<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1996
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of InterCapital
Quality Municipal Income Trust (IQI) for the fiscal year ended October 31,
1996.
Stronger economic growth and the potential threat of inflation shifted the
tone of the fixed-income markets from bullish to bearish in early 1996. This
change in market psychology was confirmed in March by a surprisingly large
increase in payroll employment. The rise in interest rates between February
and July may be attributed to market weakness on the days that strong monthly
employment figures were reported. The bond market sporadically pushed
long-term yields higher, anticipating that the Federal Reserve Board might
raise the federal-funds rate. However, with slower growth in employment and
overall economic activity between August and October, the central bank left
monetary policy unchanged. As a result, by the end of October the
fixed-income markets had regained an optimistic outlook and rallied to levels
not seen since February.
MUNICIPAL MARKET CONDITIONS
Between February and July, 30-year insured revenue bond yields rose 75 basis
points from 5.40 percent to reach 6.15 percent in April and again in
mid-June. Subsequently, demand for municipal bonds improved and followed the
trend of U.S. Treasury securities toward lower yields. Insured bond yields
reached 5.60 percent by the end of October. One-year municipal note yields
declined marginally from 3.80 percent to 3.70 percent over the past 12
months. In October, the yield curve pickup for extending maturities from 1 to
30 years was 190 basis points.
The ratio of insured revenue bond yields to 30-year U.S. Treasury yields,
moved from 91 percent to 84 percent over the course of the fiscal year. A
declining ratio means that municipal bond prices outperformed U.S. Treasury
prices. The relative improvement in municipals occurred as flat tax proposals
failed to gain public support.
The municipal market also benefited from steady demand. In addition to
regular maturities and calls for redemption this year, it has been estimated
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
that investors also faced the retirement of over $60 billion of debt that has
been previously refinanced. On the supply side, new issues increased 20
percent to $147 billion over the calendar year to date.
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
(The chart below represents information which appears as a
graphic in the printed report)
A pie chart reflecting the Five Largest Sectors and Credit Enhancement
as of October 31, 1996.
FIVE LARGEST SECTORS PERCENT
-------------------- -------
All others 37%
Mortgage 15%
General Obligation 14%
Hospital 12%
Transportation 12%
Electric 10%
* Industrial Development/Pollution Control Revenue. Portfolio
structure is subject to change.
CREDIT RATING PERCENT
------------- -------
A or A 29%
Aa or AA 26%
Aaa or AAA 38%
Baa or BBB 7%
PERFORMANCE
The Trust's net asset value (NAV) increased from $15.33 to $15.44 per share
during the fiscal year ended October 31, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.99 per share and a long-term
capital gain distribution totaling approximately $0.035 per share, the
Trust's total return was 8.21 percent. Over the same period, the IQI's market
price on the New York Stock Exchange increased from $13.75 to $14.625 per
share. Based on this market price change and reinvestment of tax-free
dividends and distributions, the Trust's total return was 14.27 percent.
IQI began the fiscal year trading at a 10 percent discount to NAV and closed
at a 5 percent discount. Undistributed net investment income totaled $0.082
per share versus $0.098 per share a year ago.
PORTFOLIO STRUCTURE
On October 31, 1996, the Trust's net assets of $735 million were diversified
among 14 long-term municipal sectors and 66 credits. The average maturity and
call protection of IQI's long-term portfolio were 20 and 6 years,
respectively. Throughout the fiscal year, high credit quality was maintained
with 64 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
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1996, continued
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.
Weekly ARPS yields ranged between 3.28 and 5.50 percent during the fiscal
year. Leverage contributed approximately $0.14 per share to common share
earnings during the fiscal year. Five ARPS series totaling $208 million and
representing 28 percent of net assets were outstanding.
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities
is expected to remain positive for the municipal market. Long-term insured
municipal securities currently yield 84 percent of U.S. Treasury securities
and may be expected to move in tandem with the Treasury market. Although
municipal performance relative to U.S. Treasury securities has improved,
tax-exempts could again be affected by market uncertainty if new tax
reduction proposals were to resurface.
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. Over the past fiscal year IQI
purchased and retired 1,406,900 shares of common stock at a weighted average
market discount of 6.93 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>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 29, 1996, an annual meeting of the Trust's shareholders was held
for the purpose of voting on three separate matters, the results of which
were as follows:
(1) ELECTION OF TRUSTEE BY ALL SHAREHOLDERS:
Michael Bozic
<TABLE>
<CAPTION>
<S> <C>
For ........ 25,337,616
Withheld ... 429,581
</TABLE>
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
Charles A. Fiumefreddo
<TABLE>
<CAPTION>
<S> <C>
For ......... 3,637
Withheld ... 146
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Michael E. Nugent,
Philip J. Purcell and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT
WITH DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<CAPTION>
<S> <C>
For ........ 24,282,353
Against ... 510,083
Abstain ... 974,761
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ........ 24,561,573
Against ... 410,145
Abstain ... 795,479
</TABLE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited) continued
In addition, a shareholder proposal to amend the Trust's Declaration of Trust
to require each Trustee, within 30 days of election, to become a shareholder
of the Trust failed to obtain the necessary quorum of a majority of each of
the common and preferred shares outstanding and entitled to vote at the
meeting. The following represents the total of the shares whose votes were
returned to the Trust prior to the meeting.
COMMON SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
COMMON SHARES
--------------
<S> <C> <C>
For ....... 3,931,865 11.42%
Against .. 11,865,898 34.48%
Abstain .. 1,647,237 4.79%
</TABLE>
PREFERRED SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
PREFERRED SHARES
--------------------
<S> <C> <C>
For ......... 354 8.50%
Against ..... 778 18.70%
Abstain ..... 158 3.80%
</TABLE>
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.1%)
General Obligation (14.2%)
$ 20,000 Jefferson County School District #R-1, Colorado, Ser 1992
(AMBAC) ....................................................... 6.00 % 12/15/12 $ 20,750,800
7,500 District of Columbia, 1992 Ser B (MBIA) ........................ 6.30 06/01/12 7,773,525
Hawaii,
5,000 1992 Ser BZ ................................................... 6.00 10/01/10 5,326,000
8,000 1992 Ser BZ ................................................... 6.00 10/01/11 8,503,840
4,000 Cook County, Illinois, Ser 1992 C (FGIC) ....................... 6.00 11/15/09 4,276,680
Washoe County School District, Nevada,
4,730 Ltd Tax Ser 10/01/92 A (AMBAC) ................................ 6.25 04/01/11 5,002,448
8,100 Ltd Tax Ser 10/01/92 A (AMBAC) ................................ 6.25 04/01/13 8,553,924
New York City, New York,
5,500 1993 Ser B .................................................... 7.00 10/01/11 5,907,935
2,100 1993 Ser B .................................................... 7.00 10/01/13 2,255,757
3,300 1993 Ser B .................................................... 7.00 10/01/14 3,544,761
5,000 1993 Ser B .................................................... 6.75 10/01/15 5,195,000
2,400 1992 Ser B .................................................... 7.00 02/01/20 2,564,112
10,000 San Antonio, Texas, Refg Ser 1992 .............................. 5.75 08/01/13 10,081,700
15,000 Washington, Ser 1993 A ......................................... 5.75 10/01/17 15,065,400
- ----------- ---------------
100,630 104,801,882
- ----------- ---------------
Educational Facilities Revenue (2.7%)
10,000 District of Columbia, Howard University Refg Ser 1992 A ........ 6.75 10/01/12 10,586,200
2,500 University of Illinois, Auxiliary Ser 1991 ..................... 5.75 04/01/22 2,457,250
Scranton-Lackawanna Health & Welfare Authority, Pennsylvania,
3,000 University of Scranton 1992 Ser A ............................. 6.40 03/01/07 3,151,620
3,300 University of Scranton 1992 Ser A ............................. 6.50 03/01/13 3,474,273
- ----------- ---------------
18,800 19,669,343
- ----------- ---------------
Electric Revenue (10.3%)
9,500 Orlando Utilities Commission, Florida, Ser 1991 A .............. 5.50 10/01/26 9,175,385
10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B ...... 6.375 01/01/16 10,264,200
5,000 Hastings, Nebraska, Refg Ser 1992 .............................. 6.30 01/01/19 5,120,050
10,000 Hamilton !, Ohio, Refg 1992 Ser A (FGIC) ....................... 6.00 10/15/23 10,240,800
20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser
(MBIA) ........................................................ 6.375 01/01/25 20,168,600
Grant County Public Utility District #2, Washington,
8,220 Priest Rapids Hydro Second Ser 1992 A ......................... 5.00 01/01/23 7,421,180
8,000 Wanapum Hydro Second Ser 1992 A ............................... 6.375 01/01/23 8,097,600
5,000 Wanapum Hydro Second Ser 1992 B (AMT) ......................... 6.75 01/01/23 5,298,800
- ----------- ---------------
75,720 75,786,615
- ----------- ---------------
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 8,065,920
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
$ 3,000 Colorado Health Facilities Authority, Sisters of Charity Health
Care Systems Inc Ser 1992 A (AMBAC) ........................... 6.00 % 05/15/22 $ 3,037,050
6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991
(MBIA) ........................................................ 6.00 12/01/21 6,096,360
9,250 Massachusetts Health & Educational Facilities Authority,
Massachusetts General Hospital Ser F (MBIA) ................... 6.00 07/01/15 9,443,232
10,000 Missouri Health & Education Facilities Authority, Health Midwest
Ser 1992 B (MBIA) ............................................. 6.25 02/15/22 10,493,300
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 9,874,000
4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992 5.50 11/15/11 4,427,640
10,000 Allegheny County Hospital Development Authority, Pennsylvania,
Presbyterian University Health Ser 1992 A (MBIA) .............. 6.25 11/01/23 10,342,800
5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group
Inc/The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA) .. 6.25 07/01/16 5,241,100
3,000 Philadelphia Hospitals & Higher Education Facilities Authority,
Pennsylvania, Chestnut Hill Hospital Ser of 1992 .............. 6.375 11/15/11 3,057,420
5,000 South Dakota Health & Educational Facilities Authority, Queen of
Peace Hospital Ser 1992 (MBIA) ................................ 6.70 07/01/17 5,430,600
15,000 Fredericksburg Industrial Development Authority, Virginia, MWH
Medicorp Ser 1991 A & B (FGIC) ................................ 6.60 08/15/23 15,916,650
- ----------- ---------------
88,750 91,426,072
- ----------- ---------------
Industrial Development/Pollution Control Revenue (7.9%)
6,000 California Pollution Control Financing Authority, Keller Cannon
Landfill Co/ Browning-Ferris Industries Inc Ser 1992 (AMT) .... 6.875 11/01/27 6,394,380
5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B ..... 6.35 02/01/22 5,213,800
3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991
(AMT) ......................................................... 7.15 02/01/23 3,808,245
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT)
(MBIA) ........................................................ 6.65 06/01/17 5,378,950
15,000 Berkeley County, South Carolina, South Carolina Electric & Gas
Co Ser 1984 ................................................... 6.50 10/01/14 16,121,850
10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser
1992 B (MBIA) ................................................. 6.375 04/01/12 10,653,900
10,000 Mason County, West Virginia, Appalachian Power Co Ser J ........ 6.60 10/01/22 10,326,700
- ----------- ---------------
54,500 57,897,825
- ----------- ---------------
Mortgage Revenue -Multi-Family (6.3%)
7,000 Illinois Housing Development Authority, Ser I .................. 6.625 09/01/12 7,278,250
20,000 Michigan Housing Development Authority, Rental 1992 Ser A
(Bifurcated FSA) .............................................. 6.50 04/01/23 20,621,600
Missouri Housing Development Commission,
7,845 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............ 6.50 07/01/16 8,043,871
10,000 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............ 6.60 07/01/24 10,237,200
- ----------- ---------------
44,845 46,180,921
- ----------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
Mortgage Revenue -Single Family (8.4%)
$20,000 Connecticut Housing Finance Authority, 1992 Ser B .............. 6.70 % 11/15/12 $20,985,800
7,245 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C . 6.50 12/01/11 7,492,634
1,305 Idaho Housing Agency, 1992 Ser E (AMT) ......................... 6.75 07/01/12 1,369,036
Minnesota Housing Finance Agency,
3,300 Ser 1992 D-1 .................................................. 6.50 01/01/17 3,422,199
7,135 Ser 1992 CD-1 (AMT) ........................................... 6.75 07/01/23 7,378,089
20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2
(AMT) ......................................................... 6.80 07/01/21 20,913,996
- ----------- ---------------
59,345 61,561,754
- ----------- ---------------
Nursing & Health Related Facilities Revenue (2.6%)
6,265 University of Michigan, Medical Service Plan Ser 1991 .......... 6.50 12/01/21 6,601,806
11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority,
Minnesota, Group Health Plan Inc Ser 1992 ..................... 6.90 10/15/22 12,258,788
- ----------- ---------------
17,515 18,860,594
- ----------- ---------------
Public Facilities Revenue (5.7%)
9,800 Orlando, Florida, Cap Impr Refg Ser 1992 ....................... 6.00 10/01/22 9,937,592
10,000 Atlanta Downtown Development Authority, Georgia, Underground
Atlanta Refg Ser 1992 ......................................... 6.25 10/01/16 10,408,600
5,000 Illinois, Civic Center Ser 1990 A (AMBAC) ...................... 6.00 12/15/15 5,028,550
7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser
1992 D ........................................................ 6.75 02/01/20 7,955,915
8,550 Maine Municipal Bond Bank, 1992 Ser E .......................... 6.25 11/01/12 9,000,072
- ----------- ---------------
40,720 42,330,729
- ----------- ---------------
Resource Recovery Revenue (2.5%)
16,525 Broward County, Florida, Broward Waste Energy Co North Ser 1984 7.95 12/01/08 18,206,419
- ----------- ---------------
Transportation Facilities Revenue (11.7%)
Dade County, Florida,
3,000 Aviation, 1992 Ser B (AMT) (MBIA) ............................. 6.55 10/01/13 3,219,510
5,000 Aviation, 1992 Ser B (AMT) (MBIA) ............................. 6.60 10/01/22 5,367,850
13,250 Chicago, Illinois, Chicago-O'Hare Int'l Terminal Ser 1992 (AMT)
(MBIA) ........................................................ 6.75 01/01/12 14,309,470
20,000 Illinois Toll Highway Authority, Priority 1992 Ser A ........... 6.375 01/01/15 20,790,400
15,000 St Louis, Missouri, Lambert -St Louis Int'l Airport Ser 1992
(AMT) (FGIC) .................................................. 6.00 07/01/08 15,576,600
20,000 Clark County, Nevada, Las Vegas -McCaran Int'l Airport Passenger
Facility Charge 1992 Ser B (AMT) .............................. 6.25 07/01/22 20,046,000
6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V ..... 6.625 07/01/12 6,445,020
- ----------- ---------------
82,250 85,754,850
- ----------- ---------------
Water & Sewer Revenue (7.5%)
10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) .... 6.50 10/01/14 10,946,700
10,000 Massachusetts Water Resources Authority, 1992 Ser B ............ 5.50 11/01/15 9,781,100
20,000 New York City Municipal Water Finance Authority, New York, Ser
1993 A ........................................................ 6.00 06/15/17 20,071,000
8,000 Houston, Texas, Water & Sewer Lien Jr Refg Ser 1991 C (AMBAC) .. 6.375 12/01/17 8,482,560
6,000 Fairfax County Water Authority, Virginia, Refg Ser 1992 ........ 6.00 04/01/22 6,142,200
- ----------- ---------------
54,000 55,423,560
- ----------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
Other Revenue (0.3%)
$ 2,000 New York Local Government Assistance Corporation, Ser 1991 A ... 7.125% 04/01/11 $ 2,221,340
- ----------- ---------------
Refunded (5.6%)
7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A ......... 6.60 12/01/02 ++ 8,353,200
10,000 Massachusetts Water Resources Authority, 1990 Ser A ............ 6.50 12/01/01 ++ 11,078,100
12,000 New York Local Government Assistance Corporation, Ser 1991 C ... 7.00 04/01/01 ++ 13,422,000
7,115 Puerto Rico Highway & Transportation Authority, Ser T .......... 6.625 07/01/02 ++ 7,970,935
- ----------- ---------------
36,615 40,824,235
- ----------- ---------------
692,215 TOTAL MUNICIPAL BONDS (Identified Cost $675,169,694) ................................. 720,946,139
- ----------- ---------------
SHORT-TERM MUNICIPAL OBLIGATION (0.3%)
2,000 Massachusetts, Dedicated Income Tax Ser 1990 B (Demand 11/01/96)
- -----------
(Identified Cost $2,000,000) .................................. 3.60* 12/01/97 2,000,000
---------------
$694,215 TOTAL INVESTMENTS (Identified Cost $677,169,694) (a) ..................... 98.4% 722,946,139
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.6 11,852,976
------ ---------------
NET ASSETS ............................................................... 100.0% $734,799,115
====== ===============
</TABLE>
[FN]
- ------------
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 and net unrealized
appreciation was $45,776,445.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996, continued
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Alabama .............. 1.1%
Alaska ............... 1.1
California ........... 2.4
Colorado ............ 3.2
Connecticut .......... 2.9
District of Columbia.. 2.5
Florida .............. 8.3
Georgia .............. 3.8
Hawaii ............... 1.9
Idaho ................ 0.2
Illinois ............. 7.4
Indiana .............. 1.1
Maine ................ 1.2
Massachusetts ........ 4.4
Michigan ............. 3.7
Minnesota ............ 3.1
Missouri ............. 6.0
Nebraska ............. 0.7
Nevada ............... 5.3
New York ............. 8.9
Ohio ................. 2.0
Pennsylvania ......... 3.4
Puerto Rico .......... 2.0
South Carolina ....... 4.9
South Dakota ......... 0.7
Texas ................ 4.0
Virginia ............. 5.9
Washington ........... 4.9
West Virginia ........ 1.4
------
Total ................ 98.4%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $677,169,694) ......................................... $722,946,139
Cash .................................................................... 812,848
Interest receivable ..................................................... 11,968,698
Deferred organizational expenses ........................................ 10,031
Prepaid expenses ........................................................ 130,808
--------------
TOTAL ASSETS .......................................................... 735,868,524
--------------
LIABILITIES:
Payable for:
Common shares of beneficial interest repurchased ...................... 400,185
Dividends to preferred shareholders ................................... 294,222
Investment management fee ............................................. 239,436
Accrued expenses ........................................................ 135,566
--------------
TOTAL LIABILITIES ..................................................... 1,069,409
--------------
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, 34,126,413 shares outstanding) ......................... 477,171,206
Net unrealized appreciation ............................................. 45,776,445
Accumulated undistributed net investment income ......................... 2,786,527
Accumulated undistributed net realized gain ............................. 1,064,937
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS .......................... 526,799,115
--------------
TOTAL NET ASSETS ...................................................... $734,799,115
==============
NET ASSET VALUE PER COMMON SHARE
($526,799,115 divided by 34,126,413 common shares outstanding) ........ $ 15.44
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ........................ $45,034,772
-------------
EXPENSES
Investment management fee .............. 2,605,581
Auction commission fees ................ 526,980
Transfer agent fees and expenses ...... 187,876
Professional fees ...................... 118,667
Shareholder reports and notices ....... 53,187
Auction agent fees ..................... 39,141
Registration fees ...................... 33,469
Custodian fees ......................... 32,562
Trustees' fees and expenses ............ 23,989
Organizational expenses ................ 11,023
Other .................................. 49,269
-------------
TOTAL EXPENSES BEFORE EXPENSE OFFSET 3,681,744
LESS: EXPENSE OFFSET ................ (32,278)
-------------
TOTAL EXPENSES AFTER EXPENSE OFFSET . 3,649,466
-------------
NET INVESTMENT INCOME ................ 41,385,306
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ...................... 1,064,949
Net change in unrealized appreciation . 2,809,883
-------------
NET GAIN ............................. 3,874,832
-------------
NET INCREASE ........................... $45,260,138
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED OCTOBER ENDED OCTOBER
31, 1996 31, 1995
- --------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .............................. $ 41,385,306 $ 42,557,950
Net realized gain .................................. 1,064,949 1,992,474
Net change in unrealized appreciation/depreciation 2,809,883 58,771,035
---------------- ----------------
NET INCREASE ..................................... 45,260,138 103,321,459
---------------- ----------------
DIVIDENDS TO PREFERRED SHAREHOLDERS FROM
NET INVESTMENT INCOME .............................. (7,560,813) (8,062,139)
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (34,506,145) (35,961,242)
Net realized gain .................................. (1,244,629) --
---------------- ----------------
TOTAL ............................................ (35,750,774) (35,961,242)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred .......................................... -- (33,250,000)
Common ............................................. (19,989,901) (25,887,114)
---------------- ----------------
TOTAL ............................................ (19,989,901) (59,137,114)
---------------- ----------------
NET INCREASE (DECREASE) .......................... (18,041,350) 160,964
NET ASSETS:
Beginning of period ................................ 752,840,465 752,679,501
---------------- ----------------
END OF PERIOD
(including undistributed net investment income of
$2,786,527 and $3,468,179, respectively) ......... $734,799,115 $752,840,465
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Quality Municipal Income Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust's investment objective is to provide
current income which is exempt from federal income tax. The Trust was
organized as a Massachusetts business trust on March 12, 1992 and commenced
operations on September 29, 1992.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts over the life of
the respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
income and net realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital
accounts based on their federal tax-basis treatment; temporary differences do
not require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized capital gains.
To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses in the amount of $55,000 which
have been reimbursed for the full amount thereof. Such expenses have been
deferred and are being amortized by the straight-line method over a period
not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays the Investment
Manager a management fee, calculated weekly and payable monthly, by applying
the annual rate of 0.35% to the Trust's 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 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 year ended October 31, 1996 aggregated $27,688,601.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At October 31, 1996, the Trust had transfer agent
fees and expenses payable of approximately $19,000.
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
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs
for the year ended October 31, 1996 included in Trustees' fees and expenses
in the Statement of Operations amounted to $9,081. At October 31, 1996, the
Trust had an accrued pension liability of $29,180 which is included in
accrued expenses in the Statement of Assets and Liabilities.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of
the common shareholders. The Trust has issued Series 1 through 5 Auction Rate
Preferred Shares ("Preferred Shares") which have a liquidation value of
$50,000 per share plus the redemption premium, if any, plus accumulated but
unpaid dividends, whether or not declared, thereon to the date of
distribution. The Trust may redeem such shares, in whole or in part, at the
original purchase price of $50,000 per share plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
RANGE OF
AMOUNT IN DIVIDEND
SERIES SHARES* THOUSANDS* RATE* RESET DATE RATES**
- -------- --------- --------------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
1 1,120 $56,000 3.40 % 11/05/96 3.28 % -5.50 %
2 400 20,000 3.799 09/03/97 3.345 -3.799
3 1,120 56,000 3.39 11/06/96 3.32 -5.00
4 1,120 56,000 3.54 01/08/97 3.49 -3.80
5 400 20,000 3.61 12/26/96 3.41 -3.648
</TABLE>
- ------------
* As of October 31, 1996.
** For the year ended October 31, 1996.
Subsequent to October 31, 1996 and up through December 9, 1996, the Trust
paid dividends to each of the Series 1 through 5 at rates ranging from 3.297%
to 3.799% in the aggregate amount of $948,859.
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.
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996, continued
The preferred shares, which are entitled to one vote per share, generally
vote with the common shares but vote separately as a class to elect two
Trustees and on any matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID
PAR IN 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 6.93%)* (1,406,900) (14,069) (19,975,832)
------------- ---------- --------------
Balance, October 31, 1996 ................................................ 34,126,413 $341,264 $476,829,942
============= ========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT PER
DATE SHARE RECORD DATE PAYABLE DATE
- ----------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
October 30, 1996 $0.0825 November 8, 1996 November 22, 1996
November 26, 1996 $0.0825 December 6, 1996 December 20, 1996
</TABLE>
<PAGE>
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 PERIOD
FOR THE YEAR ENDED OCTOBER 31** SEPTEMBER 29, 1992*
THROUGH
-------------------------------------------- OCTOBER 31, 1992**
1996 1995 1994++ 1993
- --------------------------------------------------------------------------------------------------------------------------------
<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 ..................................... 1.19 1.18 1.24 1.22 0.04
Net realized and unrealized gain (loss) ................... 0.13 1.66 (2.73) 2.50 (0.20)
---------- ---------- ---------- ---------- ----------
Total from investment operations .......................... 1.32 2.84 (1.49) 3.72 (0.16)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income .................................... (0.99) (0.99) (1.04) (0.91) --
Common share equivalent of dividends paid to preferred
shareholders ............................................. (0.22) (0.22) (0.22) (0.21) --
Net realized gain ........................................ (0.04) -- (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ......................... (1.25) (1.21) (1.29) (1.12) --
Anti-dilutive effect of acquiring treasury shares ......... 0.04 0.08 0.06 -- --
Offering costs charged against capital .................... -- -- -- (0.14) (0.02)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................ $ 15.44 $15.33 $ 13.62 $ 16.34 $ 13.88
========== ========== ========== ========== ==========
Market value, end of period ............................... $14.625 $13.75 $11.875 $15.875 $ 15.125
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ .................................. 14.27% 24.77% (19.30)% 11.41% 0.83%(1)
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses before expense offset ...................... 0.69%(4) 0.72%(3) 0.75% 0.71% 0.42%(2)
Net investment income before preferred stock dividends ... 7.73% 8.05%(3) 8.06% 7.95% 3.29%(2)
Preferred stock dividends ................................. 1.41% 1.53% 1.43% 1.35% N/A
Net investment income available to common shareholders ... 6.32% 6.52% 6.63% 6.60% 3.29%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................... $734,799 $752,840 $752,680 $924,910 $548,350
Asset coverage on preferred shares at end of period ....... 353% 361% 311% 330% N/A
Portfolio turnover rate ................................... -- 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 the
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, after expense offset, which reflect
0.01% effect for custody cash credits.
(4) The above expense ratio would have been 0.68% after expense offset,
which reflects 0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF INTERCAPITAL QUALITY MUNICIPAL INCOME 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 Income Trust (the "Trust") at October 31, 1996, 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 four years in the period then ended and for the period
September 29, 1992 (commencement of operations) through October 31, 1992, 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 at October 31, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 9, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1996, the Trust paid the following
per share amounts from tax-exempt income: $0.99 to common shareholders,
$1,807 to Series 1 preferred shareholders, $1,690 to Series 2 preferred
shareholders, $1,791 to Series 3 preferred shareholders, $1,760 to
Series 4 preferred shareholders and $1,730 to Series 5 preferred
shareholders. For the year ended October 31, 1996, the Trust paid the
following per share amounts from long-term capital gains: $0.03 to
common shareholders, $56 to Series 1 preferred shareholders, $53 to
Series 2 preferred shareholders, $56 to Series 3 preferred
shareholders, $54 to Series 4 preferred shareholders and $55 to Series
5 preferred shareholders.
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
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
ANNUAL REPORT
OCTOBER 31, 1996
