<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998
Two World Trade Center,
New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Morgan Stanley
Dean Witter Quality Municipal Income Trust (IQI) for the fiscal year ended
October 31, 1998.
On December 21, 1998, after the close of the period under review, the Trust
changed its name from InterCapital Quality Municipal Income Trust to Morgan
Stanley Dean Witter Quality Municipal Income Trust. Information on the name
change was mailed to shareholders in mid-December under separate cover.
Since our last report six months ago, global financial turmoil, including the
Russian currency crisis, has continued to affect the securities markets. This
led to a flight-to-quality rally for U.S. Treasury bonds, with yields falling
to 30-year lows. Municipal bond yields declined but lagged the downward trend
of Treasury yields.
MMD 30 YEAR AAA INSURED AND TREASURY YIELD
The october 1998 data needs to be added to the Bond Yield Graph for the
following annual reports:
MORGAN STANLEY DEAN WITTER CAL INSD MUN INC (IIC)
MORGAN STANLEY DEAN WITTER INSD MUNI BOND (IMB)
MORGAN STANLEY DEAN WITTER INSD MUNI INCOME (IIM)
MORGAN STANLEY DEAN WITTER INSD MUNI SEC (IMS)
MORGAN STANLEY DEAN WITTER QUALITY MUNI INC (IQI)
MORGAN STANLEY DEAN WITTER QUALITY MUNI SEC (IQM)
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Date AAA Ins Tsy % Relationship
---- ------- --- --------------
<S> <C> <C> <C>
12/31/93 5.40% 6.34% 85.17%
01/31/94 5.40 6.24 86.54%
02/28/94 5.80 6.66 87.09%
03/31/94 6.40 7.09 90.27%
04/29/94 6.35 7.32 86.75%
05/31/94 6.25 7.43 84.12%
06/30/94 6.50 7.61 85.41%
07/29/94 6.25 7.39 84.57%
08/31/94 6.30 7.45 84.56%
09/30/94 6.55 7.81 83.87%
10/31/94 6.75 7.96 84.80%
11/30/94 7.00 8.00 87.50%
12/30/94 6.75 7.88 85.66%
01/31/95 6.40 7.70 83.12%
02/28/95 6.15 7.44 82.66%
03/31/95 6.15 7.43 82.77%
04/28/95 6.20 7.34 84.47%
05/31/95 5.80 6.66 87.09%
06/30/95 6.10 6.62 92.15%
07/31/95 6.10 6.86 88.92%
08/31/95 6.00 6.66 90.09%
09/29/95 5.95 6.48 91.82%
10/31/95 5.75 6.33 90.84%
11/30/95 5.50 6.14 89.58%
12/29/95 5.35 5.94 90.07%
01/31/96 5.40 6.03 89.55%
02/29/96 5.60 6.46 86.69%
03/29/96 5.85 6.66 87.84%
04/30/96 5.95 6.89 86.36%
05/31/96 6.05 6.99 86.55%
06/28/96 5.90 6.89 85.63%
07/31/96 5.85 6.97 83.93%
08/30/96 5.90 7.11 82.98%
09/30/96 5.70 6.93 82.25%
10/31/96 5.65 6.64 85.09%
11/29/96 5.50 6.35 86.61%
12/31/96 5.60 6.63 84.46%
01/31/97 5.70 6.79 83.95%
02/28/97 5.65 6.80 83.09%
03/31/97 5.90 7.10 83.10%
04/30/97 5.75 6.94 82.85%
05/30/97 5.65 6.91 81.77%
06/30/97 5.60 6.78 82.60%
07/30/97 5.30 6.30 84.13%
08/31/97 5.50 6.61 83.21%
09/30/97 5.40 6.40 84.38%
10/31/97 5.35 6.15 86.99%
11/30/97 5.30 6.05 87.60%
12/31/97 5.15 5.92 86.99%
01/31/98 5.15 5.80 88.79%
02/28/98 5.20 5.92 87.84%
03/31/98 5.25 5.93 88.53%
04/30/98 5.35 5.95 89.92%
05/29/98 5.20 5.80 89.66%
06/30/98 5.20 5.65 92.04%
07/31/98 5.18 5.71 90.72%
08/31/98 5.03 5.27 95.45%
09/30/98 4.95 5.00 99.00%
10/31/98 5.05 5.16 97.87%
</TABLE>
The deflationary impact of the international financial crisis began to temper
U.S. economic growth prior to the summer's tumultuous market activity. Lower
commodity prices, cheaper imports and improved
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
productivity offset the potential inflationary impact of strong domestic
employment. With inflation held in check the Federal Reserve Board provided
liquidity to the markets by lowering short-term interest rates. Since the end
of September, the Federal Reserve Open Market Committee cut the federal funds
rate 75 basis points from 5.50 percent to 4.75 percent in three separate moves.
MUNICIPAL MARKET CONDITIONS
Municipal bond yields followed the downward trend of Treasury yields at a more
moderate pace. At the end of October, long-term insured municipal index yields
stood at 5.05 percent, index yields declined 30 basis points over the last 12
months. In contrast, 30-year U.S. Treasury yields fell 100 basis points during
the same period.
As municipals lagged the rally in Treasuries, the ratio of municipal yields to
Treasury yields rose sharply to 98 percent. (A rising ratio means that
municipals have underperformed Treasuries and have become more attractive on a
relative basis.) This increase was similar to the jump witnessed in 1986, when
tax-reform proposals threatened the favorable tax advantage of municipal bonds.
The overall decline in interest rates has led to a substantial increase in
new-issue municipal volume. Municipal issuance is on a pace to challenge 1993's
underwriting record of $292 billion. Year-to-date, total municipal volume of
$234 billion is up 32 percent. Half the underwriting volume was enhanced with
bond insurance. Refundings represented 30 percent of total new issuance.
PERFORMANCE
The Trust's net asset value (NAV) increased from $15.91 to $16.26 per share
during the fiscal year ended October 31, 1998. Based on this NAV change plus
reinvestment of tax-free dividends of $0.93 per share and taxable capital gain
distributions of $0.03 per share, the Trust's total NAV return was 8.68
percent. IQI's price on the New York Stock Exchange moved from $14.875 to
$15.75 per share. Based on this change in market price plus reinvestment of
dividends and capital gain distributions, the Trust's total market return was
12.66 percent. On October 31, 1998, the Trust traded at a 3.14 percent discount
to NAV.
Monthly dividends for the fourth quarter of 1998 were declared in September.
The October 1998 monthly dividend was $0.0775 per share. The level of
undistributed net investment income increased from $0.064 to $0.086 per share.
Subsequent to the end of the fiscal year, the Trust declared a capital gain
distribution of $0.047 per share.
PORTFOLIO STRUCTURE
The Trust remained fully invested in long-term municipal bonds during the
fiscal year. Investments were diversified among 13 long-term sectors and 72
credits. As illustrated in the accompanying chart, the distribution of call
dates in the portfolio produced 4 years of weighted average call protection.
2
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
<TABLE>
<CAPTION>
CALL STRUCTURE (BAR GRAPH):
- ---------------------------
CALL DATES QUAL. MUNI. INC.
- ---------- ----------------
<S> <C>
1998 0%
1999 2%
2000 0%
2001 12%
2002 63%
2003 16%
2004 0%
2005 1%
2006 0%
2007 1%
2008 2%
2009+ 3%
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
<TABLE>
<CAPTION>
Category
- --------
LARGEST SECTORS (PIE CHART) QUAL. MUNI. INC.
- --------------------------- ----------------
<S> <C>
Transportation 11%
General Obligation -
Electric 8%
Refunded 29%
Water & Sewer -
Mortgage 13%
Hospital 8%
Public Fac. -
Tax Allocation -
IDR/PCR 8%
Education -
All Other 23%
Total 100%
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
<TABLE>
<CAPTION>
CREDIT RATINGS (PIE CHART):
- ---------------------------
RATINGS MOODY'S/S&P QUAL. MUNI. INC.
- ------------------- ----------------
<S> <C>
Aaa/AAA 48%
Aa/AA 28%
A/A 23%
Baa/BBB 1%
Ba/BB -
NR
TOTAL 100%
</TABLE>
3
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
At the time of issuance, municipal bonds generally have 10 years of protection
from the municipality's option to call bonds for redemption. Interest rates
have declined since the Trust's inception and we anticipate that most municipal
issuers will use their optional call provisions to refinance portfolio holdings
at lower yields. In fact, the bonds in the refunded category have been
refinanced and the call dates have been announced.
The Trust's weighted average maturity was 14 years. Average duration (a measure
of price volatility to interest rate changes) was 4 years. Throughout the
fiscal period, high credit quality was maintained, with 76 percent of IQI's
long-term holdings rated double or triple "A".
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution
to common shareholders includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second
is the spread between the portfolio's cost yield and ARPS expenses (ARPS
auction rate and expenses). The greater the spread and the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders. The level of net investment income
available for distribution to common shareholders varies with the level of
short-term interest rates.
During the 12-month period, ARPS leverage contributed approximately $0.13 per
share to common share earnings. Weekly ARPS yields ranged between 2.65 and 5.00
percent. Five ARPS series totaling
$208 million represented 28 percent of net assets.
LOOKING AHEAD
Global economic conditions seem likely to keep inflationary pressures under
control and have contributed to lower interest rates. The fixed-income markets
have also begun to anticipate the possibility of additional monetary easing by
the Fed. With the municipal relationship to Treasuries more favorable than it
has been in the last 10 years, the outlook for municipal bonds is positive.
The Trust's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Trust's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Trust 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. The Trust may also utilize procedures to reduce
or eliminate the amount of outstanding ARPS, including their
4
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1998, continued
purchase in the open market or in privately negotiated transactions. During the
fiscal year, the Trust purchased and retired 240,400 shares of common stock at
a weighted average market discount of 5.89 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Quality
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
5
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 20, 1998, an annual meeting of the Trust's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
<TABLE>
<CAPTION>
<S> <C>
Edwin J. Garn
For .............. 26,194,393
Withheld ......... 972,952
Michael E. Nugent
For .............. 26,473,370
Withheld ......... 693,975
Philip J. Purcell
For .............. 26,365,333
Withheld ......... 802,012
</TABLE>
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
<TABLE>
<CAPTION>
<S> <C>
John R. Haire
For .............. 3,051
Withheld ......... 0
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H. Johnson
and John L. Schroeder.
(3) RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE TRUST'S INDEPENDENT
ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ............. 26,000,724
Against ......... 426,635
Abstain ......... 739,986
</TABLE>
In addition, a shareholder proposal to amend the Trust's Declaration of Trust
to require each Trustee, within 30 days of election, to become a shareholder of
the Trust failed to obtain the necessary quorum of a majority of each of the
common and preferred shares outstanding and entitled to vote at the meeting.
Although no quorum was obtained, the following represents the total of the
shares whose votes were returned to the Trust prior to the meeting.
VOTE:
<TABLE>
<CAPTION>
Number of Common Shares Number of Preferred Shares
- ----------------------- --------------------------
<S> <C> <C> <C>
For ................... 4,424,036 For .............. 160
Against ............... 6,937,345 Against .......... 343
Abstain ............... 1,170,652 Abstain .......... 112
</TABLE>
6
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.9%)
General Obligation (6.5%)
Hawaii,
$ 5,000 1992 Ser BZ .............................................................. 6.00 % 10/01/10 $ 5,690,800
8,000 1992 Ser BZ .............................................................. 6.00 10/01/11 9,123,440
4,000 Cook County, Illinois, Ser 1992 C (FGIC) ................................. 6.00 11/15/09 4,581,320
New York City, New York,
115 1993 Ser B ............................................................... 7.00 10/01/11 128,784
110 1993 Ser B ............................................................... 7.00 10/01/13 123,185
125 1993 Ser B ............................................................... 7.00 10/01/14 139,982
585 1993 Ser B ............................................................... 6.75 10/01/15 650,315
2,030 1992 Ser B ............................................................... 7.00 02/01/20 2,230,158
10,000 San Antonio, Texas, Refg Ser 1992 ........................................ 5.75 08/01/13 10,625,000
15,000 Washington, Ser 1993 A ................................................... 5.75 10/01/17 15,829,350
-------- ------------
44,965 49,122,334
-------- ------------
Educational Facilities Revenue (1.3%)
2,500 University of Illinois, Auxiliary Ser 1991 ............................... 5.75 04/01/22 2,620,375
Scranton-Lackawanna Health & Welfare Authority, Pennsylvania,
3,000 University of Scranton 1992 Ser A ........................................ 6.40 03/01/07 3,260,670
3,300 University of Scranton 1992 Ser A ........................................ 6.50 03/01/13 3,539,811
-------- ------------
8,800 9,420,856
-------- ------------
Electric Revenue (8.3%)
9,500 Orlando Utilities Commission, Florida, Ser 1991 A ........................ 5.50 10/01/26 9,663,210
10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B (Secondary
MBIA) .................................................................... 6.375 01/01/16 11,031,900
5,000 Hastings, Nebraska, Refg Ser 1992 ........................................ 6.30 01/01/19 5,401,500
10,000 Hamilton!, Ohio, Refg 1992 Ser A (FGIC) .................................. 6.00 10/15/23 10,896,300
3,000 Philadelphia, Pennsylvania, Gas Works First Ser 1998 B (FSA) ............. 5.00 07/01/28 2,949,660
Grant County Public Utility District #2, Washington,
8,220 Priest Rapids Hydro Second Ser 1992 A ................................... 5.00 01/01/23 8,038,913
8,000 Wanapum Hydro Second Ser 1992 A ......................................... 6.375 01/01/23 8,562,080
5,000 Wanapum Hydro Second Ser 1992 B (AMT) ................................... 6.75 01/01/23 5,384,450
-------- ------------
58,720 61,928,013
-------- ------------
Hospital Revenue (8.4%)
5,000 Birmingham- Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee) ............... 5.875 08/15/15 5,369,550
2,500 Fulco Hospital Authority, Georgia, Catholic Health East Ser 1998 A
(MBIA) ................................................................... 4.875 11/15/18 2,448,275
9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts
General Hospital Ser F (AMBAC) ........................................... 6.00 07/01/15 9,933,483
10,000 Missouri Health & Educational Facilities Authority, Health Midwest Ser
1992 B (MBIA) ............................................................ 6.25 02/15/22 10,846,100
5,000 New York State Dormitory Authority, Long Island Jewish Medical
Center Ser 1998 (MBIA) ................................................... 5.00 07/01/18 4,993,450
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000 New York State Medical Care Facilities Finance Agency,
The Mount Sinai Hospital -- FHA Insured Mortgage 1992 Ser C ............... 5.75 % 08/15/19 $ 10,377,400
4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992 .......... 5.50 11/15/11 4,730,805
5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/
The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA) .................. 6.25 07/01/16 5,457,550
3,000 Philadelphia Hospitals & Higher Education Facilities Authority,
Pennsylvania, Chestnut Hill Hospital Ser of 1992 .......................... 6.375 11/15/11 3,228,060
5,000 South Dakota Health & Educational Facilities Authority, Queen of
-------- Peace Hospital Ser 1992 (MBIA) ............................................ 6.70 07/01/17 5,515,500
------------
59,250 62,900,173
-------- ------------
Industrial Development/Pollution Control Revenue (8.0%)
6,000 California Pollution Control Financing Authority, Keller Canyon Landfill
Co/ Browning-Ferris Industries Inc Ser 1992 (AMT) ......................... 6.875 11/01/27 6,591,600
5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B ................ 6.35 02/01/22 5,438,400
3,500 St Lucie County, Florida, Florida Power & Light Co Ser 1991 (AMT) ......... 7.15 02/01/23 3,788,680
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT)
(MBIA) .................................................................... 6.65 06/01/17 5,521,800
15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co
Ser 1984 .................................................................. 6.50 10/01/14 16,507,200
10,000 Brazos River Authority, Texas, Houston Lighting & Power Co
Ser 1992 B (MBIA) ......................................................... 6.375 04/01/12 11,014,900
10,000 Mason County, West Virginia, Appalachian Power Co Ser J ................... 6.60 10/01/22 10,738,500
-------- ------------
54,500 59,601,080
-------- ------------
Mortgage Revenue -- Multi-Family (5.6%)
7,000 Illinois Housing Development Authority, Ser I ............................. 6.625 09/01/12 7,460,460
16,245 Michigan Housing Development Authority, Rental 1992 Ser A
(Bifurcated FSA) .......................................................... 6.50 04/01/23 17,285,655
Missouri Housing Development Commission,
7,155 Federally Insured Mortgage Loans Refg Ser 11/15/92 ........................ 6.50 07/01/16 7,436,549
9,130 Federally Insured Mortgage Loans Refg Ser 11/15/92 ........................ 6.60 07/01/24 9,495,291
-------- ------------
39,530 41,677,955
-------- ------------
Mortgage Revenue -- Single Family (7.7%)
16,495 Connecticut Housing Finance Authority, 1992 Ser B ......................... 6.70 11/15/12 17,897,075
6,570 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C ............ 6.50 12/01/11 6,986,932
1,250 Idaho Housing Agency, 1992 Ser E (AMT) .................................... 6.75 07/01/12 1,334,563
Minnesota Housing Finance Agency,
3,020 Ser 1992 D-1 .............................................................. 6.50 01/01/17 3,212,797
6,585 Ser 1992 CD-1 (AMT) ....................................................... 6.75 07/01/23 6,989,846
20,360 Virginia Housing Development Authority, 1992 Ser B SubSer B-2 (AMT) 6.80 07/01/21 21,345,831
-------- ------------
54,280 57,767,044
-------- ------------
Nursing & Health Related Facilities Revenue (1.6%)
11,250 Minneapolis & Saint Paul Housing & Redevelopment Authority,
-------- Minnesota, Group Health Plan Inc Ser 1992 ................................. 6.90 10/15/22 12,310,650
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Public Facilities Revenue (3.0%)
$ 10,000 Atlanta Downtown Development Authority, Georgia, Underground
Atlanta Refg Ser 1992 .................................................... 6.25 % 10/01/16 $ 10,872,900
3,645 Illinois, Civic Center Ser 1990 A (AMBAC) ................................ 6.00 12/15/15 3,812,415
7,370 Indianapolis Local Public Improvement Bond Bank, Indiana,
-------- Ser 1992 D ............................................................... 6.75 02/01/20 8,156,969
------------
21,015 22,842,284
-------- ------------
Resource Recovery Revenue (1.8%)
12,930 Broward County, Florida, Broward Waste Energy Co North Ser 1984 .......... 7.95 12/01/08 13,831,221
-------- ------------
Transportation Facilities Revenue (10.6%)
Dade County, Florida,
3,000 Aviation 1992 Ser B (AMT) (MBIA) ......................................... 6.55 10/01/13 3,315,840
5,000 Aviation 1992 Ser B (AMT) (MBIA) ......................................... 6.60 10/01/22 5,525,750
13,000 Chicago, Illinois, Chicago -- O'Hare Int'l Terminal Ser 1992 (AMT)
(MBIA) ................................................................... 6.75 01/01/12 14,140,230
20,000 Illinois Toll Highway Authority, Priority 1992 Ser A ..................... 6.375 01/01/15 21,789,800
5,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997
Ser A (MBIA) ............................................................. 5.00 01/01/37 4,874,900
15,000 St Louis, Missouri, Lambert -- St Louis Int'l Airport Ser 1992 (AMT)
(FGIC) ................................................................... 6.00 07/01/08 16,112,700
3,250 Minneapolis -- Saint Paul Metropolitan Airports Commission,
Minnesota, Ser 1998 A (AMBAC) ............................................ 5.00 01/01/30 3,199,300
300 Clark County, Nevada, Las Vegas -- McCaran Int'l Airport Passenger
Facility Charge 1992 Ser B (AMT) ......................................... 6.25 07/01/22 324,987
6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V ............... 6.625 07/01/12 6,571,140
3,750 North Texas Tollway Authority, Dallas North Tollway Ser 1998 ............. 4.75 01/01/29 3,570,900
-------- ------------
74,300 79,425,547
-------- ------------
Water & Sewer Revenue (5.9%)
10,000 Massachusetts Water Resources Authority, 1992 Ser B ...................... 5.50 11/01/15 10,329,800
20,000 New York City Municipal Water Finance Authority, New York,
Ser 1993 A ............................................................... 6.00 06/15/17 21,525,800
7,510 Houston, Texas, Water & Sewer Jr Lien Refg Ser 1991 C (AMBAC) ............ 6.375 12/01/17 8,146,472
3,895 Fairfax County Water Authority, Virginia, Refg Ser 1992 .................. 6.00 04/01/22 4,307,753
-------- ------------
41,405 44,309,825
-------- ------------
Refunded (29.2%)
7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A ................... 6.60 12/01/02+ 8,416,800
10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC) .............. 6.50 10/01/02+ 11,258,200
20,000 Jefferson County School District #R-1, Colorado, Ser 1992 (AMBAC) ........ 6.00 12/15/02+ 21,932,600
7,500 District of Columbia, 1992 Ser B (MBIA) .................................. 6.30 06/01/02+ 8,264,475
10,000 District of Columbia, Howard University Refg Ser 1992 A .................. 6.75 10/01/02+ 11,258,500
9,800 Orlando, Florida, Cap Impr Refg Ser 1992 ................................. 6.00 10/01/01+ 10,628,296
6,000 Tampa, Florida, Allegany Health/St Joseph's Hospital Ser 1991 (MBIA) ..... 6.00 12/01/01+ 6,519,360
8,550 Maine Municipal Bond Bank, 1992 Ser E .................................... 6.25 11/01/02+ 9,516,492
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000 Massachusetts Water Resources Authority, 1990 Ser A .................... 6.50 % 12/01/01+ $ 11,016,500
5,000 University of Michigan, Medical Service Plan Ser 1991 .................. 6.50 12/01/01+ 5,497,750
19,700 Clark County, Nevada, Las Vegas -- McCaran Int'l Airport Passenger
Facility Charge 1992 Ser B (AMT) ....................................... 6.25 07/01/02+ 21,752,149
Washoe County School District, Nevada,
4,730 Ser 10/01/92 A (AMBAC) ................................................. 6.25 10/01/02+ 5,206,216
7,000 Ser 10/01/92 A (AMBAC) ................................................. 6.25 10/01/02+ 7,704,760
New York City, New York,
4,415 1993 Ser B ............................................................. 6.75 10/01/02+ 4,956,721
370 1993 Ser B ............................................................. 7.00 02/01/02+ 411,355
5,385 1993 Ser B ............................................................. 7.00 10/01/02+ 6,092,320
195 1993 Ser B ............................................................. 7.00 10/01/02+ 220,613
12,000 New York Local Government Assistance Corporation, Ser 1991 C ........... 7.00 04/01/01+ 13,159,920
10,000 Allegheny County Hospital Development Authority, Pennsylvania,
Presbyterian University Health Ser 1992 A (MBIA) ....................... 6.25 11/01/02+ 10,934,000
5,000 Puerto Rico Highway & Transportation Authority, Ser T .................. 6.625 07/01/02+ 5,586,550
20,000 Piedmont Municipal Power Agency, South Carolina, Refg 1992 Ser ......... 6.375 01/01/03+ 22,333,800
15,000 Fredericksburg Industrial Development Authority, Virginia, MWH
-------- Medicorp Ser 1991 A & B (FGIC) ......................................... 6.60 08/15/01+ 16,409,250
------------
198,145 219,076,627
-------- ------------
679,090 TOTAL TAX- EXEMPT MUNICIPAL BONDS (Identified Cost $662,176,175)................................. 734,213,609
-------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (0.5%)
4,000 Missouri Health & Educational Facilities Authority, Cox Health 1997 ....
-------- (Demand 11/02/98) (Identified Cost $4,000,000) ........................ 3.70* 06/01/15 4,000,000
------------
$683,090 TOTAL INVESTMENTS (Identified Cost $666,176,175) (a) .............................. 98.4% 738,213,609
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .................................... 1.6 12,115,097
------------
NET ASSETS ........................................................................ 100.0% $750,328,706
============
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$72,064,923 and the aggregate gross unrealized depreciation is
$27,489, resulting in net unrealized appreciation of $72,037,434.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1998, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Alabama ...................... 0.7%
Alaska ....................... 1.1
California .................. 2.4
Colorado ..................... 2.9
Connecticut .................. 2.4
District of Columbia ......... 2.6
Florida ...................... 7.8
Georgia ...................... 4.2
Hawaii ....................... 2.0
Idaho ........................ 0.2
Illinois .................... 7.3
Indiana .................... 1.1
Maine ...................... 1.3
Massachusetts ............... 4.8
Michigan ..................... 3.0
Minnesota .................. 3.4
Missouri ..................... 6.4
Nebraska ..................... 0.7
Nevada ..................... 5.4
New York .................... 8.8
Ohio ......................... 2.1
Pennsylvania ................. 3.9
Puerto Rico .................. 1.6
South Carolina ............... 5.2
South Dakota ................. 0.7
Texas ...................... 4.4
Virginia .................... 5.6
Washington ................. 5.0
West Virginia ................ 1.4
----
Total ....................... 98.4%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $666,176,175)................. $738,213,609
Cash ............................................. 171,869
Receivable for:
Interest .................................... 11,844,276
Investments sold ............................ 650,000
Prepaid expenses ................................. 412,583
------------
TOTAL ASSETS ................................ 751,292,337
------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders ......... 591,330
Investment management fee ................... 259,939
Accrued expenses ................................. 112,362
------------
TOTAL LIABILITIES ........................... 963,631
------------
NET ASSETS .................................. $750,328,706
============
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest
(1,000,000 shares authorized of
non-participating $.01 par value, 4,160
shares outstanding) ........................... $208,000,000
------------
Common shares of beneficial interest
(unlimited shares authorized of
$.01 par value, 33,362,113 shares
outstanding) .................................. 465,854,952
Net unrealized appreciation ...................... 72,037,434
Accumulated undistributed net investment
income ........................................ 2,861,110
Accumulated net realized gain .................... 1,575,210
------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS ............................. 542,328,706
------------
TOTAL NET ASSETS ............................ $750,328,706
============
NET ASSET VALUE PER COMMON SHARE
($542,328,706 divided by 33,362,113
common shares outstanding) .................... $ 16.26
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $43,480,250
-----------
EXPENSES
Investment management fee ..................... 2,618,487
Auction commission fees ....................... 729,070
Transfer agent fees and expenses .............. 168,097
Professional fees ............................. 98,882
Shareholder reports and notices ............... 48,503
Auction agent fees ............................ 36,874
Registration fees ............................. 32,436
Custodian fees ................................ 30,753
Trustees' fees and expenses ................... 18,129
Other ......................................... 51,070
------------
TOTAL EXPENSES ........................... 3,832,301
Less: expense offset .......................... (30,622)
------------
NET EXPENSES ............................. 3,801,679
------------
NET INVESTMENT INCOME .................... 39,678,571
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ............................. 1,575,250
Net change in unrealized appreciation ......... 10,150,568
------------
NET GAIN ................................. 11,725,818
------------
NET INCREASE .................................. $ 51,404,389
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 39,678,571 $ 40,320,782
Net realized gain ..................................... 1,575,250 998,600
Net change in unrealized appreciation ................. 10,150,568 16,110,421
------------- -------------
NET INCREASE ....................................... 51,404,389 57,429,803
------------- -------------
Dividends to preferred shareholders from net investment
income .............................................. (7,814,424) (7,700,761)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income ................................. (31,143,053) (33,266,944)
Net realized gain ..................................... (998,640) (1,064,923)
------------- -------------
TOTAL .............................................. (32,141,693) (34,331,867)
------------- -------------
Decrease from transactions in common shares of
beneficial interest ................................. (3,623,524) (7,692,332)
------------- -------------
NET INCREASE ....................................... 7,824,748 7,704,843
NET ASSETS:
Beginning of period ................................... 742,503,958 734,799,115
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$2,861,110 and $2,140,016, respectively)............ $ 750,328,706 $ 742,503,958
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Quality Municipal Income Trust (the "Trust"),
formerly InterCapital Quality Municipal Income Trust (the Trust changed its
name effective December 21, 1998), is registered under the Investment Company
Act of 1940, as amended, as a diversified, closed-end management investment
company. The Trust's investment objective is to provide current income which is
exempt from federal income tax. The Trust was organized as a Massachusetts
business trust on March 12, 1992 and commenced operations on September 29,
1992.
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 Trust 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.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust'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.
14
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust 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 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 MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., the Trust pays the Investment Manager a management fee, calculated weekly
and payable monthly, by applying the annual rate of 0.35% to the Trust's weekly
net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust'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 Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Trust.
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 October 31, 1998
aggregated $18,155,628 and $23,750,729, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At October 31, 1998, the Trust had transfer
agent fees and expenses payable of approximately $5,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust 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
15
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
years of service. Aggregate pension costs for the year ended October 31, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,008. At October 31, 1998, the Trust had an accrued pension liability of
$36,200 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The Trust has issued Series 1 through 5 Auction Rate
Preferred Shares ("Preferred Shares") which have a liquidation value of $50,000
per share plus the redemption premium, if any, plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of distribution. The
Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or
not declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
AMOUNT RESET RANGE OF
SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES**
------ ------- ------------- ----- ----- ----------------
<S> <C> <C> <C> <C> <C>
1 1,120 $56,000 3.56 % 09/08/99 3.56% -- 3.845%
2 400 20,000 3.689 02/04/99 3.63 -- 3.70
3 1,120 56,000 3.70 07/08/99 3.70 -- 3.85
4 1,120 56,000 3.65 01/07/99 3.65 -- 3.80
5 400 20,000 3.25 11/06/98 2.65 -- 5.00
</TABLE>
- ---------------
* As of October 31, 1998.
** For the year ended October 31, 1998.
Subsequent to October 31, 1998 and up through December 21, 1998, the Trust paid
dividends to each of the Series 1 through 5 at rates ranging from 3.00% to
3.70% in the aggregate amount of $1,226,455.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at
liquidation value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
16
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1998, continued
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
-------------- ----------- ---------------
<S> <C> <C> <C>
Balance, October 31, 1996 ............................................... 34,126,413 $341,264 $476,829,942
Treasury shares purchased and retired (weighted average discount 5.10%)* (523,900) (5,239) (7,687,093)
Reclassification due to permanent book/tax differences .................. -- -- (398)
---------- -------- ------------
Balance, October 31, 1997 ............................................... 33,602,513 336,025 469,142,451
Treasury shares purchased and retired (weighted average discount 5.89%)* (240,400) (2,404) (3,621,120)
---------- -------- ------------
Balance, October 31, 1998 ............................................... 33,362,113 $333,621 $465,521,331
========== ======== ============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS
On September 29, 1998, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ---------------- -----------------
<S> <C> <C>
$0.0775 November 6, 1998 November 20, 1998
$0.0775 December 4, 1998 December 18, 1998
</TABLE>
17
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31*
------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................ $15.91 $ 15.44 $ 15.33 $ 13.62 $ 16.34
------ ------- ------- ------- -------
Net investment income ....................................... 1.19 1.20 1.19 1.18 1.24
Net realized and unrealized gain (loss) ..................... 0.34 0.51 0.13 1.66 (2.73)
------ ------- ------- ------- -------
Total from investment operations ............................ 1.53 1.71 1.32 2.84 (1.49)
------ ------- ------- ------- -------
Less dividends and distributions from:
Net investment income ...................................... (0.93) (0.99) (0.99) (0.99) (1.04)
Common share equivalent of dividends paid to preferred
shareholders .............................................. (0.23) (0.23) (0.22) (0.22) (0.22)
Net realized gain .......................................... (0.03) (0.03) (0.04) -- (0.03)
------- ------- ------- ------- -------
Total dividends and distributions ........................... (1.19) (1.25) (1.25) (1.21) (1.29)
------- ------- ------- ------- -------
Anti-dilutive effect of acquiring treasury shares ........... 0.01 0.01 0.04 0.08 0.06
------- ------- ------- ------- -------
Net asset value, end of period .............................. $ 16.26 $ 15.91 $ 15.44 $ 15.33 $ 13.62
======= ======= ======= ======= =======
Market value, end of period ................................. $ 15.75 $14.875 $14.625 $ 13.75 $11.875
======= ======== ======= ======= =======
TOTAL INVESTMENT RETURN+ .................................... 12.66 % 8.84 % 14.27 % 24.77 % (19.30) %
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses .............................................. 0.71 %(1) 0.70 %(1) 0.69 %(1) 0.72 %(1) 0.75 %
Net investment income before preferred stock dividends ...... 7.35 % 7.68 % 7.73 % 8.05 % 8.06 %
Preferred stock dividends ................................... 1.45 % 1.47 % 1.41 % 1.53 % 1.43 %
Net investment income available to common shareholders ...... 5.90 % 6.21 % 6.32 % 6.52 % 6.63 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ..................... $750,329 $742,504 $734,799 $752,840 $752,680
Asset coverage on preferred shares at end of period ......... 360 % 356 % 353 % 361 % 311 %
Portfolio turnover rate ..................................... 2 % 2 % -- 1 % 2 %
</TABLE>
- -------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on last
day of each period reported. Dividends and distributions are assumed to
be reinvested at the prices obtained under the Trust's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions.
(1) Does not reflect the effect of the expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Quality
Municipal Income Trust (the "Trust"), formerly InterCapital Quality Municipal
Income Trust, at October 31, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 21, 1998
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1998, the Trust paid the following per
share amounts from tax-exempt income: $0.93 to common shareholders,
$1,890 to Series 1 preferred shareholders, $1,809 to Series 2 preferred
shareholders, $1,883 to Series 3 preferred shareholders, $1,820 to Series
4 preferred shareholders and $1,745 to Series 5 preferred shareholders.
For the year ended October 31, 1998, the Trust paid the following per
share amounts from long-term capital gains: $0.03 to common shareholders,
$43 to Series 1 preferred shareholders, $48 to Series 2 preferred
shareholders, $44 to Series 3 preferred shareholders, $45 to Series 4
preferred shareholders and $48 to Series 5 preferred shareholders.
19
<PAGE>
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 MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
QUALITY MUNICIPAL INCOME TRUST
ANNUAL REPORT
OCTOBER 31, 1998
