<PAGE> 1
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- - - - - --------------------------------------------------------------------------------
When InterCapital Quality Municipal Income Trust (NYSE symbol: IQI) began
its new fiscal year in November 1993, municipal yields had reached record lows
in a trend that began six years ago. Strong economic growth in the fourth
quarter of 1993 prompted concern about inflation and caused interest rates to
rise. The Federal Reserve Board tightened monetary policy by raising the
federal-funds rate -- the interest rate that banks charge each other for
overnight loans -- from 3.00 percent to 3.75 percent in three separate moves
between early February and April. This action was presented as a preemptive
strike against inflation. However, the fixed-income markets interpreted the
change in Federal policy as the beginning of a trend toward higher interest
rates. In mid-May the Federal Reserve Board initiated another round of
tightening with a 50 basis point increase in both the federal-funds rate and the
discount rate -- the interest rate the Federal Reserve charges member banks for
loans.
By the end of April the bond market was battered. Interest rates were at
levels not seen in over a year. Long-term municipal bond yields as measured by
The Bond Buyer Revenue Bond Index* increased by 86 basis points from 5.56
percent to 6.42 percent between November and April. This corresponded to a price
decline of more than 11 percent.
New-issue underwriting totaled $290 billion in 1993, a 23 percent increase
over the previous high of $235 billion set in 1992. Refunding issues, which are
used by state and local governments to refinance higher-coupon debt, represented
66 percent of total volume last year. It is estimated that 1994's underwriting
volume will decline by 30 percent to about $200 billion and that approximately
$260 billion in bonds will either mature or be called. Thus, the amount of
municipal debt outstanding will be reduced. In line with these projections,
new-issue volume for the first four months of 1994 declined by 34 percent and
totaled $59 billion. Refunding activity, the catalyst of last year's record
underwriting, dropped even more sharply.
PERFORMANCE
For the six-month period ended April 30, 1994, the Trust paid shareholders
tax-free income dividends totaling $0.545 per share, including an extra income
dividend of $0.05 per share and a short-term capital gains distribution of
$0.025 distributed in December. IQI's total return for this period was -11.65
percent. This calculation is based on a change in the Trust's New York Stock
Exchange market price from $15.875 on October 31, 1993 to $13.50 per share on
April 30, 1994 and includes the reinvestment of all dividends and distributions.
Over the same period, the Trust's net asset value (NAV) declined about 11
percent from $16.34 to $14.49 per share. Although IQI is leveraged with Auction
Rate Preferred Shares (as discussed below), its NAV decline was in line with the
unleveraged Revenue Bond Index. The defensive nature of the high-coupon bonds in
the portfolio aided performance. As of April 30, 1994, the Trust was trading at
a 6.83 percent discount to NAV.
PORTFOLIO STRUCTURE
The portfolio's long-term investments were diversified among 11 specific
municipal sectors and 77 credits. The three largest sectors were transportation
revenue, housing revenue and general obligation bonds, representing 42 percent
of net assets. The average maturity and call protection of the Trust's long-term
holdings was 22 years and 8 years, respectively. Bonds subject to the
alternative minimum tax (AMT)
- - - - - ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Ratings of these
bonds range from Aaa to Baa1 by Moody's and AAA to A- by S&P.
<PAGE> 2
comprised approximately 14.2 percent of net assets. At the end of the period,
the Trust's net assets exceeded $842 million. The credit quality ratings of the
long-term portfolio are summarized below:
<TABLE>
<CAPTION>
Moody's or Standard & Poor's Rating Percent
----------------------------------------------------------------------------- --------
<S> <C>
Aaa or AAA................................................................... 34.1%
Aa or AA..................................................................... 27.4
A1 or A+..................................................................... 9.7
A or A....................................................................... 28.8
--------
100.0%
======
</TABLE>
PREFERRED SHARE LEVERAGE
In addition to common shares, the Trust has also issued five $56 million
series of Auction Rate Preferred Shares (ARPS). Dividend and distribution
payments for these shares rank ahead of the common shares. ARPS are short-term
securities with maturities normally ranging from one week to one year. The
dividend rates on tax-free ARPS are established by an auction process, when the
maturity is rolled over. The Trust uses the proceeds from ARPS issuance to
purchase long-term municipal bonds.
The common shares are impacted by the preferred shares in two ways. First,
following the payment of the dividend on the ARPS, common shares receive any
extra incremental income when the long-term portfolio yield is higher than the
cost of the ARPS (yield plus expenses). Second, the preferred shares leverage
the common shares by a factor of approximately 1.5 times, thus multiplying any
market change in NAV. Over the past six months, incremental tax-free income from
the ARPS leverage maintained the common share dividends and increased the level
or cushion of undistributed net investment income. As of April 30, 1994, an
amount equivalent to $0.116 per share had been accumulated in this cushion to
help sustain the Trust's current dividend. The average ARPS rate on the Trust's
five outstanding series as of April 30, 1994 was 2.75 percent, with all resets
scheduled to occur within 4 months. Higher yields in future ARPS auctions may
begin to erode the Trust's cushion of undistributed net investment income
available for distribution to common shareholders. If the cushion were to erode
significantly over time, the Trust would take appropriate action which could
include an adjustment in the common dividend and/or a reduction in the amount of
ARPS.
Leverage was a positive influence on the overall value of the portfolio for
the first one and one-half years of the Trust's existence. However, the increase
in interest rates over the past few months has adversely impacted NAV.
LOOKING AHEAD
A continuation of low new-issue supply, coupled with significant bond calls
and maturities should sustain investor demand for municipals. However, the
overall direction of interest rates will primarily be determined by the strength
of the economy, the trend of inflations and the Federal Reserve Board's response
to economic conditions.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is by purchase in the open market. This method helps to support
the market value of the Trust's shares. In addition, the Trustees have approved
a procedure whereby the Trust may attempt to reduce or eliminate a market value
discount from net asset value by repurchasing common shares in the open market
or in privately negotiated transactions. The Trust may also utilize procedures
to reduce or eliminate the amount of outstanding ARPS, including their
repurchase in the open market or in privately negotiated transactions.
We appreciate your support of InterCapital Quality Municipal Income Trust
and look forward to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (94.3%)
GENERAL OBLIGATION (11.8%)
$ 20,000 Jefferson County School District # R-1, Colorado, Ser 1992
(AMBAC Insured)............................................ 6.00 % 12/15/12 $ 19,755,200
7,500 District of Columbia, 1992 Ser B (MBIA Insured).............. 6.30 6/ 1/12 7,521,525
Hawaii,
5,000 1992 Ser BZ................................................ 6.00 10/ 1/10 5,015,250
8,000 1992 Ser BZ................................................ 6.00 10/ 1/11 7,990,960
4,000 Cook County, Illinois, Ser 1992 C (FGIC Insured)............. 6.00 11/15/09 4,015,880
Washoe County School District, Nevada, Ltd Tax
4,730 Ser 10/1/92 A (AMBAC Insured).............................. 6.25 4/ 1/11 4,799,436
8,100 Ser 10/1/92 A (AMBAC Insured).............................. 6.25 4/ 1/13 8,158,887
New York City, New York,
5,500 1993 Ser B................................................. 7.00 10/ 1/11 5,781,930
2,100 1993 Ser B................................................. 7.00 10/ 1/13 2,215,836
3,300 1993 Ser B................................................. 7.00 10/ 1/14 3,482,028
5,000 1993 Ser B................................................. 6.75 10/ 1/15 5,046,150
2,400 1992 Ser B................................................. 7.00 2/ 1/20 2,501,184
10,000 San Antonio, Texas, Refg Ser 1992............................ 5.75 8/ 1/13 9,432,800
15,000 Washington, Ser 1993 A....................................... 5.75 10/ 1/17 14,065,500
- - - - - ---------- ------------
100,630 99,782,566
- - - - - ---------- ------------
EDUCATIONAL FACILITIES REVENUE (2.4%)
10,000 District of Columbia, Howard University Refg Ser 1992 A...... 6.75 10/ 1/12 10,270,100
2,500 University of Illinois, Auxiliary Ser 1991................... 5.75 4/ 1/22 2,292,675
1,000 New Hampshire Higher Educational & Health Facilities
Authority, University of New Hampshire Ser 1992 (MBIA
Insured)................................................... 6.25 7/ 1/20 982,200
Scranton - Lackawanna Health & Welfare Authority,
Pennsylvania,
3,000 University of Scranton 1992 Ser A.......................... 6.40 3/ 1/07 3,052,200
3,300 University of Scranton 1992 Ser A.......................... 6.50 3/ 1/13 3,301,947
- - - - - ---------- ------------
19,800 19,899,122
- - - - - ---------- ------------
ELECTRIC REVENUE (10.2%)
9,500 Orlando Utilities Commission, Florida, Ser 1991 A............ 5.50 10/ 1/26 8,383,560
10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B.... 6.375 1/ 1/16 9,797,700
5,000 Hastings, Nebraska, Refg Ser 1992............................ 6.30 1/ 1/19 4,931,700
North Carolina Municipal Power Agency #1,
2,000 Catawba Ser 1992........................................... 6.00 1/ 1/10 2,007,860
3,775 Catawba Ser 1992........................................... 5.75 1/ 1/15 3,471,150
10,000 Hamilton! Ohio, Refg 1992 Ser A (FGIC Insured)............... 6.00 10/15/23 9,704,100
20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992
Ser (MBIA Insured)......................................... 6.375 1/ 1/25 19,537,200
8,080 South Carolina Public Service Authority, 1986 Refg Ser C..... 7.30 7/ 1/21 8,489,414
Grant County Public Utility District #2, Washington,
8,220 Priest Rapids Hydro Second Ser 1992 A...................... 5.00 1/ 1/23 6,616,278
8,000 Wanapum Hydro, Second Ser 1992 A........................... 6.375 1/ 1/23 7,900,400
5,000 Wanapum Hydro, Second Ser 1992 B (AMT)..................... 6.75 1/ 1/23 5,153,150
- - - - - ---------- ------------
89,575 85,992,512
- - - - - ---------- ------------
HOSPITAL REVENUE (10.0%)
5,000 Colorado Health Facilities Authority, Sisters of Charity
Health Care Systems Inc Ser 1992 A (AMBAC Insured)......... 6.00 5/15/22 4,771,900
6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991
(MBIA Insured)............................................. 6.00 12/ 1/21 5,765,460
9,250 Massachusetts Health & Educational Facilities Authority,
Massachusetts General Hospital Ser F (AMBAC Insured)....... 6.00 7/ 1/15 8,926,898
10,000 Missouri Health & Education Facilities Authority, Health
Midwest Ser 1992 B (MBIA Insured).......................... 6.25 2/15/22 9,869,000
5,000 New Hampshire Higher Educational & Health Facilities
Authority, Mary Hitchcock Memorial Hospital Ser 1993 (FGIC
Insured)................................................... 5.25 8/15/21 4,262,000
10,000 New York State Medical Care Facilities Finance Agency, The
Mount Sinai Hospital - FHA Insured Mortgage 1992 Ser C..... 5.75 8/15/19 9,131,300
</TABLE>
<PAGE> 4
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
$ 1,000 Akron, Bath & Copley Joint Township Hospital District, Ohio,
Summa Health Ser 1992 A.................................... 6.25 % 11/15/07 $ 1,003,020
4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser
1992....................................................... 5.50 11/15/11 4,072,140
10,000 Allegheny County Hospital Development Authority,
Pennsylvania,
Presbyterian University Health Ser 1992 A (MBIA Insured)... 6.25 11/ 1/23 9,854,200
5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/
The Western Pennsylvania Hospital Refg 1992 Ser A
(MBIA Insured)............................................. 6.25 7/ 1/16 4,958,000
5,000 Erie County Hospital Authority, Pennsylvania, St Vincent
Health Center Ser B of 1992 (MBIA Insured)................. 6.375 7/ 1/22 5,008,650
3,000 Philadelphia Hospitals & Higher Education Facilities
Authority, Pennsylvania, Chesnut Hill Hospital Ser of
1992....................................................... 6.375 11/15/11 2,927,280
5,000 South Dakota Health & Educational Facilities Authority, Queen
of Peace Hospital Ser 1992 (MBIA Insured).................. 6.70 7/ 1/17 5,117,800
8,500 Fredricksburg Industrial Development Authority, Virginia, MWH
Medicorp Obligated Group Ser 1991 B INFLOS (FGIC Insured) ... 10.127+ 8/15/23 8,850,625
- - - - - ---------- ------------
87,250 84,518,273
- - - - - ---------- ------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (7.2%)
3,000 Valdez, Alaska, BP Pipelines Inc Refg Ser 1993 B............. 5.50 10/ 1/28 2,585,640
6,000 California Pollution Control Financing Authority, Keller
Cannon Landfill Co/Browning - Ferris Industries Inc Ser
1992 (AMT)................................................. 6.875 11/ 1/27 6,087,180
5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B... 6.35 2/ 1/22 5,029,250
3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)... 7.15 2/ 1/23 3,654,280
2,500 Illinois Development Finance Authority, Central Illinois
Public Service Co 1993 Ser B-2............................. 5.90 6/ 1/28 2,320,800
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT)
(MBIA Insured)............................................. 6.65 6/ 1/17 5,110,800
1,200 Salem County Pollution Control Financing Authority, New
Jersey, El Du Pont de Nemours & Co 1992 Ser A (AMT)........ 6.125 7/15/22 1,163,100
15,000 Berkeley County, South Carolina, South Carolina Electric &
Gas Co Ser 1984............................................ 6.50 10/ 1/14 15,026,550
10,000 Brazos River Authority, Texas, Houston Lighting & Power Co
Ser 1992 B (MBIA Insured).................................. 6.375 4/ 1/12 10,094,000
10,000 Mason County, West Virginia, Appalachian Power Co Ser J...... 6.60 10/ 1/22 9,749,000
- - - - - ---------- ------------
61,200 60,820,600
- - - - - ---------- ------------
MORTGAGE REVENUE -- MULTI-FAMILY (5.9%)
7,000 Illinois Housing Development Authority, Ser I................ 6.625 9/ 1/12 6,958,700
25,000 Michigan Housing Development Authority, Rental 1992 Ser A
(Bifurcated FSA Insured)................................... 6.50 4/ 1/23 24,772,750
Missouri Housing Development Commission,
7,845 Federally Insured Mortgage Loans Refg Ser 11/15/92......... 6.50 7/ 1/16 7,885,323
10,000 Federally Insured Mortgage Loans Refg Ser 11/15/92......... 6.60 7/ 1/24 10,051,100
- - - - - ---------- ------------
49,845 49,667,873
- - - - - ---------- ------------
MORTGAGE REVENUE -- SINGLE FAMILY (8.4%)
7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A....... 6.60 12/ 1/23 8,217,300
20,000 Connecticut Housing Finance Authority, 1992 Ser B............ 6.70 11/15/12 20,392,400
9,325 Georgia Housing & Finance Authority, Home Ownership
1992 Ser C................................................. 6.50 12/ 1/11 9,423,752
1,400 Idaho Housing Agency, 1992 Ser E (AMT)....................... 6.75 7/ 1/12 1,420,006
Minnesota Housing & Finance Agency,
3,460 Ser 1992 D-1............................................... 6.50 1/ 1/17 3,443,323
7,480 Ser 1992 CD-1 (AMT)........................................ 6.75 7/ 1/23 7,495,857
20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT).. 6.80 7/ 1/21 20,529,395
- - - - - ---------- ------------
69,525 70,922,033
- - - - - ---------- ------------
</TABLE>
<PAGE> 5
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
NURSING & HEALTH RELATED FACILITIES REVENUE (2.1%)
$ 6,265 University of Michigan, Medical Service Plan Ser 1991........ 6.50 % 12/ 1/21 $ 6,344,691
11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority,
Minnesota, Group Health Plan Inc Ser 1992.................. 6.90 10/15/22 11,554,875
- - - - - ---------- ------------
17,515 17,899,566
- - - - - ---------- ------------
PUBLIC FACILITIES REVENUE (5.1%)
9,800 Orlando, Florida, Cap Impr Refg Ser 1992..................... 6.00 10/ 1/22 9,338,126
13,500 Atlanta Downtown Development Authority, Georgia, Underground
Atlanta Refg Ser 1992...................................... 6.25 10/ 1/16 13,338,675
5,000 Illinois, Civic Center Ser 1990 A (AMBAC Insured)............ 6.00 12/15/15 4,789,600
7,370 Indianapolis Local Public Improvement Bond Bank, Indiana,
Ser 1992 D................................................. 6.75 2/ 1/20 7,333,224
8,550 Maine Municipal Bond Bank, 1992 Ser E........................ 6.25 11/ 1/12 8,485,191
- - - - - ---------- ------------
44,220 43,284,816
- - - - - ---------- ------------
RESOURCE RECOVERY REVENUE (2.6%)
17,235 Broward County, Florida, Broward Waste Energy Co North Ser 1984... 7.95 12/ 1/08 19,050,707
2,500 Union County Utilities Authority, New Jersey, Solid Waste
1991 Ser A (AMT)........................................... 7.20 6/15/14 2,579,425
- - - - - ---------- ------------
19,735 21,630,132
- - - - - ---------- ------------
TRANSPORTATION FACILITIES REVENUE (15.5%)
10,000 Los Angeles County Transportation Commission, California,
Sales Tax Second Sr Ser 1992-A (Prerefunded)............... 6.75 7/ 1/19 11,045,900
Dade County, Florida, Aviation
3,000 1992 Ser B (MBIA Insured).................................. 6.55 10/ 1/13 3,096,930
5,000 1992 Ser B (MBIA Insured) (AMT)............................ 6.60 10/ 1/22 5,136,000
13,250 Chicago, Illinois, Chicago O'Hare Int'l Airport - Int'l
Terminal Ser 1992 (AMT) (MBIA Insured)..................... 6.75 1/ 1/12 13,723,820
30,000 Illinois Toll Highway Authority, Priority 1992 Ser A......... 6.37 1/ 1/15 29,472,600
15,000 St Louis, Missouri, Lambert - St Louis Int'l Airport Ser 1992
(AMT) (FGIC Insured)....................................... 6.00 7/ 1/08 14,998,200
34,595 Clark County, Nevada, Las Vegas - McCarran Int'l Airport
Passenger Facility Charge 1992 Ser B (AMT)................. 6.25 7/ 1/22 32,755,238
Puerto Rico Highway & Transportation Authority,
6,000 Refg Ser V................................................. 6.625 7/ 1/12 6,121,560
7,115 Ser T (Prerefunded)........................................ 6.625 7/ 1/18 7,216,531
1,885 Ser T...................................................... 6.625 7/ 1/18 2,068,467
6,000 Refg Ser X................................................. 5.25 7/ 1/21 5,075,220
- - - - - ---------- ------------
131,845 130,710,466
- - - - - ---------- ------------
WATER & SEWER REVENUE (10.8%)
10,000 Central Coast Water Authority, California, Ser 1992
(AMBAC Insured)............................................ 6.50 10/ 1/14 10,196,200
9,750 DeKalb County, Georgia, Water & Sewer Ser 1993............... 5.25 10/ 1/23 8,317,433
Massachusetts Water Resources Authority,
15,000 1992 Ser B................................................. 5.50 11/ 1/15 13,338,750
15,000 1990 Ser A (Prerefunded)................................... 6.50 12/ 1/19 16,293,750
20,000 New York City Municipal Water Finance Authority, New York,
Ser 1993 A................................................. 6.00 6/15/17 19,097,000
8,000 Houston, Texas, Water & Sewer Lien Jr Refg Ser 1991 C (AMBAC
Insured)................................................... 6.375 12/ 1/17 7,999,360
6,000 Fairfax County Water Authority, Virginia, Refg Ser 1992...... 6.00 4/ 1/22 5,719,020
8,915 Roanoke County, Virginia, Water Ser 1991 (FGIC Insured)
(Prerefunded).............................................. 6.50 7/ 1/21 9,662,523
- - - - - ---------- ------------
92,665 90,624,036
- - - - - ---------- ------------
</TABLE>
<PAGE> 6
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - ---------- ------- -------- ------------
<C> <S> <C> <C> <C>
OTHER REVENUE (2.3%)
New York State Local Government Assistance Corporation,
$ 2,000 Ser 1991 A................................................. 7.125 % 4/ 1/11 $ 2,125,180
15,000 Ser 1991 C (Prerefunded)................................... 7.00 4/ 1/21 16,771,350
- - - - - ---------- ------------
17,000 18,896,530
- - - - - ---------- ------------
800,805 TOTAL MUNICIPAL BONDS
- - - - - ---------- (IDENTIFIED COST $780,556,837)...................................... 794,648,525
------------
SHORT-TERM MUNICIPAL OBLIGATIONS (4.0%)
8,000 Louisiana Offshore Terminal Authority, Deepwater Port LOOP
Inc (Tender 5/2/94)........................................ 2.85* 9/ 1/06 8,000,000
7,000 Louisiana Recovery District, Sales Tax Ser 1988 (FGIC
Insured) (Tender 5/2/94)................................... 3.00* 7/ 1/97 7,000,000
6,000 New York City, New York, Subser A-8 (Tender 5/2/94).......... 2.95* 8/ 1/18 6,000,000
12,500 Salt Lake County, Utah, Service Station Holdings British
Petroleum Ser 1994 (Tender 5/2/94)......................... 2.95* 2/ 1/08 12,500,000
- - - - - ---------- ------------
33,500 TOTAL SHORT - TERM MUNICIPAL OBLIGATIONS
- - - - - ---------- (IDENTIFIED COST $33,500,000)....................................... 33,500,000
------------
$ 834,305 TOTAL INVESTMENTS (IDENTIFIED COST $814,056,837)(A).....................
========== 98.3% 828,148,525
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 1.7 14,532,191
------ ------------
NET ASSETS.............................................................. 100.0% $842,680,716
------ ------------
------ ------------
</TABLE>
- - - - - ---------------
+ Current coupon rate for residual interest bonds. This rate resets
periodically as the auction rate on the related short-term securities
fluctuates.
* Variable or floating rate securities. Coupon rate shown reflects current
rate.
(a) The aggregate cost for federal income tax purposes is $814,056,837; the
aggregate gross unrealized appreciation is $17,304,902 and the aggregate
gross unrealized depreciation is $3,213,214, resulting in net unrealized
appreciation of $14,091,688.
See Notes to Financial Statements
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1994 (unaudited)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Alaska............... 1.28% Idaho................ 0.17% Nevada............... 6.03% South Dakota......... 0.61%
California........... 3.24 Illinois............. 7.54 New Hampshire........ 0.62 Texas................ 3.28
Colorado............. 2.91 Louisiana............ 1.78 New Jersey........... 0.44 Utah................. 1.48
Connecticut.......... 2.42 Maine................ 1.01 New York............. 8.56 Virginia............. 5.31
District of Columbia 2.11 Massachusetts........ 4.59 North Carolina....... 0.65 Washington........... 4.00
Florida.............. 7.07 Michigan............. 3.69 Ohio................. 1.75 West Virginia........ 1.17
Georgia.............. 4.85 Minnesota............ 2.67 Pennsylvania......... 3.45 ----
Hawaii............... 1.54 Missouri............. 5.08 Puerto Rico.......... 2.43 Total................ 98.3%
Indiana.............. 0.87 Nebraska............. 0.59 South Carolina....... 5.11 ====
</TABLE>
<PAGE> 7
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
- - - - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1994 (unaudited)
- - - - - --------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $814,056,837)
(Note 1)............................ $ 828,148,525
Cash.................................. 838,229
Interest receivable................... 14,147,919
Deferred organizational expenses
(Note 1)............................ 37,591
Prepaid expenses...................... 285,273
-------------
TOTAL ASSETS................. 843,457,537
-------------
LIABILITIES:
Payable for common shares of
beneficial interest repurchased..... 381,721
Investment management fee payable
(Note 2)............................ 293,876
Accrued expenses (Note 3)............. 101,224
-------------
TOTAL LIABILITIES............ 776,821
-------------
NET ASSETS:
Preferred shares of beneficial
interest
(1,000,000 shares authorized of
non-participating $.01 par value,
5,600 shares outstanding (Note
4))................................. 280,000,000
-------------
Common shares of beneficial interest
(unlimited shares authorized of $.01
par value, 38,836,913 shares
outstanding (Note 5))............... 539,550,044
Accumulated undistributed net realized
gain on investments................. 4,551,119
Net unrealized appreciation on
investments......................... 14,091,688
Accumulated undistributed net
investment income................... 4,487,865
-------------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS........ 562,680,716
-------------
TOTAL NET ASSETS............. $ 842,680,716
===========
NET ASSET VALUE PER COMMON SHARE
($562,680,716 divided by 38,836,913
common shares outstanding).......... $14.49
------
------
STATEMENT OF OPERATIONS
For the six months ended April 30, 1994 (unaudited)
- - - - - --------------------------------------
INVESTMENT INCOME:
INTEREST INCOME...................... $ 26,605,642
-------------
EXPENSES
Investment management fee (Note 2).. 1,560,088
Auction commission fees............. 395,542
Transfer agent fees and expenses.... 147,053
Professional fees................... 48,422
Auction agent fees.................. 41,689
Shareholder reports and notices..... 26,947
Registration fees................... 18,462
Trustees' fees and expenses (Note
3)................................ 13,372
Organizational expenses (Note 1).... 5,452
Other............................... 18,558
-------------
TOTAL EXPENSES.................... 2,275,585
-------------
NET INVESTMENT INCOME........... 24,330,057
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (Note 1):
Net realized gain on investments.... 4,516,820
Net change in unrealized
appreciation on investments....... (75,202,007)
-------------
NET LOSS ON INVESTMENTS........... (70,685,187)
-------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS.... $ (46,355,130)
===========
</TABLE>
See Notes to Financial Statements
<PAGE> 8
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
STATEMENT OF CHANGES IN NET ASSETS
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six months
ended For the year
April 30, 1994 ended
(unaudited) October 31, 1993
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.......................................... $ 24,330,057 $ 48,188,896
Net realized gain on investments............................... 4,516,820 1,259,985
Net change in unrealized appreciation on investments........... (75,202,007) 97,226,437
------------------ ------------------
Net increase (decrease) in net assets resulting
from operations......................................... (46,355,130) 146,675,318
------------------ ------------------
Dividends to preferred shareholders from net investment income... (4,117,547) (8,158,203)
Dividends to common shareholders from net investment income...... (21,416,236) (35,839,484)
Distribution to common shareholders from net realized gain on
investments.................................................... (1,183,713) -0-
------------------ ------------------
Total dividends and distributions......................... (26,717,496) (43,997,687)
------------------ ------------------
Transactions in common shares of beneficial interest (Note 5).... (9,156,721) (6,118,244)
------------------ ------------------
Gross proceeds from issuance of preferred shares (Note 4)........ -0- 280,000,000
------------------ ------------------
Total increase (decrease)................................. (82,229,347) 376,559,387
NET ASSETS:
Beginning of period.............................................. 924,910,063 548,350,676
------------------ ------------------
END OF PERIOD (including undistributed net investment income of
$4,487,865 and $5,691,591, respectively)....................... $ 842,680,716 $ 924,910,063
=============== =================
</TABLE>
See Notes to Financial Statements
<PAGE> 9
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited)
- - - - - --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- InterCapital Quality Municipal Income
Trust (the "Trust") is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company. It was
organized on March 12, 1992 as a Massachusetts business trust and had no
operations until September 29, 1992 other than matters relating to the sale and
issuance of 7,113 common shares of beneficial interest to Dean Witter Reynolds
Inc., an affiliate of the Investment Manager.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- Portfolio securities are valued for the Trust
by an outside independent pricing service approved by the Trustees. The
pricing service has informed the Trust that in valuing the Trust's portfolio
securities, it uses both a computerized grid matrix of tax-exempt securities
and evaluations by its staff, in each case based on information concerning
market transactions and quotations from dealers which reflect the bid side of
the market each day. The Trust's portfolio securities are thus valued by
reference to a combination of transactions and quotations for the same or
other securities believed to be comparable in quality, coupon, maturity, type
of issue, call provisions, trading characteristics and other features deemed
to be relevant.
B. Accounting for Investments -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). In computing net
investment income, the Trust amortizes premiums and original issue discounts
on fixed income securities. Additionally, with respect to market discount on
bonds purchased after April 30, 1993, a portion of any capital gain realized
upon disposition is recharacterized as taxable investment income. Realized
gains and losses on security transactions are determined on the identified
cost method. Interest income is accrued daily.
C. Federal Income Tax Status -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. Dividends and Distributions to Shareholders -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassifications. 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 and Offering Expenses -- The Trust's Investment Manager paid
the organizational and offering expenses of the Trust's common shares in the
amount of $55,000 and $670,362, respectively, and paid $453,881 in offering
expenses of the Trust's preferred shares. Organizational expenses have been
reimbursed by the Trust of the full amount thereof and are being amortized by
the straight-line method over a period not to exceed five years from the
commencement of operations. Offering expenses have been reimbursed by the
Trust and were charged to capital at the time of issuance of the Trust's
respective shares.
<PAGE> 10
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc., the Trust pays
its Investment Manager a management fee, calculated weekly and payable monthly,
by applying the annual rate of 0.35% to the Trust's average weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's book and
records and furnishes office space and 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 the proceeds from sales of portfolio securities for the six months
ended April 30, 1994, excluding short-term investments, aggregated $9,506,250
and $51,752,516, respectively.
Effective January 1, 1994, the Trust adopted an unfunded noncontributory
defined benefit pension plan covering all independent Trustees of the Trust who
will have served as independent Trustees for at least five years at the time of
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs for
the six months ended April 30, 1994, included in Trustee's fees and expenses in
the Statement of Operations, amounted to $3,945. At April 30, 1994, the Trust
had an accrued pension liability of $3,913 which is included in accrued expenses
in the Statement of Assets and Liabilities.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At April 30, 1994, the Trust had transfer agent fees and
expenses payable of approximately $35,000.
Dean Witter Distributors Inc., the Trust's principal underwriter and an
affiliate of the Investment Manager, has informed the Trust that it received
$4,900,000 in underwriting discounts and commissions in connection with the
offering of the preferred shares.
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 the approval of the common shareholders. On November
12, 1992, the Trust issued 1,120 shares each of Series 1 through 5 Auction Rate
Preferred Shares ("Preferred Shares") for gross total proceeds of $280,000,000.
The preferred shares have a liquidation value of $50,000 per share plus any
accumulated but unpaid dividends plus the redemption premium, if any, and are
redeemable (in whole or in part) on any dividend payment date.
Dividends, which are cumulative, are reset through auction procedures:
<TABLE>
<CAPTION>
Range of
Shares Series Rate* Reset Date Dividend Rate**
- - - - - ------ --- ------ ---------- ----------------
<S> <C> <C> <C> <C>
1,120 1 2.970% 6/2/94 2.97%
1,120 2 3.049% 5/4/94 1.84% to 3.18 %
1,120 3 2.524% 8/3/94 2.75% to 2.524%
1,120 4 2.930% 7/6/94 2.93%
1,120 5 2.875% 9/1/94 2.85% to 2.875%
</TABLE>
- - - - - ---------------
* As of April 30, 1994.
** For the six months ended April 30, 1994.
<PAGE> 11
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
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 repurchasing 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 will 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:
<TABLE>
<CAPTION>
Capital Paid
Par Value in Excess of
Shares of Shares Par Value
----------- --------- -------------
<S> <C> <C> <C>
Balance (Note 1)................................................ 7,113 $ 71 $ 99,938
Shares issued at close of public offering on September 29,
1992*......................................................... 37,000,000 370,000 519,205,000
Shares issued on October 27, 1992 to cover over-allotment....... 2,500,000 25,000 35,125,000
----------- --------- -------------
Balance, October 31, 1992....................................... 39,507,113 395,071 554,429,938
----------- --------- -------------
Offering costs and underwriting discounts associated with the
issuance of preferred shares.................................. (5,379,244)
Treasury shares purchased and retired (weighted average discount
6.04%)........................................................ (50,000) (500) (738,500)
----------- --------- -------------
Balance, October 31, 1993....................................... 39,457,113 394,571 548,312,194
========= ======== ===========
Treasury shares purchased and retired (weighted
average discount 5.23%)**..................................... (620,200) (6,202) (9,150,519)
----------- --------- -------------
Balance, April 30, 1994......................................... 38,836,913 $ 388,369 $ 539,161,675
========= ======== ===========
</TABLE>
- - - - - ---------------
* Net of offering costs.
** The Trustees have voted to retire the shares repurchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS -- The Trust has declared the following
dividends from net investment income:
<TABLE>
<CAPTION>
Declaration Amount Per Record Payable
Date Share Date Date
- - - - - --------------- ---------- -------------- --------------
<S> <C> <C> <C>
April 26, 1994 $0.0825 May 6, 1994 May 20, 1994
May 31, 1994 $0.0825 June 10, 1994 June 24, 1994
</TABLE>
<PAGE> 12
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
7. SELECTED QUARTERLY FINANCIAL DATA:
<TABLE>
<CAPTION>
Quarters Ended*
-------------------------------------
4/30/94 1/31/94
----------------- -----------------
Per Per
Total Share Total Share
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Total investment income................................................ $ 13,038 $0.34 $ 13,568 $0.35
Net investment income.................................................. 11,934 0.30 12,396 0.32
Net realized and unrealized gain (loss) on investments................. (77,138) (1.96) 6,453 0.16
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
-------------------------------------------------------------------------
10/31/93 7/31/93 4/30/93 1/31/93
---------------- ---------------- ---------------- ----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income............... $13,682 $0.35 $13,417 $0.34 $13,500 $0.34 $11,879 $0.30
Net investment income................. 12,517 0.32 12,406 0.31 12,382 0.31 10,884 0.28
Net realized and unrealized gain on
investments......................... 25,269 0.64 14,922 0.38 25,090 0.64 33,205 0.84
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
----------------
10/31/92**
----------------
Per
Total Share
------- -----
<S> <C> <C>
Total investment income................................................................ $ 1,690 $0.04
Net investment income.................................................................. 1,500 0.04
Net realized and unrealized loss on investments........................................ (7,975) (0.20)
</TABLE>
- - - - - ---------------
* Totals expressed in thousands of dollars.
** For the period September 29, 1992 (commencement of operations) through
October 31, 1992.
<PAGE> 13
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL HIGHLIGHTS
- - - - - --------------------------------------------------------------------------------
Selected data and ratios for a common share of beneficial interest outstanding
throughout each period:
<TABLE>
<CAPTION>
For the six For the period
months ended For the year September 29, 1992*
April 30, 1994** ended through
(unaudited) October 31, 1993 October 31, 1992
---------------- ---------------- -------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 16.34 $ 13.88 $ 14.06
---------------- ---------------- -------------------
Net investment income.................... 0.62 1.22 0.04
Realized and unrealized gain (loss) on
investments - net...................... (1.80) 2.50 (0.20)
---------------- ---------------- -------------------
Total from investment operations............ (1.18) 3.72 (0.16)
---------------- ---------------- -------------------
Less: dividends, distributions and other
charges:
Dividends from net investment income..... (0.54) (0.91) -0-
Common share equivalent of dividends paid
to preferred shareholders.............. (0.10) (0.21) -0-
Distributions to common shareholders..... (0.03) -0- -0-
Offering costs charged against capital... -0- (0.14) (0.02)
---------------- ---------------- -------------------
Total dividends, distributions and other
charges.................................. (0.67) (1.26) (0.02)
---------------- ---------------- -------------------
Net asset value, end of period.............. $ 14.49 $ 16.34 $ 13.88
============ ============= ================
Market value, end of period................. $ 13.50 $ 15.875 $ 15.125
------------- -------------- ----------------
------------- -------------- ----------------
TOTAL INVESTMENT RETURN+...................... (11.65)%(1) 11.41% 0.83%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).... $ 842,681 $ 924,910 $ 548,350
Ratios to average net assets of common
shareholders:
Total expenses........................... 0.74%(2) 0.71% 0.42%(2)
Net investment income before preferred
stock dividends........................ 7.94%(2) 7.95% 3.29%(2)
Preferred stock dividends................ 1.34%(2) 1.35% N/A
Net investment income available to common
shareholders........................... 6.60%(2) 6.60% 3.29%(2)
Asset coverage on preferred shares at end of
period................................... 278% 330% N/A
Portfolio turnover rate..................... 1% 4% 4%
</TABLE>
- - - - - ---------------
* 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 the first
and last day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Trust's dividend
reinvestment plan. Total investment return does not reflect sales charges or
brokerage commissions.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
- - - - - --------------------------------------------------------------------------------
The financial statements included herein have been taken from the records of the
Trust without examination by the independent accountants and accordingly they do
not express an opinion thereon.
<PAGE> 14
(This page has been left blank intentionally.)
<PAGE> 15
(This page has been left blank intentionally.)
<PAGE> 16
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
QUALITY
MUNICIPAL
INCOME
TRUST
Semiannual Report
April 30, 1994
