<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS February 28, 1999
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Municipal Income Trust (TFA) for the period ended February
28, 1999.
Continued economic turmoil in Asia and Latin America, a currency crisis in
Russia and the orchestrated bailout of a major U.S. hedge fund contributed to
the volatility in the global financial markets during the second half of 1998.
These events precipitated a "flight to quality" demand for U.S. Treasury
securities. U.S. Treasury bond yields reached a 30-year low in October 1998.
During the fourth quarter, the Federal Reserve Board sought to restore stability
to the financial markets by cutting the federal-funds rate 75 basis points in
three moves from 5.50 percent to 4.75 percent.
U.S. economic growth and employment remained strong in early 1999. Although
inflation remained subdued, concern developed that the Federal Reserve might
become more restrictive if the pace of growth did not slacken.
MUNICIPAL MARKET CONDITIONS
Municipal yields did not decline as much as U.S. Treasury yields during 1998. At
the end of December, long-term insured municipal index yields were 5.05 percent.
This level was only 10 basis points lower than the beginning of the year. In
contrast, U.S. Treasury bond yields fell 80 basis points, from 5.90 percent to
5.10 percent. When U.S. Treasury yields reversed direction in February 1999 and
rose 50 basis points, municipal yields were less volatile and rose only 10 basis
points to 5.15 percent.
The modest rally of municipals during 1998 created a favorable relative value
relationship versus Treasuries. Municipals underperformed Treasuries and the
ratio of municipal yields to Treasury yields climbed to 99 percent by year-end.
The higher the ratio, the more attractive municipals are relative to Treasuries.
The ratio declined to 92 percent by the end of February, as municipals
outperformed Treasuries. Over the past five years, the annual high-low range of
the municipal/Treasury yield ratio has averaged 93-84 percent.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1999, continued
In addition to lagging the Treasury "flight to quality" rally in 1998,
municipals also experienced a glut of new issue supply. Underwriting volume of
$284 billion was up 28 percent from the prior year and approached 1993's record
level. Issuers actively refinanced at lower interest rates and refundings were
29 percent of the total volume. New-money issues set a record and included the
largest single municipal underwriting of $3.3 billion for the Long Island Power
Authority. In the first two months of 1999, volume slowed and was down 25
percent compared to the same period last year.
PERFORMANCE
The Fund's net asset value (NAV) declined from $10.21 to $10.15 per share during
the six month period. Based on this change, plus reinvestment of tax-free
dividends totaling $0.2325 per share and capital gains distributions totaling
$0.0626, the Fund's total return based on NAV was 2.54 percent. TFA's price on
the New York Stock Exchange fell from $9.4375 to $8.8750 per share during the
same period. Based on this market value and reinvestment of tax-free dividends
and capital gains distributions, the Fund's total return based on market value
was -2.91 percent. As of February 28, 1999, TFA's market value was trading at a
12.6 percent discount to its NAV.
BOND YIELDS 1994 - 1999
<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
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
5.00 5.06 98.81
5.05 5.10 99.02
1999 5.00 5.09 98.23
5.10 5.58 91.40
</TABLE>
Source: Municipal Market Data
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1999, continued
[LARGEST SECTORS BAR CHART]
LARGEST SECTORS AS OF FEBRUARY 28, 1999
(% OF NET ASSETS)
<TABLE>
<S> <C>
Transportation 15%
Mortgage 15%
General Obligation 12%
Water & Sewer 11%
Electric 10%
Hospital 10%
Education 7%
IDR/PCR* 6%
Refunded 6%
All Others 8%
</TABLE>
* INDUSTRIAL DEVELOPMENT/POLUTION CONTROL REVENUE
PORTFOLIO IS SUBJECT TO CHANGE
[CREDIT RATINGS PIE CHART]
CREDIT RATINGS AS OF FEBRUARY 28, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<CAPTION>
Aaa/AAA Aa/AA A/A Baa/BBB N/R
- ------- ----- --- ------- ---
<S> <C> <C> <C> <C>
55% 27% 8% 6% 4%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[CALL STRUCTURE BAR GRAPH]
<TABLE>
<CAPTION>
CALL STRUCTURE as of February 28, 1999
(% of Total Long-Term Portfolio)
WEIGHTED AVERAGE
CALL PROTECTION: 8
YEARS BONDS CALLABLE
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent Callable 3% 3% 1% 3% 6% 9% 16% 13% 21% 12% 0% 13%
</TABLE>
Portfolio structure is subject to change.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 28, 1999, continued
Monthly dividends for the first quarter of 1998 were declared in December. The
Fund's level of earned but undistributed net investment income was essentially
unchanged at $0.066 per share on February 28, 1999, versus $0.069 per share six
months earlier.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 14 long-term sectors and 63
credits. At the end of February the portfolio's average maturity was 20 years.
Average duration, a measure of sensitivity to interest-rate changes, was 8.2
years.
The accompanying charts provide information on the Fund's call structure,
largest sectors and distribution by credit quality as of February 28, 1999.
LOOKING AHEAD
The combination of a "flight to quality" and the flood of new municipal issues
made the municipal-to-Treasury yield relationship more favorable last year than
it has been in the previous 10 years. Although municipals have outperformed
Treasuries in early 1999, we believe that municipals still offer investors
considerable value versus their historical relationship with Treasuries.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps 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 28,1999 the Fund
purchased and retired 274,600 shares of common stock at a weighted average
market discount of 10.66 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter 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
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING February 28, 1999
* * *
On December 17, 1998, 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>
Michael Bozic
For......................................................... 22,854,044
Withheld.................................................... 685,512
Charles A. Fiumefreddo
For......................................................... 22,851,173
Withheld.................................................... 688,383
</TABLE>
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, John R. Haire, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E.
Nugent, Philip J. Purcell and John L. Schroeder.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 22,840,852
Against..................................................... 206,707
Abstain..................................................... 491,997
</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......................................................... 4,378,600
Against..................................................... 10,333,845
Abstain..................................................... 1,552,616
</TABLE>
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNCIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (98.3%)
General Obligation (11.7%)
$ 5,000 Moulton-Niguel Water District, California, Refg 1993
(MBIA)..................................................... 5.00 % 09/01/19 $ 4,987,250
5,000 Washington Suburban Sanitary District, Maryland, Gen Constr
Refg 1994.................................................. 5.00 06/01/10 5,203,400
5,000 Massachusetts, 1994 Ser A................................... 5.00 01/01/11 5,157,500
2,000 Michigan Municipal Bond Authority, School Ser 1998.......... 5.25 12/01/13 2,105,940
4,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 4,518,040
5,000 New York State, Refg Ser 1995 B............................. 5.625 08/15/09 5,444,050
7,000 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/11 7,499,800
- -------- -----------
33,000 34,915,980
- -------- -----------
Educational Facilities Revenue (6.6%)
5,000 California Public Works Board, University of California 1993
Refg Ser A................................................. 5.50 06/01/21 5,184,300
2,000 Massachusetts Health & Educational Facilities Authority,
Massachusetts Institute of Technology 1998 Ser I........... 5.20 01/01/28 2,088,840
2,000 New Jersey Economic Development Authority, Educational
Testing Service Ser 1998 A (MBIA).......................... 4.75 05/15/18 1,943,380
New York State Dormitory Authority,
2,500 State University Ser 1995 A................................ 6.50 05/15/05 2,821,875
2,500 State University Ser 1995 A................................ 6.50 05/15/06 2,853,025
5,000 State University Ser 1997.................................. 5.125 05/15/27 4,929,850
- -------- -----------
19,000 19,821,270
- -------- -----------
Electric Revenue (10.1%)
15,000 Southern California Public Power Authority, Mead-Adelanto
1994 Ser A (AMBAC)......................................... 5.15 07/01/15 15,815,250
Intermountain Power Agency, Utah,
2,000 Refg Ser 1998 A (MBIA)..................................... 5.25 07/01/15 2,061,060
10,000 Refg 1996 Ser D (Secondary FSA)............................ 5.00 07/01/21 9,788,600
2,500 Washington Public Power Supply System, Project #1 Refg Ser
1998 A..................................................... 5.125 07/01/17 2,505,175
- -------- -----------
29,500 30,170,085
- -------- -----------
Hospital Revenue (9.5%)
3,000 Birmingham-Carraway Special Care Facilities Financing
Authority, Alabama, Carraway Methodist Health Ser 1995 A
(Connie Lee)............................................... 5.875 08/15/15 3,196,440
3,000 Chatham County Hospital Authority, Georgia, Memorial Medical
Center Inc Ser 1996 A (AMBAC).............................. 5.25 01/01/16 3,062,250
4,000 Michigan Hospital Finance Authority, Detroit Medical Center
Ser 1997 A (AMBAC)......................................... 5.25 08/15/27 3,964,880
7,500 North Carolina Medical Care Commission, Presbyterian Health
Services Corp Refg Ser 1993................................ 5.50 10/01/20 7,678,500
2,500 Delaware County Authority, Pennsylvania, Catholic Health
East Ser 1998 A (AMBAC).................................... 4.875 11/15/26 2,365,425
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNCIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Pennsylvania Higher Educational Facilities Authority,
University of Pennsylvania Ser A 1996...................... 5.75 % 01/01/22 $ 5,174,750
3,000 Washington Health Care Facilities Authority, Virginia Mason
Medical Center Refg Ser 1997 A (MBIA)...................... 5.125 08/15/17 3,005,970
- -------- -----------
28,000 28,448,215
- -------- -----------
Industrial Development/Pollution Control Revenue (5.9%)
2,705 Lapeer Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 A (AMT).......................... 10.65 11/15/17 1,623,000
3,050 New York City Industrial Development Agency, Japan Airlines
Co 1991 (AMT) (FSA)........................................ 6.00 11/01/15 3,284,362
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 2,180,280
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,350,800
5,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 5,255,850
- -------- -----------
17,755 17,694,292
- -------- -----------
Mortgage Revenue -- Multi-Family (2.1%)
5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A
(AMBAC).................................................... 6.00 11/01/14 5,331,950
940 Rhode Island Housing & Mortgage Finance Corporation, Rental
1989 Ser B (AMT)........................................... 7.95 10/01/20 978,399
- -------- -----------
5,940 6,310,349
- -------- -----------
Mortgage Revenue -- Single Family (13.1%)
10,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 10,563,901
2,250 Colorado Housing Finance Authority, 1997 Ser B-2 (AMT)...... 7.00 05/01/26 2,502,945
10,000 Hawaii Housing Finance & Development Corporation,
FNMA-Collateralized 1997 Ser A (AMT)....................... 5.75 07/01/30 10,305,900
2,395 Chicago, Illinois, GNMA-Backed Ser 1997-A (AMT)............. 7.25 09/01/28 2,718,253
Maine Housing Authority,
4,265 Purchase 1988 Ser D-2 (AMT)................................ 8.10 11/15/19 4,366,379
1,000 Purchase 1988 Ser D-2 (AMT)................................ 8.10 11/15/22 1,023,660
1,825 Missouri Housing Development Commission, GNMA-Backed 1997
Ser A-2 (AMT).............................................. 7.30 03/01/28 2,071,211
2,370 North Dakota Housing Finance Agency, 1990 Ser B (AMT)....... 7.75 07/01/24 2,496,937
805 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)... 7.85 09/01/21 848,687
2,230 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/17 2,324,485
- -------- -----------
37,140 39,222,358
- -------- -----------
Public Facilities Revenue (1.4%)
3,495 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)....... 6.25 12/15/20 4,045,218
- -------- -----------
Resource Recovery Revenue (1.9%)
5,000 Greater Detroit Resource Recovery Authority, Michigan, 1996
Ser A (AMBAC).............................................. 6.25 12/13/08 5,794,150
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNCIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Retirement & Life Care Facilities Revenue (0.6%)
$ 1,900 Charleston County, South Carolina, Sandpiper Village Inc
Refg Ser 1998.............................................. 8.00 % 11/01/13 $ 1,752,997
- -------- -----------
Transportation Facilities Revenue (15.3%)
15,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 7,014,300
2,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA).......... 5.125 10/01/26 2,012,720
790 Southwestern Development Authority, Illinois, Tri-City
Regional Port District Ser 1989 A (AMT) (a)................ 7.90 07/01/14 816,655
5,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997
Ser A (MBIA)............................................... 5.00 01/01/37 4,818,900
5,000 Wayne Charter County, Michigan, Detroit Airport Ser 1998 A
(AMT) (MBIA)............................................... 5.00 12/01/28 4,827,000
3,000 Delaware River Port Authority, New Jersey & Pennsylvania,
Ser 1995 (FGIC)++.......................................... 5.50 01/01/26 3,145,320
3,000 Ohio Turnpike Commission, Ser 1998 B (FGIC)................. 4.50 02/15/24 2,775,270
5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 5,448,949
5,000 Dallas-Fort Worth International Airport, Texas, Refg Ser
1995 (FGIC)................................................ 5.625 11/01/15 5,351,450
3,000 Pocahontas Parkway Association, Virginia, Route 895
Connector 1998 Ser A....................................... 5.50 08/15/28 2,969,700
6,000 Virginia Transportation Board, US Route 28 Ser 1992......... 6.50 04/01/18 6,540,600
- -------- -----------
52,790 45,720,864
- -------- -----------
Water & Sewer Revenue (11.2%)
10,000 Jefferson County, Alabama, Sewer Ser 1997 (FGIC)............ 5.75 02/01/22 10,696,900
5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Water Ser 1994............................................. 5.45 07/01/19 5,158,300
3,000 East Bay Municipal Utility District, California, Water Ser
1998 (MBIA)................................................ 4.75 06/01/34 2,861,760
3,000 Massachusetts Water Resources Authority, 1993 Ser C......... 5.25 12/01/20 3,018,750
8,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
(FGIC)..................................................... 0.00 09/01/26 1,916,240
10,000 Upper Occoquan Sewerage Authority, Virginia, Ser 1995 A
(MBIA)..................................................... 5.00 07/01/25 9,869,500
- -------- -----------
39,000 33,521,450
- -------- -----------
Other Revenue (3.2%)
4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1997 Ser B (a)............................................. 5.75 09/01/27 4,098,240
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr #9A Ser 1996 A........................ 6.80 08/01/06 2,149,920
3,000 New York Local Government Assistance Corporation, Ser 1995
A.......................................................... 6.00 04/01/24 3,259,740
- -------- -----------
9,000 9,507,900
- -------- -----------
Refunded (5.7%)
5,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994..... 5.50 01/01/04+ 5,439,851
5,000 Southern California Public Power Authority, Palo Verde Ser A
(AMBAC) (ETM).............................................. 5.00 07/01/15 5,067,500
1,230 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,383,602
2,920 Cleveland, Ohio, Waterworks Impr & Refg Ser H 1996 (MBIA)... 5.75 01/01/06+ 3,265,932
1,650 Fayette County, West Virginia, MPC Inc Refg Ser 1990........ 9.75 02/01/00+ 1,767,711
- -------- -----------
15,800 16,924,596
- -------- -----------
297,320 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $276,074,916)................. 293,849,724
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNCIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (0.4%)
$ 1,325 Harris County Health Facilities Development Corporation,
- -------- Texas, St Luke's Episcopal Hospital Ser 1997 A (Demand
03/01/99) (Identified Cost $1,325,000)..................... 3.35*% 02/15/27 $ 1,325,000
-----------
$298,645 TOTAL INVESTMENTS (Identified Cost $277,399,916) (b)................... 98.7% 295,174,724
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 1.3 3,747,802
----- -----------
NET ASSETS.............................................................. 100.0% $298,922,526
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
+ Prerefunded to call date shown.
++ Joint exemption in New Jersey and Pennsylvania.
* Current coupon of variable rate demand obligation.
(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 $19,122,385 and the aggregate gross
unrealized depreciation is $1,347,577, resulting in net
unrealized appreciation of $17,774,808.
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
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNCIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 28, 1999 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 28, 1999
<TABLE>
<S> <C>
Alabama.................. 6.5%
Alaska................... 3.5
Arizona.................. 1.7
California............... 11.4
Colorado................. 3.2
Connecticut.............. 1.4
Florida.................. 1.4
Georgia.................. 1.0
Hawaii................... 3.5
Illinois................. 3.0
Maine.................... 1.8
Maryland................. 1.7
Massachusetts............ 5.0
Michigan................. 6.1
Missouri................. 0.7
New Jersey............... 3.5
New York................. 9.8
North Carolina........... 2.6
North Dakota............. 0.8
Ohio..................... 2.3
Oklahoma................. 1.8
Pennsylvania............. 4.2
Rhode Island............. 0.3
South Carolina........... 0.6
Tennessee................ 2.5
Texas.................... 5.8
Utah..................... 4.0
Virginia................. 8.3
Washington............... 0.8
West Virginia............ 0.6
Joint Exemption*......... (1.1)
------
Total.................... 98.7%
======
</TABLE>
- ---------------------
* Joint exemption has been included in each geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $277,399,916)............................. $295,174,724
Cash........................................................ 107,011
Receivable for:
Interest................................................ 3,753,996
Investments sold........................................ 190,000
Prepaid expenses and other assets........................... 11,997
-----------
TOTAL ASSETS............................................ 299,237,728
-----------
LIABILITIES:
Payable for:
Investment advisory fee................................. 82,453
Shares of beneficial interest repurchased............... 62,647
Administration fee...................................... 47,411
Accrued expenses and other payables......................... 122,691
-----------
TOTAL LIABILITIES....................................... 315,202
-----------
NET ASSETS.............................................. $298,922,526
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $278,123,947
Net unrealized appreciation................................. 17,774,808
Accumulated undistributed net investment income............. 2,170,389
Accumulated undistributed net realized gain................. 853,382
-----------
NET ASSETS.............................................. $298,922,526
===========
NET ASSET VALUE PER SHARE,
29,464,950 shares outstanding
(unlimited shares authorized of $.01 par value)............ $10.15
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended February 28, 1999 (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 7,993,693
-----------
EXPENSES
Investment advisory fee..................................... 499,228
Administration fee.......................................... 287,106
Professional fees........................................... 66,306
Transfer agent fees and expenses............................ 63,601
Shareholder reports and notices............................. 24,966
Registration fees........................................... 16,098
Trustees' fees and expenses................................. 9,278
Custodian fees.............................................. 4,916
Other....................................................... 12,161
-----------
TOTAL EXPENSES.......................................... 983,660
Less: expense offset........................................ (4,901)
-----------
NET EXPENSES............................................ 978,759
-----------
NET INVESTMENT INCOME................................... 7,014,934
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 914,792
Net change in unrealized appreciation....................... (1,271,862)
-----------
NET LOSS................................................ (357,070)
-----------
NET INCREASE................................................ $ 6,657,864
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER 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, 1999 AUGUST 31, 1998
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 7,014,934 $ 14,846,017
Net realized gain.................................... 914,792 2,028,297
Net change in unrealized appreciation................ (1,271,862) 8,504,893
------------ ------------
NET INCREASE..................................... 6,657,864 25,379,207
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (6,889,590) (16,273,738)
Net realized gain.................................... (1,853,867) (2,821,505)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (8,743,457) (19,095,243)
------------ ------------
Net decrease from transactions in shares of
beneficial interest................................. (2,495,342) (4,488,741)
------------ ------------
NET INCREASE (DECREASE).......................... (4,580,935) 1,795,223
NET ASSETS:
Beginning of period.................................. 303,503,461 301,708,238
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$2,170,389 and $2,045,045, respectively)......... $298,922,526 $303,503,461
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Municipal Income Trust (the "Fund"), formerly
Municipal Income Trust, 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
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1999 (unaudited) continued
income and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), an affiliate of Morgan Stanley Dean
Witter Services Company Inc. (the "Administrator"), 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 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 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
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1999 (unaudited) continued
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, 1999 aggregated
$6,846,680 and $10,073,686, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent.
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, 1999,
included in Trustee's fees and expenses in the Statement of Operations amounted
to $2,967. At February 28, 1999, the Fund had an accrued pension liability of
$51,229 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, 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
Treasury shares purchased and retired (weighted average
discount 10.66%)*.......................................... (274,600) (2,746) (2,492,596)
---------- -------- ------------
Balance, February 28, 1999.................................. 29,464,950 $294,650 $277,829,297
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 28, 1999 (unaudited) 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>
December 29,1998 $0.0375 March 5, 1999 March 19, 1999
March 30, 1999 $0.0375 April 9, 1999 April 23, 1999
March 30, 1999 $0.0375 May 7, 1999 May 21, 1999
March 30, 1999 $0.0375 June 4, 1999 June 18, 1999
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER 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, 1999* 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................. $10.21 $ 9.99 $ 9.72 $ 9.92 $10.16 $10.83
------ ------- ------ ------ ------ ------
Income from investment operations:
Net investment income................................ 0.24 0.50 0.57 0.60 0.66 0.69
Net realized and unrealized gain (loss).............. (0.02) 0.34 0.26 (0.12) 0.04 (0.62)
------ ------- ------ ------ ------ ------
Total income from investment operations............... 0.22 0.84 0.83 0.48 0.70 0.07
------ ------- ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................................ (0.23) (0.54) (0.58) (0.60) (0.60) (0.65)
Net realized gain.................................... (0.06) (0.09) --** (0.09) (0.34) (0.09)
------ ------- ------ ------ ------ ------
Total dividends and distributions..................... (0.29) (0.63) (0.58) (0.69) (0.94) (0.74)
------ ------- ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares..... 0.01 0.01 0.02 0.01 -- --
------ ------- ------ ------ ------ ------
Net asset value, end of period........................ $10.15 $ 10.21 $ 9.99 $ 9.72 $ 9.92 $10.16
====== ======= ====== ====== ====== ======
Market value, end of period........................... $8.875 $ 9.44 $ 9.50 $ 9.25 $ 9.00 $ 9.25
====== ======= ====== ====== ====== ======
TOTAL RETURN+......................................... (2.91)%(1) 6.16% 9.23% 10.75% 7.78% (11.73)%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................. 0.66%(2)(3) 0.66%(3) 0.63%(3) 0.64%(3) 0.65% 0.63%
Net investment income................................. 4.68%(2) 4.92% 5.68% 6.03% 6.70% 6.59%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............... $298,923 $303,503 $301,708 $301,835 $313,768 $331,745
Portfolio turnover rate............................... 2%(1) 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) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
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
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.
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME TRUST
SEMIANNUAL REPORT
FEBRUARY 28, 1999
