa German
Airlines Inc Ser 1990 (AMT)............................................ 7.125 05/01/18 5,446,200
2,000 Chicago, Illinois, Peoples Gas Light & Coke Co Refg 1995 Ser A.......... 6.10 06/02/25 2,111,220
4,000 New York State Energy Research & Development Authority, Brooklyn Union
Gas Co 1991 Ser A & B (AMT)............................................ 6.952 07/01/26 4,546,280
12,000 Richland County, South Carolina, Union Camp Corp Ser 1991 B (AMT)....... 7.125 09/01/21 13,087,200
- -------- ------------
33,000 35,933,831
- -------- ------------
Mortgage Revenue - Multi-Family (7.6%)
10,000 Illinois Housing Development Authority, 1991 Ser A...................... 8.25 07/01/16 10,756,900
15,000 New Jersey Housing & Mortgage Finance Agency, Presidential Plaza at
Newport-FHA Insured Mortgages Refg 1991 Ser 1.......................... 7.00 05/01/30 16,208,100
2,000 New York State Housing Finance Agency, 1996 Ser A Refg (FSA)............ 6.10 11/01/15 2,109,460
- -------- ------------
27,000 29,074,460
- -------- ------------
Mortgage Revenue - Single Family (16.3%)
2,245 Alaska Housing Finance Agency, Housing GNMA Collateralized 1990 Ser A
Subser A-2............................................................. 7.05 06/01/25 2,384,392
6,170 California Housing Finance Agency, Home 1991 Ser G (AMT)................ 7.05 08/01/27 6,518,975
9,940 Colorado Housing Finance Authority, Refg 1991 Ser A..................... 7.25 11/01/31 10,551,310
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
$ 1,100 District of Columbia Housing Finance Agency, GNMA Collateralized Ser
1990 B (AMT)........................................................... 7.10% 12/01/24 $ 1,156,837
4,635 Maine Housing Authority, Purchase 1988 Ser D-6 (AMT).................... 7.25 11/15/19 4,876,901
2,580 Michigan Housing Development Authority, 1991 Ser B...................... 6.95 12/01/20 2,727,576
8,600 Nebraska Investment Finance Authority, GNMA-Backed 1991 Ser A & B
(AMT).................................................................. 7.025 09/15/23 9,093,984
4,210 New Hampshire Housing Finance Authority, Residential 1991 Ser D (AMT)... 7.25 07/01/15 4,432,583
Ohio Housing Finance Agency,
5,200 GNMA-Backed Ser A 1& 2 (AMT)............................................ 6.903 03/01/31 5,508,516
2,000 Residential 1996 Ser B-2 (AMT).......................................... 6.10 09/01/28 2,093,160
4,500 Tennessee Housing Development Agency, Homeownership Issue T (AMT)....... 7.375 07/01/23 4,756,095
5,000 Virginia Housing Development Authority, 1992 Ser A...................... 7.15 01/01/33 5,263,300
3,000 Wyoming Community Development Authority, Federally Insured/Gtd Loans
1988 Ser G (AMT)....................................................... 7.25 06/01/21 3,206,460
- -------- ------------
59,180 62,570,089
- -------- ------------
Nursing & Health Related Facilities Revenue (0.3%)
940 New York State Medical Care Facilities Finance Agency, Mental Health
- -------- 1991 Ser C............................................................. 7.30 02/15/21 1,042,018
------------
Resource Recovery Revenue (7.1%)
5,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 1993
A (AMT)................................................................ 6.30 07/01/16 5,298,300
Detroit Economic Development Corporation, Michigan,
5,000 Ser 1991 A (AMT) (FSA)................................................. 6.60 05/01/02 5,420,400
5,000 Ser 1991 A (AMT) (FSA)................................................. 6.875 05/01/09 5,425,450
10,000 Montgomery County Industrial Development Authority, Pennsylvania, Ser
1989................................................................... 7.50 01/01/12 10,997,600
- -------- ------------
25,000 27,141,750
- -------- ------------
Student Loan Revenue (3.6%)
13,000 Pennsylvania Higher Education Assistance Agency, 1991 Ser A & B (AMT)
- -------- (AMBAC)................................................................ 6.854 09/01/26 13,954,200
------------
Transportation Facilities Revenue (7.3%)
10,000 Hillsborough County Port District, Florida, Tampa Port Authority, Spl &
Refg Ser 1995 (AMT) (FSA).............................................. 6.00 06/01/20 10,527,900
4,000 Lee County, Florida, Ser 1995 (MBIA).................................... 5.75 10/01/22 4,137,240
7,000 Hawaii, Airports Second Ser of 1991 (AMT)............................... 6.90 07/01/12 8,139,180
5,000 Houston, Texas, Airport Sub Lien Ser 1991 A (AMT) (FGIC)................ 6.75 07/01/21 5,400,850
- -------- ------------
26,000 28,205,170
- -------- ------------
Water & Sewer Revenue (1.1%)
4,000 Cleveland, Ohio, Waterworks Improvements Refg Ser H 1996 (MBIA)......... 5.75 01/01/21 4,139,760
- -------- ------------
Other Revenue (8.0%)
10,000 New York Local Government Assistance Corporation, Ser 1995 A............ 6.00 04/01/24 10,573,900
15,000 Emmaus General Authority, Pennsylvania, Local Government Ser 1988 H
(FGIC)................................................................. 7.00 05/15/18 16,323,450
4,000 Houston, Texas, Sr Lien Hotel Occupancy Tax Refg Ser 1995 (FSA)......... 5.50 07/01/15 4,063,040
- -------- ------------
29,000 30,960,390
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (21.0%)
$ 10,000 Massachusetts Health & Educational Facilities Authority, Brigham &
Woman's
Hospital Ser D......................................................... 6.75% 07/01/01++ $ 11,018,400
5,000 Massachusetts Water Resources Authority, 1991 Ser A..................... 6.875 12/01/01++ 5,585,250
5,000 New York City Municipal Water Finance Authority, New York, 1991 Ser C... 7.375 06/15/01++ 5,605,050
5,000 New York Local Government Assistance Corporation, Ser 1991 C............ 7.00 04/01/01++ 5,543,050
2,805 Charlotte-Mecklenburg Hospital Authority, North Carolina, Ser 1992...... 6.25 01/01/02++ 3,062,918
9,000 Lorain County, Ohio, Humility of Mary Health Care Corp Ser 1991 B
(ETM).................................................................. 7.20 12/15/11 10,265,490
10,000 Middleburg Heights, Ohio, Southwest General Hospital Ser 1991........... 7.20 08/15/01++ 11,207,000
6,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991 (AMBAC) (ETM)..... 6.75 05/15/20 6,542,700
10,000 Seattle, Washington, Drainage & Wastewater Utility 1990................. 7.125 12/01/99++ 10,798,200
10,000 Washington Public Power Supply System, Proj #1 Refg Ser 1991 A.......... 6.875 07/01/01++ 11,053,200
- -------- ------------
72,805 80,681,258
- -------- ------------
349,305 TOTAL MUNICIPAL BONDS (Identified Cost $347,394,921)........................................... 374,893,331
- -------- ------------
SHORT TERM MUNICIPAL OBLIGATIONS (2.0%)
1,400 St Charles Parish, Louisiana, Shell Oil Co Ser 1995 (Demand 11/03/97)... 4.00* 10/01/25 1,400,000
3,800 Massachusetts Health & Educational Facilities Authority, Capital Asset
Ser D (MBIA) (Demand 11/03/97)......................................... 3.85* 01/01/35 3,800,000
2,300 Missouri Health & Educational Facilities Authority, Washington
University Ser 1996 D (Demand 11/03/97)................................ 4.10* 02/01/30 2,300,000
- -------- ------------
7,500 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $7,500,000)............................ 7,500,000
- -------- ------------
$356,805 TOTAL INVESTMENTS (Identified Cost $354,894,921) (a).................................. 99.4%
======== 382,393,331
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 0.6 2,379,403
---- ------------
NET ASSETS............................................................................. 100.0% $384,772,734
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
WI Security purchased on a when issued basis.
++ 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 $27,520,454 and aggregate gross unrealized depreciation is $22,044, resulting in
net unrealized appreciation of $27,498,410.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1997
<TABLE>
<S> <C>
Alaska................... 0.6%
California............... 1.7
Colorado................. 2.7
District of Columbia..... 0.3
Florida.................. 4.1
Hawaii................... 4.6
Illinois................. 7.9
Indiana.................. 0.9
Kansas................... 2.8
Louisiana................ 0.4
Maine.................... 1.3
Maryland................. 1.4
Massachusetts............ 7.3
Michigan................. 3.5
Missouri................. 0.6
Nebraska................. 2.4
New Hamphire............. 1.2
New Jersey............... 4.2
New York................. 7.6
North Carolina........... 2.8
Ohio..................... 8.6
Oregon................... 1.4
Pennsylvania............. 10.7
South Carolina........... 4.6
Tennessee................ 1.3
Texas.................... 3.7
Utah..................... 2.9
Virginia................. 1.4
Washington............... 5.7
Wyoming.................. 0.8
----
Total.................... 99.4%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
ASSETS:
Investments in securities, at value
(identified cost $354,894,921)....................................... $382,393,331
Cash.................................................................. 363,591
Receivable for:
Interest.......................................................... 6,855,657
Investment sold................................................... 200,000
Prepaid expenses and other assets..................................... 121,239
------------
TOTAL ASSETS...................................................... 389,933,818
------------
LIABILITIES:
Payable for:
Investment purchased.............................................. 4,789,056
Investment management fee......................................... 128,888
Dividends to preferred shareholders............................... 119,616
Accrued expenses...................................................... 123,524
------------
TOTAL LIABILITIES................................................. 5,161,084
------------
NET ASSETS........................................................ $384,772,734
============
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized
of non-participating $.01 par value, 2,100 shares outstanding)....... $105,000,000
------------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 18,049,013 shares outstanding)....................... 251,024,923
Net unrealized appreciation........................................... 27,498,410
Accumulated undistributed net investment income....................... 1,054,114
Accumulated undistributed net realized gain........................... 195,287
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS...................... 279,772,734
------------
TOTAL NET ASSETS.................................................. $384,772,734
============
NET ASSET VALUE PER COMMON SHARE
($279,772,734 divided by 18,049,013 common shares outstanding)....... $15.50
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $23,705,950
-----------
EXPENSES
Investment management fee.............................................. 1,331,551
Auction commission fees................................................ 306,600
Professional fees...................................................... 103,469
Transfer agent fees and expenses....................................... 71,128
Shareholder reports and notices........................................ 45,820
Registration fees...................................................... 25,041
Auction agent fees..................................................... 17,442
Custodian fees......................................................... 15,750
Trustees' fees and expenses............................................ 13,684
Other.................................................................. 27,165
-----------
TOTAL EXPENSES..................................................... 1,957,650
Less: expense offset................................................... (15,666)
-----------
NET EXPENSES....................................................... 1,941,984
-----------
NET INVESTMENT INCOME.............................................. 21,763,966
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain...................................................... 195,281
Net change in unrealized appreciation.................................. 6,054,065
-----------
NET GAIN........................................................... 6,249,346
-----------
NET INCREASE........................................................... $28,013,312
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 21,763,966 $ 21,950,197
Net realized gain.................................... 195,281 964,359
Net change in unrealized appreciation................ 6,054,065 38,946
------------ ------------
NET INCREASE..................................... 28,013,312 22,953,502
------------ ------------
Dividends to preferred shareholders from net
investment income................................... (3,950,695) (3,965,633)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income................................ (17,354,713) (18,527,196)
Net realized gain.................................... (964,357) (3,012,944)
------------ ------------
TOTAL............................................ (18,319,070) (21,540,140)
------------ ------------
Decrease from transactions in common shares of
beneficial interest................................. (1,458,787) (879,600)
------------ ------------
NET INCREASE (DECREASE).......................... 4,284,760 (3,431,871)
NET ASSETS:
Beginning of period.................................. 380,487,974 383,919,845
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$1,054,114 and $595,556, respectively)........... $384,772,734 $380,487,974
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Quality Municipal Investment 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 July 2, 1991 and commenced
operations on September 27, 1991.
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
<PAGE> 15
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
investment income and net realized capital gains are determined in accordance
with federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), 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 cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1997 aggregated
$18,876,000 and $21,745,082, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $5,400.
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 year ended October 31, 1997 included
in
<PAGE> 16
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
Trustees' fees and expenses in the Statement of Operations amounted to $4,156.
At October 31, 1997, the Trust had an accrued pension liability of $37,070 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 A and Series B 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.
<TABLE>
<CAPTION>
AMOUNT RESET RANGE OF
SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES**
- ------- ------- ------------- ----- -------- ----------------
<S> <C> <C> <C> <C> <C>
A 1,400 $70,000 3.70% 11/15/97 3.30% - 4.125%
B 700 35,000 3.78 9/04/98 3.78 - 3.885
</TABLE>
- ---------------------
* As of October 31, 1997.
** For the year ended October 31, 1997.
Subsequent to October 31, 1997 and up through December 5, 1997 the Trust paid
dividends to Series A and B at rates ranging from 3.58% to 3.79% in the
aggregate amount of $349,713.
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.
<PAGE> 17
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, October 31, 1995....................................................... 18,212,813 $182,128 $253,181,182
Treasury shares purchased and retired (weighted average discount 5.61%)*........ (60,900) (609) (878,991)
---------- -------- ------------
Balance, October 31, 1996....................................................... 18,151,913 181,519 252,302,191
Treasury shares purchased and retired (weighted average discount 5.71%)*........ (102,900) (1,029) (1,457,758)
---------- -------- ------------
Balance, October 31, 1997....................................................... 18,049,013 $180,490 $250,844,433
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS
On September 23, 1997, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ---------------- -----------------
<S> <C> <C>
$0.08 November 7, 1997 November 21, 1997
$0.08 December 5, 1997 December 19, 1997
</TABLE>
<PAGE> 18
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31*
------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 15.18 $ 15.31 $ 14.09 $ 16.53 $ 14.51
------- ------- ------- ------ -------
Net investment income............................................ 1.20 1.21 1.22 1.35 1.42
Net realized and unrealized gain (loss).......................... 0.34 0.06 1.30 (2.34) 2.05
------- ------- ------- ------ -------
Total from investment operations................................. 1.54 1.27 2.52 (0.99) 3.47
------- ------- ------- ------ -------
Less dividends and distributions from:
Net investment income......................................... (0.96) (1.02) (1.08) (1.23) (1.23)
Common share equivalent of dividends paid to preferred
shareholders................................................. (0.22) (0.22) (0.22) (0.22) (0.22)
Net realized gain............................................. (0.05) (0.16) -- -- --
------- ------- ------- ------ -------
Total dividends and distributions................................ (1.23) (1.40) (1.30) (1.45) (1.45)
------- ------- ------- ------ -------
Anti-dilutive effect of acquiring treasury shares................ 0.01 -- -- -- --
------- ------- ------- ------ -------
Net asset value, end of period................................... $ 15.50 $ 15.18 $ 15.31 $ 14.09 $ 16.53
======= ======= ======= ====== =======
Market value, end of period...................................... $ 15.313 $ 14.625 $ 14.625 $ 12.75 $ 16.625
======= ======= ======= ====== =======
TOTAL INVESTMENT RETURN+......................................... 12.16% 8.44% 23.76% (16.77)% 19.68%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses................................................... 0.71% 0.72% 0.74% 0.82% 0.81%
Net investment income before preferred stock dividends........... 7.93% 8.02% 8.31% 8.80% 9.05%
Preferred stock dividends........................................ 1.44% 1.45% 1.50% 1.40% 1.38%
Net investment income available to common shareholders........... 6.49% 6.57% 6.81% 7.40% 7.67%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................... $384,773 $380,488 $383,920 $379,886 $447,578
Asset coverage on preferred shares at end of period.............. 366% 362% 365% 316% 320%
Portfolio turnover rate.......................................... 5% 7% 12% 10% 3%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends are assumed to be reinvested at the
prices obtained under the Trust's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 19
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of InterCapital Quality Municipal
Investment Trust (the "Trust") at October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities October 31, 1997 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 9, 1997
--------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1997, the Trust paid the
following per share amounts from tax-exempt income: $0.96 to
common shareholders, $1,746 to Series A preferred shareholders
and $1,893 to Series B preferred shareholders. For the year
ended October 31, 1997, the Trust paid the following per share
amounts from long-term capital gains, $0.04 to common
shareholders, $86 to Series A preferred shareholders' and $82
to Series B preferred shareholders.
<PAGE> 20
TRUSTEES
- -----------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
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 E. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -----------------------------------------------
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- -----------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
QUALITY
MUNICIPAL
INVESTMENT
TRUST
ANNUAL REPORT
OCTOBER 31, 1997
