<PAGE> 1
MUNICIPAL INCOME TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS February 28, 1997
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Municipal
Income Trust (TFA) covering the six-month period ended February 28, 1997.
Domestic economic growth moderated during the third quarter of 1996. Consumer
spending led a rebound of economic activity in the fourth quarter. Under these
conditions, fixed-income yields moved lower through November but rose between
December and February. Inflation remained under control despite full employment
and stronger growth. On March 25, 1997, the Federal Reserve Board raised the
federal-funds rate 25 basis points to 5.50 percent in a preemptive move against
a possible acceleration in the rate of inflation.
MUNICIPAL MARKET CONDITIONS
Long-term insured revenue municipal bond yields declined from 5.80 percent in
August to 5.50 percent in November 1996. At the end of February, insured
municipal yields stood at 5.55 percent, having lagged the trend of Treasuries
toward higher yields. Between August and November, the ratio of insured
municipal revenue bond yields to 30-year U.S. Treasury yields fell from 86
percent to 84 percent, and reached 82 percent by the end of February. A
declining ratio means that municipal bond prices outperformed U.S. Treasury
prices. The average annual range of this ratio over the past three years has
been 81 percent to 92 percent. New-issue municipal volume increased 14 percent
to $183 billion in 1996. Underwriting volume in 1997 is expected to exceed the
amount of issues that will either mature or be called for redemption.
PERFORMANCE
Municipal Income Trust's net asset value (NAV) increased from $9.72 to $9.86 per
share during the six-month period ended February 28, 1997. Based on this NAV
change, plus reinvestment of tax-free dividends totaling $0.29 per share and a
taxable long-term capital gain distribution of $0.002 per share, the Fund's
total NAV return was 4.70 percent. TFA's
<PAGE> 2
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1997, continued
market price on the New York Stock Exchange was $9.25 per share at the beginning
and end of the period. Reinvestment of tax-free dividends and the taxable
capital gain distribution, produced a total market return of 3.21 percent.
TFA's market price on the New York Stock Exchange stood at a six percent
discount to NAV on February 28, 1997. Undistributed net investment income
totaled $0.12 per share on February 28, 1997, versus $0.13 per share six months
earlier. Beginning with the November 1996 dividend, the monthly rate was reduced
from $0.05 to $0.0475 per share to more closely reflect the Fund's anticipated
income as older, higher yielding investments are called for redemption. Net
assets exceeded $301 million.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 15 long-term sectors and 67
credits. Portfolio sales primarily focused on market sensitive issues. Sales of
discount and current-coupon issues exceeded sales of defensive, higher-coupon
bonds with shorter calls. New purchases included securities with 15 to 25 year
maturities rather than the 20 to 30 year maturities. Bonds with shorter
durations were favored. The Fund's average maturity was 19 years.
The portfolio's distribution of older, shorter-call issues and newer issues with
longer call dates provided an average of 7 years of call protection.
<TABLE>
<CAPTION>
FIVE LARGEST SECTORS as of February 28, 1997
(% of Net Assets)
<S> <C>
General Distribution 13%
Housing 12%
Transportation 12%
IDR/PCR* 11%
Hospital 9%
All Others 43%
</TABLE>
* Industrial Development Revenue/Pollution Control Revenue
Portfolio structure is subject to change.
<TABLE>
<CAPTION>
CREDIT RATINGS as of February 29, 1997
(% of Total Long-Term Portfolio)
<S> <C>
Aaa or AAA 38%
Aa or AA 29%
A or A 23%
Baa or BBB 7%
Not Rated 3%
</TABLE>
As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp.
* Not rated at time of purchase; deemed by investment manager to be comparable
to investment-grade securities.
<PAGE> 3
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1997, continued
Bonds with shorter-than-average call protection had average book yields in
excess of 8 percent. The book yields of bonds with longer-than-average call
protection averaged less than 6 percent. The portfolio has consistently sought
to upgrade quality, with more than 67 percent of its long-term holdings rated
double "A" or better.
<TABLE>
<CAPTION>
CALL STRUCTURE AS OF FEBRUARY 28, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
<S> <C>
YEARS
BONDS PERCENT
CALLABLE CALLABLE
- -------- --------
1997 14.2%
1998 8.1%
1999 2.5%
2000 3.4%
2001 4.0%
2002 2.5%
2003 8.0%
2004 11.0%
2005 18.3%
2006 15.7%
2007-2011 4.6%
2012 7.7%
</TABLE>
LOOKING AHEAD
The collapse of flat-tax proposals caused municipal bonds to improve relative to
U.S. Treasury securities. Tax-free yields are currently rich within their
average range to Treasury yields. If municipal yields were to rise significantly
in the future, the Fund would tend to sell its more defensive bonds with short
calls in order to extend maturity and increase call protection.
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 six-month period ended February 28,
1997, TFA purchased and retired 479,000 shares of common stock at a weighted
average market discount of 7.23 percent.
<PAGE> 4
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1997, continued
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> 5
MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 27, 1996, an annual meeting of the Fund's shareholders was held for
the purpose of voting on four separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Dr. Manuel H. Johnson
For.................................. 22,197,812
Withheld............................. 498,659
John L. Schroeder
For.................................. 22,204,556
Withheld............................. 491,915
</TABLE>
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) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT ADVISORY AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For................................................................ 20,876,927
Against............................................................ 833,225
Abstain............................................................ 986,319
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................ 21,525,857
Against............................................................ 541,409
Abstain............................................................ 629,205
</TABLE>
(4) SHAREHOLDER PROPOSAL TO AMEND THE FUND'S DECLARATION OF TRUST TO REQUIRE
EACH TRUSTEE, WITHIN THIRTY DAYS OF ELECTION, TO BECOME A SHAREHOLDER OF THE
FUND:
<TABLE>
<S> <C>
For................................................................ 5,500,492
Against............................................................ 10,614,336
Abstain............................................................ 1,434,470
</TABLE>
<PAGE> 6
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (92.7%)
General Obligation (13.2%)
$ 5,000 Moulton-Niguel Water District, California, Refg Ser 1993 (MBIA)......... 5.00% 09/01/19 $ 4,518,200
2,000 Chicago, Illinois, Refg Ser 1995 B (FGIC)............................... 5.125 01/01/25 1,837,680
6,270 Washington Suburban Sanitary District, Maryland, Gen Constr Refg 1994... 5.00 06/01/10 6,162,219
10,000 Massachusetts, 1994 Ser A............................................... 5.00 01/01/11 9,660,100
New York City, New York,
4,000 1995 Ser D (MBIA)...................................................... 6.20 02/01/07 4,313,320
850 1988 Ser D............................................................. 8.50 08/01/08 879,835
5,000 New York State, Refg Ser 1995 B......................................... 5.625 08/15/09 5,137,200
7,000 Shelby County, Tennessee, Refg 1995 Ser A............................... 5.625 04/01/11 7,162,050
- -------- ------------
40,120 39,670,604
- -------- ------------
Educational Facilities Revenue (7.0%)
5,000 California Public Works Board, University of California 1993 Refg Ser
A...................................................................... 5.50 06/01/21 4,737,050
3,500 Georgetown University, District of Columbia, Ser 1989 A................. 8.25 04/01/18 3,714,445
5,000 New Jersey Economic Development Authority, Educational Testing Service
Ser 1995 B (MBIA)...................................................... 6.25 05/15/25 5,362,300
New York State Dormitory Authority,
2,000 St John's University Ser 1996 (MBIA)................................... 5.70 07/01/26 1,991,360
2,500 State University Ser 1995 A............................................ 6.50 05/15/05 2,711,300
2,500 State University Ser 1995 A............................................ 6.50 05/15/06 2,712,425
- -------- ------------
20,500 21,228,880
- -------- ------------
Electric Revenue (7.9%)
15,000 Southern California Public Power Authority, Mead-Adelanto 1994 Ser A
(AMBAC)................................................................ 5.15 07/01/15 14,182,200
1,500 North Carolina Municipal Power Agency #1, Catawba Refg Ser 1988 A....... 7.50 01/01/17 1,560,045
9,000 Intermountain Power Agency, Utah, Refg 1996 Ser D....................... 5.00 07/01/21 8,131,680
- -------- ------------
25,500 23,873,925
- -------- ------------
Hospital Revenue (8.6%)
3,000 Birmingham-Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)............. 5.875 08/15/15 3,046,770
Illinois Health Facilities Authority,
1,290 Glen Oaks Medical Center Inc Refg 1990 Ser D........................... 9.50 11/15/15 1,463,582
1,000 Mercy Center for Health Care Services Ser 1992......................... 6.65 10/01/22 1,026,540
4,000 Chatham County Hospital Authority, Georgia, Memorial Medical Center Inc
Ser 1996 A (AMBAC)..................................................... 5.25 01/01/16 3,820,080
950 Kentucky Development Finance Authority, Ashland Hospital/King's
Daughters Refg & Impr Ser 1987......................................... 9.75 08/01/11 1,009,632
1,500 Winchester, Kentucky, Clark County Hospital Refg Ser 1987............... 7.75 04/01/13 1,532,880
7,500 North Carolina Medical Care Commission, Presbyterian Health Services
Corp Refg Ser 1993..................................................... 5.50 10/01/20 7,268,475
5,000 Pennsylvania Higher Educational Facilities Authority, University of
Pennsylvania Ser A 1996................................................ 5.75 01/01/22 4,985,150
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
$ 1,750 Fayette County, West Virginia, MPC Inc Refg Ser 1990.................... 9.75% 02/01/11 $ 1,915,568
- -------- ------------
25,990 26,068,677
- -------- ------------
Industrial Development/Pollution Control Revenue (10.6%)
5,000 California Pollution Control Finance Authority, Pacific Gas & Electric
Co 1987 Ser B (AMT).................................................... 8.875 01/01/10 5,239,500
5,000 Oxnard Industrial Development Finance Authority, California, Green Foods
Corp Ser 1987 (AMT).................................................... 9.50 10/01/97 5,018,000
2,790 Lapeer Economic Development Corporation, Michigan, Dott Manufacturing Co
Ser 1989 A (AMT)....................................................... 10.65 11/15/17 2,990,406
3,250 New York City Industrial Development Agency, Japan Airlines Co 1991
(AMT) (FSA)............................................................ 6.00 11/01/15 3,326,408
3,000 New York State Energy Research & Development Authority, New York State
Electric & Gas Corp 1987 Ser A (AMT) (MBIA)............................ 6.15 07/01/26 3,054,840
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines Inc Ser 1988
(AMT).................................................................. 7.375 12/01/20 5,328,750
5,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995..................... 6.00 11/01/14 4,965,600
1,965 Matagorda County Navigation District #1, Texas, Houston Lighting & Power
Co Collateralized Ser 1989 A (AMT)..................................... 7.875 02/01/19 2,056,667
- -------- ------------
31,005 31,980,171
- -------- ------------
Mortgage Revenue - Multi-Family (6.3%)
5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A (AMBAC)........ 6.00 11/01/14 5,106,400
5,000 New York City Housing Development Corporation, New York, Ser 1987 A..... 9.625 01/01/19 5,160,650
940 Rhode Island Housing & Mortgage Finance Corporation, Rental 1989 Ser B
(AMT).................................................................. 7.95 10/01/20 987,874
30,935 Oak Ridge Industrial Development Board, Tennessee, Gardens/Southern
Hill/Woodlands Apts GNMA-Backed Refg Ser 1988.......................... 0.00 10/20/19 4,549,610
3,000 Virginia Housing Development Authority, Ser 1987 B...................... 9.45 11/01/12 3,125,730
- -------- ------------
44,875 18,930,264
- -------- ------------
Mortgage Revenue - Single Family (5.7%)
7,000 Alaska Housing Finance Corporation, 1993 1st Ser........................ 5.90 12/01/33 6,875,470
Maine Housing Authority,
4,265 Purchase 1988 Ser D-2 (AMT)............................................ 8.10 11/15/19 4,477,866
1,000 Purchase 1988 Ser D-2 (AMT)............................................ 8.10 11/15/22 1,048,860
3,145 North Dakota Housing Finance Agency, 1990 Ser B (AMT)................... 7.75 07/01/24 3,307,313
1,315 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)............... 7.85 09/01/21 1,395,149
- -------- ------------
16,725 17,104,658
- -------- ------------
Nursing & Health Related Facilities Revenue (0.3%)
Vista, California, Long-Term Care Foundation of America
1,576 Ser 1994 A COPs (a) (b)................................................ 8.50 01/01/20 788,093
189 Ser 1994 B COPs (a) (b)................................................ 0.00 01/01/20 1,890
- -------- ------------
1,765 789,983
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Public Facilities Revenue (1.3%)
$ 3,495 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)................... 6.25% 12/15/20 $ 3,801,022
- -------- ------------
Resource Recovery Revenue (3.4%)
5,000 Greater Detroit Resource Recovery Authority, Michigan, 1986 Ser A
(AMBAC)................................................................ 6.25 12/13/08 5,458,000
4,500 Charleston County, South Carolina, Foster-Wheeler Charleston Inc Ser
1987 A (AMT)........................................................... 9.25 01/01/10 4,778,145
- -------- ------------
9,500 10,236,145
- -------- ------------
Retirement & Lifecare Facilities Revenue (0.5%)
2,005 Charleston County, South Carolina, Sandpiper Village Inc Refg Ser
1988................................................................... 8.00 11/01/13 1,605,323
- -------- ------------
Transportation Facilities Revenue (12.0%)
7,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA)...................... 5.125 10/01/26 6,446,020
840 Southwestern Development Authority, Illinois, Tri-City Regional Port
District Ser 1989 A (AMT) (a).......................................... 7.90 07/01/14 916,490
4,000 Delaware River Port Authority, New Jersey & Pennsylvania+, Ser 1995
(FGIC)................................................................. 5.50 01/01/26 3,914,760
4,500 Charlotte, North Carolina, Airport Ser 1987 (AMT)....................... 8.50 07/01/17 4,642,605
2,000 Port of Portland, Oregon, Portland Int'l Airport Ser Eleven (AMT)
(FGIC)................................................................. 5.625 07/01/15 1,967,280
5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)............... 6.125 11/15/25 5,135,850
6,600 Dallas-Fort Worth International Airport, Texas, Refg Ser 1995 (FGIC).... 5.625 11/01/15 6,606,138
6,000 Virginia Transportation Board, US Route 28 Ser 1992..................... 6.50 04/01/18 6,417,540
- -------- ------------
35,940 36,046,683
- -------- ------------
Water & Sewer Revenue (9.2%)
5,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994................. 5.50 01/01/20 4,817,150
5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien Water Ser
1994................................................................... 5.45 07/01/19 4,861,200
2,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA)........................... 6.375 01/01/24 2,147,180
3,000 Massachusetts Water Resources Authority, 1993 Ser C..................... 5.25 12/01/20 2,781,090
1,000 New York City Municipal Water Finance Authority, New York, 1991 Ser A
(Secondary FGIC)....................................................... 6.75 06/15/16 1,087,840
3,000 Cleveland, Ohio, Waterworks Impr & Refg Ser H 1996 (MBIA)............... 5.75 01/01/21 3,006,930
10,000 Upper Occoquan Sewerage Authority, Virginia, Ser 1995 A (MBIA).......... 5.00 07/01/25 9,099,100
- -------- ------------
29,000 27,800,490
- -------- ------------
Other Revenue (1.7%)
2,000 Northern Palm Beach County Improvement District, Florida, Water Control
& Impr #9A Ser 1996 A.................................................. 6.80 08/01/06 2,054,560
3,000 New York Local Government Assistance Corporation, Ser 1995 A............ 6.00 04/01/24 3,054,330
- -------- ------------
5,000 5,108,890
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (5.0%)
$ 5,000 Albuquerque, New Mexico, Gross Receipts Airport Ser 1987 B (AMT)........ 8.75% 07/01/97++ $ 5,072,550
2,750 Chelan County Public Utility District #1, Washington, Ser 1987 B
(AMT).................................................................. 9.30 01/01/98++ 2,902,075
4,000 Washington, 1991 Ser B.................................................. 6.70 06/01/01++ 4,355,320
2,500 Washington Public Power Supply System, Nuclear Proj #2 Refg Ser 1990
C...................................................................... 7.625 01/01/01++ 2,828,000
- -------- ------------
14,250 15,157,945
- -------- ------------
305,670 TOTAL MUNICIPAL BONDS (Identified Cost $270,263,323)........................................... 279,403,660
- -------- ------------
SHORT-TERM MUNICIPAL OBLIGATIONS (5.7%)
400 Hapeville Development Authority, Georgia, Hapeville Hotel Ltd Ser 1985
(Demand 03/03/97)...................................................... 3.50* 11/01/15 400,000
10,445 Indiana Health Facilities Financing Authority, St Anthony Medical Center
& Home Inc Ser 1987.................................................... 9.25 10/01/97++ 10,957,014
3,000 Intermountain Power Agency, Utah, Refg Ser 1987 D....................... 8.625 07/01/97++ 3,103,500
2,600 St Charles Parish, Louisiana, Shell Oil Co Refg Ser 1995 (Demand
03/03/97).............................................................. 3.40* 10/01/25 2,600,000
- -------- ------------
16,445 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $17,060,514)........................... 17,060,514
- -------- ------------
$322,115 TOTAL INVESTMENTS (Identified Cost $287,323,837) (c)................................... 98.4%
======== 296,464,174
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................... 1.6 4,880,996
------ ------------
NET ASSETS............................................................................. 100.0% $301,345,170
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Joint exemption in New Jersey and Pennsylvania.
++ Prerefunded to call date shown.
++ Refunded to call date shown by forward delivery contract.
* Current coupon of variable rate demand obligation.
(a) Resale is restricted to qualified institutional investors.
(b) Non-income producing security; bond in default.
(c) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation is $10,779,679 and the aggregate gross unrealized depreciation is $1,639,342,
resulting in net unrealized appreciation of $9,140,337.
</TABLE>
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> 10
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 28, 1997
<TABLE>
<S> <C>
Alabama.................. 2.6%
Alaska................... 2.3
Arizona.................. 1.6
California............... 11.4
District of Columbia..... 1.2
Florida.................. 2.8
Georgia.................. 1.4
Illinois................. 3.7
Indiana.................. 3.6
Kentucky................. 0.8
Louisiana................ 0.9
Maine.................... 1.8
Maryland................. 2.1%
Massachusetts............ 4.1
Michigan................. 2.8
New Jersey............... 4.8
New Mexico............... 1.7
New York................. 11.1
North Carolina........... 4.5
North Dakota............. 1.1
Ohio..................... 1.5
Oklahoma................. 1.8
Oregon................... 0.7
Pennsylvania............. 3.0
Rhode Island............. 0.3%
South Carolina........... 2.1
Tennessee................ 3.9
Texas.................... 6.2
Utah..................... 3.7
Virginia................. 6.2
Washington............... 3.4
West Virginia............ 0.6
Joint Exemption*......... (1.3)
----
Total.................... 98.4%
====
</TABLE>
- ---------------------
* Joint exemption has been included in both geographic locations.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $287,323,837)....................................... $296,464,174
Cash.................................................................. 129,032
Receivable for:
Interest.......................................................... 4,832,574
Investments sold.................................................. 190,000
Prepaid expenses and other assets..................................... 33,540
------------
TOTAL ASSETS...................................................... 301,649,320
------------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 77,408
Shares of beneficial interest repurchased......................... 64,085
Administration fee................................................ 44,522
Accrued expenses and other payables................................... 118,135
------------
TOTAL LIABILITIES................................................. 304,150
------------
NET ASSETS:
Paid-in-capital....................................................... 288,466,877
Net unrealized appreciation........................................... 9,140,337
Accumulated undistributed net investment income....................... 3,719,761
Accumulated undistributed net realized gain........................... 18,195
------------
NET ASSETS........................................................ $301,345,170
============
NET ASSET VALUE PER SHARE,
30,574,450 shares outstanding (unlimited
shares authorized of $.01 par value)................................. $9.86
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended February 28, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $ 9,680,362
-----------
EXPENSES
Investment advisory fee................................................ 501,545
Administration fee..................................................... 288,496
Transfer agent fees and expenses....................................... 79,313
Professional fees...................................................... 31,766
Shareholder reports and notices........................................ 19,769
Custodian fees......................................................... 17,120
Registration fees...................................................... 16,205
Trustees' fees and expenses............................................ 8,031
Other.................................................................. 8,130
-----------
TOTAL EXPENSES..................................................... 970,375
LESS: EXPENSES OFFSET.............................................. (12,359)
-----------
NET EXPENSES....................................................... 958,016
-----------
NET INVESTMENT INCOME.............................................. 8,722,346
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain...................................................... 21,795
Net change in unrealized appreciation.................................. 4,162,410
-----------
NET GAIN........................................................... 4,184,205
-----------
NET INCREASE........................................................... $12,906,551
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
- ----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 8,722,346 $ 18,677,692
Net realized gain.................................... 21,795 1,152,842
Net change in unrealized appreciation................ 4,162,410 (4,984,050)
------------ ------------
NET INCREASE..................................... 12,906,551 14,846,484
------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................................ (8,957,605) (18,819,865)
Net realized gain.................................... (76,631) (2,747,118)
------------ ------------
TOTAL............................................ (9,034,236) (21,566,983)
------------ ------------
Net decrease from transactions in shares of
beneficial interest................................. (4,361,957) (5,213,006)
------------ ------------
NET DECREASE..................................... (489,642) (11,933,505)
NET ASSETS:
Beginning of period.................................. 301,834,812 313,768,317
------------ ------------
END OF PERIOD (Including undistributed net
investment income of $3,719,761 and $3,955,020,
respectively).................................... $301,345,170 $301,834,812
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited)
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> 15
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) 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 weekly net assets: 0.35% to the portion of the Fund's weekly
net assets not exceeding $250 million and 0.25% to the portion of the Fund's
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 weekly
net assets: 0.20% to the portion of the Fund's weekly net assets not exceeding
$250 million; 0.15% to the portion of the Fund's weekly net assets exceeding
$250 million but not exceeding $500 million; 0.12% to the portion of the Fund's
weekly net assets exceeding $500 million but not exceeding $750 million; and
0.10% to the portion of the Fund's 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> 16
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) 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 six months ended February 28, 1997 aggregated
$11,227,440 and $11,728,723, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At February 28, 1997, the Fund had
transfer agent fees and expenses payable of approximately $31,000.
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 at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended February 28, 1997,
included in Trustee's fees and expenses in the Statement of Operations amounted
to $422. At February 28, 1997, the Fund had an accrued pension liability of
$47,889 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, 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
Treasury shares purchased and retired (weighted average discount 7.23%)*........ (479,000) (4,790) (4,357,166)
---------- -------- ------------
Balance, February 28, 1997...................................................... 30,574,450 $305,745 $288,161,132
========== ======== ============
</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>
February 25, 1997 $0.0475 March 7, 1997 March 21, 1997
March 25, 1997 $0.0475 April 4, 1997 April 18, 1997
</TABLE>
<PAGE> 17
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 SIX FOR THE YEAR ENDED AUGUST 31*
MONTHS ENDED -----------------------------------------
FEBRUARY 28, 1997* 1996++ 1995
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................... $ 9.72 $ 9.92 $10.16
------ ------ ------
Net investment income.................................... 0.28 0.60 0.66
Net realized and unrealized gain (loss).................. 0.14 (0.12) 0.04
------ ------ ------
Total from investment operations......................... 0.42 0.48 0.70
------ ------ ------
Less dividends and distributions from:
Net investment income................................. (0.29) (0.60) (0.60)
Net realized gain..................................... --*** (0.09) (0.34)
------ ------ ------
Total dividends and distributions........................ (0.29) (0.69) (0.94)
------ ------ ------
Anti-dilutive effect of acquiring treasury shares........ 0.01 0.01 --
------ ------ ------
Net asset value, end of period........................... $ 9.86 $ 9.72 $ 9.92
====== ====== ======
Market value, end of period.............................. $ 9.25 $ 9.25 $ 9.00
====== ====== ======
TOTAL INVESTMENT RETURN+................................. 3.21%(1) 10.75% 7.78%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................. 0.64%(2)(3) 0.64%(3) 0.65%
Net investment income.................................... 5.79%(2) 6.03% 6.70%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.................. $301,345 $301,835 $313,768
Portfolio turnover rate.................................. 7%(1) 33% 14%
<CAPTION>
FOR THE YEAR ENDED AUGUST 31*
----------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................... $10.83 $10.69 $10.37
------ ------ ------
Net investment income.................................... 0.69 0.72 0.73
Net realized and unrealized gain (loss).................. (0.62) 0.14 0.31
------ ------ ------
Total from investment operations......................... 0.07 0.86 1.04
------ ------ ------
Less dividends and distributions from:
Net investment income................................. (0.65) (0.72) (0.72)
Net realized gain..................................... (0.09) -- ** --
------ ------ ------
Total dividends and distributions........................ (0.74) (0.72) (0.72)
------ ------ ------
Anti-dilutive effect of acquiring treasury shares........ -- -- --
------ ------ ------
Net asset value, end of period........................... $10.16 $10.83 $10.69
====== ====== ======
Market value, end of period.............................. $ 9.25 $11.25 $10.75
====== ====== ======
TOTAL INVESTMENT RETURN+................................. (11.73)% 11.82% 12.28%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................. 0.63% 0.67% 0.73%
Net investment income.................................... 6.59% 6.70% 6.87%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.................. $331,745 $359,166 $354,467
Portfolio turnover rate.................................. 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.
*** Includes a distribution of $0.0024.
+ 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.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offsets of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 18
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<PAGE> 19
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<PAGE> 20
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
MUNICIPAL
Barry Fink INCOME
Vice President, Secretary and General Counsel TRUST
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -------------------------------------------------
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- -------------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been
taken from the records of the Fund without Semiannual Report
examination by the independent accountants and February 28, 1997
accordingly they do not express an opinion thereon.
