-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IUAQLlAAXdsH0b+rRB2tRwB96tIxSs2xrruiKI/mhAY4ZqpuacN2ZL5BZYclDS35 hKzJmWJYKWrVd6oQa2asBA== 0000950123-98-009476.txt : 19981104 0000950123-98-009476.hdr.sgml : 19981104 ACCESSION NUMBER: 0000950123-98-009476 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNICIPAL INCOME TRUST/MA CENTRAL INDEX KEY: 0000817130 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133422754 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05214 FILM NUMBER: 98736799 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CNTR STREET 2: C/O DEAN WITTER INTERCAPITAL INC CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE MUNICIPAL INCOME TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN TAX FREE INCOME TRUST DATE OF NAME CHANGE: 19870817 N-30D 1 DEAN WITTER MUNI INCOME TRUST 1 MUNICIPAL INCOME TRUST Two World Trade Center, New York, New York 10048 LETTER TO THE SHAREHOLDERS August 31, 1998 DEAR SHAREHOLDER: We are pleased to present the annual report on the operations of Municipal Income Trust (TFA) for the fiscal year ended August 31, 1998. During July and August, the financial markets were battered by continued economic turmoil in Asia and a currency crisis in Russia. This led to a flight-to-quality rally for U.S. Treasury bonds. Yields on Treasury notes and bonds fell to post World War II lows. Municipal bond yields followed the downward trend of Treasury yields but at a more moderate pace. The deflationary impact of the Asian financial crisis had already begun to temper U.S. economic growth prior to the summer's tumultuous market activity. Historically high employment conditions were offset by improved productivity, lower prices for oil and other commodities and cheaper imports. This held inflation in check. On September 29, 1998, the Federal Reserve lowered the federal funds rate 25 basis points from 5.50% to 5.25%. BOND YIELDS 1994 - 1998
30-Year Insured 30-Year U.S. Insured Municipal Yields as a Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields 1994 5.4% 6.34% 85.17% 5.4 6.24 86.54 5.8 6.66 87.09 6.4 7.09 90.27 6.35 7.32 86.75 6.25 7.43 84.12 6.5 7.61 85.41 6.25 7.39 84.57 6.3 7.45 84.56 6.55 7.81 83.87 6.75 7.96 84.8 7 8.00 87.5 6.75 7.88 85.66 1995 6.4 7.70 83.12 6.15 7.44 82.66 6.15 7.43 82.77 6.2 7.34 84.47 5.8 6.66 87.09 6.1 6.62 92.15 6.1 6.86 88.92 6 6.66 90.09 5.95 6.48 91.82 5.75 6.33 90.84 5.5 6.14 89.58 5.35 5.94 90.07 1996 5.4 6.03 89.55 5.6 6.46 86.69 5.85 6.66 87.84 5.95 6.89 86.36 6.05 6.99 86.55 5.9 6.89 85.63 5.85 6.97 83.93 5.9 7.11 82.98 5.7 6.93 82.25 5.65 6.64 85.09 5.5 6.35 86.61 5.6 6.63 84.46 1997 5.7 6.79 83.95 5.65 6.80 83.09 5.9 7.10 83.1 5.75 6.94 82.85 5.65 6.91 81.77 5.6 6.78 82.6 5.3 6.30 84.13 5.5 6.61 83.21 5.4 6.40 84.38 5.35 6.15 86.99 5.3 6.05 87.6 5.15 5.92 86.99 1998 5.15 5.80 88.79 5.2 5.92 87.84 5.25 5.93 88.53 5.35 5.95 89.92 5.2 5.80 89.66 5.2 5.65 92.04 5.03 5.27 90.72 5.03 5.27 95.45
Source: Municipal Market Data 2 MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS August 31, 1998, continued MUNICIPAL MARKET CONDITIONS At the end of August, long-term insured index yields stood at 5.05 percent, their lowest level in the last 25 years. Index yields declined 45 basis points from 5.50 percent over the last 12 months. In contrast, the 30-year U.S. Treasury yield fell 130 basis points during the same period. As municipals lagged the rally in Treasuries, the ratio of municipal yields to Treasury yields rose to 95 percent. This ratio is at its highest level since 1986 when radical tax-reform proposals pushed it over 100 percent. A rising ratio means that municipals have underperformed Treasuries and have become more attractive on a relative basis. The overall decline in interest rates led to a substantial increase in new issue municipal volume. Municipal issuance is on a pace to challenge 1993's record of $292 billion. For 1998 year-to-date, total municipal volume of $192 billion is up 45 percent. Half the underwritings were enhanced with bond insurance. Refundings represented nearly one-third of total new issues. PERFORMANCE The Fund's net asset value (NAV) increased from $9.99 to $10.21 per share during the fiscal year. Based on this NAV change plus reinvestment of tax-free dividends of $0.5425 per share, a long-term capital gains distribution of $0.084 per share and a short-term capital gains distribution of $0.010, the Fund's total NAV return was 9.33 percent. TFA's price on the New York Stock Exchange moved from $9.50 to $9.4375 per share. Based on this change in market price plus reinvestment of dividends and distributions, the Fund's total market return was 6.16 percent. At fiscal year end, TFA traded at a 7.6 percent discount (lower than) to its NAV. Monthly dividends for the fourth quarter of 1998 were declared in September. Beginning with the October 1998 dividend, the monthly dividend was reduced from $0.045 per share to $0.0375 per share, to more closely reflect the Fund's current and anticipated income. The level of undistributed net investment income declined from $0.115 to $0.069 per share over the past 12 months. PORTFOLIO STRUCTURE During the past 12 months, portfolio duration (a measure of sensitivity to interest rate changes), was maintained at 8.2 years. This was primarily accomplished by selling older bonds as they were refunded to purchase new issues. At the end of August refunded bonds represented only 2 percent of net assets. 2 3 MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS August 31, 1998, continued
LARGEST SECTORS as of August 31, 1998 (% of Net Assets) Mortgage 15% Transportation 15% Water & Sewer 14% General Obligation 11% Electric 10% Hospital 10% Education 8% IDR/PCR* 6% All Others 11% * Industrial Development/Pollution Control Revenue Portfolio structure is subject to change
CREDIT RATINGS as of August 31, 1998 (% of Total Long-Term Portfolio) Aaa or AAA 56% Aa or AA 26% A or A 8% Baa or BBB 7% N/R 3% As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp. Portfolio structure is subject to change
CALL STRUCTURE as of August 31, 1998 (% of Total Long-Term Portfolio) Percent Callable WEIGHTED AVERAGE CALL PROTECTION: 9 YEARS Years Bonds Callable Percent Callable 1998 0% 1999 2% 2000 3% 2001 1% 2002 3% 2003 6% 2004 9% 2005 17% 2006 13% 2007 22% 2008 10% 2009+ 14% Year Bonds Callable Portfolio structure is subject to change.
3 4 MUNICIPAL INCOME TRUST LETTER TO THE SHAREHOLDERS August 31, 1998, continued Investments were diversified among 14 long-term sectors and 62 credits. Throughout the period, high credit quality was maintained with over 80 percent of its long-term holdings rated double or triple "A". The average maturity of the portfolio was 21 years. As illustrated in the accompanying chart of annual bond calls, the weighted average call protection was 9 years. LOOKING AHEAD Events in Asia and elsewhere have strengthened the U.S. dollar and contributed to lower interest rates. World economic conditions seem likely to keep inflationary pressures under control. With the municipal relationship to Treasuries as strong as it has been in the last 10 years, the outlook for municipal bonds is favorable. The Fund'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 price of the Fund's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Fund may, when appropriate, purchase shares in the open market or in privately negotiated transactions at a price not above market price or net asset value, whichever is lower at the time of purchase. During the fiscal year, the Fund purchased and retired 474,700 shares of common stock at a weighted average market discount of 5.97 percent. We appreciate your ongoing support of Municipal Income Trust and look forward to continuing to serve your investment needs. Very truly yours, /S/ CHARLES A. FIUMEFREDDO CHARLES A. FIUMEFREDDO Chairman of the Board 4 5 MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS August 31, 1998
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- TAX-EXEMPT MUNICIPAL BONDS (98.0%) General Obligation (10.8%) $ 5,000 Moulton-Niguel Water District, California, Refg 1993 (MBIA)..................................................... 5.00% 09/01/19 $ 4,974,250 5,000 Washington Suburban Sanitary District, Maryland, Gen Constr Refg 1994.................................................. 5.00 06/01/10 5,159,700 5,000 Massachusetts, 1994 Ser A................................... 5.00 01/01/11 5,135,500 4,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 4,514,320 5,000 New York State, Refg Ser 1995 B............................. 5.625 08/15/09 5,397,300 7,000 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/11 7,512,890 - -------- ------------ 31,000 32,693,960 - -------- ------------ Educational Facilities Revenue (7.8%) 5,000 California Public Works Board, University of California 1993 Refg Ser A................................................. 5.50 06/01/21 5,161,550 2,000 Massachusetts Health & Educational Facilities Authority, Massachusetts Institute of Technology 1998 Ser I........... 5.20 01/01/28 2,115,280 5,000 New Jersey Economic Development Authority, Educational Testing Service Ser 1995 B (MBIA).......................... 6.25 05/15/25 5,603,300 New York State Dormitory Authority, 2,500 State University Ser 1995 A................................. 6.50 05/15/05 2,829,700 2,500 State University Ser 1995 A................................. 6.50 05/15/06 2,853,775 5,000 State University Ser 1997................................... 5.125 05/15/27 4,958,750 - -------- ------------ 22,000 23,522,355 - -------- ------------ Electric Revenue (9.9%) 15,000 Southern California Public Power Authority, Mead-Adelanto 1994 Ser A (AMBAC)......................................... 5.15 07/01/15 15,742,200 Intermountain Power Agency, Utah, 2,000 Refg 1998 Ser A (MBIA) (WI)................................. 5.25 07/01/15 2,061,560 10,000 Refg 1996 Ser D (Secondary FSA)**........................... 5.00 07/01/21 9,865,300 2,500 Washington Public Power Supply System, Project #1 Refg Ser 1998 A..................................................... 5.125 07/01/17 2,498,325 - -------- ------------ 29,500 30,167,385 - -------- ------------ Hospital Revenue (10.1%) 3,000 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Systems Ser 1995 A (Connie Lee)........................................ 5.875 08/15/15 3,207,660 3,000 Chatham County Hospital Authority, Georgia, Memorial Medical Center Inc Ser 1996 A (AMBAC).............................. 5.25 01/01/16 3,074,340 4,000 Michigan Hospital Finance Authority, Detroit Medical Center Ser 1997 A (AMBAC)......................................... 5.25 08/15/27 4,053,120 7,500 North Carolina Medical Care Commission, Presbyterian Health Services Corp Refg Ser 1993................................ 5.50 10/01/20 7,694,025 2,500 Delaware County Authority, Pennsylvania, Catholic Health East Ser 1998 A (AMBAC).................................... 4.875 11/15/26 2,399,925 5,000 Pennsylvania Higher Educational Facilities Authority, University of Pennsylvania Ser A 1996...................... 5.75 01/01/22 5,309,750
SEE NOTES TO FINANCIAL STATEMENTS 5 6 MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS August 31, 1998, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 3,000 Washington Health Care Facilities Authority, Virginia Mason Medical Center Refg Ser 1997 A (MBIA)...................... 5.125% 08/15/17 $ 3,006,150 1,650 Fayette County, West Virginia, MPC Inc Refg Ser 1990........ 9.75 02/01/11 1,768,404 - -------- ------------ 29,650 30,513,374 - -------- ------------ Industrial Development/Pollution Control Revenue (5.9%) 2,750 Lapeer Economic Development Corporation, Michigan, Dott Manufacturing Co Ser 1989 A (AMT).......................... 10.65 11/15/17 1,650,000 3,150 New York City Industrial Development Agency, Japan Airlines Co 1991 (AMT) (FSA)........................................ 6.00 11/01/15 3,405,276 2,000 New York State Energy Research & Development Authority, New York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA)..... 6.15 07/01/26 2,188,160 5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,382,000 5,000 Dallas-Fort Worth International Airport Facility Improvement Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 5,301,400 - -------- ------------ 17,900 17,926,836 - -------- ------------ Mortgage Revenue - Multi-Family (2.1%) 5,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A (AMBAC).................................................... 6.00 11/01/14 5,351,400 940 Rhode Island Housing & Mortgage Finance Corporation, Rental 1989 Ser B (AMT).... 7.95 10/01/20 983,588 - -------- ------------ 5,940 6,334,988 - -------- ------------ Mortgage Revenue - Single Family (13.1%) 10,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 10,583,899 2,250 Colorado Housing Finance Authority, 1997 Ser B-2 (AMT)...... 7.00 05/01/26 2,518,065 10,000 Hawaii Housing Finance & Development Corporation, FNMA-Collateralized 1997 Ser A (AMT)....................... 5.75 07/01/30 10,308,200 2,405 Chicago, Illinois, GNMA-Backed Ser 1997-A (AMT)............. 7.25 09/01/28 2,734,918 Maine Housing Authority, 4,265 Purchase 1988 Ser D-2 (AMT)................................. 8.10 11/15/19 4,403,954 1,000 Purchase 1988 Ser D-2 (AMT)................................. 8.10 11/15/22 1,032,230 1,830 Missouri Housing Development Commission, GNMA-Backed 1997 Ser A-2 (AMT).............................................. 7.30 03/01/28 2,081,588 2,635 North Dakota Housing Finance Agency, 1990 Ser B (AMT)....... 7.75 07/01/24 2,797,369 980 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)... 7.85 09/01/21 1,035,674 2,230 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/17 2,344,533 - -------- ------------ 37,595 39,840,430 - -------- ------------ Public Facilities Revenue (1.3%) 3,495 Illinois, Civic Center Dedicated Tax Ser 1991 (AMBAC)....... 6.25 12/15/20 4,096,035 - -------- ------------ Resource Recovery Revenue (1.9%) Greater Detroit Resource Recovery Authority, Michigan, 1996 5,000 Ser A (AMBAC).............................................. 6.25 12/13/08 5,789,550 - -------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 6 7 MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS August 31, 1998, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- Retirement & Life Care Facilities Revenue (0.6%) Charleston County, South Carolina, Sandpiper Village Inc $ 1,970 Refg Ser 1998.............................................. 8.00% 11/01/13 $ 1,839,034 - -------- ------------ Transportation Facilities Revenue (15.1%) 15,000 E-470 Public Highway Authority, Colorado, Ser 1997 B (MBIA)..................................................... 0.00 09/01/14 6,902,850 3,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA).......... 5.125 10/01/26 3,005,730 790 Southwestern Development Authority, Illinois, Tri-City Regional Port District Ser 1989 A (AMT) (a)................ 7.90 07/01/14 831,641 7,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997 Ser A (MBIA)............................................... 5.00 01/01/37 6,882,190 5,000 Wayne Charter County, Michigan, Detroit Airport Ser 1998 A (AMT) (MBIA)............................................... 5.00 12/01/28 4,870,300 3,000 Delaware River Port Authority, New Jersey & Pennsylvania, Ser 1995 (FGIC)++.......................................... 5.50 01/01/26 3,142,470 5,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 5,476,601 5,000 Dallas-Fort Worth International Airport, Texas, Refg Ser 1995 (FGIC)................................................ 5.625 11/01/15 5,275,200 3,000 Pocahontas Parkway Association, Virginia, Route 895 Connector 1998 Ser A....................................... 5.50 08/15/28 3,010,350 6,000 Virginia Transportation Board, US Route 28 Ser 1992......... 6.50 04/01/18 6,555,660 - -------- ------------ 52,790 45,952,992 - -------- ------------ Water & Sewer Revenue (14.1%) 5,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994..... 5.50 01/01/20 5,151,550 10,000 Jefferson County, Alabama, Sewer Ser 1997 (FGIC)............ 5.75 02/01/22 10,725,300 5,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien Water Ser 1994............................................. 5.45 07/01/19 5,186,650 3,000 East Bay Municipal Utility District, California, Water Ser 1998 (MBIA)................................................ 4.75 06/01/34 2,880,270 3,000 Massachusetts Water Resources Authority, 1993 Ser C......... 5.25 12/01/20 3,029,760 570 New York City Municipal Water Finance Authority, New York, 1991 Ser A (Secondary FGIC)................................ 6.75 06/15/16 615,566 3,000 Cleveland, Ohio, Waterworks Impr & Refg Ser H 1996 (MBIA)... 5.75 01/01/21 3,255,450 8,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B (FGIC)..................................................... 0.00 09/01/26 1,931,760 10,000 Upper Occoquan Sewerage Authority, Virginia, Ser 1995 A (MBIA)..................................................... 5.00 07/01/25 9,882,800 - -------- ------------ 47,570 42,659,106 - -------- ------------ Other Revenue (3.2%) 4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special 1997 Ser B (a)............................................. 5.75 09/01/27 4,151,960 2,000 Northern Palm Beach County Improvement District, Florida, Water Control & Impr #9A Ser 1996 A........................ 6.80 08/01/06 2,163,080 3,000 New York Local Government Assistance Corporation, Ser 1995 A.......................................................... 6.00 04/01/24 3,241,380 - -------- ------------ 9,000 9,556,420 - -------- ------------ Refunded (2.1%) 5,000 Southern California Public Power Authority, Palo Verde Ser A (AMBAC) (ETM).............................................. 5.00 07/01/15 5,019,350 1,260 Illinois Health Facilities Authority, Glen Oaks Medical Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,435,631 - -------- ------------ 6,260 6,454,981 - -------- ------------ 299,670 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $278,300,776)................. 297,347,446 - -------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 7 8 MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS August 31, 1998, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.4%) $ 3,500 Louisiana Public Facilities Authority, Kenner Hotel Ser 1985 (Demand 09/02/98).......................................... 3.30*% 12/01/15 $ 3,500,000 700 Harris County Health Facilities Development Corporation, Texas, Methodist Hospital Ser 1994 (Demand 09/02/98)....... 3.35* 12/01/25 700,000 - -------- ------------ TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost 4,200 $4,200,000).................................................................... 4,200,000 - -------- ------------ $303,870 TOTAL INVESTMENTS (Identified Cost $282,500,776) (b).................... 99.4% 301,547,446 ======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 0.6 1,956,015 ---- ------------ NET ASSETS.............................................................. 100.0% $303,503,461 ===== ============
- --------------------- AMT Alternative Minimum Tax. ETM Escrowed to maturity. WI Security purchased on a "when-issued" basis. ++ Joint exemption in New Jersey and Pennsylvania. * Current coupon of variable rate demand obligation. ** A portion of this security is segregated in connection with the purchase of "when-issued" securities. (a) Resale is restricted to qualified institutional investors. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $20,277,635 and the aggregate gross unrealized depreciation is $1,230,965, resulting in net unrealized appreciation of $19,046,670. 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 8 9 MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS August 31, 1998, continued GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets August 31, 1998 Alabama.................. 6.3% Alaska................... 3.5 Arizona.................. 1.7 California............... 11.1 Colorado................. 3.1 Connecticut.............. 1.4 Florida.................. 1.7 Georgia.................. 1.0 Hawaii................... 3.4 Illinois................. 3.0 Louisiana................ 1.2 Maine.................... 1.8 Maryland................. 1.7 Massachusetts............ 5.7 Michigan................. 5.4 Missouri................. 0.7 New Jersey............... 4.6 New York................. 9.9 North Carolina........... 2.5 North Dakota............. 0.9 Ohio..................... 1.4 Oklahoma................. 1.8 Pennsylvania............. 4.2 Rhode Island............. 0.3 South Carolina........... 0.6 Tennessee................ 2.5 Texas.................... 5.5 Utah..................... 3.9 Virginia................. 7.2 Washington............... 1.8 West Virginia............ 0.6 Joint Exemption *........ (1.0) ------ Total.................... 99.4% ======
- --------------------- * Joint exemption has been included in each location. SEE NOTES TO FINANCIAL STATEMENTS 9 10 MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES August 31, 1998 ASSETS: Investments in securities, at value (identified cost $282,500,776)............................. $301,547,446 Cash........................................................ 65,900 Receivable for: Interest................................................ 3,983,898 Investments sold........................................ 165,000 Prepaid expenses and other assets........................... 17,447 ------------ TOTAL ASSETS............................................ 305,779,691 ------------ LIABILITIES: Payable for: Investments purchased................................... 2,043,563 Investment advisory fee................................. 85,279 Administration fee...................................... 49,039 Accrued expenses and other payables......................... 98,349 ------------ TOTAL LIABILITIES....................................... 2,276,230 ------------ NET ASSETS.............................................. $303,503,461 ============ COMPOSITION OF NET ASSETS: Paid-in-capital............................................. $280,619,289 Net unrealized appreciation................................. 19,046,670 Accumulated undistributed net investment income............. 2,045,045 Accumulated undistributed net realized gain................. 1,792,457 ------------ NET ASSETS.............................................. $303,503,461 ============ NET ASSET VALUE PER SHARE, 29,739,550 shares outstanding (unlimited shares authorized of $.01 par value)............ $10.21 ============
SEE NOTES TO FINANCIAL STATEMENTS 10 11 MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the year ended August 31, 1998 NET INVESTMENT INCOME: INTEREST INCOME............................................. $16,819,486 ----------- EXPENSES Investment advisory fee..................................... 1,007,218 Administration fee.......................................... 579,262 Professional fees........................................... 139,598 Transfer agent fees and expenses............................ 126,664 Shareholder reports and notices............................. 49,023 Registration fees........................................... 32,417 Trustees' fees and expenses................................. 18,305 Custodian fees.............................................. 15,124 Other....................................................... 20,404 ----------- TOTAL EXPENSES.......................................... 1,988,015 Less: expense offset........................................ (14,546) ----------- NET EXPENSES............................................ 1,973,469 ----------- NET INVESTMENT INCOME................................... 14,846,017 ----------- NET REALIZED AND UNREALIZED GAIN: Net realized gain........................................... 2,028,297 Net change in unrealized appreciation....................... 8,504,893 ----------- NET GAIN................................................ 10,533,190 ----------- NET INCREASE................................................ $25,379,207 ===========
SEE NOTES TO FINANCIAL STATEMENTS 11 12 MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 1998 AUGUST 31, 1997 - ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................. $14,846,017 $17,132,652 Net realized gain...................................... 2,028,297 2,589,265 Net change in unrealized appreciation.................. 8,504,893 5,563,849 ------------ ------------ NET INCREASE....................................... 25,379,207 25,285,766 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (16,273,738) (17,614,906) Net realized gain...................................... (2,821,505) (76,631) ------------ ------------ TOTAL.............................................. (19,095,243) (17,691,537) ------------ ------------ Net decrease from transactions in shares of beneficial interest.............................................. (4,488,741) (7,720,803) ------------ ------------ NET INCREASE (DECREASE)............................ 1,795,223 (126,574) NET ASSETS: Beginning of period.................................... 301,708,238 301,834,812 ------------ ------------ END OF PERIOD (Including undistributed net investment income of $2,045,045 and $3,472,766, respectively)........... $303,503,461 $301,708,238 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 12 13 MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS August 31, 1998 1. ORGANIZATION AND ACCOUNTING POLICIES Municipal Income Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Fund's investment objective is to provide current income which is exempt from federal income tax. The Fund was organized as a Massachusetts business trust on June 16, 1987 and commenced operations on September 29, 1987. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside independent pricing service approved by the Trustees. The pricing service has informed the Fund that in valuing the portfolio securities, it uses both a computerized matrix of tax-exempt securities and evaluations by its staff, in each case based on information concerning market transactions and quotations from dealers which reflect the bid side of the market each day. The portfolio securities are thus valued by reference to a combination of transactions and quotations for the same or other securities believed to be comparable in quality, coupon, maturity, type of issue, call provisions, trading characteristics and other features deemed to be relevant. Short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily except where collection is not expected. C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations 13 14 MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. 2. INVESTMENT ADVISORY AGREEMENT Pursuant to an Investment Advisory Agreement with Morgan Stanley Dean Witter Advisors Inc. (the "Investment Advisor"), formerly Dean Witter InterCapital Inc., the Fund pays the Investment Advisor an advisory fee, calculated weekly and payable monthly, by applying the following annual rates to the Fund's weekly net assets: 0.35% to the portion of the Fund's weekly net assets not exceeding $250 million and 0.25% to the portion of the Fund's weekly net assets exceeding $250 million. Under the terms of the Agreement, in addition to managing the Fund's investments, the Investment Advisor pays the salaries of all personnel, including officers of the Fund, who are employees of the Investment Advisor. 3. ADMINISTRATION AGREEMENT Pursuant to an Administration Agreement with Morgan Stanley Dean Witter Services Company Inc. (the "Administrator"), the Fund pays an administration fee, calculated weekly and payable monthly, by applying the following annual rates to the Fund's weekly net assets: 0.20% to the portion of the Fund's weekly net assets not exceeding $250 million; 0.15% to the portion of the Fund's weekly net assets exceeding $250 million but not exceeding $500 million; 0.12% to the portion of the Fund's weekly net assets exceeding $500 million but not exceeding $750 million; and 0.10% to the portion of the Fund's weekly net assets exceeding $750 million. Under the terms of the Administration Agreement, the Administrator maintains certain of the Fund's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Fund who are employees of the Administrator. The Administrator also bears the cost of telephone services, heat, light, power and other utilities provided to the Fund. 14 15 MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended August 31, 1998 aggregated $42,919,403 and $52,296,966, respectively. Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and Administrator, is the Fund's transfer agent. At August 31, 1998, the Fund had transfer agent fees and expenses payable of approximately $6,000. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the period ended August 31, 1998, included in Trustee's fees and expenses in the Statement of Operations amounted to $5,014. At August 31, 1998, the Fund had an accrued pension liability of $49,827 which is included in accrued expenses in the Statement of Assets and Liabilities. 5. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest were as follows:
CAPITAL PAID IN PAR VALUE EXCESS OF SHARES OF SHARES PAR VALUE ---------- --------- ------------ Balance, August 31, 1996.................................... 31,053,450 $310,535 $292,518,298 Treasury shares purchased and retired (weighted average discount 6.41%)*........................................... (839,200) (8,392) (7,712,411) ---------- -------- ------------ Balance, August 31, 1997.................................... 30,214,250 302,143 284,805,887 Treasury shares purchased and retired (weighted average discount 5.97%)*........................................... (474,700) (4,747) (4,483,994) ---------- -------- ------------ Balance, August 31, 1998.................................... 29,739,550 $297,396 $280,321,893 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 15 16 MUNICIPAL INCOME TRUST NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued 6. DIVIDENDS The Fund declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - ------------------ --------- ----------------- ------------------ June 30, 1998 $0.045 September 4, 1998 September 18, 1998 September 29, 1998 $0.0375 October 9, 1998 October 23, 1998 September 29, 1998 $0.0375 November 6, 1998 November 20, 1998 September 29, 1998 $0.0375 December 4, 1998 December 18, 1998
16 17 MUNICIPAL INCOME TRUST FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED AUGUST 31* ----------------------------------------------------------------- 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period........................ $ 9.99 $ 9.72 $ 9.92 $10.16 $10.83 ------ ------ ------ ------ ------ Net investment income....................................... 0.50 0.57 0.60 0.66 0.69 Net realized and unrealized gain (loss)..................... 0.34 0.26 (0.12) 0.04 (0.62) ------ ------ ------ ------ ------ Total from investment operations............................ 0.84 0.83 0.48 0.70 0.07 ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income...................................... (0.54) (0.58) (0.60) (0.60) (0.65) Net realized gain.......................................... (0.09) --** (0.09) (0.34) (0.09) ------ ------ ------ ------ ------ Total dividends and distributions........................... (0.63) (0.58) (0.69) (0.94) (0.74) ------ ------ ------ ------ ------ Anti-dilutive effect of acquiring treasury shares........... 0.01 0.02 0.01 -- -- ------ ------ ------ ------ ------ Net asset value, end of period.............................. $10.21 $ 9.99 $ 9.72 $ 9.92 $10.16 ====== ====== ====== ====== ====== Market value, end of period................................. $ 9.44 $ 9.50 $ 9.25 $ 9.00 $ 9.25 ====== ====== ====== ====== ====== TOTAL INVESTMENT RETURN+.................................... 6.16% 9.23% 10.75% 7.78% (11.73)% RATIOS TO AVERAGE NET ASSETS: Expenses.................................................... 0.66%(1) 0.63%(1) 0.64%(1) 0.65% 0.63% Net investment income....................................... 4.92% 5.68% 6.03% 6.70% 6.59% SUPPLEMENTAL DATA: Net assets, end of period, in thousands..................... $303,503 $301,708 $301,835 $313,768 $331,745 Portfolio turnover rate..................................... 13% 22% 33% 14% 27%
- --------------------- * The per share amounts were computed using an average number of shares outstanding during the period. ** Does not reflect a distribution of $0.0024. + Total investment return is based upon the current market value on the last day of each period reported. Dividends and distributions are assumed to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions. (1) Does not reflect the effect of expense offset of 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 17 18 MUNICIPAL INCOME TRUST REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND TRUSTEES OF 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 Municipal Income Trust (the "Fund") at August 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 Fund'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 August 31, 1998 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 October 9, 1998 -------------------------------------------------------------------- 1998 FEDERAL TAX NOTICE (unaudited) During the year ended August 31, 1998, the Fund paid to shareholders $0.54 per share from net investment income. All of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes. For the year ended August 31, 1998, the Fund paid to shareholders $0.08 per share from long-term capital gains. Of this $0.08 distribution, $0.03 is taxable as 28% rate gain and $0.05 is taxable as 20% rate gain. 18 19 (This Page Intentionally Left Blank) 20 TRUSTEES - ----------------------------------------------------- Michael Bozic Charles A. Fiumefreddo Edwin J. Garn John R. Haire Wayne E. Hedien Dr. Manuel H. Johnson Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS - ----------------------------------------------------- Charles A. Fiumefreddo Chairman and Chief Executive Officer Barry Fink Vice President, Secretary and General Counsel James F. Willison Vice President Thomas F. Caloia Treasurer TRANSFER AGENT - ----------------------------------------------------- Morgan Stanley Dean Witter Trust FSB Harborside Financial Center - Plaza Two Jersey City, New Jersey 07311 INDEPENDENT ACCOUNTANTS - ----------------------------------------------------- PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 INVESTMENT ADVISOR - ----------------------------------------------------- Morgan Stanley Dean Witter Advisors Inc. Two World Trade Center New York, New York 10048 MUNICIPAL INCOME TRUST Annual Report August 31, 1998 -----END PRIVACY-ENHANCED MESSAGE-----