<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS October 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of InterCapital
Quality Municipal Income Trust (IQI) for the fiscal year ended October 31,
1997.
Stimulated by a resurgence of consumer spending in late 1996, the economy
grew at a rapid pace in the first quarter of 1997. This prompted the Federal
Reserve Board to tighten its monetary policy in March in a preemptive move
against a possible increase in the rate of inflation. Economic growth slowed
in the second quarter and the bond market rallied. In addition to more
moderate economic growth, low inflation and stable monetary policy, the bond
rally through July was supported by a shrinking federal budget deficit and a
strong dollar. However, by August the bond market retreated on fears that
stronger employment conditions might prompt the Federal Reserve Board to
tighten further. Yields declined in October when turmoil in the global stock
markets precipitated "flight-to-quality" demand for U.S. Treasuries.
BOND YIELDS 1994-1997
INSURED MUNICIPAL
30-YEAR INSURED 30-YEAR U.S. REVENUE YIELDS
MUNICIPAL TREASURY AS A PERCENTAGE OF U.S.
` REVENUE YIELDS YIELDS TREASURY YIELDS
-------------- ------ ---------------
December 1993 5.4 % 6.34% 85.17%
January 1994 5.4 6.24 86.54
February 1994 5.8 6.66 87.09
March 1994 6.4 7.09 90.27
April 1994 6.35 7.32 86.75
May 1994 6.25 7.43 84.12
June 1994 6.5 7.61 85.41
July 1994 6.25 7.39 84.57
August 1994 6.3 7.45 84.56
September 1994 6.55 7.81 83.87
October 1994 6.75 7.96 84.8
November 1994 7 8 87.5
December 1994 6.75 7.88 85.66
January 1995 6.4 7.7 83.12
February 1995 6.15 7.44 82.66
March 1995 6.15 7.43 82.77
April 1995 6.2 7.34 84.47
May 1995 5.8 6.66 87.09
June 1995 6.1 6.62 92.15
July 1995 6.1 6.86 88.92
August 1995 6 6.66 90.09
September 1995 5.95 6.48 91.82
October 1995 5.75 6.33 90.84
November 1995 5.5 6.14 89.58
December 1996 5.35 5.94 90.07
January 1996 5.4 6.03 89.55
February 1996 5.60 6.46 86.69
March 1996 5.85 6.66 87.84
April 1996 5.95 6.89 86.36
May 1996 6.05 6.99 86.55
June 1996 5.9 6.89 85.63
July 1996 5.85 6.97 83.93
August 1996 5.9 7.11 82.98
September 1996 5.7 6.93 82.25
October 1996 5.65 6.64 85.09
November 1996 5.5 6.35 86.61
December 1997 5.6 6.63 84.46
January 1997 5.7 6.79 83.95
February 1997 5.65 6.8 83.09
March 1997 5.9 7.1 83.1
April 1997 5.75 6.94 82.85
May 1997 5.65 6.91 81.77
June 1997 5.6 6.78 82.6
July 1997 5.3 6.3 84
August 1997 5.5 6.61 83
September 1997 5.4 6.4 84.4
October 1997 5.35% 6.15% 86.9 %
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields but with less
volatility. Long-term insured revenue index yields increased from 5.65
percent to 5.90 percent between October 1996 and March 1997. The bond rally
over the past seven months pushed 30-year yields down to 5.35 percent by the
end of October 1997. Yields on one-year notes were little changed at 3.75
percent over the 12-month period. Consequently, the yield pickup for
extending maturities from 1 to 30 years narrowed from 190 basis points to 160
basis points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury
yields rose from 83 percent at the end of March 1997 to 87 percent in
October. A rising ratio means that municipals have underperformed Treasuries
and have become relatively more attractive. Over the past four years, this
ratio has annually ranged from an average low of 83 percent to an average
high of 90 percent.
New-issue underwriting volume was slightly ahead in the first half of 1997.
The decline in interest rates subsequently led to a surge in refunding
activity. As a result, new-issue municipal volume was up 17 percent during
the first 10 months of 1997. Refundings accounted for more than 25 percent
of total volume.
PERFORMANCE
During the fiscal year ended October 31, 1997, the Trust's net asset value
(NAV) improved from $15.44 to $15.91. Based on this NAV change plus
reinvestment of tax-free dividends of $0.99 per share and taxable capital
gains distributions of $0.03 per share, the Trust's total NAV return was
10.27 percent. IQI's market price on the New York Stock Exchange moved from
$14.625 to $14.875 per share. Based on this change in market price plus
reinvestment of dividends and distributions, the Trust's total market return
was 8.84 percent. On October 31, 1997, IQI traded at a 6.51 percent discount to
NAV.
Monthly dividends for the fourth quarter of 1997 were declared in September.
Over the past 12 months the level of undistributed net investment income
decreased from $0.082 to $0.064 per share. Beginning with the October 1997
payment, the monthly dividend was reduced from $0.0825 per share to
$0.0775 per share to more closely reflect the Trust's anticipated income.
PORTFOLIO STRUCTURE
IQI remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 13 long-term sectors and 68 credits. The
Trust's weighted average maturity was 18 years.
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
LARGEST SECTORS AS OF OCTOBER 31, 1997
(% OF NET ASSETS)
Mortgage ......................... 14%
Refunded ......................... 14%
Transportation ................... 12%
Electric ......................... 11%
Hospital ......................... 10%
General Obligation ............... 10%
*IDR/PCR ......................... 8%
All Others ....................... 21%
*Industrial Development/Pollution Control Revenue
Portfolio Structure is subject to change.
CREDIT RATINGS AS OF OCTOBER 31, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
AAA or Aaa ........................ 39%
AA or Aa .......................... 29%
A or A ............................ 25%
BBB or Baa ........................ 7%
As measured by Standard & Poor's Corp. or Moody's Investors Service, Inc.
Portfolio structure is subject to change.
CALL STRUCTURE AS OF OCTOBER 31, 1997 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 5 YEARS
PERCENT CALLABLE
YEARS
CALLABLE
- --------
1999 .................... 2%
2000 .................... 1%
2001 .................... 12%
2002 .................... 64%
2003 .................... 16%
2004 .................... 0%
2005 .................... 1%
2006 .................... 0%
2007 .................... 1%
2008 .................... 0%
2009+ ................... 3%
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
The distribution of call dates in the portfolio produced 5 years of weighted
average call protection. Throughout the fiscal year, high credit quality was
maintained with 68 percent of its long-term holdings rated double or triple
"A".
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution
to common shareholders includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second
is the spread between the portfolio's cost yield and ARPS expenses (ARPS
auction rate and expenses). The greater the spread and the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders. The level of net investment income
available for distribution to common shareholders varies with the level of
short-term interest rates.
During the fiscal year, ARPS leverage contributed approximately $0.14 per
share to common share earnings. Weekly ARPS yields ranged between 3.19 and
4.25 percent. Five ARPS series totaling $208 million and representing
28 percent of net assets were outstanding.
LOOKING AHEAD
So far this year, long-term municipal bonds have followed the trend of
Treasuries toward lower yields. The recent enactment of the Taxpayer Relief
Act of 1997 did not impact municipals directly and the long-term benefits of
tax-exempt income have remained intact.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust,
when appropriate, may purchase shares in the open market or in privately
negotiated transactions at a price not above market value or net asset value,
whichever is lower at the time of purchase. During the 12-month period ended
October 31, 1997, the Trust purchased and retired 523,900 shares of common
stock at a weighted average market discount of 5.10 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.
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
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 MEETINGS (unaudited)
* * *
On May 20, 1997, a special meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEE:
Wayne E. Hedien
For......... 25,858,808
Withheld .. 587,473
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Dr.
Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and John L. Schroeder.
(2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND
DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN
STANLEY GROUP INC. WITH DEAN WITTER,
DISCOVER & CO.:
For........ 24,661,536
Against .. 408,588
Abstain .. 1,376,157
On October 24, 1997, an annual meeting of the Trust's shareholders was held
for the purpose of voting on two separate matters, the results of which were
as follows:
(1) ELECTION OF TRUSTEES:
Wayne E. Hedien
For......... 21,431,001
Withheld .. 543,995
Dr. Manuel H. Johnson
For......... 21,445,860
Withheld .. 529,136
John L. Schroeder
For......... 21,466,186
Withheld .. 508,810
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
RESULTS OF MEETINGS (unaudited) continued
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael
E. Nugent and
Philip J. Purcell.
(2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
For........ 21,224,456
Against .. 174,712
Abstain .. 575,828
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. Although no quorum was obtained, the following represents the total
of the shares whose votes were returned to the Trust prior to the meeting.
PERCENTAGE
NO. OF OF OUTSTANDING
VOTE COMMON SHARES COMMON SHARES
- ---------- --------------- --------------
For ....... 3,939,762 11.71%
Against .. 8,517,968 25.32%
Abstain .. 1,340,186 3.98%
PERCENTAGE
NO. OF OF OUTSTANDING
VOTE PREFERRED SHARES PREFERRED SHARES
- ---------- ---------------- ----------------
For ....... 152 3.65%
Against .. 345 8.29%
Abstain .. 170 4.09%
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------------------------------------------------------------- -------- ----------- --------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.1%)
General Obligation (9.8%)
$ 7,500 District of Columbia, 1992 Ser B (MBIA) ........................ 6.30 % 06/01/12 $ 8,136,450
Hawaii,
5,000 1992 Ser BZ ................................................... 6.00 10/01/10 5,562,150
8,000 1992 Ser BZ ................................................... 6.00 10/01/11 8,871,360
4,000 Cook County, Illinois, Ser 1992 C (FGIC) ....................... 6.00 11/15/09 4,442,720
New York City, New York,
5,500 1993 Ser B .................................................... 7.00 10/01/11 6,074,145
2,100 1993 Ser B .................................................... 7.00 10/01/13 2,319,219
3,300 1993 Ser B .................................................... 7.00 10/01/14 3,644,487
5,000 1993 Ser B .................................................... 6.75 10/01/15 5,463,250
2,400 1992 Ser B .................................................... 7.00 02/01/20 2,624,184
10,000 San Antonio, Texas, Refg Ser 1992 .............................. 5.75 08/01/13 10,372,600
15,000 Washington, Ser 1993 A ......................................... 5.75 10/01/17 15,508,650
- ----------- --------------
67,800 73,019,215
- ----------- --------------
Educational Facilities Revenue (2.7%)
10,000 District of Columbia, Howard University Refg Ser 1992 A ........ 6.75 10/01/12 10,989,000
2,500 University of Illinois, Auxiliary Ser 1991 ..................... 5.75 04/01/22 2,555,775
Scranton-Lackawanna Health & Welfare Authority, Pennsylvania,
3,000 University of Scranton 1992 Ser A ............................. 6.40 03/01/07 3,205,170
3,300 University of Scranton 1992 Ser A ............................. 6.50 03/01/13 3,518,394
- ----------- --------------
18,800 20,268,339
- ----------- --------------
Electric Revenue (10.6%)
9,500 Orlando Utilities Commission, Florida, Ser 1991 A .............. 5.50 10/01/26 9,506,080
10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B
(Secondary MBIA) .............................................. 6.375 01/01/16 10,868,900
5,000 Hastings, Nebraska, Refg Ser 1992 .............................. 6.30 01/01/19 5,292,300
10,000 Hamilton!, Ohio, Refg 1992 Ser A (FGIC) ........................ 6.00 10/15/23 10,557,100
20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser .. 6.375 01/01/25 20,735,600
Grant County Public Utility District #2, Washington,
8,220 Priest Rapids Hydro Second Ser 1992 A ......................... 5.00 01/01/23 7,889,885
8,000 Wanapum Hydro Second Ser 1992 A ............................... 6.375 01/01/23 8,464,240
5,000 Wanapum Hydro Second Ser 1992 B (AMT) ......................... 6.75 01/01/23 5,369,200
- ----------- --------------
75,720 78,683,305
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------------------------------------------------------------- -------- ----------- --------------
Hospital Revenue (10.0%)
$ 5,000 Birmingham-Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee) .... 5.875% 08/15/15 $ 5,203,350
3,000 Colorado Health Facilities Authority, Sisters of Charity Health
Care
Systems Inc Ser 1992 A (AMBAC) ................................ 6.00 05/15/22 3,109,770
6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991
(MBIA) ........................................................ 6.00 12/01/21 6,231,420
9,250 Massachusetts Health & Educational Facilities Authority,
Massachusetts General Hospital Ser F (AMBAC) .................. 6.00 07/01/15 9,658,757
10,000 Missouri Health & Education Facilities Authority, Health Midwest
Ser 1992 B (MBIA) ............................................. 6.25 02/15/22 10,590,300
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 10,195,800
4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992 5.50 11/15/11 4,581,270
10,000 Allegheny County Hospital Development Authority, Pennsylvania,
Presbyterian University Health Ser 1992 A (MBIA) .............. 6.25 11/01/23 10,484,000
5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/
The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA) ...... 6.25 07/01/16 5,304,050
3,000 Philadelphia Hospitals & Higher Education Facilities Authority,
Pennsylvania, Chestnut Hill Hospital Ser of 1992 .............. 6.375 11/15/11 3,192,480
5,000 South Dakota Health & Educational Facilities Authority, Queen of
Peace Hospital Ser 1992 (MBIA) ................................ 6.70 07/01/17 5,479,300
- ----------- --------------
70,750 74,030,497
- ----------- --------------
Industrial Development/Pollution Control Revenue (8.0%)
6,000 California Pollution Control Financing Authority, Keller Cannon
Landfill Co/
Browning-Ferris Industries Inc Ser 1992 (AMT) ................. 6.875 11/01/27 6,659,280
5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B ..... 6.35 02/01/22 5,336,750
3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991
(AMT) ......................................................... 7.15 02/01/23 3,784,375
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT)
(MBIA) ........................................................ 6.65 06/01/17 5,455,600
15,000 Berkeley County, South Carolina, South Carolina Electric & Gas
Co Ser 1984 .................................................... 6.50 10/01/14 16,329,150
10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser
1992 B
(MBIA) ........................................................ 6.375 04/01/12 10,946,500
10,000 Mason County, West Virginia, Appalachian Power Co Ser J ........ 6.60 10/01/22 10,683,400
- ----------- --------------
54,500 59,195,055
- ----------- --------------
Mortgage Revenue -Multi-Family (6.3%)
7,000 Illinois Housing Development Authority, Ser I .................. 6.625 09/01/12 7,357,350
20,000 Michigan Housing Development Authority, Rental 1992 Ser A
(Bifurcated FSA) .............................................. 6.50 04/01/23 21,007,600
Missouri Housing Development Commission,
7,705 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............ 6.50 07/01/16 7,969,821
9,845 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............ 6.60 07/01/24 10,186,818
- ----------- --------------
44,550 46,521,589
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------------------------------------------------------------- -------- ----------- --------------
Mortgage Revenue -Single Family (8.0%)
$ 16,915 Connecticut Housing Finance Authority, 1992 Ser B .............. 6.70 % 11/15/12 $ 18,132,034
7,245 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C . 6.50 12/01/11 7,617,248
1,275 Idaho Housing Agency, 1992 Ser E (AMT) ......................... 6.75 07/01/12 1,348,899
Minnesota Housing Finance Agency,
3,185 Ser 1992 D-1 .................................................. 6.50 01/01/17 3,346,257
6,915 Ser 1992 CD-1 (AMT) ........................................... 6.75 07/01/23 7,266,075
20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2
(AMT) ......................................................... 6.80 07/01/21 21,411,594
- ----------- --------------
55,895 59,122,107
- ----------- --------------
Nursing & Health Related Facilities Revenue (2.6%)
6,265 University of Michigan, Medical Service Plan Ser 1991 .......... 6.50 12/01/21 6,758,619
11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority,
Minnesota, Group Health Plan Inc Ser 1992 ..................... 6.90 10/15/22 12,362,850
- ----------- --------------
17,515 19,121,469
- ----------- --------------
Public Facilities Revenue (5.8%)
9,800 Orlando, Florida, Cap Impr Refg Ser 1992 ....................... 6.00 10/01/22 10,179,260
10,000 Atlanta Downtown Development Authority, Georgia, Underground
Atlanta Refg Ser 1992 ......................................... 6.25 10/01/16 10,699,800
5,000 Illinois, Civic Center Ser 1990 A (AMBAC) ...................... 6.00 12/15/15 5,100,600
7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser
1992 D ........................................................ 6.75 02/01/20 8,140,534
8,550 Maine Municipal Bond Bank, 1992 Ser E .......................... 6.25 11/01/12 9,281,966
- ----------- --------------
40,720 43,402,160
- ----------- --------------
Resource Recovery Revenue (2.3%)
16,035 Broward County, Florida, Broward Waste Energy Co North Ser 1984 7.95 12/01/08 17,459,870
- ----------- --------------
Transportation Facilities Revenue (12.3%)
Dade County, Florida,
3,000 Aviation 1992 Ser B (AMT)(MBIA) ............................... 6.55 10/01/13 3,269,340
5,000 Aviation 1992 Ser B (AMT)(MBIA) ............................... 6.60 10/01/22 5,457,450
13,000 Chicago, Illinois, Chicago -O'Hare Int'l Terminal Ser 1992
(AMT)(MBIA) ................................................... 6.75 01/01/12 14,097,590
20,000 Illinois Toll Highway Authority, Priority 1992 Ser A ........... 6.375 01/01/15 21,320,200
3,750 Massachusetts Turnpike Authority, Metropolitan Highway 1997 Ser
A (MBIA) ...................................................... 5.00 01/01/37 3,529,575
15,000 St Louis, Missouri, Lambert -St Louis Int'l Airport Ser 1992
(AMT)(FGIC) ................................................... 6.00 07/01/08 16,016,400
20,000 Clark County, Nevada, Las Vegas -McCaran Int'l Airport Passenger
Facility Charge 1992 Ser B (AMT) .............................. 6.25 07/01/22 20,690,600
6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V ..... 6.625 07/01/12 6,569,400
- ----------- --------------
85,750 90,950,555
- ----------- --------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------------------------------------------------------------- -------- ----------- --------------
Water & Sewer Revenue (5.8%)
$ 10,000 Massachusetts Water Resources Authority, 1992 Ser B ............ 5.50 % 11/01/15 $ 10,069,200
20,000 New York City Municipal Water Finance Authority, New York, Ser
1993 A ........................................................ 6.00 06/15/17 20,772,000
7,510 Houston, Texas, Water & Sewer Jr Lien Refg Ser 1991 C (AMBAC) .. 6.375 12/01/17 8,160,666
3,895 Fairfax County Water Authority, Virginia, Refg Ser 1992 ........ 6.00 04/01/22 4,153,628
- ----------- --------------
41,405 43,155,494
- ----------- --------------
Refunded (13.9%)
7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A ......... 6.60 12/01/02++ 8,353,200
10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) .... 6.50 10/01/02++ 11,198,500
20,000 Jefferson County School District #R-1, Colorado, Ser 1992
(AMBAC) ....................................................... 6.00 12/15/02++ 21,765,600
10,000 Massachusetts Water Resources Authority, 1990 Ser A ............ 6.50 12/01/01++ 11,031,100
Washoe County School District, Nevada,
4,730 Ser 10/01/92 A (AMBAC) ........................................ 6.25 10/01/02++ 5,179,634
7,000 Ser 10/01/92 A (AMBAC) ........................................ 6.25 10/01/02++ 7,665,420
12,000 New York Local Government Assistance Corporation, Ser 1991 C ... 7.00 04/01/01++ 13,303,320
5,000 Puerto Rico Highway & Transportation Authority, Ser T .......... 6.625 07/01/02++ 5,579,450
2,105 Fairfax County Water Authority, Virginia, Refg Ser 1992 ........ 6.00 04/01/07++ 2,355,516
15,000 Fredericksburg Industrial Development Authority, Virginia, MWH
Medicorp Ser 1991 A & B (FGIC) ................................ 6.60 08/15/01++ 16,545,900
- ----------- --------------
93,335 102,977,640
- ----------- --------------
682,775 TOTAL MUNICIPAL BONDS (Identified Cost $666,020,429) ................................ 727,907,295
- ----------- --------------
SHORT-TERM MUNICIPAL OBLIGATIONS (0.3%)
1,000 Harris County Health Facilities Development Corporation, Texas,
Methodist Hospital Ser 1994 (Demand 11/03/97) ................. 4.00 * 12/01/25 1,000,000
1,500 Lincoln County, Wyoming, Exxon Corp Ser 1984 D (Demand 11/03/97) 3.95 * 11/01/14 1,500,000
- ----------- --------------
2,500 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $2,500,000) ................. 2,500,000
- ----------- --------------
$685,275 TOTAL INVESTMENTS (Identified Cost $668,520,429) (a) .................... 98.4% 730,407,295
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.6 12,096,663
----------- --------------
NET ASSETS .............................................................. 100.0% $742,503,958
=========== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
- ------------
AMT Alternative Minimum Tax.
++ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross and net unrealized
appreciation is $61,886,866.
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.
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Alabama .............. 0.7%
Alaska ............... 1.1
California ........... 2.4
Colorado ............. 3.4
Connecticut .......... 2.4
District of Columbia . 2.6
Florida .............. 8.2
Georgia .............. 3.9
Hawaii ............... 1.9
Idaho ................ 0.2
Illinois ............. 7.4
Indiana .............. 1.1%
Maine ................ 1.3
Massachusetts ........ 4.6
Michigan ............. 3.7
Minnesota ............ 3.1
Missouri ............. 6.0
Nebraska ............. 0.7
Nevada ............... 5.3
New York ............. 8.9
Ohio ................. 2.0
Puerto Rico .......... 1.6
Pennsylvania ......... 3.5%
South Carolina ....... 5.0
South Dakota ......... 0.7
Texas ................ 4.1
Virginia ............. 6.0
Washington ........... 5.0
West Virginia ........ 1.4
Wyoming .............. 0.2
-------
Total ................ 98.4%
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $668,520,429) ....................................... $730,407,295
Cash................................................................... 1,141,644
Interest receivable ................................................... 11,795,603
Prepaid expenses ...................................................... 386,624
--------------
TOTAL ASSETS ........................................................ 743,731,166
--------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders.................................. 648,901
Investment management fee............................................ 248,875
Common shares of beneficial interest repurchased..................... 192,890
Accrued expenses ...................................................... 136,542
--------------
TOTAL LIABILITIES.................................................... 1,227,208
--------------
NET ASSETS........................................................... $742,503,958
==============
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized
of non-participating $.01 par value, 4,160 shares outstanding) ....... $208,000,000
--------------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 33,602,513 shares outstanding)........................ 469,478,476
Net unrealized appreciation ........................................... 61,886,866
Accumulated undistributed net investment income........................ 2,140,016
Accumulated undistributed net realized gain............................ 998,600
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ........................ 534,503,958
--------------
TOTAL NET ASSETS .................................................... $742,503,958
==============
NET ASSET VALUE PER COMMON SHARE
($534,503,958 divided by 33,602,513 common shares outstanding) ...... $ 15.91
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $43,944,332
-------------
EXPENSES
Investment management fee.............. 2,568,624
Auction commission fees................ 567,929
Transfer agent fees and expenses ...... 164,585
Professional fees ..................... 106,373
Shareholder reports and notices ...... 65,473
Auction agent fees..................... 38,384
Registration fees ..................... 33,164
Custodian fees ........................ 30,175
Trustees' fees and expenses ........... 19,390
Organizational expenses ............... 10,031
Other.................................. 49,431
-------------
TOTAL EXPENSES ...................... 3,653,559
Less: expense offset .................. (30,009)
-------------
NET EXPENSES ........................ 3,623,550
-------------
NET INVESTMENT INCOME................ 40,320,782
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ..................... 998,600
Net change in unrealized appreciation 16,110,421
-------------
NET GAIN ............................ 17,109,021
-------------
NET INCREASE .......................... $57,429,803
=============
</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 ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
- ------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 40,320,782 $ 41,385,306
Net realized gain...................................... 998,600 1,064,949
Net change in unrealized appreciation ................. 16,110,421 2,809,883
---------------- ----------------
NET INCREASE ........................................ 57,429,803 45,260,138
---------------- ----------------
Dividends to preferred shareholders from net
investment income .................................... (7,700,761) (7,560,813)
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income ................................. (33,266,944) (34,506,145)
Net realized gain...................................... (1,064,923) (1,244,629)
---------------- ----------------
TOTAL................................................ (34,331,867) (35,750,774)
---------------- ----------------
Decrease from transactions in common shares of
beneficial interest .................................. (7,692,332) (19,989,901)
---------------- ----------------
NET INCREASE (DECREASE).............................. 7,704,843 (18,041,350)
NET ASSETS:
Beginning of period.................................... 734,799,115 752,840,465
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income
of $2,140,016 and $2,786,527, respectively) ......... $742,503,958 $734,799,115
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997
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, 1997, 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 were deferred
and fully amortized as of September 29, 1997.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays the Investment
Manager a management fee, calculated weekly and payable monthly, by applying
the annual rate of 0.35% to the Trust's weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books
and records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Trust who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended October 31, 1997
aggregated $13,845,288 and $24,140,587, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $5,000.
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
<PAGE>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
five years of service. Aggregate pension costs for the year ended October 31,
1997 included in Trustees' fees and expenses in the Statement of Operations
amounted to $5,083. At October 31, 1997, the Trust had an accrued pension
liability of $32,728 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>
AMOUNT IN RESET RANGE OF
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDENDRATES**
- -------- --------- ------------ ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
1 1,120 $56,000 3.845% 09/09/98 3.299%-4.25%
2 400 20,000 3.70 01/02/98 3.70
3 1,120 56,000 3.85 07/02/98 3.19 -4.125
4 1,120 56,000 3.80 01/08/98 3.482 -3.80
5 400 20,000 3.75 11/07/97 3.55 -3.90
</TABLE>
- ------------
* As of October 31, 1997.
** For the year ended October 31, 1997.
Subsequent to October 31, 1997 and up through December 5, 1997, the Trust
paid dividends to each of the Series 1 through 5 at rates ranging from 3.57%
to 3.845% in the aggregate amount of $1,271,357.
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>
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
------------- ----------- --------------
<S> <C> <C> <C>
Balance, October 31, 1995 ............................................... 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
Treasury shares purchased and retired (weighted average discount 5.10%)* (523,900) (5,239) (7,687,093)
------------- ----------- --------------
Balance, October 31, 1997 ............................................... 33,602,513 $336,025 $469,142,849
============= =========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS
As of September 23, 1997, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- ------------- -------------------- ----------------------
<S> <C> <C>
$0.0775 November 7, 1997 November 21, 1997
$0.0775 December 5, 1997 December 19, 1997
</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 YEAR ENDED OCTOBER 31*
---------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 15.44 $ 15.33 $13.62 $ 16.34 $ 13.88
---------- ---------- ---------- ---------- ----------
Net investment income .............................................. 1.20 1.19 1.18 1.24 1.22
Net realized and unrealized gain (loss) ............................ 0.51 0.13 1.66 (2.73) 2.50
---------- ---------- ---------- ---------- ----------
Total from investment operations ................................... 1.71 1.32 2.84 (1.49) 3.72
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income.............................................. (0.99) (0.99) (0.99) (1.04) (0.91)
Common share equivalent of dividends paid to preferred
shareholders....................................................... (0.23) (0.22) (0.22) (0.22) (0.21)
Net realized gain.................................................. (0.03) (0.04) -- (0.03) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions................................... (1.25) (1.25) (1.21) (1.29) (1.12)
---------- ---------- ---------- ---------- ----------
Anti-dilutive effect of acquiring treasury shares .................. 0.01 0.04 0.08 0.06 --
---------- ---------- ---------- ---------- ----------
Offering costs charged against capital ............................. -- -- -- -- (0.14)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ..................................... $ 15.91 $ 15.44 $15.33 $ 13.62 $ 16.34
========== ========== ========== ========== ==========
Market value, end of period ........................................ $14.875 $14.625 $13.75 $11.875 $15.875
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ........................................... 8.84% 14.27% 24.77% (19.30)% 11.41%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ..................................................... 0.70%(1) 0.69%(1) 0.72%(1) 0.75% 0.71%
Net investment income before preferred stock dividends ............ 7.68% 7.73% 8.05% 8.06% 7.95%
Preferred stock dividends .......................................... 1.47% 1.41% 1.53% 1.43% 1.35%
Net investment income available to common shareholders ............ 6.21% 6.32% 6.52% 6.63% 6.60%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............................ $742,504 $734,799 $752,840 $752,680 $924,910
Asset coverage on preferred shares at end of period ................ 356% 353% 361% 311% 330%
Portfolio turnover rate ............................................ 2% -- 1% 2% 4%
</TABLE>
- ------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on
last day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Trust's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
(1) Does not reflect the effect of the expense offset of 0.01%.
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, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1997 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 11, 1997
- -------------------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1997, the Trust paid the following per share
amounts from tax-exempt income: $0.99 to common shareholders, $1,627 to Series
1 preferred shareholders, $1,872 to Series 2 preferred shareholders, $1,648 to
Series 3 preferred shareholders, $1,764 to Series 4 preferred shareholders and
$1,923 to Series 5 preferred shareholders. For the year ended October 31, 1997,
the Trust paid the following per share amounts from long-term capital gains:
$0.03 to common shareholders, $46 to Series 1 preferred shareholders, $43 to
Series 2 preferred shareholders, $45 to Series 3 preferred shareholders, $44 to
Series 4 preferred shareholders and $44 to Series 5 preferred shareholders.
- -------------------------------------------------------------------------------
<PAGE>
TRUSTEES
- ----------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------------------
Dean Witter Trust FSB
Harborside Financial Center -Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
INTERCAPITAL
QUALITY
MUNICIPAL
INCOME
TRUST
ANNUAL REPORT
OCTOBER 31, 1997
