<PAGE> 1
MUNICIPAL INCOME TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS August 31, 1996
DEAR SHAREHOLDER:
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 by a surprisingly large increase in payroll
employment reported in March. Other indicators of economic activity and rising
commodity prices added to market concerns. As a result, investors anticipated
that the Federal Reserve Board might reverse its series of reductions in the fed
funds rate that had begun in 1995. The bond market reacted to these expectations
by pushing long-term yields higher. More than three-quarters of the rise in
interest rates between February and July can be attributed to market weakness on
the days that strong monthly employment figures were reported.
MUNICIPAL MARKET CONDITIONS
Between August 1995 and February 1996, 30-year insured revenue bond yields
declined 70 basis points from 6.00 percent to 5.30 percent. Yields subsequently
moved higher, reaching 6.15 percent in April and again in mid June. By August
1996, 30-year insured revenue bond yields stood at 5.80 percent, compared to
3.85 percent for 1-year municipal notes. The yield pickup for extending maturity
from 1 to 30 years was 195 basis points.
Diminished risk that flat-tax proposals would cause a radical change in the tax
code prompted tax-exempt bonds to outperform U.S. Treasury securities. The ratio
of insured revenue bond yields to 30-year U.S. Treasury yields, which stood at
90 percent a year ago, declined to 82 percent. A decline in this ratio indicates
that municipal bond prices were stronger than U.S. Treasury prices.
The municipal market also benefited from steady demand. In addition to regular
maturities and calls for redemption, it has been estimated that investors also
face the retirement of $66 billion of previously refunded debt in 1996. On the
supply side, aggregate new-issue volume increased
<PAGE> 2
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 1996, continued
18 percent to $114 billion during the first eight months of the year. However,
underwritings were postponed and the pace of activity slowed as interest rates
rose.
PERFORMANCE
The net asset value (NAV) of Municipal Income Trust (TFA) declined from $9.92 to
$9.72 per share during the fiscal year ended August 31, 1996. Based on this NAV
change, plus reinvestment of tax-free dividends of $0.60 per share and taxable
capital gain distributions of $0.09 per share, the Fund's total return was 5.58
percent. Over the same period, TFA's market price on the New York Stock Exchange
increased from $9.00 to $9.25 per share. Based on this market price change, plus
reinvestment of dividends and distributions, the Fund's total
return was 10.75 percent. TFA's market price on the New York Stock Exchange was
trading at a 5 percent discount to NAV on August 31, 1996. Undistributed net
investment income of $0.13 per share remained unchanged during the fiscal year.
PORTFOLIO STRUCTURE
In response to the rising interest rate environment in 1996, portfolio sales
shifted from defensive, higher-coupon bonds with limited call protection to more
market-sensitive, discount and current-coupon issues. The average maturity and
call protection of the long-term portfolio were 20 years and 7 years,
respectively. The portfolio has consistently maintained an
upper-investment-grade quality structure with over 89 percent of its long-term
holdings rated single "A" or better. TFA's net assets of $302 million were
diversified among 14 long-term sectors and 62 credits.
[CHART A]
CREDIT RATINGS as of August 31, 1996
(% of Total Long-Term Portfolio)
<TABLE>
<S> <C>
Aaa or AAA 38%
Aa or AA 26%
A or A 26%
Baa or BBB 7%
Not Rated 3%
</TABLE>
As measured by Standard & Poor's Corp. or Moody's Investors
Service, Inc.
[CHART B]
FIVE LARGEST SECTORS as of August 31, 1996
(% of Net Assets)
<TABLE>
<S> <C>
General Obligation 14%
Mortgage 12%
IDR/PCR* 11%
Transportation 11%
Water & Sewer 10%
Other 42%
</TABLE>
*Industrial Development/Pollution Control Prevention
Portfolio Structure is subject to change
<PAGE> 3
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 1996, continued
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities
should remain positive for the municipal market. Long-term insured municipal
securities currently yield 82 percent of the yield on U.S. Treasury securities
and may be expected to move in tandem with the U.S. Treasury market. Although
municipal performance relative to Treasuries has improved, tax-exempts could
again be affected by market uncertainty if new tax-reduction proposals were to
gain momentum.
The Fund'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 Fund's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Fund, 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 fiscal year, the Fund purchased and
retired 570,000 shares of common stock at a seven percent market discount.
We appreciate your ongoing support of 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> 4
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (96.0%)
General Obligation (14.0%)
$ 6,000 Moulton-Niguel Water District, California, Refg 1993 (MBIA)............. 5.00 % 09/01/19 $ 5,290,680
5,000 Chicago, Illinois, Refg Ser 1995 B (FGIC)............................... 5.125 01/01/25 4,406,950
6,270 Washington Suburban Sanitary District, Maryland, Gen Constr Refg 1994... 5.00 06/01/10 5,958,130
10,000 Massachusetts, 1994 Ser A............................................... 5.00 01/01/11 9,282,800
New York City, New York,
4,000 1995 Ser D (MBIA)..................................................... 6.20 02/01/07 4,311,760
850 1988 Ser D............................................................ 8.50 08/01/08 898,382
5,000 New York State, Refg Ser 1995 B......................................... 5.625 08/15/09 5,018,100
7,000 Shelby County, Tennessee, Refg 1995 Ser A............................... 5.625 04/01/11 7,007,280
- -------- ----------
44,120 42,174,082
- -------- ----------
Educational Facilities Revenue (6.2%)
5,000 California Public Works Board, University of California 1993 Ser A...... 5.50 06/01/21 4,571,250
3,500 Georgetown University, District of Columbia, Ser 1989 A................. 8.25 04/01/18 3,756,480
5,000 New Jersey Economic Development Authority, Educational Testing Service
Ser 1995 B (MBIA)...................................................... 6.25 05/15/25 5,181,100
New York State Dormitory Authority,
2,500 State University Ser 1995 A........................................... 6.50 05/15/05 2,646,075
2,500 State University Ser 1995 A........................................... 6.50 05/15/06 2,645,375
- -------- ----------
18,500 18,800,280
- -------- ----------
Electric Revenue (8.7%)
15,000 Southern California Public Power Authority, Mead-Adelanto
1994 Ser A (AMBAC)..................................................... 5.15 07/01/15 13,826,100
1,500 North Carolina Municipal Power Agency #1, Catawba Refg Ser 1988 A....... 7.50 01/01/17 1,572,030
9,000 Intermountain Power Agency, Utah, Refg 1996 Ser D....................... 5.00 07/01/21 7,865,730
2,750 Chelan County Public Utility District #1, Washington, Ser 1987 B
(AMT).................................................................. 9.30 07/01/62 2,951,245
- -------- ----------
28,250 26,215,105
- -------- ----------
Hospital Revenue (7.9%)
5,000 Birmingham-Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)............. 5.875 08/15/15 4,924,050
Illinois Health Facilities Authority,
1,320 Glen Oaks Medical Center Inc Refg 1990 Ser D............................ 9.50 11/15/15 1,500,074
1,000 Mercy Center for Health Care Services Ser 1992.......................... 6.65 10/01/22 994,280
950 Kentucky Development Finance Authority, Ashland Hospital/King's
Daughters
Refg & Impr Ser 1987.................................................. 9.75 08/01/11 1,024,642
1,500 Winchester, Kentucky, Clark County Hospital Refg Ser 1987............... 7.75 04/01/13 1,546,770
7,500 North Carolina Medical Care Commission, Presbyterian Health Services
Corp Refg Ser 1993..................................................... 5.50 10/01/20 7,070,550
5,000 Pennsylvania Higher Educational Facilities Authority, University of
Pennsylvania Ser A 1996................................................ 5.75 01/01/22 4,856,800
1,850 Fayette County, West Virginia, MPC Inc Refg Ser 1990.................... 9.75 02/01/11 2,028,618
- -------- ----------
24,120 23,945,784
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Development/Pollution Control Revenue (10.5%)
$ 5,000 California Pollution Control Finance Authority, Pacific Gas & Electric
Co 1987 Ser B (AMT).................................................... 8.875% 01/01/10 $ 5,308,450
5,000 Oxnard Industrial Development Finance Authority, California, Green Foods
Corp Ser 1987 (AMT).................................................... 9.50 10/01/97 5,015,350
2,825 Lapeer Economic Development Corporation, Michigan, Dott Manufacturing Co
Ser 1989 A (AMT)....................................................... 10.65 11/15/17 3,090,889
6,000 New York State Energy Research & Development Authority, New York State
Electric & Gas Corp 1987 Ser A (AMT) (MBIA)............................ 6.15 07/01/26 5,991,240
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines Inc Ser 1988
(AMT).................................................................. 7.375 12/01/20 5,259,600
5,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995..................... 6.00 11/01/14 4,879,150
1,965 Matagorda County Navigation District #1, Texas, Houston Lighting & Power
Co Collateralized Ser 1989 A (AMT)..................................... 7.875 02/01/19 2,075,079
- -------- ----------
30,790 31,619,758
- -------- ----------
Mortgage Revenue - Multi-Family (6.2%)
5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A (AMBAC)........ 6.00 11/01/14 5,034,750
5,000 New York City Housing Development Corporation, New York, Ser 1987 A..... 9.625 01/01/19 5,241,750
940 Rhode Island Housing & Mortgage Finance Corporation, Rental 1989 Ser B
(AMT).................................................................. 7.95 10/01/20 987,799
30,935 Oak Ridge Industrial Development Board, Tennessee, Gardens/Southern
Hill/ Woodlands Apts GNMA-Backed Refg Ser 1988......................... 0.00 10/20/19 4,359,360
3,000 Virginia Housing Development Authority, Ser 1987 B...................... 9.45 11/01/12 3,156,630
- -------- ----------
44,875 18,780,289
- -------- ----------
Mortgage Revenue - Single Family (5.9%)
7,000 Alaska Housing Finance Corporation Inc, 1993 1st Ser.................... 5.90 12/01/33 6,656,440
Maine Housing Authority,
4,265 Purchase 1988 Ser D-2 (AMT)............................................ 8.10 11/15/19 4,485,671
1,000 Purchase 1988 Ser D-2 (AMT)............................................ 8.10 11/15/22 1,050,470
3,320 North Dakota Housing Finance Agency, 1990 Ser B (AMT)................... 7.75 07/01/24 3,463,092
1,505 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)............... 7.85 09/01/21 1,584,088
465 Pennsylvania Housing Finance Agency, 1987 Ser R (AMT)................... 8.125 10/01/19 467,739
- -------- ----------
17,555 17,707,500
- -------- ----------
Nursing & Health Related Facilities Revenue (0.4%)
Vista, California, Long-Term Care Foundation of America
1,578 Ser 1994 A COPs (a).................................................... 8.50 01/01/20 1,136,123
189 Ser 1994 B COPs (a).................................................... 0.00 01/01/20 1,890
- -------- ----------
1,767 1,138,013
- -------- ----------
Public Facilities Revenue (1.1%)
3,245 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)................... 6.25 12/15/20 3,411,858
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Resource Recovery Revenue (3.4%)
$ 5,000 Greater Detroit Resource Recovery Authority, Michigan, Refg Ser 1996 A
(AMBAC)................................................................ 6.25 % 12/13/08 $ 5,335,850
4,500 Charleston County, South Carolina, Foster-Wheeler Charleston Inc Ser
1987 A (AMT)........................................................... 9.25 01/01/10 4,840,695
- -------- ----------
9,500 10,176,545
- -------- ----------
Retirement & Lifecare Facilities Revenue (0.5%)
2,065 Charleston County, South Carolina, Sandpiper Village Inc Refg Ser
1988................................................................... 8.00 11/01/13 1,631,350
- -------- ----------
Transportation Facilities Revenue (11.4%)
8,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA)...................... 5.125 10/01/26 7,183,040
840 Southwestern Development Authority, Illinois, Tri-City Regional Port
District Ser 1989 A (AMT) (a).......................................... 7.90 07/01/14 917,490
4,000 Delaware River Port Authority, New Jersey & Pennsylvania, Ser 1995
(FGIC)*................................................................ 5.50 01/01/26 3,793,720
4,500 Charlotte, North Carolina, Airport Ser 1987 (AMT)....................... 8.50 07/01/17 4,717,440
5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)............... 6.125 11/15/25 4,969,150
6,600 Dallas-Fort Worth International Airport, Texas, Refg Ser 1995 (FGIC).... 5.625 11/01/15 6,414,804
6,000 Virginia Transportation Board, US Route 28 Ser 1992..................... 6.50 04/01/18 6,325,860
- -------- ----------
34,940 34,321,504
- -------- ----------
Water & Sewer Revenue (9.3%)
5,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994................. 5.50 01/01/20 4,753,900
5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien Water Ser
1994................................................................... 5.45 07/01/19 4,671,800
2,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA)........................... 6.375 01/01/24 2,089,860
3,000 Massachusetts Water Resources Authority, 1993 Ser C..................... 5.25 12/01/20 2,707,050
1,000 New York City Municipal Water Finance Authority, New York, 1991 Ser A
(Secondary FGIC)....................................................... 6.75 06/15/16 1,078,890
3,000 Cleveland, Ohio, Waterworks Improvement & Refg Ser H 1996 (MBIA)........ 5.75 01/01/21 2,923,080
11,000 Upper Occoquan Sewerage Authority, Virginia, Ser 1995 A (MBIA).......... 5.00 07/01/25 9,745,670
- -------- ----------
30,000 27,970,250
- -------- ----------
Other Revenue (1.6%)
2,000 Northern Palm Beach County Improvement District, Florida, Water Control
& Impr #9A Ser 1996 A (WI)............................................. 6.80 08/01/06 2,000,000
3,000 New York Local Government Assistance Corporation, Ser 1995 A............ 6.00 04/01/24 2,960,010
- -------- ----------
5,000 4,960,010
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (8.9%)
$ 10,600 Indiana Health Facilities Financing Authority, St Anthony Medical Center
& Home Inc Ser 1987.................................................... 9.25% 10/01/97++ $ 11,302,886
5,000 Albuquerque, New Mexico, Gross Receipts Airport Ser 1987 B (AMT)........ 8.75 07/01/97+ 5,164,300
3,000 Intermountain Power Agency, Utah, Refg Ser 1987 D....................... 8.625 07/01/97++ 3,153,330
4,000 Washington, 1991 Ser B.................................................. 6.70 06/01/01++ 4,328,720
2,500 Washington Public Power Supply System, Nuclear Proj #2 Refg Ser 1990
C...................................................................... 7.625 01/01/01++ 2,822,400
- -------- ------------
25,100 26,771,636
- -------- ------------
319,827 TOTAL MUNICIPAL BONDS (Identified Cost $284,646,036)............................................. 289,623,964
- -------- ------------
SHORT-TERM MUNICIPAL OBLIGATIONS (1.5%)
4,000 Jacksonville Heath Facilities Authority, Florida, Baptist Medical Center
Ser 1993 (MBIA) (Demand 09/03/96)...................................... 3.95**% 06/01/08 4,000,000
700 Hapeville Development Authority, Georgia, Hapeville Hotel Ltd Ser 1985
(Demand 09/03/96)...................................................... 3.80** 11/01/15 700,000
- -------- ------------
4,700 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $4,700,000).............................. 4,700,000
- -------- ------------
$324,527 TOTAL INVESTMENTS (Identified Cost $289,346,036) (b).................................... 97.5% 294,323,964
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 2.5 7,510,848
------ ------------
NET ASSETS............................................................................... 100.0% $301,834,812
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when issued basis.
++ Prerefunded to call date shown.
+ Refunded to call date shown by forward delivery contract.
* Joint exemption in New Jersey and Pennsylvania.
** Current coupon of variable rate security.
(a) Resale is restricted to qualified institutional investors.
(b) The aggregate cost for federal income tax purposes is identified cost. The aggregate gross unrealized
appreciation was $8,560,613 and the aggregate gross unrealized depreciation was $3,582,685, resulting in
net unrealized appreciation of $4,977,928.
</TABLE>
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1996, continued
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
August 31, 1996
<TABLE>
<S> <C>
Alabama.................. 3.2%
Alaska................... 2.2
Arizona.................. 1.5
California............... 11.6
District of Columbia..... 1.2
Florida.................. 4.4
Georgia.................. 0.2
Illinois................. 4.4
Indiana.................. 3.7
Kentucky................. 0.9
Maine.................... 1.8
Maryland................. 2.0%
Massachusetts............ 4.0
Michigan................. 2.8
New Jersey............... 4.7
New Mexico............... 1.7
New York................. 10.2
North Carolina........... 4.4
North Dakota............. 1.1
Ohio..................... 1.5
Oklahoma................. 1.7
Pennsylvania............. 3.1
Rhode Island............. 0.3%
South Carolina........... 2.1
Tennessee................ 3.8
Texas.................... 6.1
Utah..................... 3.7
Virginia................. 6.4
Washington............... 3.4
West Virginia............ 0.7
Joint Exemption.......... (1.3)
---
Total.................... 97.5%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
ASSETS:
Investments in securities, at value
(identified cost $289,346,036).......... $294,323,964
Cash..................................... 397,441
Receivable for:
Investments sold..................... 6,405,666
Interest............................. 4,973,156
Prepaid expenses and other assets........ 14,707
------------
TOTAL ASSETS......................... 306,114,934
------------
LIABILITIES:
Payable for:
Investments purchased................ 3,966,393
Investment advisory fee.............. 100,201
Administration fee................... 57,648
Shares of beneficial interest
repurchased......................... 36,629
Accrued expenses......................... 119,251
------------
TOTAL LIABILITIES.................... 4,280,122
------------
NET ASSETS:
Paid-in-capital.......................... 292,828,833
Net unrealized appreciation.............. 4,977,928
Accumulated undistributed net investment
income.................................. 3,955,020
Accumulated undistributed net realized
gain.................................... 73,031
------------
NET ASSETS........................... $301,834,812
============
NET ASSET VALUE PER SHARE
31,053,450 shares outstanding
(unlimited shares authorized of
$.01 par value)......................... $9.72
=====
STATEMENT OF OPERATIONS
For the year ended August 31, 1996
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 20,636,419
------------
EXPENSES
Investment advisory fee.................. 1,028,369
Administration fee....................... 591,884
Transfer agent fees and expenses......... 161,329
Professional fees........................ 60,700
Shareholder reports and notices.......... 44,514
Custodian fees........................... 37,095
Registration fees........................ 32,826
Trustees' fees and expenses.............. 18,058
Other.................................... 17,052
------------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET............................... 1,991,827
LESS: EXPENSE OFFSET................. (33,100)
------------
TOTAL EXPENSES AFTER
EXPENSE OFFSET....................... 1,958,727
------------
NET INVESTMENT INCOME................ 18,677,692
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain........................ 1,152,842
Net change in unrealized appreciation.... (4,984,050)
------------
NET LOSS............................. (3,831,208)
------------
NET INCREASE............................. $ 14,846,484
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 18,677,692 $ 21,042,010
Net realized gain................................... 1,152,842 1,667,307
Net change in unrealized appreciation............... (4,984,050) (1,360,579)
------------ ------------
NET INCREASE.................................... 14,846,484 21,348,738
------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income............................... (18,819,865) (19,216,120)
Net realized gain................................... (2,747,118) (11,045,138)
------------ ------------
TOTAL........................................... (21,566,983) (30,261,258)
------------ ------------
Net decrease from transactions in shares of
beneficial interest................................ (5,213,006) (9,064,404)
------------ ------------
TOTAL DECREASE.................................. (11,933,505) (17,976,924)
NET ASSETS:
Beginning of period................................. 313,768,317 331,745,241
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$3,955,020 and $4,097,193, respectively)........ $301,834,812 $313,768,317
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Municipal Income Trust (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a diversified, closed-end management investment
company. The Fund's investment objective is to provide current income which is
exempt from federal income tax. The Fund was organized as a Massachusetts
business trust on June 16, 1987 and commenced operations on September 29, 1987.
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 Fund 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.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund'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 Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations
<PAGE> 12
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1996, continued
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Dean Witter InterCapital Inc.
(the "Investment Adviser"), the Fund pays the Investment Adviser an advisory
fee, calculated weekly and payable monthly, by applying the following annual
rates to the Fund's average weekly net assets: 0.35% to the portion of the
Fund's average weekly net assets not exceeding $250 million and 0.25% to the
portion of the Fund's average weekly net assets exceeding $250 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with Dean Witter Services Company Inc.
(the "Administrator"), the Fund pays an administration fee, calculated weekly
and payable monthly, by applying the following annual rates to the Fund's
average weekly net assets: 0.20% to the portion of the Fund's average weekly net
assets not exceeding $250 million; 0.15% to the portion of the Fund's average
weekly net assets exceeding $250 million but not exceeding $500 million; 0.12%
to the portion of the Fund's average weekly net assets exceeding $500 million
but not exceeding $750 million; and 0.10% to the portion of the Fund's average
weekly net assets exceeding $750 million.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Fund'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 Fund
who are employees of the Administrator. The Administrator also bears the cost of
telephone services, heat, light, power and other utilities provided to the Fund.
<PAGE> 13
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1996, continued
4. 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 August 31, 1996 aggregated
$100,594,095 and $117,394,277, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At August 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $19,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent trustees of the Fund who will have served as independent
Trustees for at least five years of service and compensation during the last
years of service. Aggregate pension costs for the year ended August 31, 1996,
included in Trustee's fees and expenses in the Statement of Operations amounted
to $415. At August 31, 1996, the Fund had an accrued pension liability of
$49,032 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, August 31, 1994........................................................ 32,640,950 $326,410 $306,779,833
Treasury shares purchased and retired (weighted average discount 8.89%)*........ (1,017,500) (10,175) (9,054,229)
---------- -------- ------------
Balance, August 31, 1995........................................................ 31,623,450 316,235 297,725,604
Treasury shares purchased and retired (weighted average discount 7.06%)*........ (570,000) (5,700) (5,207,306)
---------- -------- ------------
Balance, August 31, 1996........................................................ 31,053,450 $310,535 $292,518,298
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS
The Fund declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------- --------- ------------------ -------------------
<S> <C> <C> <C>
August 27, 1996 $0.05 September 6, 1996 September 20, 1996
September 24, 1996 $0.05 October 4, 1996 October 18, 1996
</TABLE>
<PAGE> 14
MUNICIPAL INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31*
----------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................... $9.92 $10.16 $10.83 $10.69 $10.37
----- ------ ------ ------ ------
Net investment income.......................................... 0.60 0.66 0.69 0.72 0.73
Net realized and unrealized gain (loss)........................ (0.11) 0.04 (0.62) 0.14 0.31
----- ------ ------ ------ ------
Total from investment operations............................... 0.49 0.70 0.07 0.86 1.04
----- ------ ------ ------ ------
Less dividends and distributions from:
Net investment income....................................... (0.60) (0.60) (0.65) (0.72) (0.72)
Net realized gain........................................... (0.09) (0.34) (0.09) -- --**
----- ------ ------ ------ ------
Total dividends and distributions.............................. (0.69) (0.94) (0.74) (0.72) (0.72)
----- ------ ------ ------ ------
Net asset value, end of period................................. $9.72 $ 9.92 $10.16 $10.83 $10.69
===== ====== ====== ====== ======
Market value, end of period.................................... $9.25 $ 9.00 $ 9.25 $11.25 $10.75
===== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+....................................... 10.75% 7.78% (11.73)% 11.82% 12.28%
RATIOS TO AVERAGE NET ASSETS:
Total expenses before expense offset........................... 0.64%(1) 0.65% 0.63% 0.67% 0.73%
Net investment income.......................................... 6.03% 6.70% 6.59% 6.70% 6.87%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................ $301,835 $313,768 $331,745 $359,166 $354,467
Portfolio turnover rate........................................ 33% 14% 27% 1% 11%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
** Includes a distribution of $0.0041.
+ 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 prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions.
(1) The above expense ratio was 0.63% after expense offset, which reflects
0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
MUNICIPAL INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF 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 Municipal Income Trust (the
"Trust") at August 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 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 August
31, 1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 11, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended August 31, 1996, the Fund paid to
shareholders $0.60 per share from net investment income. All
of the Fund's dividends from net investment income were exempt
interest dividends, excludable from gross income for Federal
income tax purposes. For the year ended August 31, 1996, the
Fund paid to shareholders $0.09 per share from long-term
capital gains.
<PAGE> 16
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
MUNICIPAL
INCOME
TRUST
ANNUAL REPORT
AUGUST 31, 1996
