<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS August 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion during the fiscal year
ended August 31, 2000. Real personal consumption accelerated and unemployment
reached a 30-year low. At the same time surging oil prices also heightened the
risk of inflation. The Federal Reserve Board responded by further tightening
monetary policy. Three increases in the federal funds rate, totaling 100 basis
points have occurred since February. The rate now stands at a nine-year high of
6.50 percent.
Strong economic growth and a less accommodative monetary policy caused long-term
interest rates to increase throughout 1999. In January, however, the U.S.
Treasury announced plans to use the federal budget surplus to reduce its debt.
This announcement initially precipitated a 50 to 75 basis point drop in yields
of longer-maturity Treasuries. Municipal bond yields also declined but lagged
the downward trend of Treasury yields. Although long-term interest rates rose in
April and May, indications of a slow down in economic growth caused rates to
decline over the last three months.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began the year at 5.97 percent. This index
reached a high of 6.19 percent in mid January before ending August at 5.62
percent. Because bond prices move inversely to changes in interest rates, bond
prices declined significantly last year but improved in the first eight months
of 2000.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. This ratio increased from
92 percent at the end of 1999 to 99 percent at the end of August and can be
attributed primarily to the magnitude of the rally in long-term Treasuries. Over
the past five years the ratio has ranged between an average high of 93 percent
and an average low of 85 percent. A rising yield ratio indicates weaker relative
performance by municipals.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
During the first eight months of 2000, municipal underwriting was 22 percent
lower than in the same period last year. Refunding activity, the most
interest-rate-sensitive component of supply, dropped more than 70 percent and
represented less than 10 percent of total volume. Approximately 40 percent of
the underwritings were enhanced with bond insurance.
30-YEAR BOND YIELDS 1994-2000
<TABLE>
<CAPTION>
Insured Insured Municipal Yields as a
U.S. Treasury Yields Municipal Yields Percentage of U.S. Treasury Yields
-------------------- ---------------- ----------------------------------
<S> <C> <C> <C>
1994 6.34 5.40 85.17
6.24 5.40 86.54
6.66 5.80 87.09
7.09 6.40 90.27
7.32 6.35 86.75
7.43 6.25 84.12
7.61 6.50 85.41
7.39 6.25 84.57
7.45 6.30 84.56
7.81 6.55 83.87
7.96 6.75 84.80
8.00 7.00 87.50
7.88 6.75 85.66
1995 7.70 6.40 83.12
7.44 6.15 82.66
7.43 6.15 82.77
7.34 6.20 84.47
6.66 5.80 87.09
6.62 6.10 92.15
6.86 6.10 88.92
6.66 6.00 90.09
6.48 5.95 91.82
6.33 5.75 90.84
6.14 5.50 89.58
5.94 5.35 90.07
1996 6.03 5.40 89.55
6.46 5.60 86.69
6.66 5.85 87.84
6.89 5.95 86.36
6.99 6.05 86.55
6.89 5.90 85.63
6.97 5.85 83.93
7.11 5.90 82.98
6.93 5.70 82.25
6.64 5.65 85.09
6.35 5.50 86.61
6.63 5.60 84.46
1997 6.79 5.70 83.95
6.80 5.65 83.09
7.10 5.90 83.10
6.94 5.75 82.85
6.91 5.65 81.77
6.78 5.60 82.60
6.30 5.30 84.13
6.61 5.50 83.21
6.40 5.40 84.38
6.15 5.35 86.99
6.05 5.30 87.60
5.92 5.15 86.99
1998 5.80 5.15 88.79
5.92 5.20 87.84
5.93 5.25 88.53
5.95 5.35 89.92
5.80 5.20 89.66
5.65 5.20 92.04
5.71 5.18 90.72
5.27 5.03 95.45
5.00 4.95 99.00
5.16 5.05 97.87
5.06 5.00 98.81
5.10 5.05 99.02
1999 5.09 5.00 98.23
5.58 5.10 91.40
5.63 5.15 91.47
5.66 5.20 91.87
5.83 5.30 90.91
5.96 5.47 91.78
6.10 5.55 90.98
6.06 5.75 94.88
6.05 5.85 96.69
6.16 6.03 97.90
6.29 6.00 95.39
6.48 5.97 92.13
2000 6.49 6.18 95.22
6.14 6.04 98.37
5.83 5.82 99.83
5.96 5.91 99.16
6.01 5.91 98.34
5.90 5.84 98.98
5.78 5.73 99.13
5.67 5.62 99.12
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
For the 12-month period ended August 31, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter Municipal Income Trust (TFA) increased from $9.61 to
$9.75 per share. Based on this change plus the reinvestment of tax-free
dividends totaling $0.505 per share and a long-term capital gain distribution of
$0.011418 per share paid in December, the Fund's total NAV return was 8.06
percent. TFA's value on the New York Stock Exchange (NYSE) increased from $7.813
to $9.313 per share during the same period. Based on this change plus
reinvestment of distributions TFA's total market return was 26.96 percent. TFA's
share price was trading at a 4.49 percent discount to its NAV on August 31,
2000.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
Monthly dividends for the fourth quarter of 2000 were declared in September.
Beginning with the October payment, the monthly dividend was increased from
$0.0425 to $0.45 per share. The Fund's level of undistributed net investment
income was $0.103 per share on August 31, 2000, versus $0.111 per share 12
months earlier.
PORTFOLIO STRUCTURE
The Fund's net assets of $269 million were diversified among 16 long-term
sectors and 62 credits. At the end of August, the portfolio's average maturity
was 18 years. Average duration, a measure of sensitivity to interest-rate
changes, was 8.0 years. Bonds with longer durations have greater volatility. For
example, the duration of a new 30-year insured municipal bond was approximately
14 years. The accompanying charts provide current information on the portfolio's
credit quality, sector concentrations and maturity distribution. Optional call
provisions and their respective cost (book) yields by year are also charted.
LOOKING AHEAD
While the Federal Reserve Board has continued to express concern about
inflation, the slower pace of economic growth has reduced the pressure on the
Fed to further tighten monetary policy. We believe municipal bonds continue to
offer tax-conscious investors good long-term value.
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 may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. During the fiscal year ended August 31, 2000 the
Fund purchased and retired 1,413,153 shares of common stock at a weighted
average market discount of 13.19 percent. The anti-dilutive effect on NAV of the
share repurchase program is shown in the table of Financial Highlights.
On August 24, 2000, the Board of Trustees of Morgan Stanley Dean Witter
Municipal Income Trust approved a proposed reorganization plan into Morgan
Stanley Dean Witter Tax-Exempt Securities Trust, an open-end investment company.
Pursuant to an Agreement and Plan of Reorganization, substantially all of the
assets of TFA would be combined with the assets of Morgan Stanley Dean Witter
Tax-Exempt Securities Trust, effectively open-ending TFA. Shareholders of the
TFA would receive Class D shares of Morgan Stanley Dean Witter Tax-Exempt
Securities Trust with a value equal to the net asset value of their respective
holdings in TFA. If shareholders of TFA approve its
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
Agreement and Plan of Reorganization, they would become Class D shareholders of
Morgan Stanley Dean Witter Tax-Exempt Securities Trust and the shares of TFA
will no longer be listed or traded on the New York Stock Exchange.
The Agreement and Plan of Reorganization will be submitted to shareholders at a
Special Meeting presently scheduled to take place in January 2001. A proxy
statement, which describes the Agreement and Plan of Reorganization in fuller
detail will be mailed to shareholders in October 2000.
We appreciate your ongoing support of Morgan Stanley Dean Witter Municipal
Income Trust and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
<TABLE>
<CAPTION>
LARGEST SECTORS AS
OF AUGUST 31, 2000
(% of Net Assets)
<S> <C>
General Obligation 16%
Transportation 16%
Mortgage 13%
Water & Sewer 9%
Education 7%
Electric 7%
Hospital 7%
</TABLE>
Portfolio structure is subject to change.
[CREDIT RATINGS PIE CHART]
<TABLE>
<CAPTION>
CREDIT RATINGS AS OF AUGUST 31, 2000
(% of Total Long-Term
Portfolio)
<S> <C>
Aaa or AAA 56%
Aa or AA 21%
A or A 8%
Baa or BBB 11%
NR 4%
</TABLE>
As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp.
Portfolio structure is subject to change.
[DISTRIBUTION BY MATURITIES BAR CHART]
Distribution by Maturities
(% of Net Assets)
<TABLE>
<CAPTION>
Weighted Average
Maturity: 18 Years
<S> <C>
Under 1 Year 2.5%
1-5 Years 1.0%
5-10 Years 11.8%
10-20 Years 40.8%
20-30 Years 42.6%
30+ Years 0.0%
</TABLE>
Portfolio structure is subject to change.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS AUGUST 31, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
AUGUST 31, 2000
<TABLE>
<CAPTION>
YEARS BOND CALLABLE PERCENT CALLABLE*
<S> <C>
2000 3%
2001 1%
2002 3%
2003 7%
2004 4%
2005 15%
2006 7%
2007 17%
2008 10%
2009 11%
2010+ 22%
Weighted Average Call Protection: 7 Years
</TABLE>
COST (BOOK) YIELD **
<TABLE>
<S> <C>
2000 8.1%
2001 7.8%
2002 5.3%
2003 5.9%
2004 5.3%
2005 6.0%
2006 5.9%
2007 5.9%
2008 5.6%
2009 5.8%
2010+ 5.9%
Weighted Average Book Yield: 5.9%
</TABLE>
*% Based on Long-Term Portfolio.
** Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before fund operating expenses. For
example, the fund earned a book yield of 8.1% on 3% of the bonds in the
long-term portfolio that are callable in 2000.
Portfolio structure is subject to change.
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (96.2%)
General Obligation (16.2%)
$ 3,500 Moulton-Niguel Water District, California, 1993 Refg
(MBIA)..................................................... 5.00% 09/01/19 $ 3,407,915
2,000 District of Columbia, Ser 1999 A (FSA)...................... 5.375 06/01/24 1,938,540
5,000 Hawaii, 1999 Ser CT (FSA)................................... 5.875 09/01/16 5,245,900
4,500 Washington Suburban Sanitary District, Maryland, Gen Constr
Refg 1994.................................................. 5.00 06/01/10 4,569,255
Massachusetts,
4,000 2000 Ser A................................................. 6.00 02/01/16 4,257,960
5,000 2000 Ser B................................................. 5.25 06/01/17 4,933,850
4,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 4,354,240
5,000 New York State, Refg Ser 1995 B............................. 5.625 08/15/09 5,232,900
5,000 North Carolina, Public School Ser 1999...................... 4.60 04/01/17 4,549,850
5,125 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/11 5,319,546
-------- -----------
43,125 43,809,956
-------- -----------
Educational Facilities Revenue (7.3%)
5,000 California Public Works Board, University of California 1993
Refg Ser A................................................. 5.50 06/01/21 5,028,550
New York State Dormitory Authority,
5,000 City University Ser 2000 A (AMBAC)......................... 6.125 07/01/13 5,504,100
2,500 State University Ser 1995 A................................ 6.50 05/15/05 2,696,525
2,500 State University Ser 1995 A................................ 6.50 05/15/06 2,726,625
4,000 State University Ser 1997.................................. 5.125 05/15/27 3,684,040
-------- -----------
19,000 19,639,840
-------- -----------
Electric Revenue (7.1%)
15,000 Southern California Public Power Authority, Mead-Adelanto
1994 Ser A (AMBAC)......................................... 5.15 07/01/15 14,906,700
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
FSA)....................................................... 5.00 07/01/21 1,848,740
2,500 Washington Public Power Supply System, Project #1 Refg Ser
1998A...................................................... 5.125 07/01/17 2,376,675
-------- -----------
19,500 19,132,115
-------- -----------
Hospital Revenue (6.6%)
3,000 Birmingham-Carraway Special Care Facilities Financing
Authority, Alabama,
Carraway Methodist Health Ser 1995 A (Connie Lee).......... 5.875 08/15/15 3,085,140
2,500 Tampa, Florida, Catholic Health Ser 1998 A-2 (AMBAC)........ 4.875 11/15/28 2,202,875
3,815 Henderson, Nevada, Catholic Health West 1998 Ser A.......... 5.375 07/01/26 3,121,547
5,000 North Carolina Medical Care Commission, Presbyterian Health
Services Corp Refg Ser 1993................................ 5.50 10/01/20 4,899,750
5,000 Pennsylvania Higher Educational Facilities Authority,
University of Pennsylvania Ser A 1996...................... 5.75 01/01/22 4,448,750
-------- -----------
19,315 17,758,062
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Development/Pollution Control Revenue (4.4%)
$ 2,655 Lapeer Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 A (AMT).......................... 10.65% 11/15/17 $ 1,748,981
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,111,400
5,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 4,896,900
-------- -----------
12,655 11,757,281
-------- -----------
Mortgage Revenue - Multi-Family (2.2%)
5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A
(AMBAC).................................................... 6.00 11/01/14 5,087,300
940 Rhode Island Housing & Mortgage Finance Corporation, Rental
1989 Ser B (AMT)........................................... 7.95 10/01/20 960,915
-------- -----------
5,940 6,048,215
-------- -----------
Mortgage Revenue - Single Family (11.0%)
10,000 Alaska Housing Finance Corporation, 1997 D Ser A (MBIA)..... 6.00 06/01/27 10,148,399
1,950 Colorado Housing Finance Authority, 1997 Ser B-2 (AMT)...... 7.00 05/01/26 2,085,174
9,000 Hawaii Housing Finance & Development Corporation,
FNMA-Collateralized 1997 Ser A (AMT)....................... 5.75 07/01/30 8,699,310
1,900 Chicago, Illinois, GNMA-Backed Ser 1997-A (AMT)............. 7.25 09/01/28 2,053,406
1,655 Missouri Housing Development Commission, GNMA-Backed 1997
Ser A-2 (AMT).............................................. 7.30 03/01/28 1,826,425
1,680 North Dakota Housing Finance Agency, 1990 Ser B (AMT)....... 7.75 07/01/24 1,720,522
665 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)... 7.85 09/01/21 679,118
2,230 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/17 2,305,731
-------- -----------
29,080 29,518,085
-------- -----------
Nursing & Health Related Facilities Revenue (0.7%)
2,000 New York State Dormitory Authority, Mental Health Ser 1999 C
(MBIA)..................................................... 4.75 08/15/22 1,777,420
-------- -----------
Public Facilities Revenue (1.4%)
3,495 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)....... 6.25 12/15/20 3,790,677
-------- -----------
Recreational Facilities Revenue (2.8%)
4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1997 Ser B (a)............................................. 5.75 09/01/27 3,724,520
4,000 American National Fish & Wildlife Museum District, Missouri,
Ser 1999................................................... 7.00 09/01/19 3,921,920
-------- -----------
8,000 7,646,440
-------- -----------
Resource Recovery Revenue (2.1%)
5,000 Greater Detroit Resource Recovery Authority, Michigan, 1996
-------- Ser A (AMBAC).............................................. 6.25 12/13/08 5,515,450
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Retirement & Life Care Facilities Revenue (2.2%)
$ 4,250 Riverside County Public Financing Authority, California, Air
Force Village West Inc COPs................................ 5.80% 05/15/29 $ 3,921,602
1,850 Charleston County, South Carolina, Sandpiper Village Inc
Refg Ser 1998.............................................. 8.00 11/01/13 1,883,615
-------- -----------
6,100 5,805,217
-------- -----------
Transportation Facilities Revenue (16.2%)
15,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 7,085,100
3,460 Hawaii Airports, Refg Ser 2000B (AMT) (FGIC)................ 6.625 07/01/17 3,786,382
3,000 Regional Transportation Authority, Illinois, Refg Ser 1999
(FSA)...................................................... 5.75 06/01/21 3,141,300
750 Southwestern Development Authority, Illinois, Tri-City
Regional Port District Ser 1989 A (AMT) (a)................ 7.90 07/01/14 766,950
2,150 Wayne County, Michigan, Charter Airport Ser 1998 B (MBIA)... 4.875 12/01/23 1,920,337
4,000 St Louis, Missouri, Lambert-St Louis Int'l Airport Ser
2000....................................................... 6.00 01/01/07 4,032,240
2,000 Ohio Turnpike Commission, Ser 1998 B (FGIC)................. 4.50 02/15/24 1,691,560
3,000 Delaware River Port Authority, New Jersey & Pennsylvania,
Ser 1995 (FGIC)++.......................................... 5.50 01/01/26 2,999,760
5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 5,132,550
5,000 Dallas-Fort Worth International Airport, Texas, Refg Ser
1995 (FGIC)................................................ 5.625 11/01/15 5,063,200
2,000 Pocahontas Parkway Association, Virginia, Route 895
Connector 1998 Ser A....................................... 5.50 08/15/28 1,657,180
6,000 Virginia Transportation Board, US Route 28 Ser 1992......... 6.50 04/01/18 6,224,580
-------- -----------
51,360 43,501,139
-------- -----------
Water & Sewer Revenue (9.2%)
10,000 Jefferson County, Alabama, Sewer Ser 1997 (FGIC)............ 5.75 02/01/22 10,159,400
5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Water Ser 1994............................................. 5.45 07/01/19 4,999,600
2,000 Lee County, Florida, Water & Sewer 1999 Ser A (AMBAC)....... 4.75 10/01/23 1,788,320
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr #9A Ser 1996 A........................ 6.80 08/01/06 2,114,060
4,000 Fulton County, Georgia, Water & Sewerage Ser 1998 (FGIC).... 4.75 01/01/28 3,506,520
2,000 Massachusetts Water Resources Authority, 2000 Ser A
(FGIC)..................................................... 6.125 08/01/11 2,223,040
-------- -----------
25,000 24,790,940
-------- -----------
Other Revenue (3.3%)
3,000 New York City Transitional Finance Authority, New York, 2000
Ser A...................................................... 5.75 08/15/24 3,051,120
3,000 New York Local Government Assistance Corporation, Ser 1995
A.......................................................... 6.00 04/01/24 3,078,420
3,000 Philadelphia, Pennsylvania, Gas Works Second Ser 1998
(FSA)...................................................... 5.00 07/01/23 2,773,050
-------- -----------
9,000 8,902,590
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (3.5%)
$ 5,000 Southern California Public Power Authority, Palo Verde 1993
Refg Ser A (Secondary AMBAC) (ETM)......................... 5.00% 07/01/15 $ 4,989,300
1,165 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,200,253
2,920 Cleveland, Ohio, Waterworks Impr & Refg Ser H 1996 (MBIA)... 5.75 01/01/06+ 3,135,788
-------- -----------
9,085 9,325,341
-------- -----------
267,655 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Cost $254,847,107)............................ 258,718,768
--------
-----------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (2.5%)
6,600 Collier County Health Facilities Authority, Florida,
-------- Cleveland Clinic Foundation Ser 1999 (Demand 09/01/00)
(Cost $6,600,000).......................................... 4.30* 01/01/33 6,600,000
-----------
$274,255 TOTAL INVESTMENTS (Cost $261,447,107) (b)............................. 98.7% 265,318,768
========
OTHER ASSETS IN EXCESS OF LIABILITIES................................... 1.3
3,526,300
----- -----------
NET ASSETS............................................................. 100.0% $268,845,068
===== ===========
</TABLE>
---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ Prerefunded to call date shown.
++ Joint exemption in locations shown.
* Current coupon of variable rate demand obligation.
(a) Sale is restricted to qualified institutional investors.
(b) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $7,723,866 and
the aggregate gross unrealized depreciation is $3,852,205,
resulting in net unrealized appreciation of $3,871,661.
Bond Insurance:
------------------------------------------------------------------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of
AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 2000, continued
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
<TABLE>
<S> <C>
Alabama..................... 4.9%
Alaska...................... 3.8
Arizona..................... 1.9
California.................. 12.0
Colorado.................... 3.4
Connecticut................. 1.4
District of Columbia........ 0.7
Florida..................... 4.7
Georgia..................... 1.3
Hawaii...................... 6.6
Illinois.................... 4.1
Maryland.................... 1.7
Massachusetts............... 4.2
Michigan.................... 3.4
Missouri.................... 3.6
Nevada...................... 1.2
New Jersey.................. 3.0
New York.................... 12.0
North Carolina.............. 3.5
North Dakota................ 0.6
Ohio........................ 2.0
Oklahoma.................... 1.9
Pennsylvania................ 3.8
Rhode Island................ 0.4
South Carolina.............. 0.7
Tennessee................... 2.0
Texas....................... 5.6
Utah........................ 0.7
Virginia.................... 3.8
Washington.................. 0.9
Joint Exemption*............ (1.1)
----
Total....................... 98.7%
====
</TABLE>
---------------------
* Joint exemptions have been included in each geographic location.
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
ASSETS:
Investments in securities, at value
(cost $261,447,107)........................................ $265,318,768
Cash........................................................ 20,038
Receivable for:
Interest................................................ 3,692,844
Investments sold........................................ 50,000
Prepaid expenses and other assets........................... 28,081
-----------
TOTAL ASSETS............................................ 269,109,731
-----------
LIABILITIES:
Payable for:
Investment advisory fee................................. 85,734
Administration fee...................................... 49,106
Accrued expenses and other payables......................... 129,823
-----------
TOTAL LIABILITIES....................................... 264,663
-----------
NET ASSETS.............................................. $268,845,068
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $262,540,248
Net unrealized appreciation................................. 3,871,661
Accumulated undistributed net investment income............. 2,839,435
Accumulated net realized loss............................... (406,276)
-----------
NET ASSETS.............................................. $268,845,068
===========
NET ASSET VALUE PER SHARE,
27,577,097 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.75
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended August 31, 2000
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $15,636,750
----------
EXPENSES
Investment advisory fee..................................... 920,023
Administration fee.......................................... 526,876
Transfer agent fees and expenses............................ 98,774
Professional fees........................................... 82,470
Shareholder reports and notices............................. 47,967
Registration fees........................................... 24,037
Custodian fees.............................................. 15,217
Trustees' fees and expenses................................. 13,723
Other....................................................... 13,848
----------
TOTAL EXPENSES.......................................... 1,742,935
Less: expense offset........................................ (15,193)
----------
NET EXPENSES............................................ 1,727,742
----------
NET INVESTMENT INCOME................................... 13,909,008
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (406,277)
Net change in unrealized appreciation....................... 3,034,092
----------
NET GAIN................................................ 2,627,815
----------
NET INCREASE................................................ $16,536,823
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 2000 AUGUST 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 13,909,008 $ 14,651,654
Net realized gain (loss)............................... (406,277) 388,315
Net change in unrealized appreciation.................. 3,034,092 (18,209,101)
------------ ------------
NET INCREASE (DECREASE)............................ 16,536,823 (3,169,132)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (14,287,899) (13,478,373)
Net realized gain...................................... (326,905) (1,853,866)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.................. (14,614,804) (15,332,239)
------------ ------------
Decrease from transactions in shares of beneficial
interest.............................................. (11,552,445) (6,526,596)
------------ ------------
NET DECREASE....................................... (9,630,426) (25,027,967)
NET ASSETS:
Beginning of period.................................... 278,475,494 303,503,461
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$2,839,435 and $3,218,326, respectively)........... $268,845,068 $278,475,494
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 2000
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter 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.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 2000, continued
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 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 tax purposes are reported as distributions of paid-in-capital.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
Pursuant to an Investment Advisory Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), 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.
Pursuant to an Administration Agreement with Morgan Stanley Dean Witter Services
Company Inc. ("the Administrator") an affiliate of the Investment Advisor, 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.
3. 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, 2000 aggregated
$39,144,464 and $44,983,022, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At August 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $1,100.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 2000, continued
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 year ended August 31, 2000, included
in Trustee's fees and expenses in the Statement of Operations amounted to
$5,973. At August 31, 2000, the Fund had an accrued pension liability of
$52,854, which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. 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, 1998.................................... 29,739,550 $297,396 $280,321,893
Treasury shares purchased and retired (weighted average
discount 12.75%)*.......................................... (749,300) (7,493) (6,519,103)
---------- -------- ------------
Balance, August 31, 1999.................................... 28,990,250 289,903 273,802,790
Treasury shares purchased and retired (weighted average
discount 13.19%)*.......................................... (1,413,153) (14,132) (11,538,313)
---------- -------- ------------
Balance, August 31, 2000.................................... 27,577,097 $275,771 $262,264,477
========== ======== ============
</TABLE>
---------------------
* The Trustees have voted to retire the shares purchased.
5. 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 27, 2000 $ 0.0425 September 8, 2000 September 22, 2000
September 26, 2000 $ 0.045 October 6, 2000 October 20, 2000
September 26, 2000 $ 0.045 November 3, 2000 November 17, 2000
September 26, 2000 $ 0.045 December 8, 2000 December 22, 2000
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 2000, continued
6. FEDERAL INCOME TAX STATUS
At August 31, 2000, the Fund had a net capital loss carryover of approximately
$193,000 which will be available through August 31, 2008 to offset future
capital gains to the extent provided by regulations.
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $214,000 during fiscal 2000.
7. FUND MERGER
On August 24, 2000, the Trustees of the Fund and Morgan Stanley Dean Witter
Tax-Exempt Securities Trust ("Tax-Exempt") approved a plan of reorganization
("the Plan") whereby the Fund would be merged into Tax-Exempt. The Plan is
subject to the consent of the Fund's shareholders. If approved, the assets of
the Fund would be combined with the assets of Tax-Exempt and shareholders of the
Fund would become Class D shareholders of Tax-Exempt, receiving Class D shares
of Tax-Exempt equal to the value of their holdings in the Fund.
18
<PAGE> 19
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 YEAR ENDED AUGUST 31*
----------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 9.61 $ 10.21 $ 9.99 $ 9.72 $ 9.92
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income...................................... 0.51 0.50 0.50 0.57 0.60
Net realized and unrealized gain (loss).................... 0.09 (0.61) 0.34 0.26 (0.12)
-------- -------- -------- -------- --------
Total income (loss) from investment operations.............. 0.60 (0.11) 0.84 0.83 0.48
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income...................................... (0.51) (0.46) (0.54) (0.58) (0.60)
Net realized gain.......................................... (0.01) (0.06) (0.09) --** (0.09)
-------- -------- -------- -------- --------
Total dividends and distributions........................... (0.52) (0.52) (0.63) (0.58) (0.69)
-------- -------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares........... 0.06 0.03 0.01 0.02 0.01
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 9.75 $ 9.61 $ 10.21 $ 9.99 $ 9.72
======== ======== ======== ======== ========
Market value, end of period................................. $ 9.313 $ 7.813 $ 9.44 $ 9.50 $ 9.25
======== ======== ======== ======== ========
TOTAL RETURN+............................................... 26.96% (12.25)% 6.16% 9.23% 10.75%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.66%(1) 0.66%(1) 0.66%(1) 0.63% 0.64%
Net investment income....................................... 5.19% 4.94% 4.92% 5.68% 6.03%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $268,845 $278,475 $303,503 $301,708 $301,835
Portfolio turnover rate..................................... 15% 16% 13% 22% 33%
</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 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 return
does not reflect brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE> 20
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Municipal Income Trust (the "Fund"), including the portfolio
of investments, as of August 31, 2000, and the related statements of operations
and changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended August 31, 1999 and the financial
highlights for each of the respective stated periods ended August 31, 1999 were
audited by other independent accountants whose report, dated October 8, 1999,
expressed an unqualified opinion on that statement and the financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. Our procedures included confirmation of securities owned as of
August 31, 2000, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Dean Witter Municipal Income Trust as of August 31, 2000, the results of
its operations, the changes in its net assets, and the financial highlights for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
New York, New York
October 4, 2000
--------------------------------------------------------------------
2000 FEDERAL TAX NOTICE (unaudited)
During the year ended August 31, 2000, the Fund paid to
shareholders $0.51 per share from tax-exempt income.
For the year ended August 31, 2000, the Fund paid to
shareholders $0.01 per share from long-term capital gains.
20
<PAGE> 21
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
21
<PAGE> 22
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
REVISED INVESTMENT POLICY
On January 26, 2000, the Trustees of Morgan Stanley Dean Witter Municipal Income
Trust (the "Fund") approved an investment policy whereby the Fund would be
permitted to invest up to 10% of its assets in inverse floating rate municipal
obligations. The inverse floating rate municipal obligations in which the Fund
will invest are typically created through a division of a fixed rate municipal
obligation into two separate instruments, a short-term obligation and a
long-term obligation. The interest rate on the short-term obligation is set at
periodic auctions. The interest rate on the long-term obligation is the rate the
issuer would have paid on the fixed income obligation: (i) plus the difference
between such fixed rate and the rate on the short-term obligation, if the
short-term rate is lower than the fixed rate; or (ii) minus such difference if
the interest rate on the short-term obligation is higher than the fixed rate.
The interest rates on these obligations generally move in the reverse direction
of market interest rates. If market interest rates fall, the interest rate on
the obligation will increase and if market interest rates increase, the interest
rate on the obligation will fall. Inverse floating rate municipal obligations
offer the potential for higher income than is available from fixed rate
obligations of comparable maturity and credit rating. They also carry greater
risks. In particular, the prices of inverse floating rate municipal obligations
are more volatile, i.e., they increase and decrease in response to changes in
interest rates to a greater extent than comparable fixed rate obligations.
22
<PAGE> 23
(This Page Intentionally Left Blank)
<PAGE> 24
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Peter Avelar
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
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME TRUST
Annual Report
August 31, 2000
