<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS February 29, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion into the new year with
strong growth sustaining full employment. Rising commodity prices, led by oil,
which moved above $30 per barrel, heightened concern about inflation. The
Federal Reserve Board reacted by raising the federal funds rate by 25 basis
points in February and March. This marked the fourth and fifth times in less
than a year that the central bank has increased short-term rates. Economic
growth and a less accommodative monetary policy caused long-term interest rates
to rise throughout 1999 and into January 2000. In February, the U.S. Treasury
announced its plan to use the federal budget surplus to retire debt,
precipitating a rally in long Treasury securities.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began 1999 near a record low yield of 5.05
percent, but increased to 5.97 percent by year-end. This index reached a high of
6.18 percent in January 2000 before closing February at 6.04 percent. Because
bond prices move inversely to changes in interest rates, higher yields caused
bond prices to decline significantly. For the 1999 calendar year the increase in
the index yield translated into a 13 percent price decline for a generic
insured-municipal bond with a 30-year maturity.
The ratio of municipal yields as a percentage of Treasury yields has been used
historically as a measure of relative value. Over the past five years the ratio
has ranged between an average high of 93 percent and an average low of 85
percent. The increase in the ratio from 92 percent at the beginning of 1999, to
98 percent in February 2000 is primarily attributed to the magnitude of the
rally in long-term Treasuries. A rising yield ratio indicates weaker relative
performance by municipals.
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent. Refunding activity, the most interest-rate-sensitive
component of supply, was down more than
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
50 percent. In the first two months of this year, volume was 30 percent lower
than the same period last year.
30-YEAR BOND YIELDS 1994 - 2000
<TABLE>
<CAPTION>
Insured U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percent 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
5.15 5.63 91.47
5.20 5.66 91.87
5.30 5.83 90.91
5.47 5.96 91.78
5.55 6.10 90.98
5.75 6.06 94.88
5.85 6.05 96.69
6.03 6.16 97.89
6.00 6.29 95.39
5.97 6.48 92.13
2000 6.18 6.49 95.22
6.04 6.14 98.37
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
The performance of Morgan Stanley Dean Witter Municipal Income Trust (TFA) was
affected by the higher-interest-rate environment outlined above. The Fund's net
asset value (NAV) declined from $9.61 to $9.31 per share for the six-month
period ended February 29, 2000. Based on this change, plus reinvestment of
tax-free dividends totaling $0.25 per share and a long-term capital gain
distribution of $0.011412 per share paid on December 17, 1999, the Fund's total
NAV return was 0.07 percent. TFA's Price on the New York Stock Exchange (NYSE)
moved from $7.8125 to $7.9375 per share during the same period. Based on this
change, plus the reinvestment of distributions, TFA's total market return was
4.95 percent. As of February 29, 2000 TFA's share price was at a 14.7 percent
discount to its NAV.
Monthly dividends for the first quarter of 2000, declared in January were
unchanged at $0.0425 per share. The Fund's level of undistributed net investment
income declined from $0.111 per share to $0.107 per over the past six months.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
PORTFOLIO STRUCTURE
The Fund's net assets of $263 million were diversified among 16 long-term
sectors and 63 credits. Holdings in the refunded bond category comprised 6
percent of net assets. These bonds have been refinanced and will be redeemed on
the dates shown in the portfolio. At the end of February the portfolio's average
maturity was 19 years and its average duration, a measure of sensitivity to
interest rate changes was 9.6 years. The accompanying charts provide current
information on the portfolio's credit quality, sector distribution and
geographic diversification. Optional call provisions by year and their
respective cost (book) yields are also charted.
LOOKING AHEAD
The Federal Reserve Board has expressed concern over prices and rising consumer
wealth. It is anticipated that the central bank will continue to increase
short-term interest rates in an effort to slow the economy. 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 6-month period ended February 29,
2000, the Fund purchased and retired 771,800 shares of common stock at a
weighted average market discount of 14.57 percent.
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>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
[BAR CHART]
<TABLE>
<CAPTION>
LARGEST SECTORS as of February 29, 2000
(% of Net Assets)
<S> <C>
General Obligation 17%
Transportation 14%
Mortgage 14%
Water & Sewer 10%
Education 7%
Electric 7%
Hospital 7%
Refunded 6%
IDR/PCR* 5%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
[PIE CHART]
<TABLE>
<CAPTION>
CREDIT RATINGS as of February 29, 2000
(% of Total Long-Term Portfolio)
<S> <C>
AAA/AAA 52%
AA/AA 27%
A/A 8%
BAA/BBB 9%
NR 4%
</TABLE>
As measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp.
Portfolio structure is subject to change.
[SUMMARY OF INVESTMENTS]
<TABLE>
<CAPTION>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 29, 2000
<S> <C>
Alabama 6.8%
Alaska 3.7
Arizona 1.8
California 11.8
Colorado 3.3
Connecticut 1.3
District of Columbia 0.7
Florida 2.2
Georgia 2.3
Hawaii 5.5
Illinois 4.1
Maryland 1.9
Massachusetts 5.3
Michigan 3.4
Missouri 2.2
Nevada 1.1
New Jersey 3.0
New York 11.7
North Carolina 3.4
North Dakota 0.7
Ohio 2.0
Oklahoma 1.9
Pennsylvania 3.6
Rhode Island 0.4
South Carolina 0.7
Tennessee 2.7
Texas 5.5
Utah 0.7
Virginia 3.8
Washington 0.8
Joint Exemptions* (1.1)
-----
Total 97.2%
=====
</TABLE>
- --------------------------
* Joint exemptions have been included in each geographic location.
Portfolio structure is subject to change.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
YEARS BOND CALLABLE PERCENT CALLABLE*
- ------------------- -----------------
<S> <C>
2000 4%
2001 1%
2002 3%
2003 5%
2004 8%
2005 16%
2006 7%
2007 18%
2008 9%
2009 11%
2010+ 18%
Weighted Average Call Protection: 8 Years
</TABLE>
<TABLE>
<CAPTION>
COST (BOOK) YIELD **
--------------------
<S> <C>
2000 8.14%
2001 7.74%
2002 6.34%
2003 5.86%
2004 5.38%
2005 6.01%
2006 5.97%
2007 5.91%
2008 5.58%
2009 5.79%
2010+ 5.90%
Weighted Average Book Yield: 5.92%
</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 7.74% on 1% of the long-term
portfolio that are callable in 2001.
Portfolio structure is subject to change.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 21, 1999, 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>
Wayne E. Hedien
For......................................................... 22,443,055
Withheld.................................................... 694,911
Dr. Manuel H. Johnson
For......................................................... 22,448,031
Withheld.................................................... 689,935
John L. Schroeder
For......................................................... 22,329,471
Withheld.................................................... 808,495
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent
and Philip J. Purcell.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 22,479,025
Against..................................................... 214,636
Abstain..................................................... 444,305
</TABLE>
(3) SHAREHOLDER PROPOSAL TO AMEND THE FUND'S DECLARATION OF TRUST TO REQUIRE
EACH TRUSTEE, WITHIN THIRTY DAYS OF ELECTION, TO BECOME A SHAREHOLDER OF THE
FUND:
<TABLE>
<S> <C>
For......................................................... 4,154,709
Against..................................................... 10,037,003
Abstain..................................................... 1,287,020
</TABLE>
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX- EXEMPT MUNICIPAL BONDS (97.2%)
General Obligation (16.5%)
$ 4,400 Moulton-Niguel Water District, California, 1993 Refg
(MBIA)..................................................... 5.00% 09/01/19 $ 3,935,316
2,000 District of Columbia, Ser 1999 A (FSA)...................... 5.375 06/01/24 1,789,580
5,000 Hawaii, 1999 Ser CT (FSA)................................... 5.875 09/01/16 5,039,500
5,000 Washington Suburban Sanitary District, Maryland, Gen Constr
Refg 1994.................................................. 5.00 06/01/10 4,897,550
Massachusetts,
5,000 1994 Ser A................................................. 5.00 01/01/11 4,817,300
4,000 2000 Ser A................................................. 6.00 02/01/16 4,093,080
4,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 4,230,800
5,000 New York State, Refg Ser 1995 B............................. 5.625 08/15/09 5,080,500
5,000 North Carolina, Public School Ser 1999...................... 4.60 04/01/17 4,278,000
5,125 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/11 5,189,164
- -------- -----------
44,525 43,350,790
- -------- -----------
Educational Facilities Revenue (7.1%)
5,000 California Public Works Board, University of California 1993
Refg Ser A................................................. 5.50 06/01/21 4,718,600
New York State Dormitory Authority,
5,000 City University Ser 2000 A (AMBAC) (WI).................... 6.125 07/01/13 5,232,650
2,500 State University Ser 1995 A................................ 6.50 05/15/05 2,641,200
2,500 State University Ser 1995 A................................ 6.50 05/15/06 2,649,975
4,000 State University Ser 1997.................................. 5.125 05/15/27 3,373,320
- -------- -----------
19,000 18,615,745
- -------- -----------
Electric Revenue (6.9%)
15,000 Southern California Public Power Authority, Mead-Adelanto
1994 Ser A (AMBAC)......................................... 5.15 07/01/15 14,162,550
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
FSA)*...................................................... 5.00 07/01/21 1,720,040
2,500 Washington Public Power Supply System, Project #1 Refg Ser
1998 A..................................................... 5.125 07/01/17 2,224,000
- -------- -----------
19,500 18,106,590
- -------- -----------
Hospital Revenue (7.4%)
3,000 Birmingham-Carraway Special Care Facilities Financing
Authority, Alabama, Carraway Methodist Health Ser 1995 A
(Connie Lee)............................................... 5.875 08/15/15 2,998,410
2,500 Tampa, Florida, Catholic Health Ser 1998 A-2 (AMBAC)........ 4.875 11/15/28 2,046,875
3,000 Chatham County Hospital Authority, Georgia, Memorial Medical
Center Inc Ser 1996 A (AMBAC).............................. 5.25 01/01/16 2,818,470
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 29, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,815 Henderson, Nevada, Catholic Health West 1998 Ser A.......... 5.375% 07/01/26 $ 2,884,903
5,000 North Carolina Medical Care Commission, Presbyterian Health
Services Corp Refg Ser 1993................................ 5.50 10/01/20 4,590,350
5,000 Pennsylvania Higher Educational Facilities Authority,
University of Pennsylvania Ser A 1996...................... 5.75 01/01/22 4,212,150
- -------- -----------
22,315 19,551,158
- -------- -----------
Industrial Development/Pollution Control Revenue (4.5%)
2,655 Lapeer Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 A (AMT).......................... 10.65 11/15/17 1,938,150
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,071,650
5,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 4,702,350
- -------- -----------
12,655 11,712,150
- -------- -----------
Mortgage Revenue - Multi-Family (2.3%)
5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A
(AMBAC).................................................... 6.00 11/01/14 5,016,800
940 Rhode Island Housing & Mortgage Finance Corporation, Rental
1989 Ser B (AMT)........................................... 7.95 10/01/20 960,830
- -------- -----------
5,940 5,977,630
- -------- -----------
Mortgage Revenue - Single Family (11.4%)
10,000 Alaska Housing Finance Corporation, 1997 D Ser A (MBIA)..... 6.00 06/01/27 9,686,300
2,090 Colorado Housing Finance Authority, 1997 Ser B-2 (AMT)...... 7.00 05/01/26 2,191,762
10,000 Hawaii Housing Finance & Development Corporation,
FNMA-Collateralized 1997 Ser A (AMT)....................... 5.75 07/01/30 9,281,800
1,960 Chicago, Illinois, GNMA-Backed Ser 1997-A (AMT)............. 7.25 09/01/28 2,094,574
1,720 Missouri Housing Development Commission, GNMA-Backed 1997
Ser A-2 (AMT).............................................. 7.30 03/01/28 1,843,548
1,770 North Dakota Housing Finance Agency, 1990 Ser B (AMT)....... 7.75 07/01/24 1,821,542
695 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)... 7.85 09/01/21 714,078
2,230 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/17 2,274,533
- -------- -----------
30,465 29,908,137
- -------- -----------
Nursing & Health Related Facilities Revenue (0.6%)
2,000 New York State Dormitory Authority, Mental Health Ser 1999 C
(MBIA)..................................................... 4.75 08/15/22 1,644,600
- -------- -----------
Public Facilities Revenue (1.4%)
3,495 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)....... 6.25 12/15/20 3,629,558
- -------- -----------
Recreational Facilities Revenue (2.8%)
4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1997 Ser B................................................. 5.75 09/01/27 3,542,240
4,000 American National Fish & Wildlife Museum District, Missouri,
Ser 1999................................................... 7.00 09/01/19 3,848,120
- -------- -----------
8,000 7,390,360
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 29, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Resource Recovery Revenue (2.0%)
$ 5,000 Greater Detroit Resource Recovery Authority, Michigan, 1996 6.25% 12/13/08 $ 5,340,650
- -------- Ser A (AMBAC).............................................. -----------
Retirement & Life Care Facilities Revenue (2.0)%
4,250 Riverside County Public Financing Authority, California, Air
Force Village West Inc COPs................................ 5.80 05/15/29 3,432,003
1,850 Charleston County, South Carolina, Sandpiper Village Inc
Refg Ser 1988.............................................. 8.00 11/01/13 1,854,551
- -------- -----------
6,100 5,286,554
- -------- -----------
Transportation Facilities Revenue (13.5%)
15,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 6,372,000
3,000 Regional Transportation Authority, Illinois, Refg Ser 1999
(FSA)...................................................... 5.75 06/01/21 2,934,930
770 Southwestern Development Authority, Illinois, Tri-City
Regional Port District Ser 1989 A (AMT) (a)................ 7.90 07/01/14 786,039
2,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997
Ser A (MBIA)............................................... 5.00 01/01/37 1,651,100
2,150 Wayne County, Michigan, Charter Airport Ser 1998 B (MBIA)... 4.875 12/01/23 1,781,813
2,000 Ohio Turnpike Commission, Ser 1998 B (FGIC)................. 4.50 02/15/24 1,576,440
3,000 Delaware River Port Authority, New Jersey & Pennsylvania,
Ser 1995 (FGIC)++.......................................... 5.50 01/01/26 2,807,730
5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 4,932,550
5,000 Dallas-Fort Worth International Airport, Texas, Refg Ser
1995 (FGIC)................................................ 5.625 11/01/15 4,915,300
2,000 Pocahontas Parkway Association, Virginia, Route 895
Connector 1998 Ser A....................................... 5.50 08/15/28 1,580,780
6,000 Virginia Transportation Board, US Route 28 Ser 1992......... 6.50 04/01/18 6,159,300
- -------- -----------
45,920 35,497,982
- -------- -----------
Water & Sewer Revenue (9.5%)
10,000 Jefferson County, Alabama, Sewer Ser 1997 (FGIC)............ 5.75 02/01/22 9,720,500
5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Water Ser 1994............................................. 5.45 07/01/19 4,711,300
2,000 Lee County, Florida, Water & Sewer 1999 Ser A (AMBAC)....... 4.75 10/01/23 1,660,180
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr #9A Ser 1996 A........................ 6.80 08/01/06 2,087,780
4,000 Fulton County, Georgia, Water & Sewerage Ser 1998 (FGIC).... 4.75 01/01/28 3,232,880
Massachusetts Water Resources Authority,
2,000 2000 Ser A (FGIC) (WI)..................................... 6.125 08/01/11 2,131,980
1,510 1993 Ser C................................................. 5.25 12/01/20 1,351,722
- -------- -----------
26,510 24,896,342
- -------- -----------
Other Revenue (3.2%)
3,000 New York City Transitional Finance Authority, 2000 Ser A.... 5.75 08/15/24 2,900,610
3,000 New York Local Government Assistance Corporation, Ser 1995
A.......................................................... 6.00 04/01/24 2,973,390
3,000 Philadelphia, Pennsylvania, Gas Works Second Ser 1998
(FSA)...................................................... 5.00 07/01/23 2,552,190
- -------- -----------
9,000 8,426,190
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS February 29, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (6.1%)
$ 5,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994..... 5.50% 01/01/04+ $ 5,172,250
5,000 Southern California Public Power Authority, Palo Verde Ser A
(AMBAC) (ETM).............................................. 5.00 07/01/15 4,644,900
1,165 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,231,661
2,920 Cleveland, Ohio, Waterworks Impr & Refg Ser H 1996 (MBIA)... 5.75 01/01/06+ 3,061,124
1,875 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/05+ 1,937,306
- -------- -----------
15,960 16,047,241
- -------- -----------
$276,385 TOTAL INVESTMENTS (Identified Cost $262,889,319) (b).................. 97.2% 255,381,677
========
OTHER ASSETS IN EXCESS OF LIABILITIES................................... 2.8 7,459,667
------ -----------
NET ASSETS............................................................. 100.0% $262,841,344
===== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Security purchased on a "when-issued" basis.
* This security is segregated in connection with the purchase
of "when-issued" securities.
+ Prerefunded to call date shown.
++ Joint exemption in locations shown.
(a) Resale is restricted to qualified institutional inventors.
(b) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $2,685,337 and the aggregate gross
unrealized depreciation is $10,192,980, resulting in net
unrealized depreciation of $7,507,642.
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.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $262,889,319)............................. $255,381,677
Cash........................................................ 2,370,660
Receivable for:
Investments sold........................................ 9,089,329
Interest................................................ 3,652,112
Prepaid expenses and other assets........................... 43,654
-----------
TOTAL ASSETS............................................ 270,537,432
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 7,336,668
Shares of beneficial interest repurchased............... 112,939
Investment advisory fee................................. 79,299
Administration fee...................................... 45,382
Accrued expenses and other payables......................... 121,800
-----------
TOTAL LIABILITIES....................................... 7,696,088
-----------
NET ASSETS.............................................. $262,841,344
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $267,917,258
Net unrealized depreciation................................. (7,507,642)
Accumulated undistributed net investment income............. 3,030,726
Accumulated net realized loss............................... (598,998)
-----------
NET ASSETS.............................................. $262,841,344
===========
NET ASSET VALUE PER SHARE
28,218,450 shares outstanding (unlimited shares authorized
of $.01 par value)......................................... $9.31
====================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended February 29, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 7,844,126
-----------
EXPENSES
Investment advisory fee..................................... 460,133
Administration fee.......................................... 263,579
Transfer agent fees and expenses............................ 58,883
Professional fees........................................... 42,095
Shareholder reports and notices............................. 25,623
Registration fees........................................... 8,241
Custodian fees.............................................. 7,582
Trustees' fees and expenses................................. 5,055
Other....................................................... 5,815
-----------
TOTAL EXPENSES.......................................... 877,006
Less: expense offset........................................ (7,568)
-----------
NET EXPENSES............................................ 869,438
-----------
NET INVESTMENT INCOME................................... 6,974,688
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (598,989)
Net change in unrealized appreciation....................... (8,345,212)
-----------
NET LOSS................................................ (8,944,201)
-----------
NET DECREASE................................................ $(1,969,513)
===========
</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 29, 2000 AUGUST 31, 1999
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 6,974,688 $14,651,654
Net realized gain (loss)............................ (598,989) 388,315
Net change in unrealized appreciation............... (8,345,212) (18,209,101)
----------- -----------
NET DECREASE.................................... (1,969,513) (3,169,132)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................... (7,162,288) (13,478,373)
Net realized gain................................... (326,914) (1,853,866)
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (7,489,202) (15,332,239)
----------- -----------
Net decrease from transactions in shares of
beneficial interest................................ (6,175,435) (6,526,596)
----------- -----------
NET DECREASE.................................... (15,634,150) (25,027,967)
NET ASSETS:
Beginning of period................................. 278,475,494 303,503,461
----------- -----------
END OF PERIOD
(Including undistributed net investment income
of $3,030,726 and $3,218,326, respectively)..... $262,841,344 $278,475,494
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS February 29, 2000 (unaudited)
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.
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 29, 2000 (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"), 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 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.
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 29, 2000 (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 29, 2000 aggregated
$26,794,040 and $24,244,168, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At February 29, 2000, the Fund had
transfer agent fees and expenses payable of approximately $8,500.
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 29, 2000,
included in Trustee's fees and expenses in the Statement of Operations amounted
to $2,870. At February 29, 2000, the Fund had an accrued pension liability of
$52,328, 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, 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 14.57%)*.......................................... (771,800) (7,718) (6,167,717)
---------- -------- ------------
Balance, February 29, 2000.................................. 28,218,450 $282,185 $267,635,073
========== ======== ============
</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 29, 2000 (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 28, 1999 $0.0425 March 3, 2000 March 17, 2000
March 28, 2000 $0.0425 April 7, 2000 April 20, 2000
March 28, 2000 $0.0425 May 5, 2000 May 19, 2000
March 28, 2000 $0.0425 June 9, 2000 June 23, 2000
</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 29, 2000 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <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 $10.16
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income................................ 0.25 0.50 0.50 0.57 0.60 0.66
Net realized and unrealized gain (loss).............. (0.33) (0.61) 0.34 0.26 (0.12) 0.04
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations........ (0.08) (0.11) 0.84 0.83 0.48 0.70
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................................ (0.25) (0.46) (0.54) (0.58) (0.60) (0.60)
Net realized gain.................................... (0.01) (0.06) (0.09) --** (0.09) (0.34)
------ ------ ------ ------ ------ ------
Total dividends and distributions..................... (0.26) (0.52) (0.63) (0.58) (0.69) (0.94)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares..... 0.04 0.03 0.01 0.02 0.01 --
------ ------ ------ ------ ------ ------
Net asset value, end of period........................ $ 9.31 $ 9.61 $10.21 $ 9.99 $ 9.72 $ 9.92
====== ====== ====== ====== ====== ======
Market value, end of period........................... $7.938 $7.813 $ 9.44 $ 9.50 $ 9.25 $ 9.00
====== ====== ====== ====== ====== ======
TOTAL RETURN+......................................... 4.95%(1) (12.25)% 6.16% 9.23% 10.75% 7.78%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................. 0.65%(2) 0.66%(3) 0.66%(3) 0.63% 0.64% 0.65%
Net investment income................................. 5.20%(2) 4.94% 4.92% 5.68% 6.03% 6.70%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............... $262,841 $278,475 $303,503 $301,708 $301,835 $313,768
Portfolio turnover rate............................... 9%(1) 16% 13% 22% 33% 14%
</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) Not annualized.
(2) Annualized
(3) Does not reflect the effect of expense offset of 0.01%
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
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.
19
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
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 MANAGER
- ----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME TRUST
Semiannual Report
February 29, 2000
