<PAGE> 1
MUNICIPAL INCOME TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS February 28, 1998
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Municipal
Income Trust (TFA) for the period ended February 28, 1998.
Over the past six months the securities markets were impacted by the Asian
financial crisis and its effect on the U.S. economy. International currency
turmoil strengthened the value of the U.S. dollar and created a "flight to
quality" demand for U.S. Treasury securities. Municipal bonds followed the trend
of Treasuries with yields declining to a range last seen 20 years ago. Domestic
employment conditions strengthened as unemployment declined to its lowest level
since 1973. The bond market rally was also aided by prospects of a federal
budget surplus, the first in more than two decades. Inflation remained subdued
despite the economy's strength.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal index yields declined from 5.50 percent in August
1997 to 5.20 percent at the end of February 1998. As usually
BOND YIELDS 1994-1998
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S.
Municipal Yields Treasury Yields
---------------- ---------------
<S> <C> <C>
Dec '93 5.4% 6.34%
5.4 6.24
5.8 6.66
6.4 7.09
6.35 7.32
6.25 7.43
Jun '94 6.5 7.61
6.25 7.39
6.3 7.45
6.55 7.81
6.75 7.96
7 8
Dec '94 6.75 7.88
6.4 7.7
6.15 7.44
6.15 7.43
6.2 7.34
5.8 6.66
Jun '95 6.1 6.62
6.1 6.86
6 6.66
5.95 6.48
5.75 6.33
5.5 6.14
Dec '95 5.35 5.94
5.4 6.03
5.8 6.46
5.85 6.66
5.95 6.89
6.05 6.99
Jun '96 5.9 6.89
5.85 6.97
5.9 7.11
5.7 6.93
5.65 6.64
5.5 6.35
Dec '96 5.6 6.63
5.7 6.79
5.65 6.8
5.9 7.1
5.75 6.94
5.65 6.91
Jun '97 5.6 6.78
5.3 6.3
5.5 6.61
5.4 6.4
5.35 6.15
5.3 6.05
Dec '97 5.15 5.92
Jan '98 5.15 5.8
Feb. '98 5.2 5.92
</TABLE>
<TABLE>
<CAPTION>
Insured Municipal
Revenue Yields as
a Percentage of
U.S. Treasury Yields
--------------------
<S> <C>
Dec '93 85.17%
86.54
87.09
90.27
86.75
84.12
Jun '94 85.41
84.57
84.56
83.87
84.80
87.50
Dec '94 85.66
83.12
82.66
82.77
84.47
87.09
Jun '95 92.15
88.92
90.08
91.82
90.84
89.56
Dec '95 90.07
89.55
86.69
87.84
86.36
86.55
Jun '96 85.63
83.93
82.98
82.25
85.09
86.61
Dec '96 84.46
83.95
83.08
83.10
82.85
81.77
Jun '97 82.60
84.00
83.00
84.40
86.90
87.60
Dec '97 86.90
Jan '98 88.80
Feb '98 87.80
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
happens when yields change rapidly, the municipal rally lagged the rally in
Treasuries. The ratio of municipal yields to Treasury yields improved from an
historically rich 83 percent in August to a more attractive 88 percent in
February. A rising yield ratio means that municipals have underperformed
Treasuries and have become relatively more attractive.
Total municipal volume increased 20 percent to $220 billion in 1997. Half of the
underwritings were enhanced by bond insurance. Much of this growth came from
refunding issues sold in the second half of the year as interest rates declined.
Overall, refundings represented one quarter of total new volume. So far in 1998,
the pace of refunding activity has increased and total volume has exceeded last
year's level.
PERFORMANCE
The Fund's net asset value (NAV) increased from $9.99 per share to $10.13 over
the past six months. Based on this NAV change plus reinvestment of tax-free
dividends and capital gain distributions totaling $0.36 per share, the Fund's
total NAV return was 5.44 percent. The Fund's market price on the New York Stock
Exchange increased slightly from $9.50 to $9.5625 per share. Based on this
market price change and reinvestment of dividends and capital gains, the Fund's
total market return was 4.57 percent. On February 28, 1998, the TFA's market
price was trading at a modest discount of 5.60 percent to its NAV.
Monthly dividends for the first quarter of 1998 were declared in December.
Undistributed net investment income totaled $0.095 per share on February 28,
1998 versus $0.115 per share six months earlier.
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,
1998, the Fund purchased and retired 267,600 shares of common stock at a
weighted average market discount of 6.20 percent.
PORTFOLIO STRUCTURE
Since last August, the Fund has extended maturity and improved call protection.
At the end of February the portfolio's average maturity was 22 years. The
distribution of bond call dates (illustrated in the accompanying chart) produced
average call protection of 9 years. The Fund's net assets of $303 million were
diversified among 13 long-term sectors and 63 credits. Credit quality continued
to be upgraded with 83 percent of long-term holdings rated triple or double "A."
<PAGE> 3
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
LARGEST SECTORS as of February 28, 1998
(% of Net Assets)
<TABLE>
<S> <C>
Mortgage 16%
Water & Sewer 14
Transportation 13
General Obligation 11
Hospital 11
Electric 9
Education 8
IDR/PCR* 6
All Others 12
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT RATINGS as of February 28, 1998
(% of Total Long-Term Portfolio)
<TABLE>
<S> <C>
Aaa or AAA 57%
Aa or AA 26
A or A 8
Baa or BBB 6
N/R 3
</TABLE>
As rated by Moody's Investor Service, Inc.
or Standard & Poor's Corp.
Portfolio structure is subject to change.
CALL STRUCTURE as of February 28, 1998
(% of Total Long-Term Portfolio)
<TABLE>
<CAPTION>
Years Bonds Callable Percent Callable
<S> <C>
1998 2%
1999 2
2000 3
2001 1
2002 3
2003 6
2004 9
2005 18
2006 15
2007 22
2008+ 19
</TABLE>
WEIGHTED AVERAGE CALL PROTECTION: 9 YEARS
Portfolio structure is subject to change.
<PAGE> 4
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
LOOKING AHEAD
The economic fundamentals are in place for another year of solid, albeit less
spectacular, domestic growth in 1998. Events in the Far East have strengthened
the U.S. dollar and led to lower interest rates. The Asian financial crisis
seems likely to moderate U.S. economic growth and inflationary pressures. Under
these conditions the outlook for municipal bonds remains favorable.
We appreciate your continued support of Municipal Income Trust and look forward
to serving 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 18, 1997, an annual meeting of the Fund's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Edwin J. Garn
For......................................................... 22,793,588
Withheld.................................................... 726,425
John R. Haire
For......................................................... 22,768,020
Withheld.................................................... 751,993
Michael E. Nugent
For......................................................... 22,801,905
Withheld.................................................... 718,108
Philip J. Purcell
For......................................................... 22,815,638
Withheld.................................................... 704,375
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H. Johnson
and John L. Schroeder.
(2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 22,280,187
Against..................................................... 341,307
Abstain..................................................... 898,519
</TABLE>
(3) SHAREHOLDER PROPOSAL TO AMEND THE FUND'S DECLARATION OF TRUST TO REQUIRE
EACH TRUSTEE, WITHIN 30 DAYS OF ELECTION, TO BECOME A SHAREHOLDER OF THE
FUND:
<TABLE>
<S> <C>
For......................................................... 5,045,786
Against..................................................... 11,225,787
Abstain..................................................... 1,441,162
</TABLE>
<PAGE> 6
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.0%)
General Obligation (11.3%)
$ 5,000 Moulton-Niguel Water District, California, Refg 1993
(MBIA)..................................................... 5.00% 09/01/19 $ 4,890,400
2,000 Chicago, Illinois, Refg Ser 1995 B (FGIC)................... 5.125 01/01/25 1,961,260
5,000 Washington Suburban Sanitary District, Maryland, Gen Constr
Refg 1994.................................................. 5.00 06/01/10 5,108,250
5,000 Massachusetts, 1994 Ser A**................................. 5.00 01/01/11 5,057,900
4,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 4,498,400
5,000 New York State, Refg Ser 1995 B............................. 5.625 08/15/09 5,366,150
7,000 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/11 7,445,970
- -------- -----------
33,000 34,328,330
- -------- -----------
Educational Facilities (7.7%)
5,000 California Public Works Board, University of California 1993
Refg Ser A................................................. 5.50 06/01/21 5,098,400
2,000 Massachusetts Health & Educational Facilities Authority,
Massachusetts Institute of Technology 1998 Ser I........... 5.20 01/01/28 2,077,400
5,000 New Jersey Economic Development Authority, Educational
Testing Service Ser 1995 B (MBIA).......................... 6.25 05/15/25 5,544,000
New York State Dormitory Authority,
2,500 State University Ser 1995 A................................ 6.50 05/15/05 2,816,475
2,500 State University Ser 1995 A................................ 6.50 05/15/06 2,843,750
5,000 State University Ser 1997.................................. 5.125 05/15/27 4,884,850
- -------- -----------
22,000 23,264,875
- -------- -----------
Electric Revenue (9.1%)
15,000 Southern California Public Power Authority, Mead-Adelanto
1994 Ser A (AMBAC)......................................... 5.15 07/01/15 15,415,800
10,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
FSA)**..................................................... 5.00 07/01/21 9,717,600
2,500 Washington Public Power Supply System, Project #1 Refg Ser
1998 A..................................................... 5.125 07/01/17 2,453,200
- -------- -----------
27,500 27,586,600
- -------- -----------
Hospital Revenue (10.7%)
3,000 Birmingham-Carraway Special Care Facilities Financing
Authority, Alabama, Carraway Methodist Health Ser 1995 A
(Connie Lee)............................................... 5.875 08/15/15 3,197,160
3,000 Chatham County Hospital Authority, Georgia, Memorial Medical
Center Inc Ser 1996 A (AMBAC).............................. 5.25 01/01/16 3,026,970
1,000 Illinois Health Facilities Authority, Mercy Center for
Health Care Services Ser 1992.............................. 6.65 10/01/22 1,074,750
950 Kentucky Development Finance Authority, Ashland
Hospital/King's Daughters Refg & Impr Ser 1987............. 9.75 08/01/11 990,365
4,000 Michigan Hospital Finance Authority, Detroit Medical Center
Ser 1997 A (AMBAC)......................................... 5.25 08/15/27 3,988,000
7,500 North Carolina Medical Care Commission, Presbyterian Health
Services Corp Refg Ser 1993................................ 5.50 10/01/20 7,672,350
2,500 Delaware County Authority, Pennsylvania, Catholic Health
East Ser 1998 A (AMBAC).................................... 4.875 11/15/26 2,368,650
5,000 Pennsylvania Higher Educational Facilities Authority,
University of Pennsylvania Ser A 1996**.................... 5.75 01/01/22 5,251,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Washington Health Care Facilities Authority, Virginia Mason
Medical Center Refg Ser 1997 A (MBIA)...................... 5.125% 08/15/17 $ 2,961,750
1,650 Fayette County, West Virginia, MPC Inc Refg Ser 1990........ 9.75 02/01/11 1,792,890
- -------- -----------
31,600 32,324,085
- -------- -----------
Industrial Development/Pollution Control Revenue (6.4%)
2,750 Lapeer Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 A (AMT).......................... 10.65 11/15/17 2,062,500
3,150 New York City Industrial Development Agency, Japan Airlines
Co 1991 (AMT) (FSA)........................................ 6.00 11/01/15 3,388,801
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 3,257,220
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,449,100
5,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 5,281,250
- -------- -----------
18,900 19,438,871
- -------- -----------
Mortgage Revenue - Multi-Family (3.7%)
5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A
(AMBAC).................................................... 6.00 11/01/14 5,311,050
940 Rhode Island Housing & Mortgage Finance Corporation, Rental
1989 Ser B (AMT)........................................... 7.95 10/01/20 992,311
30,935 Oak Ridge Industrial Development Board, Tennessee,
Gardens/Southern Hill/ Woodlands Apts GNMA-Backed Refg Ser
1988....................................................... 0.00 10/20/19 4,941,557
- -------- -----------
36,875 11,244,918
- -------- -----------
Mortgage Revenue - Single Family (12.5%)
10,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 10,474,500
2,250 Colorado Housing Finance Authority, 1997 Ser B-2 (AMT)...... 7.00 05/01/26 2,500,335
10,000 Hawaii Housing Finance & Development Corporation,
FNMA-Collateralized 1997 Ser A (AMT)....................... 5.75 07/01/30 10,233,500
2,500 Chicago, Illinois, GNMA-Backed Ser 1997-A (AMT)............. 7.25 09/01/28 2,820,400
Maine Housing Authority,
4,265 Purchase 1988 Ser D-2 (AMT)................................ 8.10 11/15/19 4,434,193
1,000 Purchase 1988 Ser D-2 (AMT)................................ 8.10 11/15/22 1,039,080
1,935 Missouri Housing Development Commission, GNMA-Backed 1997
Ser A-2 (AMT).............................................. 7.30 03/01/28 2,185,118
2,835 North Dakota Housing Finance Agency, 1990 Ser B (AMT)....... 7.75 07/01/24 3,022,082
1,145 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)... 7.85 09/01/21 1,215,635
- -------- -----------
35,930 37,924,843
- -------- -----------
Public Facilities Revenue (1.3%)
3,495 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)....... 6.25 12/15/20 4,005,445
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Resource Recovery Revenue (1.9%)
$ 5,000 Greater Detroit Resource Recovery Authority, Michigan, 1986
- -------- Ser A (AMBAC).............................................. 6.25% 12/13/08 $ 5,736,650
-----------
Retirement & Lifecare Facilities Revenue (0.6%)
1,970 Charleston County, South Carolina, Sandpiper Village Inc
- -------- Refg Ser 1988.............................................. 8.00 11/01/13 1,813,484
-----------
Transportation Facilities Revenue (13.0%)
15,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 6,583,650
5,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA).......... 5.125 10/01/26 4,936,900
815 Southwestern Development Authority, Illinois, Tri-City
Regional Port District Ser 1989 A (AMT) (a)................ 7.90 07/01/14 872,376
7,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997
Ser A (MBIA)............................................... 5.00 01/01/37 6,744,360
3,000 Delaware River Port Authority, New Jersey & Pennsylvania,
Ser 1995 (FGIC)+........................................... 5.50 01/01/26 3,096,450
5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 5,434,400
5,000 Dallas-Fort Worth International Airport, Texas, Refg Ser
1995 (FGIC)................................................ 5.625 11/01/15 5,229,250
6,000 Virginia Transportation Board, US Route 28 Ser 1992......... 6.50 04/01/18 6,567,480
- -------- -----------
46,815 39,464,866
- -------- -----------
Water & Sewer Revenue (13.6%)
5,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994..... 5.50 01/01/20 5,111,400
10,000 Jefferson County, Alabama, Sewer Ser 1997 (FGIC)............ 5.75 02/01/22 10,591,300
5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Water Ser 1994............................................. 5.45 07/01/19 5,107,150
2,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA)............... 6.375 01/01/24 2,228,440
3,000 Massachusetts Water Resources Authority, 1993 Ser C......... 5.25 12/01/20 2,980,050
570 New York City Municipal Water Finance Authority, New York,
1991 Ser A (Secondary FGIC)................................ 6.75 06/15/16 617,447
3,000 Cleveland, Ohio, Waterworks Impr & Refg Ser H 1996 (MBIA)... 5.75 01/01/21 3,182,610
8,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
(FGIC) (WI)................................................ 0.00 09/01/26 1,815,520
10,000 Upper Occoquan Sewerage Authority, Virginia, Ser 1995 A
(MBIA)..................................................... 5.00 07/01/25 9,709,200
- -------- -----------
46,570 41,343,117
- -------- -----------
Other Revenue (3.1%)
4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1997 Ser B (a)............................................. 5.75 09/01/27 4,087,840
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr #9A Ser 1996 A........................ 6.80 08/01/06 2,139,840
3,000 New York Local Government Assistance Corporation, Ser 1995
A.......................................................... 6.00 04/01/24 3,249,450
- -------- -----------
9,000 9,477,130
- -------- -----------
Refunded (2.1%)
5,000 Southern California Public Power Authority, Palo Verde Ser A
(AMBAC) (ETM).............................................. 5.00 07/01/15 4,942,000
1,260 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,468,643
- -------- -----------
6,260 6,410,643
- -------- -----------
324,915 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $277,312,645)................. 294,363,857
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.4%)
$ 2,400 Louisiana Public Facilities Authority, Kenner Hotel Ser 1985
(Demand 03/02/98).......................................... 3.65*% 12/01/15 $ 2,400,000
1,700 Salt Lake County, Utah, Service Station Holdings British
- -------- Petroleum Co Ser 1994 B (Demand 03/02/98).................. 3.65* 08/01/07 1,700,000
------------
4,100 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- -------- (Identified Cost $4,100,000)................................................... 4,100,000
------------
$329,015 TOTAL INVESTMENTS (Identified Cost $281,412,645) (c)................... 98.4% 298,463,857
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 1.6 4,940,187
----- ------------
NET ASSETS.............................................................. 100.0% $303,404,044
===== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
WI Security purchased on a "when issued" basis.
+ Joint exemption in New Jersey and Pennsylvania.
* Current coupon of variable rate demand obligation.
** Some or all of these securities are segregated in connection
with the purchase of "when issued" securities.
(a) Resale is restricted to qualified institutional investors.
(b) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $17,972,038 and the aggregate gross
unrealized depreciation is $920,826, resulting in net
unrealized appreciation of $17,051,212.
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, 1998 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 28, 1998
<TABLE>
<S> <C>
Alabama... 6.2%
Alaska... 3.5
Arizona... 1.7
California... 10.0
Colorado... 3.0
Connecticut... 1.3
Florida... 2.3
Georgia... 1.0
Hawaii... 3.4
Illinois... 4.8
Kentucky... 0.3
Louisiana... 0.8
Maine... 1.8%
Maryland... 1.7
Massachusetts... 5.6
Michigan... 3.9
Missouri... 0.7
New Jersey... 4.6
New York... 10.2
North Carolina... 2.5
North Dakota... 1.0
Ohio... 1.4
Oklahoma... 1.8
Pennsylvania... 4.1
South Carolina... 0.6%
Rhode Island... 0.3
Tennessee... 4.1
Texas... 5.3
Utah... 3.8
Virginia... 6.3
Washington... 0.8
West Virginia... 0.6
Joint Exemption*... (1.0)
----
Total... 98.4%
====
</TABLE>
- ---------------------
* Joint exemption has been included in each geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $281,412,645)............................. $298,463,857
Cash........................................................ 89
Receivable for:
Interest................................................ 3,978,868
Investments sold........................................ 3,021,903
Prepaid expenses and other assets........................... 15,710
------------
TOTAL ASSETS............................................ 305,480,427
------------
LIABILITIES:
Payable for:
Investments purchased................................... 1,826,880
Shares of beneficial interest repurchased............... 38,370
Investment advisory fee................................. 80,567
Administration fee...................................... 46,348
Accrued expenses and other payables......................... 84,218
------------
TOTAL LIABILITIES....................................... 2,076,383
------------
NET ASSETS.............................................. $303,404,044
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $282,586,046
Net unrealized appreciation................................. 17,051,212
Accumulated undistributed net investment income............. 2,850,307
Accumulated undistributed net realized gain................. 916,479
------------
NET ASSETS.............................................. $303,404,044
============
NET ASSET VALUE PER SHARE,
29,946,650 shares outstanding
(unlimited shares authorized of $.01 par value)............ $10.13
============
</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, 1998 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 8,504,651
-----------
EXPENSES
Investment advisory fee..................................... 500,930
Administration fee.......................................... 288,127
Transfer agent fees and expenses............................ 53,384
Professional fees........................................... 31,580
Shareholder reports and notices............................. 21,366
Registration fees........................................... 16,052
Trustees' fees and expenses................................. 8,121
Custodian fees.............................................. 6,854
Other....................................................... 7,732
-----------
TOTAL EXPENSES.......................................... 934,146
Less: expense offset........................................ (6,292)
-----------
NET EXPENSES............................................ 927,854
-----------
NET INVESTMENT INCOME................................... 7,576,797
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 1,164,621
Net change in unrealized appreciation....................... 6,509,435
-----------
NET GAIN................................................ 7,674,056
-----------
NET INCREASE................................................ $15,250,853
===========
</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, 1998 AUGUST 31, 1997
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 7,576,797 $ 17,132,652
Net realized gain.................................. 1,164,621 2,589,265
Net change in unrealized appreciation.............. 6,509,435 5,563,849
------------ ------------
NET INCREASE................................... 15,250,853 25,285,766
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income.............................. (8,199,256) (17,614,906)
Net realized gain.................................. (2,833,807) (76,631)
------------ ------------
TOTAL.......................................... (11,033,063) (17,691,537)
------------ ------------
Net decrease from transactions in shares of
beneficial interest............................... (2,521,984) (7,720,803)
------------ ------------
NET INCREASE (DECREASE)........................ 1,695,806 (126,574)
NET ASSETS:
Beginning of period................................ 301,708,238 301,834,812
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,850,307 and $3,472,766, respectively).... $303,404,044 $301,708,238
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (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 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
<PAGE> 15
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
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.
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, 1998 aggregated
$27,988,550 and $37,277,591, respectively.
<PAGE> 16
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
Dean Witter Trust FSB, an affiliate of the Investment Adviser and Administrator,
is the Fund's transfer agent. At February 28, 1998, the Fund had transfer agent
fees and expenses payable of approximately $4,000.
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, 1998,
included in Trustee's fees and expenses in the Statement of Operations amounted
to $1,798. At February 28, 1998, the Fund had an accrued pension liability of
$48,175 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, 1996.................................... 31,053,450 $310,535 $292,518,298
Treasury shares purchased and retired (weighted average
discount 6.41%)*........................................... (839,200) (8,392) (7,712,411)
---------- -------- ------------
Balance, August 31, 1997.................................... 30,214,250 302,143 284,805,887
Treasury shares purchased and retired (weighted average
discount 6.20%)*........................................... (267,600) (2,676) (2,519,308)
---------- -------- ------------
Balance, February 28, 1998.................................. 29,946,650 $299,467 $282,286,579
========== ======== ============
</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>
December 30, 1997 $0.045 March 6, 1998 March 20, 1998
March 24, 1998 $0.045 April 3, 1998 April 17, 1998
March 24, 1998 $0.045 May 8, 1998 May 22, 1998
March 24, 1998 $0.045 June 5, 1998 June 19, 1998
</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, 1998* 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $ 9.99 $ 9.72 $ 9.92 $ 10.16 $ 10.83 $ 10.69
------ -------- -------- -------- -------- --------
Net investment income................................. 0.25 0.57 0.60 0.66 0.69 0.72
Net realized and unrealized gain (loss)............... 0.24 0.26 (0.12) 0.04 (0.62) 0.14
------ -------- -------- -------- -------- --------
Total from investment operations...................... 0.49 0.83 0.48 0.70 0.07 0.86
------ -------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income.............................. (0.27) (0.58) (0.60) (0.60) (0.65) (0.72)
Net realized gain.................................. (0.09) --** (0.09) (0.34) (0.09) --
------ -------- -------- -------- -------- --------
Total dividends and distributions..................... (0.36) (0.58) (0.69) (0.94) (0.74) (0.72)
------ -------- -------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares..... 0.01 0.02 0.01 -- -- --
------ -------- -------- -------- -------- --------
Net asset value, end of period........................ $10.13 $ 9.99 $ 9.72 $ 9.92 $ 10.16 $ 10.83
====== ======== ======== ======== ======== ========
Market value, end of period........................... $ 9.56 $ 9.50 $ 9.25 $ 9.00 $ 9.25 $ 11.25
====== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+.............................. 4.57%(1) 9.23% 10.75% 7.78% (11.73)% 11.82%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................. 0.62%(2)(3) 0.63% 0.64%(3) 0.65% 0.63% 0.67%
Net investment income................................. 5.03%(2) 5.68% 6.03% 6.70% 6.59% 6.70%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............... $303,404 $301,708 $301,835 $313,768 $331,745 $359,166
Portfolio turnover rate............................... 9%(1) 22% 33% 14% 27% 1%
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* The per share amounts were computed using an average number
of shares outstanding during the period.
** Does not reflect 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.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
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 ADVISER
- ----------------------------
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 examination by the independent accountants and accordingly they
do not express an opinion thereon.
MUNICIPAL
INCOME
TRUST
Semiannual Report
February 28, 1998
