-----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, M2dYW7achrN6dmVbspPTREPac8yrv3KE9CBe944mmLaOWx7IMWNCKg2vg/eZxdBk rg0cO3y+o89pHEjtYtuyqw== 0000950136-99-000853.txt : 19990624 0000950136-99-000853.hdr.sgml : 19990624 ACCESSION NUMBER: 0000950136-99-000853 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990623 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000885125 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136993836 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06591 FILM NUMBER: 99650650 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123921600 FORMER COMPANY: FORMER CONFORMED NAME: INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST DATE OF NAME CHANGE: 19920929 FORMER COMPANY: FORMER CONFORMED NAME: INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST II DATE OF NAME CHANGE: 19600201 N-30D 1 SEMIANNUAL REPORT 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. 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 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 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 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 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
SEE NOTES TO FINANCIAL STATEMENTS 6 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------------------------------- $ 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 -------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 7 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------- 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
SEE NOTES TO FINANCIAL STATEMENTS 8 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------ $ 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 ============
- --------------- 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 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
- ---------------------------------------------------------------------------------------- GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets April 30, 1999 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% ==== - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS 10 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES April 30, 1999 (unaudited) 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 ======
SEE NOTES TO FINANCIAL STATEMENTS 11 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the six months ended April 30, 1999 (unaudited) 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 =============
SEE NOTES TO FINANCIAL STATEMENTS 12 MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INCOME TRUST FINANCIAL STATEMENTS, continued STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED APRIL 30, 1999 OCTOBER 31, 1998 - ------------------------------------------------------------------------------------------ (unaudited) 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 ============= =============
SEE NOTES TO FINANCIAL STATEMENTS 13 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 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 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.
AMOUNT IN RESET RANGE OF SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES** ------ ------- ---------- ----- ---- ---------------- 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
- --------------- * 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 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:
CAPITAL PAID IN EXCESS OF SHARES PAR VALUE PAR VALUE ------ --------- --------- 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 ========== ======== ============
- --------------- * 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:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE --------- ---- ---- $0.0775 May 7, 1999 May 21, 1999 $0.0775 June 4, 1999 June 18, 1999
17 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:
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31* MONTHS ENDED ---------------------------------------------------------- APRIL 30, 1999* 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- (unaudited) 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%
- ------------- * 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 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 -----END PRIVACY-ENHANCED MESSAGE-----