<PAGE>
MORGAN STANLEY DEAN WITTER
QUALITY MUNICIPAL INCOME TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS April 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Quality Municipal Income Trust (IQI) for the period ended
April 30, 1999.
The financial markets have begun to recover from last year's global economic
difficulties. The turmoil which included the Asian crisis, the Russian debt
default and the rescue of a major U.S. hedge fund has given way to more normal
financial conditions. The major catalyst for this return to stability was the
liquidity provided by the Federal Reserve Board's 75 basis point reduction in
the federal-funds rate during the fourth quarter of 1998.
International economic problems precipitated a "flight to quality" rally in
fixed income securities and U.S. Treasury yields reached 30-year lows in
October 1998. As the world markets recovered, foreign investors repatriated
funds and Treasury yields began to rise. Interest rates also rose in response
to the surprisingly robust domestic economic growth reported over the second
half of 1998. The bond market became concerned that the central bank might
become more restrictive by taking back some of the liquidity provided during
the crisis.
MUNICIPAL MARKET CONDITIONS
During 1998, municipal yields were less volatile than Treasury yields. This
pattern of stability continued into 1999. Long-term insured index yields stood
at 5.25 percent at the end of April, only 20 basis points higher than their
October 1998 levels. In contrast, Treasury bond yields rose 50 basis points
from 5.15 to 5.65 percent. During the past six months, the yield pick up for
extending tax-exempt maturities from one to 30 years averaged 225 basis points.
The modest rally of municipals during 1998 created a favorable relative value
relationship to Treasuries. Municipals underperformed Treasuries and the ratio
of municipal yields to Treasury yields climbed to 99 percent by December. The
higher the ratio, the more attractive municipals are relative to Treasuries.
Municipals have outperformed Treasuries this year and the ratio declined to 92
percent by April. The high-to-low annual range of municipal/Treasury yields for
the past five years has averaged 93 to 84 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
In addition to lagging 1998's Treasury rally, municipals also experienced a glut
of new-issue supply. Underwriting volume of $284 billion was up 28 percent from
the prior year and approached 1993's record. Issuers actively refinanced at
lower interest rates and refundings were 29 percent of the total volume. This
year's rise in interest rates has reduced the amount of refunding activity.
Refunding volume was down 42 percent in the first four months of 1999 while
total underwriting declined 22 percent.
PERFORMANCE
The Trust's net asset value (NAV) decreased from $16.26 to $16.00 per share for
the six-month period ended April 30, 1999. Based on this change plus
reinvestment of tax-free dividends totaling $0.465 per share and a long-term
capital gains distribution of $0.04722 per share paid on December 18, 1998, the
Trust's total NAV return was 1.71 percent. IQI's value on the New York Stock
Exchange decreased from $15.75 per share to $15.125 per share during the same
period. Based on this change plus reinvestment of tax-free dividends and a
long-term capital gains distribution, IQI's total market return was -- 0.80
percent. As of April 30, 1999, IQI's share price was a 5.47 percent discount to
its NAV.
[LINE CHART]
30-Year Bond Yields 1994-1999
DATE AAA INS TSY % RELATIONSHIP
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%
11/30/98 5.00 5.06 98.81%
12/31/98 5.05 5.10 99.02%
01/31/99 5.00 5.09 98.23%
02/28/99 5.10 5.58 91.40%
03/31/99 5.15 5.63 91.47%
04/30/99 5.20 5.66 91.87%
2
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
[BAR CHART]
LARGEST SECTORS AS OF APRIL 30, 1999
(% OF NET ASSETS)
Refunded 26%
General Obligation 14%
Mortgage 10%
Hospital 9%
Transportation 8%
Water & Sewer 8%
IDR/PCR* 8%
Electric 7%
*Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
[PIE CHART]
CREDIT RATINGS AS OF APRIL 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
Aaa or AAA 51%
Aa or AA 29%
A or A 17%
Baa or BBB 3%
As measured by Moody's Investors Service, Inc.
or Standard & Poor's Corp.
Portfolio structure is subject to change.
[BAR GRAPH]
CALL STRUCTURE AS OF APRIL 30, 1999 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 4 YEARS
PERCENT CALLABLE
1999 2%
2000 0%
2001 11%
2002 56%
2003 13%
2004 0%
2005 1%
2006 0%
2007 1%
2008 4%
2009 10%
2010+ 2%
Years Bonds Callable
Portfolio structure is subject to change.
3
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
Monthly dividends for the second quarter of 1999 remained $0.0775 per share.
The Trust's level of undistributed net investment income remained unchanged at
$0.086 per share.
PORTFOLIO STRUCTURE
The Trust's investments were diversified among 14 long-term sectors and 76
credits. At the end of April, the portfolio's average maturity was 14 years.
Portfolio duration, a measure of sensitivity to interest-rate changes, was 4.6
years. Issues in the refunded bond category comprised 26 percent of net assets.
These bonds have been refinanced and will be redeemed on the dates shown in the
portfolio. The accompanying charts provide current information on the
portfolio's call structure, largest sectors and mix of credit ratings.
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 the ARPS expenses (ARPS
auction rate and expenses). The greater the spread and the larger 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 this six-month period, ARPS leverage contributed approximately $0.06 per
share to common share earnings. Weekly ARPS yields ranged between 2.70 and
4.875 percent. Five ARPS series totaling $208 million represented 28 percent of
net assets.
ARPS leverage also increases the price volatility of common shares and has the
effect of extending portfolio duration.
LOOKING AHEAD
The combination of a flight to quality and the flood of new municipal issues
made the municipal-to-Treasury yield relationship more favorable late last year
than it had been in the previous 10 years. Although municipals have thus far
outperformed Treasuries in 1999, we believe that municipals still offer
investors considerable value versus their historical relationship to
Treasuries.
The Trust'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 Trust's shares. In
4
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
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 purchase in the open market or in privately negotiated
transactions.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Trust's Investment Manager. He also serves as Chairman, Chief Executive Officer
and Director of Morgan Stanley Dean Witter Distributors Inc. and Morgan Stanley
Dean Witter Trust FSB.
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 /s/ Mitchell M. Merin
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
5
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.8%)
General Obligation (13.8%)
$ 4,000 Denver City & County School Dist No 1, Colorado, Ser 1999 (FGIC) ................ 5.25% 12/01/16 $ 4,134,000
10,000 Florida Board of Education, Cap Outlay Refg 1998 Ser D .......................... 4.50 06/01/24 9,076,900
Hawaii,
5,000 1992 Ser BZ .................................................................... 6.00 10/01/10 5,592,600
8,000 1992 Ser BZ .................................................................... 6.00 10/01/11 8,969,680
4,000 Cook County, Illinois, Ser 1992 C (FGIC) ........................................ 6.00 11/15/09 4,495,600
New York City, New York,
115 1993 Ser B ..................................................................... 7.00 10/01/11 127,269
50 1993 Ser B ..................................................................... 7.00 10/01/13 55,352
125 1993 Ser B ..................................................................... 7.00 10/01/14 138,379
145 1993 Ser B ..................................................................... 6.75 10/01/15 159,617
2,030 1992 Ser B ..................................................................... 7.00 02/01/20 2,205,514
15,000 North Carolina, Public School Building Ser 1999 ................................. 4.60 04/01/17 14,432,100
10,000 South-Western City School District, Ohio, Ser 1999 (AMBAC) ...................... 4.75 12/01/19 9,568,900
14,000 South Carolina, State Highway Ser 1999 A ........................................ 4.60 05/01/18 13,400,940
5,000 Houston Independent School District, Texas, Refg Ser 1999 A ..................... 5.25 02/15/18 5,083,850
9,035 San Antonio, Texas, Refg Ser 1992 ............................................... 5.75 08/01/13 9,520,631
15,000 Washington, Ser 1993 A .......................................................... 5.75 10/01/17 15,643,200
-------- ------------
101,500 102,604,532
-------- ------------
Educational Facilities Revenue (1.8%)
2,500 University of Illinois, Auxiliary Ser 1991 ...................................... 5.75 04/01/22 2,621,075
4,230 New Jersey Educational Facilities Authority, Princeton University Ser 1999 A 4.75 07/01/25 4,058,431
Scranton-Lackawanna Health & Welfare Authority, Pennsylvania,
3,000 University of Scranton 1992 Ser A .............................................. 6.40 03/01/07 3,233,460
3,300 University of Scranton 1992 Ser A .............................................. 6.50 03/01/13 3,509,946
-------- ------------
13,030 13,422,912
-------- ------------
Electric Revenue (6.8%)
9,500 Orlando Utilities Commission, Florida, Ser 1991 A ............................... 5.50 10/01/26 9,688,955
10,000 Municipal Electric Authority of Georgia, Power 1992 Ser B
(Secondary MBIA) ................................................................ 6.375 01/01/16 10,946,600
5,000 Hastings, Nebraska, Refg Ser 1992 ............................................... 6.30 01/01/19 5,380,550
10,000 Hamilton!, Ohio, Refg 1992 Ser A (FGIC) ......................................... 6.00 10/15/23 10,820,900
3,000 Philadelphia, Pennsylvania, Gas Works First Ser 1998 B (FSA) .................... 5.00 07/01/28 2,914,590
Grant County Public Utility District #2, Washington,
8,220 Priest Rapids Hydro Second Ser 1992 A .......................................... 5.00 01/01/23 7,899,749
2,645 Wanapum Hydro Second Ser 1992 B (AMT) .......................................... 6.75 01/01/23 2,830,203
-------- ------------
48,365 50,481,547
-------- ------------
Hospital Revenue (8.5%)
5,000 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama,
Carraway Methodist Health Ser 1995 A (Connie Lee) ............................... 5.875 08/15/15 5,311,000
2,500 Fulco Hospital Authority, Georgia, Catholic Health East Ser 1998 A (MBIA) ....... 4.875 11/15/18 2,401,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9,250 Massachusetts Health & Educational Facilities Authority, Massachusetts
General Hospital Ser F (AMBAC) ................................................. 6.00% 07/01/15 $ 10,189,245
10,000 Missouri Health & Educational Facilities Authority, Health Midwest
Ser 1992 B (MBIA) .............................................................. 6.25 02/15/22 10,758,800
5,000 New York State Dormitory Authority, Long Island Jewish Medical Center
Ser 1998 (MBIA) ................................................................ 5.00 07/01/18 4,951,000
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 10,391,200
4,500 Cuyahoga County, Ohio, Cleveland Clinic Foundation Refg Ser 1992 ................ 5.50 11/15/11 4,680,405
5,000 Dauphin County General Authority, Pennsylvania, HAPSO Group Inc/
The Western Pennsylvania Hospital Refg 1992 Ser A (MBIA) ....................... 6.25 07/01/16 5,414,950
3,000 Philadelphia Hospitals & Higher Education Facilities Authority, Pennsylvania,
Chestnut Hill Hospital Ser of 1992 ............................................. 6.375 11/15/11 3,159,630
5,000 South Dakota Health & Educational Facilities Authority, Queen of Peace
-------- Hospital Ser 1992 (MBIA) ........................................................ 6.70 07/01/17 5,465,550
------------
59,250 62,722,780
-------- ------------
Industrial Development/Pollution Control Revenue (7.5%)
6,000 California Pollution Control Financing Authority, Keller Canyon Landfill
Co/Browning-Ferris Industries Inc Ser 1992 (AMT) ............................... 6.875 11/01/27 6,339,180
5,000 Citrus County, Florida, Florida Power Corp Refg Ser 1992 B ...................... 6.35 02/01/22 5,399,500
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT) (MBIA) ............ 6.65 06/01/17 5,495,100
15,000 Berkeley County, South Carolina, South Carolina Electric & Gas Co Ser 1984 ...... 6.50 10/01/14 16,392,150
10,000 Brazos River Authority, Texas, Houston Lighting & Power Co Ser 1992 B
(MBIA) ......................................................................... 6.375 04/01/12 10,924,600
10,000 Mason County, West Virginia, Appalachian Power Co Ser J ......................... 6.60 10/01/22 10,823,400
-------- ------------
51,000 55,373,930
-------- ------------
Mortgage Revenue -- Multi-Family (5.3%)
7,000 Illinois Housing Development Authority, Ser I ................................... 6.625 09/01/12 7,444,640
15,705 Michigan Housing Development Authority, Rental 1992 Ser A
(Bifurcated FSA) ............................................................... 6.50 04/01/23 16,696,457
Missouri Housing Development Commission,
6,520 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............................. 6.50 07/01/16 6,759,610
8,295 Federally Insured Mortgage Loans Refg Ser 11/15/92 ............................. 6.60 07/01/24 8,629,952
-------- ------------
37,520 39,530,659
-------- ------------
Mortgage Revenue -- Single Family (4.8%)
16,495 Connecticut Housing Finance Authority, 1992 Ser B ............................... 6.70 11/15/12 17,889,982
6,080 Georgia Housing & Finance Authority, Home Ownership 1992 Ser C .................. 6.50 12/01/11 6,424,067
1,190 Idaho Housing Agency, 1992 Ser E (AMT) .......................................... 6.75 07/01/12 1,261,876
Minnesota Housing Finance Agency,
2,980 Ser 1992 D-1 ................................................................... 6.50 01/01/17 3,149,830
6,450 Ser 1992 CD-1 (AMT) ............................................................ 6.75 07/01/23 6,804,234
-------- ------------
33,195 35,529,989
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 $ 12,020,513
------------
Public Facilities Revenue (3.1%)
10,000 Atlanta Downtown Development Authority, Georgia, Underground Atlanta
Refg Ser 1992 ............................................................... 6.25 10/01/16 10,910,300
3,645 Illinois, Civic Center Ser 1990 A (AMBAC) .................................... 6.00 12/15/15 3,780,047
7,370 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser 1992 D ......... 6.75 02/01/20 8,079,584
--------- ------------
21,015 22,769,931
--------- ------------
Resource Recovery Revenue (1.8%)
12,930 Broward County, Florida, Broward Waste Energy Co North Ser 1984 .............. 7.95 12/01/08 13,581,931
--------- ------------
Transportation Facilities Revenue (8.3%)
Dade County, Florida,
3,000 Aviation 1992 Ser B (AMT) (MBIA) ............................................ 6.55 10/01/13 3,281,370
5,000 Aviation 1992 Ser B (AMT) (MBIA) ............................................ 6.60 10/01/22 5,476,850
13,000 Chicago, Illinois, Chicago-O'Hare Int'l Terminal Ser 1992 (AMT) (MBIA) ....... 6.75 01/01/12 14,015,950
5,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997 Ser A (MBIA) ..... 5.00 01/01/37 4,756,050
15,000 St Louis, Missouri, Lambert-St Louis Int'l Airport Ser 1992 (AMT) (FGIC) ..... 6.00 07/01/08 16,125,000
3,250 Minneapolis-Saint Paul Metropolitan Airports Commission, Minnesota,
Ser 1998 A (AMBAC) .......................................................... 5.00 01/01/30 3,184,838
5,000 New Jersey Transportation Trust Authority, 1998 Ser A (FSA) .................. 4.50 06/15/19 4,672,750
6,000 Puerto Rico Highway & Transportation Authority, Refg Ser V ................... 6.625 07/01/12 6,537,840
3,750 North Texas Tollway Authority, Dallas North Tollway Ser 1998 ................. 4.75 01/01/29 3,506,700
--------- ------------
59,000 61,557,348
--------- ------------
Water & Sewer Revenue (7.8%)
6,005 Birmingham, Alabama, Water & Sewer Ser 1998 A ................................ 4.75 01/01/21 5,655,749
4,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC) ....................... 5.00 11/01/29 3,884,240
5,000 Honolulu City & County, Hawaii, Wastewater Jr Ser 1998 (FGIC) ................ 4.50 07/01/28 4,491,000
10,000 Massachussetts Water Resources Authority, Refg 1992 Ser B .................... 5.50 11/01/15 10,315,500
20,000 New York City Municipal Water Finance Authority, New York, Ser 1993 A ........ 6.00 06/15/17 21,379,400
7,510 Houston, Texas, Water & Sewer Jr Lien Refg Ser 1991 C (AMBAC) ................ 6.375 12/01/17 8,072,424
3,895 Fairfax County Water Authority, Virginia, Refg Ser 1992 ...................... 6.00 04/01/22 4,280,371
--------- ------------
56,410 58,078,684
--------- ------------
Other Revenue (0.5%)
3,360 Albuquerque, New Mexico, Gross Receipts Refg Ser 1999 C ...................... 5.25 07/01/17 3,428,779
--------- ------------
Refunded (26.2%)
7,500 Alaska Housing Finance Corporation, Gen Hsg 1992 Ser A ....................... 6.60 12/01/02+ 8,325,900
10,000 Central Coast Water Authority, California, Ser 1992 A (AMBAC) ................ 6.50 10/01/02+ 11,125,900
20,000 Jefferson County School District #R-1, Colorado, Ser 1992 (AMBAC) ............ 6.00 12/15/02+ 21,764,000
7,500 District of Columbia, 1992 Ser B (MBIA) ...................................... 6.30 06/01/02+ 8,185,950
10,000 District of Columbia, Howard University Refg Ser 1992 A ...................... 6.75 10/01/02+ 11,143,800
9,800 Orlando, Florida, Cap Impr Refg Ser 1992 ..................................... 6.00 10/01/01+ 10,522,162
20,000 Illinois Toll Highway Authority, Priority 1992 Ser A ......................... 6.375 01/01/03+ 22,088,199
8,550 Maine Municipal Bond Bank, 1992 Ser E ........................................ 6.25 11/01/02+ 9,434,327
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000 Massachussetts Water Resources Authority, 1990 Ser A ....................... 6.50% 12/01/01+ $ 10,902,400
5,000 University of Michigan, Medical Service Plan Ser 1991 ...................... 6.50 12/01/01+ 5,436,900
19,700 Clark County, Nevada, Las Vegas - Mc Caran Int'l Airport Passenger
Facility Charge 1992 Ser B (AMT) .......................................... 6.25 07/01/02+ 21,532,691
12,000 New York Local Government Assistance Corporation, Ser 1991 C ............... 7.00 04/01/01+ 12,987,840
10,000 Allegheny County Hospital Development Authority, Pennsylvania,
Presbyterian University Health Ser 1992 A (MBIA) .......................... 6.25 11/01/02+ 10,830,600
5,000 Puerto Rico Highway & Transportation Authority, Ser T ...................... 6.625 07/01/02+ 5,520,650
15,000 Fredericksburg Industrial Development Authority, Virginia,
MWH Medicorp Ser 1991 A & B (FGIC) ........................................ 6.60 08/15/01+ 16,192,650
8,000 Grant County Public Utility District #2, Washington, Wanapum Hydro
-------- Second Ser 1992 A .......................................................... 6.375 01/01/02+ 8,692,320
------------
178,050 194,686,289
-------- ------------
685,875 TOTAL TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $667,459,463) .................................................................. 725,789,824
------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (0.7%)
5,100 Missouri Health & Educational Facilities Authority, Washington University
-------- Ser 1996 D (Demand 05/03/99) (Identified Cost $5,100,000) ................. 4.25* 09/01/30 5,100,000
------------
$690,975 TOTAL INVESTMENTS (Identified Cost $672,559,463) (a) .............................. 98.5% 730,889,824
======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .................................... 1.5 10,954,915
------------
NET ASSETS ........................................................................ 100.0% $741,844,739
============
</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
$59,359,071 and the aggregate gross unrealized depreciation is
$1,028,710, resulting in net unrealized appreciation of
$58,330,361.
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
9
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
April 30, 1999
<S> <C> <C> <C> <C> <C>
Alabama .............. 1.5% Indiana .............. 1.1% North Carolina ....... 1.9%
Alaska ............... 1.1 Maine ................ 1.3 Ohio ................. 3.4
California ........... 2.3 Massachusetts ........ 4.9 Pennsylvania ......... 3.9
Colorado ............. 3.5 Michigan ............. 3.0 Puerto Rico .......... 1.6
Connecticut .......... 2.4 Minnesota ............ 3.4 South Carolina ....... 4.0
District of Columbia . 2.6 Missouri ............. 6.4 South Dakota ......... 0.7
Florida .............. 7.7 Nebraska ........... 0.7 Texas ................ 5.0
Georgia .............. 4.7 Nevada ............... 3.6 Virginia ........... 2.8
Hawaii ............... 2.6 New Jersey ......... 1.2 Washington ........... 4.7
Idaho ................ 0.2 New Mexico ........... 0.5 West Virginia ........ 1.4
Illinois ........... 7.3 New York ............. 7.1 ----
Total .............. 98.5%
====
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $672,559,463).......................................... $ 730,889,824
Cash ..................................................................... 149,285
Interest receivable ...................................................... 11,375,572
Prepaid expenses ......................................................... 346,330
-------------
TOTAL ASSETS .......................................................... 742,761,011
-------------
LIABILITIES:
Payable for:
Dividends to preferred shareholders ................................... 559,839
Investment management fee ............................................. 249,873
Accrued expenses ......................................................... 106,560
-------------
TOTAL LIABILITIES ..................................................... 916,272
-------------
NET ASSETS ............................................................ $ 741,844,739
=============
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 .............................................. 58,330,361
Accumulated undistributed net investment income .......................... 2,856,775
Accumulated undistributed net realized gain .............................. 6,802,651
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS .......................... 533,844,739
-------------
TOTAL NET ASSETS ...................................................... $ 741,844,739
=============
NET ASSET VALUE PER COMMON SHARE
($533,844,739 divided by 33,362,113 common shares outstanding).......... $16.00
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999 (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $ 21,206,076
-------------
EXPENSES
Investment management fee ..................... 1,297,035
Auction commission fees ....................... 374,420
Transfer agent fees and expenses .............. 80,391
Professional fees ............................. 51,428
Shareholder reports and notices ............... 34,671
Auction agent fees ............................ 18,318
Registration fees ............................. 16,151
Custodian fees ................................ 15,200
Trustees' fees and expenses ................... 9,232
Other ......................................... 26,760
-------------
TOTAL EXPENSES ............................. 1,923,606
Less: expense offset .......................... (15,150)
-------------
NET EXPENSES ............................... 1,908,456
-------------
NET INVESTMENT INCOME ...................... 19,297,620
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) :
Net realized gain ............................. 6,802,667
Net change in unrealized appreciation ......... (13,707,073)
-------------
NET LOSS ................................... (6,904,406)
-------------
NET INCREASE .................................. $ 12,393,214
=============
</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 SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1999 OCTOBER 31, 1998
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 19,297,620 $ 39,678,571
Net realized gain ..................................... 6,802,667 1,575,250
Net change in unrealized appreciation ................. (13,707,073) 10,150,568
------------- -------------
NET INCREASE ....................................... 12,393,214 51,404,389
------------- -------------
Dividends to preferred shareholders from net investment
income .............................................. (3,788,788) (7,814,424)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income ................................. (15,513,167) (31,143,053)
Net realized gain ..................................... (1,575,226) (998,640)
------------- -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................. (17,088,393) (32,141,693)
------------- -------------
Decrease from transactions in common shares of
beneficial interest ................................. -- (3,623,524)
------------- -------------
NET INCREASE (DECREASE) ............................ (8,483,967) 7,824,748
NET ASSETS:
Beginning of period ................................... 750,328,706 742,503,958
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$2,856,775 and $2,861,110, respectively)............ $ 741,844,739 $ 750,328,706
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Quality Municipal Income Trust (the "Trust"), 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.
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
14
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
income and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), 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 six months ended April 30, 1999
aggregated $82,779,887 and $84,408,893, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Trust's transfer agent. At April 30, 1999, the Trust had transfer agent
fees and expenses payable of approximately $600.
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 years
of service. Aggregate pension costs for the six months ended April 30, 1999
included in Trustees'
15
<PAGE>
MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
fees and expenses in the Statement of Operations amounted to $3,032. At April
30, 1999, the Trust had an accrued pension liability of $38,159 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 IN RESET RANGE OF
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES**
------ ------- ---------- ----- ---- ----------------
<S> <C> <C> <C> <C> <C>
1 1,120 $56,000 3.56% 09/08/99 3.56%
2 400 20,000 3.20 02/03/00 3.20 -- 3.689
3 1,120 56,000 3.70 07/08/99 3.70
4 1,120 56,000 3.349 01/13/00 3.349 -- 3.65
5 400 20,000 3.65 05/07/99 2.70 -- 4.875
</TABLE>
- ---------------
* As of April 30, 1999.
** For the six months ended April 30, 1999.
Subsequent to April 30, 1999 and up through June 4, 1999, the Trust paid
dividends to each of the Series 1 through 5 at rates ranging from 3.13% to
3.70% in the aggregate amount of $1,161,509.
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 April 30, 1999 (unaudited) 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, 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 and April 30, 1999 ... 33,362,113 $333,621 $465,521,331
========== ======== ============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS
On March 30, 1999, the Trust declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ---- ----
<S> <C> <C>
$0.0775 May 7, 1999 May 21, 1999
$0.0775 June 4, 1999 June 18, 1999
</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 SIX FOR THE YEAR ENDED OCTOBER 31*
MONTHS ENDED ----------------------------------------------------------
APRIL 30, 1999* 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................. $ 16.26 $15.91 $ 15.44 $ 15.33 $13.62 $ 16.34
------- ------ ------- ------- ------ -------
Income (loss) from investment operations:
Net investment income ............................... 0.58 1.19 1.20 1.19 1.18 1.24
Net realized and unrealized gain (loss) ............. (0.21) 0.34 0.51 0.13 1.66 (2.73)
------- ------ ------- ------- ------ -------
Total income (loss) from investment operations ....... 0.37 1.53 1.71 1.32 2.84 (1.49)
------- ------ ------- ------- ------ -------
Less dividends and distributions from:
Net investment income ............................... (0.47) (0.93) (0.99) (0.99) (0.99) (1.04)
Common share equivalent of dividends paid to
preferred shareholders ............................. (0.11) (0.23) (0.23) (0.22) (0.22) (0.22)
Net realized gain ................................... (0.05) (0.03) (0.03) (0.04) -- (0.03)
------- ------ ------- ------- ------ -------
Total dividends and distributions .................... (0.63) (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 ....................... $ 16.00 $16.26 $ 15.91 $ 15.44 $15.33 $ 13.62
======= ====== ======= ======= ====== =======
Market value, end of period .......................... $15.125 $15.75 $14.875 $14.625 $13.75 $11.875
======= ====== ======= ======= ====== =======
TOTAL RETURN+ ........................................ (0.80)%(1) 12.66% 8.84% 14.27% 24.77% (19.30)%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:
Total expenses ....................................... 0.72%(2)(3) 0.71%(3) 0.70%(3) 0.69%(3) 0.72%(3) 0.75%
Net investment income before preferred stock
dividends .......................................... 7.22%(2) 7.35% 7.68% 7.73% 8.05% 8.06%
Preferred stock dividends ............................ 1.42%(2) 1.45% 1.47% 1.41% 1.53% 1.43%
Net investment income available to common
shareholders ....................................... 5.80%(2) 5.90% 6.21% 6.32% 6.52% 6.63%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .............. $741,845 $750,329 $742,504 $734,799 $752,840 $752,680
Asset coverage on preferred shares at end of period .. 356% 360% 356% 353% 361% 311%
Portfolio turnover rate .............................. 11%(1) 2% 2% -- 1% 2%
</TABLE>
- -------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total 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
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>
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
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
Morgan Stanley
Dean Witter
Quality
Municipal
Income Trust
SEMIANNUAL REPORT
APRIL 30, 1999
