<PAGE> 1
MUNICIPAL INCOME TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS August 31, 1998
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Municipal
Income Trust (TFA) for the fiscal year ended August 31, 1998.
During July and August, the financial markets were battered by continued
economic turmoil in Asia and a currency crisis in Russia. This led to a
flight-to-quality rally for U.S. Treasury bonds. Yields on Treasury notes and
bonds fell to post World War II lows. Municipal bond yields followed the
downward trend of Treasury yields but at a more moderate pace.
The deflationary impact of the Asian financial crisis had already begun to
temper U.S. economic growth prior to the summer's tumultuous market activity.
Historically high employment conditions were offset by improved productivity,
lower prices for oil and other commodities and cheaper imports. This held
inflation in check. On September 29, 1998, the Federal Reserve lowered the
federal funds rate 25 basis points from 5.50% to 5.25%.
BOND YIELDS 1994 - 1998
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.4% 6.34% 85.17%
5.4 6.24 86.54
5.8 6.66 87.09
6.4 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.5 7.61 85.41
6.25 7.39 84.57
6.3 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.2 7.34 84.47
5.8 6.66 87.09
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.9 6.89 85.63
5.85 6.97 83.93
5.9 7.11 82.98
5.7 6.93 82.25
5.65 6.64 85.09
5.5 6.35 86.61
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
5.03 5.27 90.72
5.03 5.27 95.45
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 1998, continued
MUNICIPAL MARKET CONDITIONS
At the end of August, long-term insured index yields stood at 5.05 percent,
their lowest level in the last 25 years. Index yields declined 45 basis points
from 5.50 percent over the last 12 months. In contrast, the 30-year U.S.
Treasury yield fell 130 basis points during the same period.
As municipals lagged the rally in Treasuries, the ratio of municipal yields to
Treasury yields rose to 95 percent. This ratio is at its highest level since
1986 when radical tax-reform proposals pushed it over 100 percent. A rising
ratio means that municipals have underperformed Treasuries and have become more
attractive on a relative basis.
The overall decline in interest rates led to a substantial increase in new issue
municipal volume. Municipal issuance is on a pace to challenge 1993's record of
$292 billion. For 1998 year-to-date, total municipal volume of $192 billion is
up 45 percent. Half the underwritings were enhanced with bond insurance.
Refundings represented nearly one-third of total new issues.
PERFORMANCE
The Fund's net asset value (NAV) increased from $9.99 to $10.21 per share during
the fiscal year. Based on this NAV change plus reinvestment of tax-free
dividends of $0.5425 per share, a long-term capital gains distribution of $0.084
per share and a short-term capital gains distribution of $0.010, the Fund's
total NAV return was 9.33 percent. TFA's price on the New York Stock Exchange
moved from $9.50 to $9.4375 per share. Based on this change in market price plus
reinvestment of dividends and distributions, the Fund's total market return was
6.16 percent. At fiscal year end, TFA traded at a 7.6 percent discount (lower
than) to its NAV.
Monthly dividends for the fourth quarter of 1998 were declared in September.
Beginning with the October 1998 dividend, the monthly dividend was reduced from
$0.045 per share to $0.0375 per share, to more closely reflect the Fund's
current and anticipated income. The level of undistributed net investment income
declined from $0.115 to $0.069 per share over the past 12 months.
PORTFOLIO STRUCTURE
During the past 12 months, portfolio duration (a measure of sensitivity to
interest rate changes), was maintained at 8.2 years. This was primarily
accomplished by selling older bonds as they were refunded to purchase new
issues. At the end of August refunded bonds represented only 2 percent of net
assets.
2
<PAGE> 3
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 1998, continued
<TABLE>
<CAPTION>
LARGEST SECTORS as of August 31, 1998
(% of Net Assets)
<S> <C>
Mortgage 15%
Transportation 15%
Water & Sewer 14%
General Obligation 11%
Electric 10%
Hospital 10%
Education 8%
IDR/PCR* 6%
All Others 11%
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change
</TABLE>
<TABLE>
<CAPTION>
CREDIT RATINGS as of August 31, 1998
(% of Total Long-Term Portfolio)
<S> <C>
Aaa or AAA 56%
Aa or AA 26%
A or A 8%
Baa or BBB 7%
N/R 3%
As measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp.
Portfolio structure is subject to change
</TABLE>
<TABLE>
<CAPTION>
CALL STRUCTURE as of August 31, 1998
(% of Total Long-Term Portfolio)
Percent Callable
WEIGHTED AVERAGE
CALL PROTECTION: 9 YEARS
Years Bonds Callable Percent Callable
<S> <C>
1998 0%
1999 2%
2000 3%
2001 1%
2002 3%
2003 6%
2004 9%
2005 17%
2006 13%
2007 22%
2008 10%
2009+ 14%
Year Bonds Callable
Portfolio structure is subject to change.
</TABLE>
3
<PAGE> 4
MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 1998, continued
Investments were diversified among 14 long-term sectors and 62 credits.
Throughout the period, high credit quality was maintained with over 80 percent
of its long-term holdings rated double or triple "A". The average maturity of
the portfolio was 21 years. As illustrated in the accompanying chart of annual
bond calls, the weighted average call protection was 9 years.
LOOKING AHEAD
Events in Asia and elsewhere have strengthened the U.S. dollar and contributed
to lower interest rates. World economic conditions seem likely to keep
inflationary pressures under control. With the municipal relationship to
Treasuries as strong as it has been in the last 10 years, the outlook for
municipal bonds is favorable.
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 price of the Fund's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Fund may,
when appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market price or net asset value, whichever is
lower at the time of purchase. During the fiscal year, the Fund purchased and
retired 474,700 shares of common stock at a weighted average market discount of
5.97 percent.
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
4
<PAGE> 5
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (98.0%)
General Obligation (10.8%)
$ 5,000 Moulton-Niguel Water District, California, Refg 1993
(MBIA)..................................................... 5.00% 09/01/19 $ 4,974,250
5,000 Washington Suburban Sanitary District, Maryland, Gen Constr
Refg 1994.................................................. 5.00 06/01/10 5,159,700
5,000 Massachusetts, 1994 Ser A................................... 5.00 01/01/11 5,135,500
4,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 4,514,320
5,000 New York State, Refg Ser 1995 B............................. 5.625 08/15/09 5,397,300
7,000 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/11 7,512,890
- -------- ------------
31,000 32,693,960
- -------- ------------
Educational Facilities Revenue (7.8%)
5,000 California Public Works Board, University of California 1993
Refg Ser A................................................. 5.50 06/01/21 5,161,550
2,000 Massachusetts Health & Educational Facilities Authority,
Massachusetts Institute of Technology 1998 Ser I........... 5.20 01/01/28 2,115,280
5,000 New Jersey Economic Development Authority, Educational
Testing Service Ser 1995 B (MBIA).......................... 6.25 05/15/25 5,603,300
New York State Dormitory Authority,
2,500 State University Ser 1995 A................................. 6.50 05/15/05 2,829,700
2,500 State University Ser 1995 A................................. 6.50 05/15/06 2,853,775
5,000 State University Ser 1997................................... 5.125 05/15/27 4,958,750
- -------- ------------
22,000 23,522,355
- -------- ------------
Electric Revenue (9.9%)
15,000 Southern California Public Power Authority, Mead-Adelanto
1994 Ser A (AMBAC)......................................... 5.15 07/01/15 15,742,200
Intermountain Power Agency, Utah,
2,000 Refg 1998 Ser A (MBIA) (WI)................................. 5.25 07/01/15 2,061,560
10,000 Refg 1996 Ser D (Secondary FSA)**........................... 5.00 07/01/21 9,865,300
2,500 Washington Public Power Supply System, Project #1 Refg Ser
1998 A..................................................... 5.125 07/01/17 2,498,325
- -------- ------------
29,500 30,167,385
- -------- ------------
Hospital Revenue (10.1%)
3,000 Birmingham-Carraway Special Care Facilities Financing
Authority, Alabama, Carraway Methodist Health Systems Ser
1995 A (Connie Lee)........................................ 5.875 08/15/15 3,207,660
3,000 Chatham County Hospital Authority, Georgia, Memorial Medical
Center Inc Ser 1996 A (AMBAC).............................. 5.25 01/01/16 3,074,340
4,000 Michigan Hospital Finance Authority, Detroit Medical Center
Ser 1997 A (AMBAC)......................................... 5.25 08/15/27 4,053,120
7,500 North Carolina Medical Care Commission, Presbyterian Health
Services Corp Refg Ser 1993................................ 5.50 10/01/20 7,694,025
2,500 Delaware County Authority, Pennsylvania, Catholic Health
East Ser 1998 A (AMBAC).................................... 4.875 11/15/26 2,399,925
5,000 Pennsylvania Higher Educational Facilities Authority,
University of Pennsylvania Ser A 1996...................... 5.75 01/01/22 5,309,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1998, 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 $ 3,006,150
1,650 Fayette County, West Virginia, MPC Inc Refg Ser 1990........ 9.75 02/01/11 1,768,404
- -------- ------------
29,650 30,513,374
- -------- ------------
Industrial Development/Pollution Control Revenue (5.9%)
2,750 Lapeer Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 A (AMT).......................... 10.65 11/15/17 1,650,000
3,150 New York City Industrial Development Agency, Japan Airlines
Co 1991 (AMT) (FSA)........................................ 6.00 11/01/15 3,405,276
2,000 New York State Energy Research & Development Authority, New
York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA)..... 6.15 07/01/26 2,188,160
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,382,000
5,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 5,301,400
- -------- ------------
17,900 17,926,836
- -------- ------------
Mortgage Revenue - Multi-Family (2.1%)
5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A
(AMBAC).................................................... 6.00 11/01/14 5,351,400
940 Rhode Island Housing
& Mortgage Finance Corporation, Rental 1989 Ser B (AMT).... 7.95 10/01/20 983,588
- -------- ------------
5,940 6,334,988
- -------- ------------
Mortgage Revenue - Single Family (13.1%)
10,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 10,583,899
2,250 Colorado Housing Finance Authority, 1997 Ser B-2 (AMT)...... 7.00 05/01/26 2,518,065
10,000 Hawaii Housing Finance & Development Corporation,
FNMA-Collateralized 1997 Ser A (AMT)....................... 5.75 07/01/30 10,308,200
2,405 Chicago, Illinois, GNMA-Backed Ser 1997-A (AMT)............. 7.25 09/01/28 2,734,918
Maine Housing Authority,
4,265 Purchase 1988 Ser D-2 (AMT)................................. 8.10 11/15/19 4,403,954
1,000 Purchase 1988 Ser D-2 (AMT)................................. 8.10 11/15/22 1,032,230
1,830 Missouri Housing Development Commission, GNMA-Backed 1997
Ser A-2 (AMT).............................................. 7.30 03/01/28 2,081,588
2,635 North Dakota Housing Finance Agency, 1990 Ser B (AMT)....... 7.75 07/01/24 2,797,369
980 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)... 7.85 09/01/21 1,035,674
2,230 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/17 2,344,533
- -------- ------------
37,595 39,840,430
- -------- ------------
Public Facilities Revenue (1.3%)
3,495 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)....... 6.25 12/15/20 4,096,035
- -------- ------------
Resource Recovery Revenue (1.9%)
Greater Detroit Resource Recovery Authority, Michigan, 1996
5,000 Ser A (AMBAC).............................................. 6.25 12/13/08 5,789,550
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Retirement & Life Care Facilities Revenue (0.6%)
Charleston County, South Carolina, Sandpiper Village Inc
$ 1,970 Refg Ser 1998.............................................. 8.00% 11/01/13 $ 1,839,034
- -------- ------------
Transportation Facilities Revenue (15.1%)
15,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 6,902,850
3,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA).......... 5.125 10/01/26 3,005,730
790 Southwestern Development Authority, Illinois, Tri-City
Regional Port District Ser 1989 A (AMT) (a)................ 7.90 07/01/14 831,641
7,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997
Ser A (MBIA)............................................... 5.00 01/01/37 6,882,190
5,000 Wayne Charter County, Michigan, Detroit Airport Ser 1998 A
(AMT) (MBIA)............................................... 5.00 12/01/28 4,870,300
3,000 Delaware River Port Authority, New Jersey & Pennsylvania,
Ser 1995 (FGIC)++.......................................... 5.50 01/01/26 3,142,470
5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 5,476,601
5,000 Dallas-Fort Worth International Airport, Texas, Refg Ser
1995 (FGIC)................................................ 5.625 11/01/15 5,275,200
3,000 Pocahontas Parkway Association, Virginia, Route 895
Connector 1998 Ser A....................................... 5.50 08/15/28 3,010,350
6,000 Virginia Transportation Board, US Route 28 Ser 1992......... 6.50 04/01/18 6,555,660
- -------- ------------
52,790 45,952,992
- -------- ------------
Water & Sewer Revenue (14.1%)
5,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994..... 5.50 01/01/20 5,151,550
10,000 Jefferson County, Alabama, Sewer Ser 1997 (FGIC)............ 5.75 02/01/22 10,725,300
5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Water Ser 1994............................................. 5.45 07/01/19 5,186,650
3,000 East Bay Municipal Utility District, California, Water Ser
1998 (MBIA)................................................ 4.75 06/01/34 2,880,270
3,000 Massachusetts Water Resources Authority, 1993 Ser C......... 5.25 12/01/20 3,029,760
570 New York City Municipal Water Finance Authority, New York,
1991 Ser A (Secondary FGIC)................................ 6.75 06/15/16 615,566
3,000 Cleveland, Ohio, Waterworks Impr & Refg Ser H 1996 (MBIA)... 5.75 01/01/21 3,255,450
8,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
(FGIC)..................................................... 0.00 09/01/26 1,931,760
10,000 Upper Occoquan Sewerage Authority, Virginia, Ser 1995 A
(MBIA)..................................................... 5.00 07/01/25 9,882,800
- -------- ------------
47,570 42,659,106
- -------- ------------
Other Revenue (3.2%)
4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1997 Ser B (a)............................................. 5.75 09/01/27 4,151,960
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr #9A Ser 1996 A........................ 6.80 08/01/06 2,163,080
3,000 New York Local Government Assistance Corporation, Ser 1995
A.......................................................... 6.00 04/01/24 3,241,380
- -------- ------------
9,000 9,556,420
- -------- ------------
Refunded (2.1%)
5,000 Southern California Public Power Authority, Palo Verde Ser A
(AMBAC) (ETM).............................................. 5.00 07/01/15 5,019,350
1,260 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,435,631
- -------- ------------
6,260 6,454,981
- -------- ------------
299,670 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $278,300,776)................. 297,347,446
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1998, 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%)
$ 3,500 Louisiana Public Facilities Authority, Kenner Hotel Ser 1985
(Demand 09/02/98).......................................... 3.30*% 12/01/15 $ 3,500,000
700 Harris County Health Facilities Development Corporation,
Texas, Methodist Hospital Ser 1994 (Demand 09/02/98)....... 3.35* 12/01/25 700,000
- -------- ------------
TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
4,200 $4,200,000).................................................................... 4,200,000
- -------- ------------
$303,870 TOTAL INVESTMENTS (Identified Cost $282,500,776) (b).................... 99.4% 301,547,446
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 0.6 1,956,015
---- ------------
NET ASSETS.............................................................. 100.0% $303,503,461
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
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.
** A portion of this security is 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 $20,277,635 and the aggregate gross
unrealized depreciation is $1,230,965, resulting in net
unrealized appreciation of $19,046,670.
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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1998, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
August 31, 1998
<TABLE>
<S> <C>
Alabama.................. 6.3%
Alaska................... 3.5
Arizona.................. 1.7
California............... 11.1
Colorado................. 3.1
Connecticut.............. 1.4
Florida.................. 1.7
Georgia.................. 1.0
Hawaii................... 3.4
Illinois................. 3.0
Louisiana................ 1.2
Maine.................... 1.8
Maryland................. 1.7
Massachusetts............ 5.7
Michigan................. 5.4
Missouri................. 0.7
New Jersey............... 4.6
New York................. 9.9
North Carolina........... 2.5
North Dakota............. 0.9
Ohio..................... 1.4
Oklahoma................. 1.8
Pennsylvania............. 4.2
Rhode Island............. 0.3
South Carolina........... 0.6
Tennessee................ 2.5
Texas.................... 5.5
Utah..................... 3.9
Virginia................. 7.2
Washington............... 1.8
West Virginia............ 0.6
Joint Exemption *........ (1.0)
------
Total.................... 99.4%
======
</TABLE>
- ---------------------
* Joint exemption has been included in each location.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
ASSETS:
Investments in securities, at value
(identified cost $282,500,776)............................. $301,547,446
Cash........................................................ 65,900
Receivable for:
Interest................................................ 3,983,898
Investments sold........................................ 165,000
Prepaid expenses and other assets........................... 17,447
------------
TOTAL ASSETS............................................ 305,779,691
------------
LIABILITIES:
Payable for:
Investments purchased................................... 2,043,563
Investment advisory fee................................. 85,279
Administration fee...................................... 49,039
Accrued expenses and other payables......................... 98,349
------------
TOTAL LIABILITIES....................................... 2,276,230
------------
NET ASSETS.............................................. $303,503,461
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $280,619,289
Net unrealized appreciation................................. 19,046,670
Accumulated undistributed net investment income............. 2,045,045
Accumulated undistributed net realized gain................. 1,792,457
------------
NET ASSETS.............................................. $303,503,461
============
NET ASSET VALUE PER SHARE,
29,739,550 shares outstanding
(unlimited shares authorized of $.01 par value)............ $10.21
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended August 31, 1998
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $16,819,486
-----------
EXPENSES
Investment advisory fee..................................... 1,007,218
Administration fee.......................................... 579,262
Professional fees........................................... 139,598
Transfer agent fees and expenses............................ 126,664
Shareholder reports and notices............................. 49,023
Registration fees........................................... 32,417
Trustees' fees and expenses................................. 18,305
Custodian fees.............................................. 15,124
Other....................................................... 20,404
-----------
TOTAL EXPENSES.......................................... 1,988,015
Less: expense offset........................................ (14,546)
-----------
NET EXPENSES............................................ 1,973,469
-----------
NET INVESTMENT INCOME................................... 14,846,017
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 2,028,297
Net change in unrealized appreciation....................... 8,504,893
-----------
NET GAIN................................................ 10,533,190
-----------
NET INCREASE................................................ $25,379,207
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1998 AUGUST 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $14,846,017 $17,132,652
Net realized gain...................................... 2,028,297 2,589,265
Net change in unrealized appreciation.................. 8,504,893 5,563,849
------------ ------------
NET INCREASE....................................... 25,379,207 25,285,766
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (16,273,738) (17,614,906)
Net realized gain...................................... (2,821,505) (76,631)
------------ ------------
TOTAL.............................................. (19,095,243) (17,691,537)
------------ ------------
Net decrease from transactions in shares of beneficial
interest.............................................. (4,488,741) (7,720,803)
------------ ------------
NET INCREASE (DECREASE)............................ 1,795,223 (126,574)
NET ASSETS:
Beginning of period.................................... 301,708,238 301,834,812
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$2,045,045 and $3,472,766, respectively)........... $303,503,461 $301,708,238
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998
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
13
<PAGE> 14
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, 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 Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), formerly Dean Witter InterCapital
Inc., the Fund pays the Investment Advisor 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 Advisor pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Advisor.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with Morgan Stanley 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.
14
<PAGE> 15
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, 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, 1998 aggregated
$42,919,403 and $52,296,966, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At August 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $6,000.
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 period ended August 31, 1998,
included in Trustee's fees and expenses in the Statement of Operations amounted
to $5,014. At August 31, 1998, the Fund had an accrued pension liability of
$49,827 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 5.97%)*........................................... (474,700) (4,747) (4,483,994)
---------- -------- ------------
Balance, August 31, 1998.................................... 29,739,550 $297,396 $280,321,893
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
15
<PAGE> 16
MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued
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>
June 30, 1998 $0.045 September 4, 1998 September 18, 1998
September 29, 1998 $0.0375 October 9, 1998 October 23, 1998
September 29, 1998 $0.0375 November 6, 1998 November 20, 1998
September 29, 1998 $0.0375 December 4, 1998 December 18, 1998
</TABLE>
16
<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 YEAR ENDED AUGUST 31*
-----------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Net investment income....................................... 0.50 0.57 0.60 0.66 0.69
Net realized and unrealized gain (loss)..................... 0.34 0.26 (0.12) 0.04 (0.62)
------ ------ ------ ------ ------
Total from investment operations............................ 0.84 0.83 0.48 0.70 0.07
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.54) (0.58) (0.60) (0.60) (0.65)
Net realized gain.......................................... (0.09) --** (0.09) (0.34) (0.09)
------ ------ ------ ------ ------
Total dividends and distributions........................... (0.63) (0.58) (0.69) (0.94) (0.74)
------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares........... 0.01 0.02 0.01 -- --
------ ------ ------ ------ ------
Net asset value, end of period.............................. $10.21 $ 9.99 $ 9.72 $ 9.92 $10.16
====== ====== ====== ====== ======
Market value, end of period................................. $ 9.44 $ 9.50 $ 9.25 $ 9.00 $ 9.25
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+.................................... 6.16% 9.23% 10.75% 7.78% (11.73)%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.66%(1) 0.63%(1) 0.64%(1) 0.65% 0.63%
Net investment income....................................... 4.92% 5.68% 6.03% 6.70% 6.59%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $303,503 $301,708 $301,835 $313,768 $331,745
Portfolio turnover rate..................................... 13% 22% 33% 14% 27%
</TABLE>
- ---------------------
* 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) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
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 "Fund")
at August 31, 1998, 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 Fund'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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 9, 1998
--------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended August 31, 1998, the Fund paid to
shareholders $0.54 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, 1998, the Fund paid to
shareholders $0.08 per share from long-term capital gains. Of
this $0.08 distribution, $0.03 is taxable as 28% rate gain and
$0.05 is taxable as 20% rate gain.
18
<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
- -----------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISOR
- -----------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MUNICIPAL
INCOME
TRUST
Annual Report
August 31, 1998
