<PAGE> 1
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS April 30, 1996 New York 10048
DEAR SHAREHOLDER:
During the first six months of InterCapital Quality Municipal Income Trust's
current fiscal year, interest rates initially declined, but reversed direction
in February and began to move higher. Last year's favorable bond market
environment was created by proposals to achieve a balanced federal budget within
five to seven years and by continued easing of Federal Reserve Board monetary
policy. However, budget negotiations reached a political impasse early in 1996
and federal offices were partially closed. This had an adverse impact on bonds.
Concerns also developed about an increase in the pace of the economic recovery,
which was marked by unexpectedly strong job growth in March and rising commodity
prices. The bond market reacted to these developments by pushing yields sharply
higher.
MUNICIPAL MARKET CONDITIONS
Long-term municipal revenue bond yields as tracked by The Bond Buyer Revenue
Bond Index* moved from 6.02 percent in October 1995 to a low of 5.63 percent in
January 1996. Interest rates subsequently began to rise in mid-February on signs
of stronger economic growth and renewed inflationary fears. The Index yield
reached 6.16 percent in April. Yields on one-year municipal notes declined from
3.82 percent to 3.70 percent over the past six months. The yield pickup for
extending maturities from one-to-thirty years was 246 basis points at the end of
April.
The risk of flat-tax legislation had caused the ratio of Revenue Bond Index
yields to 30-year U.S. Treasury bond yields to rise from 85 to 94 percent
between March and September 1995. However, as the prospects of a flat tax faded,
the ratio improved to 92 percent by the end of April. A declining ratio means
that municipal bond prices have outperformed U.S.
- ---------------------
*The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1996, continued
Treasury prices. Over the previous eight year period prior to the flat-tax
debate, long-term municipal yields averaged 89 percent of U.S. Treasury yields.
Municipal underwriting activity was fueled by the trend of lower interest rates
in 1995. Between November 1995 and April 1996, new-issue volume increased 45
percent versus the same period a year ago. Despite a resurgence in underwriting,
dealers have continued to withdraw from the municipal business.
PERFORMANCE
The Trust's net asset value (NAV) declined from $15.33 to $15.01 per share
during the six-month period ended April 30, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.495 per share and a long-term
capital gains distribution totaling $0.035 per share, the Trust's total return
was 1.65 percent. Over the same period, the Trust's market price on the New York
Stock Exchange increased from $13.75 to $13.875 per share. Based on this market
price change and reinvestment of tax-free dividends and distributions, the
Trust's total return was 4.76 percent. The Trust began the period trading at a
10 percent discount to NAV and closed at an 8 percent discount. Undistributed
net investment income totaled $0.084 per share on April 30, 1996 versus $0.098
per share six months ago.
PORTFOLIO STRUCTURE
On April 30, 1996, the Trust's $729 million of net assets were diversified among
14 long-term municipal sectors and 69 credits. The five largest sectors
represented 63 percent of net assets. The portfolio has consistently maintained
investment grade quality with 96 percent of its long-term holdings rated "A" or
better. The average maturity and call protection of the Trust's long-term
portfolio were 21 and 6 years, respectively.
<PAGE> 3
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1996, continued
FIVE LARGEST SECTORS MOODY'S OR STANDARD & POOR'S CREDIT RATINGS
AS OF APRIL 30, 1996 AS OF APRIL 30, 1996
(% OF NET ASSETS) (% OF TOTAL LONG-TERM INVESTMENTS)
MORTGAGE 15% Aaa or AAA 37%
GENERAL OBLIGATION 14% A or A 35%
HOSPITAL 12% Aa or AA 24%
TRANSPORTATION 12% Baa or BBB 4%
ELECTRIC 10%
OTHER 37%
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution to
common shareholders includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common shares depends on two factors:
first, the spread between interest earned on the long-term bonds in the
established portfolio of investments and the ARPS auction rate plus ARPS
expenses; second, the amount of ARPS outstanding. The greater the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders.
ARPS yields ranged between 3.42 and 4.54 percent during the six months ended
April 30, 1996. Over the same period, ARPS leverage contributed $0.05 per share
to common share earnings. As of April 30, 1996, $208 million in ARPS were
outstanding, which represented 29 percent of net assets.
<PAGE> 4
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1996, continued
LOOKING AHEAD
Tax-reduction proposals may receive additional publicity. However, the balance
between the supply of new issues and demand created by maturities and calls for
redemption should remain positive for the municipal market. Long-term municipal
securities currently yield 90 percent of the yield on U.S. Treasury securities
and may be expected to move in tandem with the Treasury market.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust, when
appropriate, may purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. During the six-month period ended April 30, 1996,
the Trust purchased and retired 793,700 shares of common stock at a weighted
average market discount of 8.26 percent. The Trust may also utilize procedures
to reduce or eliminate the amount of outstanding ARPS, including their purchase
in the open market or in privately negotiated transactions.
We appreciate your ongoing support of InterCapital Quality Municipal Income
Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 5
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (98.1%)
General Obligation (14.1%)
$ 20,000 Jefferson County School District #R-1, Colorado, Ser 1992 (AMBAC)..... 6.00 % 12/15/12 $ 20,581,200
7,500 District of Columbia, 1992 Ser B (MBIA)............................... 6.30 06/01/12 7,627,575
Hawaii,
5,000 1992 Ser BZ........................................................... 6.00 10/01/10 5,236,250
8,000 1992 Ser BZ........................................................... 6.00 10/01/11 8,335,520
4,000 Cook County, Illinois, Ser 1992 C (FGIC).............................. 6.00 11/15/09 4,216,520
Washoe County School District, Nevada,
4,730 Ltd Tax Ser 10/01/92 A (AMBAC)........................................ 6.25 04/01/11 4,905,861
8,100 Ltd Tax Ser 10/01/92 A (AMBAC)........................................ 6.25 04/01/13 8,385,525
New York City, New York,
5,500 1993 Ser B............................................................ 7.00 10/01/11 5,759,160
2,100 1993 Ser B............................................................ 7.00 10/01/13 2,191,980
3,300 1993 Ser B............................................................ 7.00 10/01/14 3,444,540
5,000 1993 Ser B............................................................ 6.75 10/01/15 5,082,950
2,400 1992 Ser B............................................................ 7.00 02/01/20 2,491,056
10,000 San Antonio, Texas, Refg Ser 1992..................................... 5.75 08/01/13 9,869,900
15,000 Washington, Ser 1993 A................................................ 5.75 10/01/17 14,567,850
- -------- ----------
100,630 102,695,887
- -------- -----------
Educational Facilities Revenue (2.6%)
10,000 District of Columbia, Howard University Refg Ser 1992 A............... 6.75 10/01/12 10,323,900
2,500 University of Illinois, Auxiliary Ser 1991............................ 5.75 04/01/22 2,364,900
Scranton-Lackawanna Health & Welfare Authority, Pennsylvania,
3,000 University of Scranton 1992 Ser A..................................... 6.40 03/01/07 3,094,620
3,300 University of Scranton 1992 Ser A..................................... 6.50 03/01/13 3,414,114
- -------- ----------
18,800 19,197,534
- -------- -----------
Electric Revenue (10.2%)
9,500 Orlando Utilities Commission, Florida, Ser 1991 A..................... 5.50 10/01/26 8,801,560
10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B............. 6.375 01/01/16 10,055,000
5,000 Hastings, Nebraska, Refg Ser 1992..................................... 6.30 01/01/19 5,041,950
10,000 Hamilton!, Ohio, Refg 1992 Ser A (FGIC)............................... 6.00 10/15/23 10,098,600
20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser
(MBIA)............................................................... 6.375 01/01/25 19,880,400
Grant County Public Utility District #2, Washington,
8,220 Priest Rapids Hydro Second Ser 1992 A................................. 5.00 01/01/23 6,949,928
8,000 Wanapum Hydro Second Ser 1992 A....................................... 6.375 01/01/23 8,054,480
5,000 Wanapum Hydro Second Ser 1992 B (AMT)................................. 6.75 01/01/23 5,202,350
- -------- ----------
75,720 74,084,268
- -------- -----------
Hospital Revenue (12.4%)
8,000 Birmingham-Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)........... 5.875 08/15/15 7,836,560
4,500 Colorado Health Facilities Authority, Sisters of Charity Health Care
Systems Inc Ser 1992 A (AMBAC)....................................... 6.00 05/15/22 4,517,775
6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991
(MBIA)............................................................... 6.00 12/01/21 6,003,240
9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts
General Hospital Ser F (MBIA)........................................ 6.00 07/01/15 9,166,010
10,000 Missouri Health & Education Facilities Authority, Health Midwest Ser
1992 B (MBIA)........................................................ 6.25 02/15/22 10,177,600
10,000 New York State Medical Care Facilities Finance Agency, The Mount Sinai
Hospital - FHA Insured Mortgage 1992 Ser C........................... 5.75 08/15/19 9,530,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
$ 4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992...... 5.50 % 11/15/11 $ 4,278,825
10,000 Allegheny County Hospital Development Authority, Pennsylvania,
Presbyterian University Health Ser 1992 A (MBIA)..................... 6.25 11/01/23 10,143,700
5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/The
Western Pennsylvania Hospital Refg 1992 Ser A (MBIA)................. 6.25 07/01/16 5,108,400
3,000 Philadelphia Hospitals & Higher Education Facilities Authority,
Pennsylvania, Chestnut Hill Hospital Ser of 1992..................... 6.375 11/15/11 3,008,700
5,000 South Dakota Health & Educational Facilities Authority, Queen of Peace
Hospital Ser 1992 (MBIA)............................................. 6.70 07/01/17 5,252,500
15,000 Fredericksburg Industrial Development Authority, Virginia, MWH
Medicorp Ser 1991 A & B (FGIC)....................................... 6.60 08/15/23 15,514,050
- -------- ------------
90,250 90,538,260
- -------- ------------
Industrial Development/Pollution Control Revenue (7.8%)
6,000 California Pollution Control Financing Authority, Keller Cannon
Landfill Co/ Browning-Ferris Industries Inc Ser 1992 (AMT)........... 6.875 11/01/27 6,281,880
5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B............ 6.35 02/01/22 5,103,200
3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT)..... 7.15 02/01/23 3,773,700
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT)
(MBIA)............................................................... 6.65 06/01/17 5,196,000
15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co Ser
1984................................................................. 6.50 10/01/14 15,848,700
10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1992 B
(MBIA)............................................................... 6.375 04/01/12 10,425,500
10,000 Mason County, West Virginia, Appalachian Power Co Ser J............... 6.60 10/01/22 10,191,700
- -------- ------------
54,500 56,820,680
- -------- ------------
Mortgage Revenue - Multi-Family (6.2%)
7,000 Illinois Housing Development Authority, Ser I......................... 6.625 09/01/12 7,170,590
20,000 Michigan Housing Development Authority, Rental 1992 Ser A
(Bifurcated FSA)..................................................... 6.50 04/01/23 20,348,400
Missouri Housing Development Commission,
7,845 Federally Insured Mortgage Loans Refg Ser 11/15/92.................... 6.50 07/01/16 7,958,282
10,000 Federally Insured Mortgage Loans Refg Ser 11/15/92.................... 6.60 07/01/24 10,111,400
- -------- ------------
44,845 45,588,672
- -------- ------------
Mortgage Revenue - Single Family (8.4%)
20,000 Connecticut Housing Finance Authority, 1992 Ser B..................... 6.70 11/15/12 20,762,000
7,245 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C........ 6.50 12/01/11 7,387,509
1,345 Idaho Housing Agency, 1992 Ser E (AMT)................................ 6.75 07/01/12 1,392,062
Minnesota Housing Finance Agency,
3,365 Ser 1992 D-1.......................................................... 6.50 01/01/17 3,436,069
7,265 Ser 1992 CD-1 (AMT)................................................... 6.75 07/01/23 7,402,308
20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT)... 6.80 07/01/21 20,672,730
- -------- ------------
59,580 61,052,678
- -------- ------------
Nursing & Health Related Facilities Revenue (2.5%)
6,265 University of Michigan, Medical Service Plan Ser 1991................. 6.50 12/01/21 6,518,983
11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority, Minnesota,
Group Health Plan Inc Ser 1992....................................... 6.90 10/15/22 11,947,275
- -------- ------------
17,515 18,466,258
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Public Facilities Revenue (5.7%)
$ 9,800 Orlando, Florida, Cap Impr Refg Ser 1992.............................. 6.00 % 10/01/22 $ 9,747,962
10,000 Atlanta Downtown Development Authority, Georgia, Underground Atlanta
Refg Ser 1992........................................................ 6.25 10/01/16 10,247,700
5,000 Illinois, Civic Center Ser 1990 A (AMBAC)............................. 6.00 12/15/15 5,001,600
7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser 1992
D.................................................................... 6.75 02/01/20 7,813,305
8,550 Maine Municipal Bond Bank, 1992 Ser E................................. 6.25 11/01/12 8,816,931
- -------- ------------
40,720 41,627,498
- -------- ------------
Resource Recovery Revenue (2.8%)
16,525 Broward County, Florida, Broward Waste Energy Co North Ser 1984....... 7.95 12/01/08 18,170,725
2,500 Union County Utilities Authority, New Jersey, Solid Waste 1991 Ser A
(AMT)................................................................ 7.20 06/15/14 2,538,175
- -------- ------------
19,025 20,708,900
- -------- ------------
Transportation Facilities Revenue (12.2%)
Dade County, Florida,
3,000 Aviation 1992 Ser B (MBIA)............................................ 6.55 10/01/13 3,143,970
5,000 Aviation 1992 Ser B (AMT) (MBIA)...................................... 6.60 10/01/22 5,202,400
13,250 Chicago, Illinois, Chicago-O'Hare Int'l Terminal Ser 1992 (AMT)
(MBIA)............................................................... 6.75 01/01/12 13,852,345
20,000 Illinois Toll Highway Authority, Priority 1992 Ser A.................. 6.375 01/01/15 20,337,000
15,000 St Louis, Missouri, Lambert - St Louis Int'l Airport Ser 1992 (AMT)
(FGIC)............................................................... 6.00 07/01/08 15,427,200
25,000 Clark County, Nevada, Las Vegas - McCaran Int'l Airport Passenger
Facility Charge 1992 Ser B (AMT)..................................... 6.25 07/01/22 24,648,750
6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V............ 6.625 07/01/12 6,294,000
- -------- ------------
87,250 88,905,665
- -------- ------------
Water & Sewer Revenue (7.3%)
10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC)........... 6.50 10/01/14 10,528,500
10,000 Massachusetts Water Resources Authority, 1992 Ser B................... 5.50 11/01/15 9,278,100
20,000 New York City Municipal Water Finance Authority, New York, Ser 1993
A.................................................................... 6.00 06/15/17 19,623,000
8,000 Houston, Texas, Water & Sewer Lien Jr Refg Ser 1991 C (AMBAC)......... 6.375 12/01/17 8,258,800
6,000 Fairfax County Water Authority, Virginia, Refg Ser 1992............... 6.00 04/01/22 5,952,900
- -------- ------------
54,000 53,641,300
- -------- ------------
Other Revenue (0.3%)
2,000 New York Local Government Assistance Corporation, Ser 1991 A.......... 7.125 04/01/11 2,189,780
- -------- ------------
Refunded (5.6%)
7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A................ 6.60 12/01/02++ 7,995,450
10,000 Massachusetts Water Resources Authority, 1990 Ser A................... 6.50 12/01/01++ 11,029,100
12,000 New York Local Government Assistance Corporation, Ser 1991 C.......... 7.00 04/01/01++ 13,440,720
7,115 Puerto Rico Highway & Transportation Authority, Ser T................. 6.625 07/01/02++ 7,908,536
- -------- ------------
36,615 40,373,806
- -------- ------------
701,450 TOTAL MUNICIPAL BONDS (Identified Cost $684,065,808)........................................... 715,891,186
- --------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (0.3%)
$ 2,000 Sabine River Authority, Texas, Texas Utilities Co Ser 1996 A (AMBAC)
- -------- (Demand 05/01/96) (Identified Cost $2,000,000)....................... 4.10*% 03/01/26 $ 2,000,000
------------
$703,450 TOTAL INVESTMENTS (Identified Cost $686,065,808) (a).................................. 98.4% 717,891,186
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 1.6 11,572,917
----- -------------
NET ASSETS............................................................................. 100.0% $729,464,103
===== =============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation was $31,938,929 and the aggregate gross unrealized depreciation was $113,551,
resulting in net unrealized appreciation of $31,825,378.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1996
<TABLE>
<S> <C>
Alabama.................. 1.1%
Alaska................... 1.1
California............... 2.3
Colorado................. 3.4
Connecticut.............. 2.8
District of Columbia..... 2.5
Florida.................. 8.2
Georgia.................. 3.8
Hawaii................... 1.9
Idaho.................... 0.2
Illinois................. 7.3
Indiana.................. 1.1%
Maine.................... 1.2
Massachusetts............ 4.0
Michigan................. 3.7
Minnesota................ 3.1
Missouri................. 6.0
Nebraska................. 0.7
Nevada................... 5.9
New Jersey............... 0.3
New York................. 8.7
Ohio..................... 2.0
Pennsylvania............. 3.4%
Puerto Rico.............. 1.9
South Carolina........... 4.9
South Dakota............. 0.7
Texas.................... 4.2
Virginia................. 5.8
Washington............... 4.8
West Virginia............ 1.4
---
Total.................... 98.4%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $686,065,808).......... $717,891,186
Cash..................................... 143,582
Interest receivable...................... 12,157,086
Deferred organizational expenses......... 15,573
Prepaid expenses......................... 98,476
------------
TOTAL ASSETS......................... 730,305,903
------------
LIABILITIES:
Payable for:
Dividends to preferred
shareholders........................ 312,756
Investment management fee............ 224,730
Common shares of beneficial interest
repurchased......................... 196,420
Accrued expenses......................... 107,894
------------
TOTAL LIABILITIES.................... 841,800
------------
NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of
non-participating $.01 par value, 4,160
shares outstanding)..................... 208,000,000
------------
Common shares of beneficial interest
(unlimited shares authorized of
$.01 par value, 34,739,613 shares
outstanding)............................ 485,934,293
Net unrealized appreciation.............. 31,825,378
Accumulated undistributed net investment
income.................................. 2,907,138
Accumulated undistributed net realized
gain.................................... 797,294
------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS........................ 521,464,103
------------
TOTAL NET ASSETS..................... $729,464,103
============
NET ASSET VALUE PER COMMON SHARE
($521,464,103 divided by 34,739,613
common shares outstanding).............. $15.01
======
STATEMENT OF OPERATIONS
For the six months ended April 30, 1996 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 22,595,291
------------
EXPENSES
Investment management fee................ 1,316,491
Auction commission fees.................. 259,450
Transfer agent fees and expenses......... 99,207
Professional fees........................ 61,225
Shareholder reports and notices.......... 26,909
Auction agent fees....................... 16,994
Custodian fees........................... 16,596
Registration fees........................ 16,400
Trustees' fees and expenses.............. 14,577
Organizational expenses.................. 5,481
Other.................................... 24,827
------------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET............................... 1,858,157
LESS: EXPENSE OFFSET................. (16,466)
------------
TOTAL EXPENSES AFTER EXPENSE
OFFSET............................... 1,841,691
------------
NET INVESTMENT INCOME................ 20,753,600
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................ 797,306
Net change in unrealized appreciation.... (11,141,184)
------------
NET LOSS............................. (10,343,878)
------------
NET INCREASE............................. $ 10,409,722
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
APRIL 30, ENDED
1996 OCTOBER 31, 1995
- ----------------------------------------------------------------------------------------
<CAPTION>
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 20,753,600 $ 42,557,950
Net realized gain..................................... 797,306 1,992,474
Net change in unrealized appreciation/depreciation.... (11,141,184) 58,771,035
------------ -------------
NET INCREASE...................................... 10,409,722 103,321,459
------------ -------------
DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET
INVESTMENT INCOME..................................... (3,872,660) (8,062,139)
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income................................. (17,441,981) (35,961,242)
Net realized gain..................................... (1,244,629) --
------------ -------------
TOTAL............................................. (18,686,610) (35,961,242)
------------ -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred............................................. -- (33,250,000)
Common................................................ (11,226,814) (25,887,114)
------------ -------------
TOTAL............................................. (11,226,814) (59,137,114)
------------ -------------
TOTAL INCREASE (DECREASE)......................... (23,376,362) 160,964
NET ASSETS:
Beginning of period................................... 752,840,465 752,679,501
------------ -------------
END OF PERIOD
(Including undistributed net investment income of
$2,907,138 and $3,468,179, respectively).......... $729,464,103 $ 752,840,465
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Quality Municipal Income Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust was organized as a Massachusetts
business trust on March 12, 1992 and commenced operations on September 29, 1992.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
<PAGE> 12
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) continued
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Trust's common shares in the
amount of $55,000 which have been reimbursed for the full amount thereof. Such
expenses have been deferred and are being amortized by the straight-line method
over a period not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays a management fee,
calculated weekly and payable monthly, by applying the annual rate of 0.35% to
the Trust's weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The proceeds from sales of portfolio securities, excluding short-term
investments, for the six months ended April 30, 1996 aggregated $18,448,656.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At April 30, 1996, the Trust had transfer agent fees and
expenses payable of approximately $9,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended April 30, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $6,785. At April 30, 1996, the Trust had an accrued pension liability of
$27,652 which is included in accrued expenses in the Statement of Assets and
Liabilities.
<PAGE> 13
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) continued
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. On November 12, 1992, the Trust issued 1,120 shares each of
Series 1 through 5 Auction Rate Preferred Shares ("Preferred Shares") for gross
total proceeds of $280,000,000. The preferred shares have a liquidation value of
$50,000 per share plus the redemption premium, if any, plus accumulated but
unpaid dividends, whether or not declared, thereon to the date of distribution.
The Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or not
declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
RESET RANGE OF
SHARES* SERIES RATE* DATE DIVIDEND RATES**
- ------- ------ ------ -------- ----------------
<S> <C> <C> <C> <C>
1,120 1 3.675% 05/07/96 3.32 % - 5.50 %
400 2 3.345 09/04/96 3.489 - 3.345
1,120 3 3.64 05/08/96 3.32 - 5.00
1,120 4 3.49 07/03/96 3.80 - 3.49
400 5 3.41 07/11/96 3.648 - 3.41
</TABLE>
- ---------------------
* As of April 30, 1996.
** For the six months ended April 30, 1996.
Subsequent to April 30, 1996 and up through June 5, 1996, the Trust paid
dividends to Series 2, 4, and 5 at a rate of 3.35%, 3.49% and 3.41%,
respectively, and to each of the Series 1 and 3 at rates ranging from 3.45% to
3.825% and 3.59% to 3.83%, respectively, in the amount of $1,007,074.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at liquidation
value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
<PAGE> 14
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1996 (unaudited) continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR EXCESS OF
SHARES VALUE PAR VALUE
---------- -------- ------------
<S> <C> <C> <C>
Balance, October 31, 1994....................................................... 37,562,613 $375,626 $522,672,595
Treasury shares purchased and retired (weighted average discount 10.05%)*....... (2,029,300) (20,293) (25,866,821)
---------- -------- ------------
Balance, October 31, 1995....................................................... 35,533,313 355,333 496,805,774
Treasury shares purchased and retired (weighted average discount 8.26%)*........ (793,700) (7,937) (11,218,877)
---------- -------- ------------
Balance, April 30, 1996......................................................... 34,739,613 $347,396 $485,586,897
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1995, the Trust utilized all of its net
capital loss carryover of approximately $747,900.
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- --------------- --------- ------------ -------------
<S> <C> <C> <C>
April 23, 1996. $0.0825 May 3, 1996 May 17, 1996
May 28, 1996... $0.0825 June 7, 1996 June 21, 1996
</TABLE>
<PAGE> 15
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR ENDED OCTOBER 31** SEPTEMBER 29, 1992*
APRIL 30, ----------------------------- THROUGH
1996** 1995 1994++ 1993 OCTOBER 31, 1992**
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 15.33 $13.62 $ 16.34 $ 13.88 $ 14.06
------- ------ ------- ------- -------
Net investment income........... 0.59 1.18 1.24 1.22 0.04
Net realized and unrealized gain
(loss)......................... (0.30) 1.66 (2.73) 2.50 (0.20)
------- ------ ------- ------- -------
Total from investment
operations..................... 0.29 2.84 (1.49) 3.72 (0.16)
------- ------ ------- ------- -------
Less dividends and distributions
from:
Net investment income........ (0.49) (0.99) (1.04) (0.91) --
Common share equivalent of
dividends paid to preferred
shareholders................ (0.11) (0.22) (0.22) (0.21) --
Net realized gain............ (0.04) -- (0.03) -- --
------- ------ ------- ------- -------
Total dividends and
distributions.................. (0.64) (1.21) (1.29) (1.12) --
Anti-dilutive effect of
acquiring treasury shares...... 0.03 0.08 0.06 -- --
Offering costs charged against
capital........................ -- -- -- (0.14) (0.02)
------- ------ ------- ------- -------
Net asset value, end of
period......................... $ 15.01 $15.33 $ 13.62 $ 16.34 $ 13.88
======= ====== ======= ======= =======
Market value, end of period..... $13.875 $13.75 $11.875 $15.875 $15.125
======= ====== ======= ======= =======
TOTAL INVESTMENT RETURN+........ 4.76%(1) 24.77% (19.30)% 11.41% 0.83%(1)
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS:
Total expenses before expense
offset......................... 0.68%(2)(4) 0.72%(3) 0.75% 0.71% 0.42%(2)
Net investment income before
preferred stock dividends...... 7.62%(2) 8.05%(3) 8.06% 7.95% 3.29%(2)
Preferred stock dividends....... 1.42%(2) 1.53% 1.43% 1.35% N/A
Net investment income available
to common shareholders......... 6.20%(2) 6.52% 6.63% 6.60% 3.29%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands...................... $729,464 $752,840 $752,680 $924,910 $548,350
Asset coverage on preferred
shares at end of period........ 350% 361% 311% 330% N/A
Portfolio turnover rate......... --%(1) 1% 2% 4% 4%(1)
</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 last day
of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Trust's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) The above expense and net investment income ratios would have been 0.71%
and 8.06%, respectively, which reflects 0.01% effect for custody cash
credits.
(4) The above annualized ratio would have been 0.68% after expense offset.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
DEAN WITTER
INTERCAPITAL QUALITY
MUNICIPAL INCOME TRUST
[PHOTO]
SEMIANNUAL REPORT
APRIL 30, 1996
