Edgar Filing: DEUTSCHE MUNICIPAL INCOME TRUST

ar113014mit.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM N-CSR

Investment Company Act file number: 811-05655

Deutsche Municipal Income Trust

(Exact Name of Registrant as Specified in Charter)

345 Park Avenue

New York, NY 10154-0004

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, including Area Code: (212) 250-3220

Paul Schubert

60 Wall Street

New York, NY 10005

(Name and Address of Agent for Service)

Date of fiscal year end:	11/30

Date of reporting period:	11/30/2014

ITEM 1.	REPORT TO STOCKHOLDERS

November 30, 2014

Annual Report

to Shareholders

Deutsche Municipal Income Trust

(formerly DWS Municipal Income Trust)

Ticker Symbol: KTF

Contents

3 Portfolio Management Review

9 Performance Summary

11 Investment Portfolio

23 Statement of Assets and Liabilities

24 Statement of Operations

25 Statement of Cash Flows

26 Statement of Changes in Net Assets

27 Financial Highlights

29 Notes to Financial Statements

38 Report of Independent Registered Public Accounting Firm

39 Tax Information

39 Other Information

40 Shareholder Meeting Results

41 Dividend Reinvestment and Cash Purchase Plan

44 Advisory Agreement Board Considerations and Fee Evaluation

48 Board Members and Officers

53 Additional Information

The fund's investment objective is to provide a high level of current income exempt from federal income tax.

Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value.

Bond investments are subject to interest-rate, credit, liquidity and market risks to varying degrees. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. Leverage results in additional risks and can magnify the effect of any gains or losses. Although the fund seeks income that is exempt from federal income taxes, a portion of the fund’s distributions may be subject to federal, state and local taxes, including the alternative minimum tax.

Deutsche Asset & Wealth Management represents the asset management and wealth management activities conducted by Deutsche Bank AG or any of its subsidiaries, including the Advisor and DeAWM Distributors, Inc.

NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

Portfolio Management Review (Unaudited)

Market Overview and Fund Performance

All performance information below is historical and does not guarantee future results. Investment return and principal fluctuate, so your shares may be worth more or less when sold. Current performance may differ from performance data shown. Please visit deutschefunds.com for the fund's most recent month-end performance. Fund performance includes reinvestment of all distributions. Please refer to pages 9 through 10 for more complete performance information.

Investment Process

The fund’s investment objective is to provide a high level of current income exempt from federal income tax. Under normal circumstances, at least 80% of the fund’s net assets, plus the amount of any borrowings for investment purposes, will be invested in municipal securities. The fund will invest substantially all of its net assets in tax-exempt municipal securities valued at the time of purchase within the four highest grades (Baa or BBB or better) by Moody’s Investors Service, Inc. ("Moody’s") or Standard & Poor’s Corporation ("S&P"). The fund may also invest up to 20% of its assets in unrated municipal securities which, in the opinion of the fund’s investment advisor, have credit characteristics equivalent to, and will be of comparable quality to, municipal securities rated within the four highest grades by Moody’s or S&P.

Deutsche Municipal Income Trust returned 16.21% based on net asset value for the annual period ending November 30, 2014, compared with 8.23% for the fund’s benchmark, the unmanaged, unleveraged Barclays Municipal Bond Index, and 5.27% for the broad taxable bond market as measured by the Barclays Aggregate Bond Index, for the same period. The fund’s return based on market price was 19.92%. Over the period, the fund’s traded shares went from a discount of 7.09% to a discount of 4.12%. The fund maintained its monthly dividend of 7 cents per share through the fiscal period ended November 30, 2014.

While bond issuance picked up over the last few months, supply overall was manageable for the 12-month period ending November 30, 2014. The picture was also supportive on the demand side as mutual funds, a major source of demand for municipal markets, experienced consistent strong inflows. Early in the period, with municipals at relatively inexpensive levels, there was significant demand from both retail investors and institutional investors traditionally more focused on the taxable market.

"The municipal yield curve flattened over the period, mostly via rate declines on longer-term issues."

With inflation remaining moderate and ongoing concerns over the subpar employment picture, the U.S. Federal Reserve Board (the Fed) kept the target for its benchmark short-term interest rate between 0% and 0.25% for the entire period ending November 30, 2014. While the Fed tapered and eventually ended its purchases of government bonds during the period, markets took this in stride and long-term interest rates declined over the 12 months. With short-term rates anchored by the Fed, the municipal yield curve flattened over the period, mostly via rate declines on longer-term issues. (When the yield curve is steep, it means that longer-term bonds provide a greater yield advantage vs. short-term bonds.) For the full 12 months ended November 30, 2014, yields on two-year municipal issues rose by 5 basis points, from 0.33% to 0.38%, while bonds with 30-year maturities experienced a yield decrease of 109 basis points, from 4.10% to 3.01%, resulting in a flattening of 114 basis points between two and 30 years. (100 basis points equals one percentage point.) See the graph below for municipal bond yield changes from the beginning to the end of the period.

AAA Municipal Bond Yield Curve (as of 11/30/14 and 11/30/13)

Source: Thompson Reuters as of 11/30/14.

Chart is for illustrative purposes only and does not represent any Deutsche AWM product.

For the 12 months ending November 30, 2014, most municipal market credit spreads — the incremental yield offered by lower-quality issues vs. AAA-rated issues — narrowed, as investors sought sources of higher yields in a low-rate environment.

Positive and Negative Contributors to Performance

The fund has the ability to leverage returns to shareholders through the issuance of preferred shares for which dividend rates are generally tied to short-term interest rates. With the Fed anchoring short-term rates near zero, the fund’s cost of borrowing remained low for the 12 months ended November 30, 2014. The use of leverage was a positive for total return given rising municipal prices over the period.

Given a meaningfully steep yield curve, the fund has maintained significant exposure to bonds with remaining maturities in the 20-to-30-year range. This helped relative performance, as longer-term issues benefited the most from falling interest rates and rising bond prices.

The fund had significant exposure to bonds in the A-quality range. This positioning was a positive for performance as credit spreads narrowed overall during the period. The fund’s overweighting of hospital, airport revenue and transportation bonds was helpful, as these sectors outperformed.

Outlook and Positioning

Municipal yields on an absolute basis are quite low, but remain attractive vs. taxable alternatives. At the end of November 2014, the 10-year municipal yield of 2.08% was 95% of the 2.20% yield on comparable maturity U.S. Treasuries, as compared to a ratio of 96% twelve months earlier. While the municipal yield curve has flattened considerably, there remains meaningful incremental yield to be gained out on the curve, and we continue to see value in the 20-to-25-year maturity range. With respect to credit spreads, we see selective valuation opportunities among bonds in the AA-quality range, while viewing spreads for most bonds in the A and BBB range as relatively tight.

State and local governments have continued to show progress in stabilizing their finances. State tax receipts have increased for four consecutive fiscal years, and many states have passed pension reform legislation to address unfunded liabilities. Nonetheless, there are also significant uncertainties with respect to the global economic backdrop and the U.S. political environment with the potential to weaken the outlook. In addition, there remain pockets of significant credit stress for municipal governments that have experienced secular economic decline or mismanagement, and smaller and less diverse municipalities with less flexibility to support struggling enterprises. Accordingly, intensive research into individual credits continues to be an important part of the fund’s approach.

Portfolio Management Team

Effective October 1, 2014, the fund's portfolio management team is as follows:

Ashton P. Goodfield, CFA, Managing Director

Co-Lead Portfolio Manager of the fund. Began managing the fund in 2014.

— Joined Deutsche Asset & Wealth Management in 1986.

— Co-Head of Municipal Bonds.

— BA, Duke University.

Michael J. Generazo, Director

Co-Lead Portfolio Manager of the fund. Began managing the fund in 2010.

— Joined Deutsche Asset & Wealth Management in 1999.

— BS, Bryant College; MBA, Suffolk University.

Rebecca L. Flinn, Director

Portfolio Manager of the fund. Began managing the fund in 2014.

— Joined Deutsche Asset & Wealth Management in 1986.

— BA, University of Redlands, California.

The views expressed reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk.

Terms to Know

The unmanaged, unleveraged Barclays Municipal Bond Index covers the U.S.-dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.

The Barclays Aggregate Bond Index is an unmanaged, unleveraged index representing domestic taxable investment-grade bonds, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with average maturities of one year or more.

Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

The yield curve is a graphical representation of how yields on bonds of different maturities compare. Normally, yield curves slant up, as bonds with longer maturities typically offer higher yields than short-term bonds.

Credit spread is the additional yield provided by municipal bonds rated AA and below vs. municipals rated AAA with comparable effective maturity.

Leverage is the use of various financial instruments or borrowed capital, such as margin, to increase an investment’s potential return.

Overweight means the fund holds a higher weighting in a given sector or security than the benchmark. Underweight means the fund holds a lower weighting.

Credit quality measures a bond issuer’s ability to repay interest and principal in a timely manner. Rating agencies assign letter designations, such as AAA, AA and so forth. The lower the rating, the higher the probability of default. Credit quality does not remove market risk and is subject to change.

Performance Summary November 30, 2014 (Unaudited)

Performance is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit deutschefunds.com for the Fund's most recent month-end performance.

Fund specific data and performance are provided for informational purposes only and are not intended for trading purposes.

Average Annual Total Returns as of 11/30/14
Deutsche Municipal Income Trust	1-Year	5-Year	10-Year
Based on Net Asset Value(a)	16.21%	10.02%	7.75%
Based on Market Price(a)	19.92%	10.19%	7.64%
Barclays Municipal Bond Index(b)	8.23%	5.12%	4.81%
Morningstar Closed-End Municipal National Long Funds Category(c)	17.68%	9.04%	6.34%

(a) Total return based on net asset value reflects changes in the Fund's net asset value during each period. Total return based on market price reflects changes in market price. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares traded during the period. Expenses of the Fund include management fee, interest expense and other fund expenses. Total returns shown take into account these fees and expenses. The expense ratio of the Fund for the year ended November 30, 2014 was 1.45% (0.88% excluding interest expense).

(b) The unmanaged, unleveraged Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and pre-refunded bonds. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

(c) Morningstar’s Closed-End Municipal National Long Funds category represents muni national long portfolios that invest in municipal bonds. Such bonds are issued by various state and local governments to fund public projects and are free from federal taxes. To lower risk, these funds spread their assets across many states and sectors. They focus on bonds with durations of seven years or more. This makes them more sensitive to interest rates, and thus riskier, than muni funds that focus on bonds with shorter maturities. Morningstar figures represent the average of the total returns based on net asset value reported by all of the closed-end funds designated by Morningstar, Inc. as falling into the Closed-End Municipal National Long Funds category. Category returns assume reinvestment of all distributions. It is not possible to invest directly in a Morningstar category.

Net Asset Value and Market Price
	As of 11/30/14		As of 11/30/13
Net Asset Value	$	13.84	$	12.70
Market Price	$	13.27	$	11.80

Prices and net asset value fluctuate and are not guaranteed.

Distribution Information
Twelve Months as of 11/30/14: Income Dividends (common shareholders)	$	.84
Capital Gain Distributions	$	.01
November Income Dividend (common shareholders)	$	.0700
Current Annualized Distribution Rate (based on Net Asset Value) as of 11/30/14†		6.07	%
Current Annualized Distribution Rate (based on Market Price) as of 11/30/14†		6.33	%
Tax Equivalent Distribution Rate (based on Net Asset Value) as of 11/30/14†		10.72	%
Tax Equivalent Distribution Rate (based on Market Price) as of 11/30/14†		11.18	%

† Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value/market price on November 30, 2014. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Tax equivalent distribution rate is based on the Fund's distribution rate and a marginal income tax rate of 43.4%. Distribution rates are historical, not guaranteed and will fluctuate. Distributions do not include return of capital or other non-income sources.

Investment Portfolio as of November 30, 2014

	Principal Amount ($)		Value ($)

Municipal Bonds and Notes 117.5%
Arizona 1.1%
Arizona, Salt Verde Financial Corp., Gas Revenue:
5.0%, 12/1/2037, GTY: Citibank NA		1,050,000		1,200,098
5.5%, 12/1/2029, GTY: Citibank NA		1,400,000		1,699,068
Phoenix, AZ, Civic Improvement Corp., Airport Revenue, Series A, 5.0%, 7/1/2040		3,000,000		3,207,000
				6,106,166
California 19.5%
California, Bay Area Toll Authority, Toll Bridge Revenue, San Francisco Bay Area, Series F-1, Prerefunded, 5.125%, 4/1/2039		5,000,000		5,881,200
California, Health Facilities Financing Authority Revenue, Catholic Healthcare West, Series A, 6.0%, 7/1/2039		3,500,000		4,081,910
California, M-S-R Energy Authority, Series A, 7.0%, 11/1/2034, GTY: Citigroup, Inc.		3,180,000		4,459,664
California, San Gorgonio Memorial Healthcare, Election of 2006, Series C, Prerefunded, 7.2%, 8/1/2039		5,000,000		5,885,050
California, South Bayside Waste Management Authority, Solid Waste Enterprise Revenue, Shoreway Environmental Center, Series A, 6.25%, 9/1/2029		5,345,000		6,281,070
California, State General Obligation:
Series A, 144A, 0.04%*, 5/1/2040, LOC: Royal Bank of Canada		400,000		400,000
5.0%, 11/1/2043		5,000,000		5,654,450
5.25%, 4/1/2035		4,295,000		5,005,822
5.5%, 3/1/2040		1,370,000		1,576,021
6.0%, 4/1/2038		10,000,000		11,989,300
California, State Municipal Finance Authority Revenue, Chevron U.S.A., Inc., Recovery Zone Bonds, Series A, 0.03%*, 11/1/2035, GTY: Chevron Corp.		1,000,000		1,000,000
California, State Public Works Board, Lease Revenue, Capital Projects, Series I-1, 6.375%, 11/1/2034		2,000,000		2,460,620
California, State Public Works Board, Lease Revenue, Department of General Services, Buildings 8 & 9, Series A, 6.25%, 4/1/2034		6,640,000		7,981,014
California, Statewide Communities Development Authority Revenue, American Baptist Homes of the West, 6.25%, 10/1/2039, GTY: American Baptist Homes of the Midwest		1,250,000		1,422,088
Corona-Norco, CA, Unified School District, Election of 2006, Series A, 5.0%, 8/1/2031, INS: AGMC		5,130,000		5,617,299
Los Angeles, CA, Community College District, Election of 2008, Series C, 5.25%, 8/1/2039		3,000,000		3,481,050
Los Angeles, CA, Department of Airports Revenue, Los Angeles International Airport, Series B, 5.0%, 5/15/2035		8,500,000		9,604,235
Port Oakland, CA, Series A, AMT, 5.0%, 11/1/2027, INS: NATL		5,850,000		6,397,443
San Diego County, CA, Regional Airport Authority Revenue, Series B, AMT, 5.0%, 7/1/2043		7,000,000		7,699,440
San Diego, CA, Community College District, Election of 2006, 5.0%, 8/1/2036		2,850,000		3,283,171
San Diego, CA, Unified School District, Election 2012, Series C, 5.0%, 7/1/2035		5,000,000		5,738,000
				105,898,847
Colorado 2.6%
Colorado, E-470 Public Highway Authority Revenue, Series A-1, 5.5%, 9/1/2024, INS: NATL		2,500,000		2,585,875
Colorado, Health Facilities Authority Revenue, Covenant Retirement Communities, Inc., 5.0%, 12/1/2035		2,500,000		2,548,300
Colorado, State Health Facilities Authority Revenue, School Health Systems, Series A, 5.5%, 1/1/2035		5,450,000		6,462,610
Denver, CO, City & County Airport Revenue, Series A, AMT, 5.25%, 11/15/2043		2,400,000		2,653,608
				14,250,393
District of Columbia 0.9%
District of Columbia, Metropolitan Airport Authority Systems Revenue:
Series A, AMT, 5.0%, 10/1/2038		800,000		888,296
Series A, AMT, 5.0%, 10/1/2043		3,400,000		3,731,908
				4,620,204
Florida 10.6%
Miami-Dade County, FL, Aviation Revenue, Series A, 5.5%, 10/1/2041		10,000,000		11,390,300
Miami-Dade County, FL, Aviation Revenue, Miami International Airport:
Series A, AMT, 5.25%, 10/1/2033, INS: AGC		8,500,000		9,434,830
Series A-1, 5.375%, 10/1/2035		2,000,000		2,300,360
Miami-Dade County, FL, Educational Facilities Authority Revenue, University of Miami, Series A, 5.75%, 4/1/2028		3,000,000		3,165,870
Miami-Dade County, FL, Expressway Authority, Toll Systems Revenue, Series A, 5.0%, 7/1/2035, INS: AGMC		3,000,000		3,341,490
North Brevard County, FL, Hospital District Revenue, Parrish Medical Center Project:
5.5%, 10/1/2028		1,520,000		1,682,169
Prerefunded, 5.5%, 10/1/2028		3,770,000		4,418,628
5.75%, 10/1/2038		1,440,000		1,589,501
Prerefunded, 5.75%, 10/1/2038		3,560,000		4,205,998
Orlando & Orange County, FL, Expressway Authority Revenue:
Series C, 5.0%, 7/1/2035		2,705,000		3,012,910
Series A, 5.0%, 7/1/2040		11,895,000		13,234,615
				57,776,671
Georgia 7.8%
Atlanta, GA, Airport Revenue:
Series A, 5.0%, 1/1/2035		1,030,000		1,156,299
Series C, AMT, 5.0%, 1/1/2037		1,690,000		1,834,123
Atlanta, GA, Water & Wastewater Revenue, Series A, 6.25%, 11/1/2039		5,815,000		6,864,724
Gainesville & Hall County, GA, Hospital Authority Revenue, Anticipation Certificates, Northeast Georgia Healthcare, Series A, 5.5%, 2/15/2045		2,135,000		2,344,230
Georgia, Main Street Natural Gas, Inc., Gas Project Revenue:
Series A, 5.0%, 3/15/2020, GTY: JPMorgan Chase & Co.		7,250,000		8,263,840
Series A, 5.5%, 9/15/2024, GTY: Merrill Lynch & Co., Inc.		5,000,000		6,002,300
Series A, 5.5%, 9/15/2028, GTY: Merrill Lynch & Co., Inc.		10,000,000		12,087,700
Georgia, Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus Regional Healthcare Systems, 6.5%, 8/1/2038, INS: AGC		3,300,000		3,738,867
				42,292,083
Guam 0.1%
Guam, International Airport Authority Revenue, Series C, AMT, 6.375%, 10/1/2043		535,000		615,897
Hawaii 1.1%
Hawaii, State Airports Systems Revenue, Series A, 5.0%, 7/1/2039		4,200,000		4,558,386
Hawaii, State Department of Budget & Finance, Special Purpose Revenue, Hawaiian Electric Co., Inc., 6.5%, 7/1/2039, GTY: Hawaiian Electric Co., Inc.		1,000,000		1,163,270
				5,721,656
Idaho 1.0%
Idaho, Health Facilities Authority Revenue, St. Luke's Regional Medical Center:
5.0%, 7/1/2035, INS: AGMC		2,500,000		2,695,450
6.75%, 11/1/2037		2,135,000		2,454,481
				5,149,931
Illinois 8.6%
Chicago, IL, Airport Revenue, O'Hare International Airport:
Series A, 5.75%, 1/1/2039		5,000,000		5,758,700
Series B, 6.0%, 1/1/2041		9,000,000		10,500,930
Chicago, IL, General Obligation, Series A, 5.25%, 1/1/2035		2,025,000		2,101,221
Illinois, Finance Authority Revenue, Advocate Health Care Network:
Series B, 5.375%, 4/1/2044		2,500,000		2,739,375
Series D, 6.5%, 11/1/2038		1,000,000		1,161,850
Illinois, Finance Authority Revenue, Memorial Health Systems, 5.5%, 4/1/2039		4,200,000		4,623,360
Illinois, Finance Authority Revenue, Northwest Community Hospital, Series A, 5.5%, 7/1/2038		5,750,000		6,275,780
Illinois, Metropolitan Pier & Exposition Authority, Dedicated State Tax Revenue, McCormick Place, Series B, 5.0%, 6/15/2050, INS: AGMC		3,000,000		3,164,580
Illinois, Railsplitter Tobacco Settlement Authority, 6.0%, 6/1/2028		915,000		1,071,776
Illinois, State Finance Authority Revenue, Ascension Health Credit Group, Series A, 5.0%, 11/15/2032		730,000		821,374
Illinois, State Finance Authority Revenue, OSF Healthcare Systems, Series A, 5.0%, 5/15/2041		1,580,000		1,696,873
Illinois, State Finance Authority Revenue, University of Chicago, Series A, 5.0%, 10/1/2038		4,445,000		5,101,571
Illinois, State General Obligation, 5.5%, 7/1/2038		385,000		425,887
University of Illinois, Auxiliary Facilities Systems, Series A, 5.25%, 4/1/2041		1,250,000		1,394,825
				46,838,102
Indiana 1.4%
Indiana, Finance Authority Hospital Revenue, Deaconess Hospital Obligation, Series A, 6.75%, 3/1/2039		1,745,000		2,014,096
Indiana, State Finance Authority Revenue, Community Foundation of Northwest Indiana, 5.0%, 3/1/2041		5,000,000		5,387,050
				7,401,146
Kentucky 1.7%
Kentucky, Economic Development Finance Authority, Louisville Arena Project Revenue, Series A-1, 6.0%, 12/1/2042, INS: AGC		4,000,000		4,318,520
Louisville & Jefferson County, KY, Metropolitan Government Health Systems Revenue, Norton Healthcare, Inc., 5.0%, 10/1/2030		5,000,000		5,168,600
				9,487,120
Louisiana 1.1%
Louisiana, Public Facilities Authority, Hospital Revenue, Lafayette General Medical Center, 5.5%, 11/1/2040		3,000,000		3,280,080
Louisiana, St. John Baptist Parish Revenue, Marathon Oil Corp., Series A, 5.125%, 6/1/2037		2,315,000		2,445,890
				5,725,970
Maryland 0.5%
Maryland, State Health & Higher Educational Facilities Authority Revenue, Anne Arundel Health Systems, Series A, Prerefunded, 6.75%, 7/1/2039		1,100,000		1,374,439
Maryland, State Health & Higher Educational Facilities Authority Revenue, Washington County Hospital, 5.75%, 1/1/2033		1,500,000		1,580,025
				2,954,464
Massachusetts 1.3%
Massachusetts, State Development Finance Agency Revenue, Northeastern University, Series A, 5.25%, 3/1/2037		2,500,000		2,872,075
Massachusetts, State Health & Educational Facilities Authority Revenue, Suffolk University, Series A, 5.75%, 7/1/2039		3,570,000		3,945,314
				6,817,389
Michigan 4.0%
Detroit, MI, Water & Sewerage Department, Sewerage Disposal System Revenue, Series A, 5.25%, 7/1/2039		1,120,000		1,202,880
Michigan, State Building Authority Revenue, Series I-A, 5.375%, 10/15/2041		7,500,000		8,495,025
Michigan, State Building Authority Revenue, Facilities Program:
Series H, 5.125%, 10/15/2033		2,495,000		2,794,126
Series I, 6.0%, 10/15/2038		1,000,000		1,154,290
Michigan, State Hospital Finance Authority Revenue, Henry Ford Health Hospital, 5.75%, 11/15/2039		5,000,000		5,549,350
Royal Oak, MI, Hospital Finance Authority Revenue, William Beaumont Hospital, Prerefunded, 8.25%, 9/1/2039		1,800,000		2,291,454
				21,487,125
Minnesota 0.2%
Minneapolis, MN, Health Care Systems Revenue, Fairview Health Services, Series A, 6.75%, 11/15/2032		1,140,000		1,342,988
Mississippi 0.3%
Warren County, MS, Gulf Opportunity Zone, International Paper Co., Series A, 6.5%, 9/1/2032		1,525,000		1,758,142
Nevada 3.8%
Clark County, NV, Airport Revenue, Series B, 5.125%, 7/1/2036		4,305,000		4,700,931
Henderson, NV, Health Care Facility Revenue, Catholic Healthcare West, Series B, 5.25%, 7/1/2031		10,000,000		10,619,700
Las Vegas Valley, NV, Water District, Series B, 5.0%, 6/1/2037		4,830,000		5,466,449
				20,787,080
New Jersey 5.7%
New Jersey, Hospital & Healthcare Revenue, General Hospital Center at Passaic, ETM, 6.75%, 7/1/2019, INS: AGMC		5,000,000		5,750,600
New Jersey, Industrial Development Revenue, Economic Development Authority, Harrogate, Inc., Series A, 5.875%, 12/1/2026		1,400,000		1,400,994
New Jersey, State Economic Development Authority Revenue, The Goethals Bridge Replacement Project, AMT, 5.125%, 7/1/2042, INS: AGMC		1,250,000		1,368,225
New Jersey, State Transportation Trust Fund Authority, Transportation Program, Series AA, 5.5%, 6/15/2039		1,730,000		1,961,111
New Jersey, State Transportation Trust Fund Authority, Transportation Systems:
Series B, 5.25%, 6/15/2036		2,500,000		2,733,325
Series B, 5.5%, 6/15/2031		6,200,000		7,156,908
Series A, 5.5%, 6/15/2041		5,460,000		6,129,560
Series A, 6.0%, 12/15/2038		1,955,000		2,273,294
New Jersey, State Turnpike Authority Revenue, Series E, 5.25%, 1/1/2040		1,750,000		1,948,642
				30,722,659
New York 8.0%
New York, Metropolitan Transportation Authority Revenue:
Series C, 5.0%, 11/15/2038		6,000,000		6,693,840
Series D, 5.0%, 11/15/2038		1,090,000		1,222,424
Series C, 5.0%, 11/15/2042		5,000,000		5,535,600
Series A-1, 5.25%, 11/15/2039		4,000,000		4,599,280
New York, State Agency General Obligation Lease, Higher Education Revenue, Dormitory Authority, City University, Series A, 5.625%, 7/1/2016		1,060,000		1,113,562
New York, State Environmental Facilities Corp., State Clean Water & Drinking Revolving Funds, New York City Municipal Water Finance Authority Projects, 5.0%, 6/15/2036		2,000,000		2,296,440
New York, State Liberty Development Corp. Revenue, World Trade Center Port Authority Construction, 5.25%, 12/15/2043		8,000,000		9,176,640
New York, Utility Debt Securitization Authority, Restructuring Revenue:
Series TE, 5.0%, 12/15/2034		800,000		939,440
Series TE, 5.0%, 12/15/2035		1,000,000		1,170,820
New York City, NY, Municipal Water Finance Authority, Water & Sewer Revenue, Second General Resolution:
Series AA, 5.0%, 6/15/2044		5,000,000		5,645,300
Series EE, 5.375%, 6/15/2043		3,750,000		4,377,525
Port Authority of New York & New Jersey, One Hundred Eighty-Fourth:
5.0%, 9/1/2036		205,000		237,478
5.0%, 9/1/2039		510,000		586,628
				43,594,977
North Carolina 0.6%
North Carolina, Medical Care Commission, Health Care Facilities Revenue, University Health System, Series D, 6.25%, 12/1/2033		3,000,000		3,455,610
North Dakota 0.7%
Fargo, ND, Sanford Health Systems Revenue, 6.25%, 11/1/2031		3,240,000		3,869,338
Ohio 3.2%
Cuyahoga County, OH, Health Care Facility Revenue, AM McGregor Home Project, 0.06%*, 5/1/2049, LOC: Northern Trust Co.		855,000		855,000
Lucas County, OH, Hospital Revenue, Promedica Healthcare, Series A, 6.5%, 11/15/2037		1,500,000		1,848,390
Ohio, State Higher Educational Facility Commission Revenue, Cleveland Clinic Health System, Series B-4, 0.04%*, 1/1/2043, SPA: Barclays Bank PLC		1,000,000		1,000,000
Ohio, State Hospital Facility Revenue, Cleveland Clinic Health:
Series A, 5.5%, 1/1/2039		5,000,000		5,626,500
Series B, 5.5%, 1/1/2039		3,500,000		3,938,550
Ohio, State Turnpike Commission, Junior Lien, Infrastructure Projects, Series A-1, 5.25%, 2/15/2039		3,520,000		4,044,269
				17,312,709
Pennsylvania 2.8%
Allegheny County, PA, Hospital Development Authority Revenue, University of Pittsburgh Medical, 5.625%, 8/15/2039		1,700,000		1,944,137
Franklin County, PA, Industrial Development Authority Revenue, Chambersburg Hospital Project, 5.375%, 7/1/2042		7,000,000		7,735,910
Pennsylvania, State Turnpike Commission Revenue, Series A, 5.0%, 12/1/2038		2,030,000		2,291,626
Philadelphia, PA, Airport Revenue, Series A, 5.0%, 6/15/2035		2,835,000		3,115,892
				15,087,565
Puerto Rico 3.1%
Puerto Rico, Sales Tax Financing Corp., Sales Tax Revenue:
Series A, 5.5%, 8/1/2042		3,000,000		2,234,880
Series A, 6.0%, 8/1/2042		3,200,000		2,497,824
Series A, 6.375%, 8/1/2039		15,000,000		12,233,400
				16,966,104
Rhode Island 0.4%
Rhode Island, Health & Educational Building Corp., Higher Education Facility Revenue, University of Rhode Island, Series A, 6.25%, 9/15/2034		2,000,000		2,316,420
South Carolina 3.5%
Charleston County, SC, Airport District, Airport System Revenue, Series A, AMT, 5.875%, 7/1/2032		6,560,000		7,704,589
Greenwood County, SC, Hospital Revenue, Self Regional Healthcare, Series B, 5.0%, 10/1/2031		1,000,000		1,116,210
South Carolina, State Ports Authority Revenue, 5.25%, 7/1/2040		2,550,000		2,829,811
South Carolina, State Public Service Authority Revenue, Santee Cooper, Series A, 5.75%, 12/1/2043		6,220,000		7,338,107
				18,988,717
Tennessee 1.6%
Clarksville, TN, Natural Gas Acquisition Corp., Gas Revenue, 5.0%, 12/15/2021, GTY: Merrill Lynch & Co., Inc.		2,000,000		2,285,100
Jackson, TN, Hospital Revenue, Jackson-Madison Project, 5.625%, 4/1/2038		4,000,000		4,370,640
Sullivan County, TN, Health, Educational & Housing Facilities Board, Hospital Revenue, Wellmont Health Systems Project, Series C, 5.25%, 9/1/2036		2,050,000		2,151,926
				8,807,666
Texas 15.5%
Harris County, TX, Health Facilities Development Corp., Hospital Revenue, Memorial Hermann Healthcare System, Series B, Prerefunded, 7.25%, 12/1/2035		1,000,000		1,246,440
Harris County, TX, Houston Port Authority, Series A, AMT, 6.25%, 10/1/2029		3,000,000		3,490,860
Houston, TX, Airport Revenue, People Mover Project, Series A, AMT, 5.5%, 7/15/2017, INS: AGMC		2,085,000		2,093,361
North Texas, Tollway Authority Revenue:
First Tier, Series A, 5.625%, 1/1/2033		3,500,000		3,874,570
Second Tier, Series F, 5.75%, 1/1/2038		6,500,000		7,191,015
First Tier, 6.0%, 1/1/2043		5,000,000		5,812,650
North Texas, Tollway Authority Revenue, Special Project Systems, Series D, 5.0%, 9/1/2032		2,000,000		2,275,060
Texas, Dallas/Fort Worth International Airport Revenue:
Series F, AMT, 5.0%, 11/1/2035		2,000,000		2,152,020
Series H, AMT, 5.0%, 11/1/2042		5,425,000		5,802,634
Series F, 5.25%, 11/1/2033		3,500,000		4,010,720
Series A, 5.25%, 11/1/2038		4,000,000		4,480,040
Texas, Grand Parkway Transportation Corp., System Toll Revenue:
Series B, 5.0%, 4/1/2053		3,500,000		3,814,090
Series B, 5.25%, 10/1/2051		5,000,000		5,621,800
Texas, Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue:
Series B, 0.857%**, 12/15/2026, GTY: Merrill Lynch & Co., Inc.		1,500,000		1,377,105
Series D, 6.25%, 12/15/2026, GTY: Merrill Lynch & Co., Inc.		5,000,000		6,153,400
Texas, SA Energy Acquisition Public Facility Corp., Gas Supply Revenue:
5.5%, 8/1/2021, GTY: The Goldman Sachs Group, Inc.		1,155,000		1,347,446
5.5%, 8/1/2025, GTY: The Goldman Sachs Group, Inc.		7,250,000		8,725,665
Texas, Southwest Higher Education Authority, Inc., Southern Methodist University Project, 5.0%, 10/1/2035		1,600,000		1,836,944
Texas, State Municipal Gas Acquisition & Supply Corp., III Gas Supply Revenue:
5.0%, 12/15/2030		250,000		274,628
5.0%, 12/15/2031		3,165,000		3,462,889
5.0%, 12/15/2032		2,000,000		2,169,360
West Harris County, TX, Regional Water Authority, Water Systems Revenue, 5.0%, 12/15/2035		6,500,000		7,087,080
				84,299,777
Virgin Islands 0.5%
Virgin Islands, Public Finance Authority Revenue, Gross Receipts Tax Loan Note, Series A, 5.0%, 10/1/2032		2,500,000		2,690,250
Virginia 0.3%
Washington County, VA, Industrial Development Authority, Hospital Facility Revenue, Mountain States Health Alliance, Series C, 7.75%, 7/1/2038		1,370,000		1,622,243
Washington 3.7%
Washington, State Health Care Facilities Authority Revenue, Virginia Mason Medical Center, Series A, 6.125%, 8/15/2037		6,000,000		6,596,040
Washington, State Health Care Facilities Authority, Catholic Health Initiatives, Series A, 5.0%, 2/1/2041		5,000,000		5,364,200
Washington, State Health Care Facilities Authority, Swedish Health Services, Series A, Prerefunded, 6.75%, 11/15/2041		1,825,000		2,398,360
Washington, State Motor Vehicle Tax-Senior 520 Corridor Program, Series C, 5.0%, 6/1/2031		5,000,000		5,785,500
				20,144,100
Wisconsin 0.3%
Wisconsin, State Health & Educational Facilities Authority Revenue, Prohealth Care, Inc. Obligation Group, 6.625%, 2/15/2039		1,555,000		1,812,321
Total Municipal Bonds and Notes (Cost $557,193,179)				638,721,830

Underlying Municipal Bonds of Inverse Floaters (a) 38.8%
Florida 6.6%
Miami-Dade County, FL, Transit Sales Surtax Revenue, 5.0%, 7/1/2023, INS: AGMC (b)		3,740,000		4,158,068
Miami-Dade County, FL, Transit Sales Surtax Revenue, 5.0%, 7/1/2024, INS: AGMC (b)		3,915,000		4,352,630
Miami-Dade County, FL, Transit Sales Surtax Revenue, 5.0%, 7/1/2025, INS: AGMC (b)		4,122,500		4,583,325
Miami-Dade County, FL, Transit Sales Surtax Revenue, 5.0%, 7/1/2026, INS: AGMC (b)		4,317,500		4,800,122
Miami-Dade County, FL, Transit Sales Surtax Revenue, 5.0%, 7/1/2032, INS: AGMC (b)		16,470,000		18,311,063
Trust: Miami-Dade County, FL, Transit Improvements, Series 2008-1160, 144A, 9.381%, 7/1/2016, Leverage Factor at purchase date: 2 to 1
				36,205,208
Massachusetts 4.8%
Massachusetts, State Water Pollution Abatement Trust, Series 13, 5.0%, 8/1/2032 (b)		18,250,000		20,387,358
Massachusetts, State Water Pollution Abatement Trust, Series 13, 5.0%, 8/28/2037 (b)		5,000,000		5,585,578
Trust: Massachusetts, State Pollution Control, Water Utility Improvements, Series 3159, 144A, 13.772%, 8/1/2015, Leverage Factor at purchase date: 3 to 1
				25,972,936
Nevada 5.9%
Clark County, NV, General Obligation, Limited Tax-Bond Bank, 5.0%, 6/1/2028 (b)		9,447,355		10,483,575
Clark County, NV, General Obligation, Limited Tax-Bond Bank, 5.0%, 6/1/2029 (b)		9,919,723		11,007,753
Clark County, NV, General Obligation, Limited Tax-Bond Bank, 5.0%, 6/3/2030 (b)		9,627,878		10,683,898
Trust: Clark County, NV, General Obligation, Series 3158, 144A, 13.773%, 6/1/2016, Leverage Factor at purchase date: 3 to 1
				32,175,226
New York 11.5%
New York, State Dormitory Authority, State Personal Income Tax Revenue, Series A, 5.0%, 3/15/2026 (b)		10,000,000		10,879,940
Trust: New York, State Dormitory Authority Revenue, Series 3160, 144A, 13.773%, 3/15/2015, Leverage Factor at purchase date: 3 to 1
New York, State Dormitory Authority, State Personal Income Tax Revenue, Series A, 5.0%, 3/15/2024 (b)		10,000,000		10,905,800
Trust: New York, State Dormitory Authority Revenue, Secondary Issues, Series 1955-3, 144A, 18.26%, 3/15/2015, Leverage Factor at purchase date: 4 to 1
New York, State Dormitory Authority Revenues, State Supported Debt, University Dormitory Facilities, 5.0%, 7/1/2025 (b)		5,425,000		5,959,378
New York, State Dormitory Authority Revenues, State Supported Debt, University Dormitory Facilities, 5.0%, 7/1/2027 (b)		8,080,000		8,875,903
Trust: New York, State Dormitory Authority Revenues, Series 3169, 144A, 13.77%, 7/1/2025, Leverage Factor at purchase date: 3 to 1
New York, Triborough Bridge & Tunnel Authority Revenues, Series C, 5.0%, 11/15/2033 (b)		6,000,000		6,738,720
Trust: New York, Triborough Bridge & Tunnel Authority Revenues, Series 2008-1188, 144A, 9.35%, 11/15/2033, Leverage Factor at purchase date: 2 to 1
New York City, NY, Transitional Finance Authority Revenue, Series C-1, 5.0%, 11/1/2027 (b)		17,560,000		19,362,007
Trust: New York City, NY, Series 2008-1190, 144A, 9.35%, 11/1/2027, Leverage Factor at purchase date: 2 to 1
				62,721,748
Tennessee 6.6%
Nashville & Davidson County, TN, Metropolitan Government, 5.0%, 1/1/2027 (b)		10,756,695		12,177,634
Trust: Nashville & Davidson County, TN, Metropolitan Government, Series 2631-3, 144A, 18.255%, 1/1/2016, Leverage Factor at purchase date: 4 to 1
Nashville & Davidson County, TN, Metropolitan Government, 5.0%, 1/1/2026 (b)		10,200,000		11,547,420
Trust: Nashville & Davidson County, TN, Metropolitan Government, Series 2631-2, 144A, 18.26%, 1/1/2016, Leverage Factor at purchase date: 4 to 1
Nashville & Davidson County, TN, Metropolitan Government, 5.0%, 1/1/2028 (b)		10,564,925		11,960,535
Trust: Nashville & Davidson County, TN, Metropolitan Government, Series 2631-4, 144A, 18.268%, 1/1/2016, Leverage Factor at purchase date: 4 to 1
				35,685,589
Virginia 3.4%
Virginia, State Resource Authority, Clean Water Revenue, 5.0%, 10/1/2027 (b)		8,190,000		9,467,126
Virginia, State Resource Authority, Clean Water Revenue, 5.0%, 10/1/2028 (b)		7,630,000		8,819,802
Trust: Virginia, State Resource Authority, Clean Water Revenue, Series 2917, 144A, 11.462%, 10/1/2028, Leverage Factor at purchase date: 2.5 to 1
				18,286,928
Total Underlying Municipal Bonds of Inverse Floaters (Cost $189,976,798)				211,047,635

	% of Net Assets			Value ($)

Total Investment Portfolio (Cost $747,169,977)†		156.3			849,769,465
Floating Rate Notes (a)		(22.0	)		(119,181,576	)
MTPS, at Liquidation Value		(34.7	)		(188,865,000	)
Other Assets and Liabilities, Net		2.2			11,757,731
Remarketed Preferred Shares, at Liquidation Value		(1.8	)		(9,885,000	)
Net Assets Applicable to Common Shareholders		100.0			543,595,620

* Variable rate demand notes are securities whose interest rates are reset periodically at market levels. These securities are payable on demand and are shown at their current rate as of November 30, 2014.

** Floating rate securities' yields vary with a designated market index or market rate, such as the coupon-equivalent of the U.S. Treasury Bill rate. These securities are shown at their current rate as of November 30, 2014.

† The cost for federal income tax purposes was $625,136,836. At November 30, 2014, net unrealized appreciation for all securities based on tax cost was $105,451,053. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $108,318,853 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $2,867,800.

(a) Securities represent the underlying municipal obligations of inverse floating rate obligations held by the Fund. The Floating Rate Notes represent leverage to the Fund and is the amount owed to the floating rate note holders.

(b) Security forms part of the below inverse floater. The Fund accounts for these inverse floaters as a form of secured borrowing, by reflecting the value of the underlying bond in the investments of the Fund and the amount owed to the floating rate note holder as a liability.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

AGC: Assured Guaranty Corp.

AGMC: Assured Guaranty Municipal Corp.

AMT: Subject to alternative minimum tax.

ETM: Bonds bearing the description ETM (escrow to maturity) are collateralized usually by U.S. Treasury securities which are held in escrow and used to pay principal and interest on bonds so designated.

GTY: Guaranty Agreement

INS: Insured

LOC: Letter of Credit

NATL: National Public Finance Guarantee Corp.

Prerefunded: Bonds which are prerefunded are collateralized, usually by U.S. Treasury securities which are held in escrow and used to pay principal and interest on tax-exempt issues and to retire the bonds in full at the earliest refunding date.

SPA: Standby Bond Purchase Agreement

Fair Value Measurements

Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of November 30, 2014 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2		Level 3		Total

Municipal Investments (c)	$	—	$	849,769,465	$	—	$	849,769,465
Total	$	—	$	849,769,465	$	—	$	849,769,465

There have been no transfers between fair value measurement levels during the year ended November 30, 2014.

The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities

as of November 30, 2014
Assets
Investments in securities, at value (cost $747,169,977)	$	849,769,465
Cash		49,228
Interest receivable		12,191,290
Other assets		14,408
Deferred offering costs		191,774
Total assets		862,216,165
Liabilities
Payable for floating rate notes issued		119,181,576
Distributions payable		181,546
Accrued management fee		341,493
Accrued Trustees' fees		8,124
Other accrued expenses and payables		157,806
MTPS, at liquidation value (see page 33 for more details)		188,865,000
Total liabilities		308,735,545
Remarketed Preferred Shares, at liquidation value (see page 33 for more details)		9,885,000
Net assets applicable to common shareholders, at value	$	543,595,620
Net Assets Applicable to Common Shareholders Consist of
Undistributed net investment income		15,851,081
Net unrealized appreciation (depreciation) on investments		102,599,488
Accumulated net realized gain (loss)		(8,863,651	)
Paid-in capital		434,008,702
Net assets applicable to common shareholders, at value	$	543,595,620
Net Asset Value
Net Asset Value per common share ($543,595,620 ÷ 39,272,911 outstanding shares of beneficial interest, $.01 par value, unlimited number of common shares authorized)	$	13.84

The accompanying notes are an integral part of the financial statements.

Statement of Operations

for the year ended November 30, 2014
Investment Income
Income: Interest	$	40,402,397
Expenses: Management fee		3,987,338
Services to shareholders		46,862
Custodian fee		12,030
Professional fees		142,004
Reports to shareholders		77,930
Trustees' fees and expenses		34,045
Interest expense		2,971,849
Stock Exchange listing fees		34,889
Offering costs		204,864
Other		105,448
Total expenses		7,617,259
Net investment income		32,785,138
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from investments		503,409
Change in net unrealized appreciation (depreciation) on investments		44,985,941
Net gain (loss)		45,489,350
Net increase (decrease) in net assets resulting from operations	$	78,274,488
Distributions to Remarketed Preferred Shares		(11,803	)
Net increase (decrease) in net assets applicable to common shareholders	$	78,262,685

The accompanying notes are an integral part of the financial statements.

Statement of Cash Flows

for the year ended November 30, 2014
Increase (Decrease) in Cash: Cash Flows from Operating Activities
Net increase (decrease) in net assets resulting from operations (excluding distributions to Remarketed Preferred Shareholders)	$	78,274,488
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: Purchases of long-term investments		(147,787,662	)
Net amortization of premium/(accretion of discount)		382,395
Proceeds from sales and maturities of long-term investments		153,018,470
(Increase) decrease in interest receivable		(64,378	)
(Increase) decrease in other assets		1,890
(Increase) decrease in receivable for investments sold		1,210,000
Increase (decrease) in accrued expenses and payables		18,294
Change in unrealized (appreciation) depreciation on investments		(44,985,941	)
Net realized (gain) loss from investments		(503,409	)
Cash provided (used) by operating activities		39,564,147
Cash Flows from Financing Activities
(Increase) decrease in deferred offering cost on MTPS		204,864
Distributions paid (net of reinvestment of distributions)		(33,133,882	)
Increase (decrease) in payable for floating rate notes issued		(6,665,000	)
Cash provided (used) for financing activities		(39,594,018	)
Increase (decrease) in cash		(29,871	)
Cash at beginning of period		79,099
Cash at end of period	$	49,228
Supplemental Disclosure
Interest paid on preferred shares	$	(2,025,020	)
Interest expense and fees on floating rate notes issued	$	(765,480	)

The accompanying notes are an integral part of the financial statements.

Statement of Changes in Net Assets

	Years Ended November 30,
Increase (Decrease) in Net Assets	2014			2013
Operations: Net investment income	$	32,785,138		$	33,252,096
Net realized gain (loss)		503,409			(5,416,827	)
Change in net unrealized appreciation (depreciation)		44,985,941			(74,503,477	)
Net increase (decrease) in net assets resulting from operations		78,274,488			(46,668,208	)
Distributions to Remarketed Preferred Shareholders		(11,803	)		(14,441	)
Net increase (decrease) in net assets applicable to common shareholders		78,262,685			(46,682,649	)
Distributions to common shareholders from: Net investment income		(32,989,245	)		(32,976,108	)
Net realized gains		(314,183	)		(380,417	)
Total distributions		(33,303,428	)		(33,356,525	)
Fund share transactions: Net proceeds from shares issued to common shareholders in reinvestment of distributions		—			781,898
Net increase (decrease) in net assets from Fund share transactions		—			781,898
Increase (decrease) in net assets		44,959,257			(79,257,276	)
Net assets at beginning of period applicable to common shareholders		498,636,363			577,893,639
Net assets at end of period applicable to common shareholders (including undistributed net investment income of $15,851,081 and $16,357,341, respectively)	$	543,595,620		$	498,636,363
Other Information
Common shares outstanding at beginning of period		39,272,911			39,218,238
Shares issued to common shareholders in reinvestment of distributions		—			54,673
Common shares outstanding at end of period		39,272,911			39,272,911

The accompanying notes are an integral part of the financial statements.

Financial Highlights

	Years Ended November 30,
		2014			2013			2012			2011			2010
Selected Per Share Data Applicable to Common Shareholders
Net asset value, beginning of period	$	12.70		$	14.74		$	12.56		$	12.03		$	11.94
Income (loss) from investment operations: Net investment incomea		.83			.85			.89			.93			.94
Net realized and unrealized gain (loss)		1.16			(2.04	)		1.96			.45			.00	*
Total from investment operations		1.99			(1.19	)		2.85			1.38			.94
Distributions to remarketed preferred shareholders from net investment income (common share equivalent)		(.00	)*		(.00	)*		(.01	)		(.01	)		(.01	)
Net increase (decrease) in net assets from operations applicable to common shareholders		1.99			(1.19	)		2.84			1.37			.93
Less distributions applicable to common shareholders from: Net investment income		(.84	)		(.84	)		(.84	)		(.84	)		(.84	)
Net realized gains		(.01	)		(.01	)		(.01	)		—			—
Total distributions		(.85	)		(.85	)		(.85	)		(.84	)		(.84	)
NAV accretion resulting from Remarketed Preferred Shares tendered at a discounta		—			—			.19			—			—
Net asset value, end of period	$	13.84		$	12.70		$	14.74		$	12.56		$	12.03
Market price, end of period	$	13.27		$	11.80		$	15.39		$	13.18		$	12.12
Total Return
Based on net asset value (%)b		16.21			(8.13	)		24.85			12.03			7.94
Based on market price (%)b		19.92			(18.25	)		24.22			16.69			14.30
Ratios to Average Net Assets Applicable to Common Shareholders and Supplemental Data
Net assets, end of period ($ millions)		544			499			578			491			470
Ratio of expenses (%) (including interest expense)c,d		1.45			1.36			1.16			1.23			1.24
Ratio of expenses (%) (excluding interest expense)e		.88			.87			.96			.98			.98
Ratio of net investment income (%)f		6.23			6.25			6.52			7.81			7.61
Portfolio turnover rate (%)		18			32			40			33			34

Financial Highlights (continued)
	Years Ended November 30,
	2014		2013		2012		2011		2010
Senior Securities
Preferred Shares information at period end, aggregate amount outstanding: Remarketed Preferred Shares ($ millions)		10		10		10		199		199
MTPS ($ millions)		189		189		189		—		—
Asset coverage per share ($)g		18,675		17,544		19,538		17,354		16,822
Liquidation and market price per share ($)		5,000		5,000		5,000		5,000		5,000
a Based on average common shares outstanding during the period. b Total return based on net asset value reflects changes in the Fund's net asset value during each period. Total return based on market price reflects changes in market price. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares traded during the period. c Interest expense represents interest and fees on short-term floating rate notes issued in conjunction with inverse floating rate securities and interest paid to shareholders of MTPS. d The ratio of expenses (based on net assets of common and Preferred Shares, including interest expense) were 1.05%, 0.99%, 0.84%, 0.87% and 0.88% for the periods ended November 30, 2014, 2013, 2012, 2011 and 2010, respectively. e The ratio of expenses (based on net assets of common and Preferred Shares, excluding interest expense) were 0.64%, 0.63%, 0.71%, 0.69% and 0.69% for the periods ended November 30, 2014, 2013, 2012, 2011 and 2010, respectively. f The ratio of net investment income after distributions paid to Remarketed Preferred Shareholders were 6.23%, 6.25%, 6.46%, 7.72% and 7.49% for the periods ended November 30, 2014, 2013, 2012, 2011 and 2010, respectively. g Asset coverage per share equals net assets of common shares plus the liquidation value of the Preferred Shares divided by the total number of Preferred Shares outstanding at the end of the period. * Amount is less than $.005.

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Municipal Income Trust (formerly DWS Municipal Income Trust) (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end, diversified management investment company organized as a Massachusetts business trust.

The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

Municipal debt securities are valued at prices supplied by independent pricing services approved by the Fund's Board, whose valuations are intended to reflect the mean between the bid and asked prices. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. If the pricing services are unable to provide valuations, the securities are valued at the mean of the most recent bid and asked quotations or evaluated prices, as applicable, obtained from one or more broker-dealers. These securities are generally categorized as Level 2.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.

When Issued/Delayed Delivery Securities. The Fund may purchase or sell securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. At the time the Fund enters into a purchase transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment. Additionally, the Fund may be required to post securities and/or cash collateral in accordance with the terms of the commitment.

Certain risks may arise upon entering into when-issued or delayed delivery transactions from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.

Inverse Floaters. The Fund invests in inverse floaters. Inverse floaters are debt instruments with a weekly floating rate of interest that bears an inverse relationship to changes in the short-term interest rate market. Inverse floaters are created by depositing a fixed-rate municipal bond into a special purpose trust (the "Trust"). In turn the Trust issues a short-term floating rate note and an inverse floater. The income stream from the underlying bond in the Trust is divided between the floating rate note and the inverse floater. The income provided by the inverse floater bears an inverse relationship with the short-term rate paid to the floating rate note holder. The short-term floating rate note is issued in a face amount equal to some fraction of the underlying bond's par amount and is paid to a third party, usually a tax-exempt money market fund, at rates that generally reset weekly. The inverse floater earns all of the interest from the underlying fixed-rate bond less the amount of interest paid on the floating rate note and the expenses of the Trust. The inverse floater represents an investment in the underlying bond on a leveraged basis; the Fund bears all of the price risk of the underlying bond in the Trust and receives all the benefits from any potential appreciation of the underlying bond's value. The floating rate notes issued by the Trust are valued at cost, which approximates fair value.

By holding the inverse floater, the Fund has the right to collapse the Trust by causing the holders of the floating rate instrument to tender their notes at par and have the broker transfer the underlying bond to the Fund. The floating rate note holder can also elect to tender the note for redemption at par at each reset date. The Fund accounts for these transactions as a form of secured borrowing, by reflecting the value of the underlying bond in the investments of the Fund and the amount owed to the floating rate note holder as a liability under the caption "Payable for floating rate notes issued" in the Statement of Assets and Liabilities. Income earned on the underlying bond is included in interest income, and interest paid on the floaters and the expenses of the Trust are included in "Interest expense" in the Statement of Operations. For the year ended November 30, 2014, interest expense related to floaters amounted to $765,480.

The Fund may enter into shortfall and forbearance agreements by which the Fund agrees to reimburse the Trust, in certain circumstances, for the difference between the liquidation value of the underlying bond held by the Trust and the liquidation value of the floating rate notes plus any shortfalls in interest cash flows. This could potentially expose the Fund to losses in excess of the value of the Fund's inverse floater investments. In addition, the value of inverse floaters may decrease significantly when interest rates increase. The market for inverse floaters may be more volatile and less liquid than other municipal bonds of comparable maturity. The Trust could be terminated outside of the Fund's control, resulting in a reduction of leverage and disposal of portfolio investments at inopportune times and prices. Investments in inverse floaters generally involve greater risk than in an investment in fixed-rate bonds.

The weighted average outstanding daily balance of the floating rate notes issued during the year ended November 30, 2014 was approximately $121,172,000, with a weighted average interest rate of 0.63%.

Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable and tax-exempt income to its shareholders.

Under the Regulated Investment Company Modernization Act of 2010, net capital losses incurred post-enactment may be carried forward indefinitely, and their character is retained as short-term and/or long-term. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.

At November 30, 2014, the Fund had a net tax basis capital loss carryforward of approximately $11,470,000, including $6,630,000 of pre-enactment losses, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until November 30, 2016 ($1,969,000), November 30, 2017 ($2,864,000), November 30, 2018 ($500,000) and November 30, 2019 ($1,297,000), the respective expiration dates, whichever occurs first; and $4,840,000 of post-enactment losses, which may be applied against realized net taxable capital gains indefinitely, including short-term losses ($3,959,000) and long-term losses ($881,000).

The Fund has reviewed the tax positions for the open tax years as of November 30, 2014 and has determined that no provision for income tax and/or uncertain tax provisions is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. Distributions from net investment income of the Fund are declared and distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The Fund may also make additional distributions for tax purposes if necessary.

The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to certain securities sold at a loss, dividend reclass, amortization adjustments and accretion of market discount on debt securities. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At November 30, 2014, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:

Undistributed tax-exempt income	$	15,216,067
Undistributed ordinary income*	$	635,251
Capital loss carryforwards	$	(11,470,000	)
Net unrealized appreciation (depreciation) on investments	$	105,451,053

In addition, the tax character of distributions paid to common shareholders by the Fund is summarized as follows:

	Years Ended November 30,
	2014		2013
Distributions from ordinary income*	$	314,183	$	380,417
Distributions from tax-exempt income	$	32,989,245	$	32,976,108

* For tax purposes, short-term capital gain distributions are considered ordinary income distributions.

Preferred Shares. At November 30, 2014, the Fund had issued and outstanding 37,773 floating rate municipal term preferred shares ("MTPS") and 321 Series B, 1,652 Series C, and 4 Series E remarketed preferred shares ("Remarketed Preferred Shares"), each with a liquidation preference of $5,000 per share. With respect to the payment of dividends and to the distribution of assets upon the dissolution, liquidation or winding up of the affairs of the Fund, the MTPS and the Remarketed Preferred Shares rank on parity with each other, and are both senior in priority to the Fund's outstanding common shares.

The MTPS are a floating rate form of preferred shares with a term redemption date of December 1, 2015, unless extended, as a general matter, by the holders of the MTPS, and dividends that are set weekly to a fixed spread (dependent on the then current rating of the MTPS) against the Securities Industry and Financial Markets Association ("SIFMA") Municipal Swap Index. The average annual dividend rate on the MTPS for the year ended November 30, 2014 was 1.15%. In the Fund's Statement of Assets and Liabilities, the MTPS' aggregate liquidation preference is shown as a liability since the MTPS have a stated mandatory redemption date. Dividends paid on the MTPS are treated as interest expense and recorded as incurred. For the year ended November 30, 2014, interest expense related to MTPS amounted to $2,206,369.

The Remarked Preferred Shares are preferred shares whose dividend rate is set through a remarketing process, and the dividends are generally paid every seven days. The remarketing agent is responsible for the payment of any commissions to broker-dealers participating in the remarketing process based on shares sold. Currently, the remarketing agent is the only participating broker-dealer. For remarketing to be successful, the number of Remarketed Preferred Shares bid must meet or exceed the number of Remarketed Preferred Shares being offered for sale. Since February 2008, remarketings of the Remarketed Preferred Shares have failed. Under the terms of the Remarketed Preferred Shares designation statement, in the event of a failed remarketing, the Remarketed Preferred Shares' dividend rate adjusts to a "maximum rate." The maximum rate is 125% of the Commercial Paper Rate (generally defined as the 60-day AA/Aa commercial paper rate). The next succeeding dividend period following the remarketing failure automatically adjusts to a 7-day period, which continues until the next successful remarketing. Remarketed preferred shareholders may offer their shares for sale at the next scheduled remarketing, subject to the same risk that the subsequent remarketing will not attract sufficient demand for a successful remarketing to occur. Broker-dealers may also try to facilitate secondary trading in the Remarketed Preferred Shares, although such secondary trading may be limited and may only be available for shareholders willing to sell at a discount. While prolonged remarketing failures have affected the liquidity for the Remarketed Preferred Shares, a failed remarketing does not represent a default on or loss of capital of, the Remarketed Preferred Shares and the remarketed preferred shareholders have continued to receive dividends at the previously defined "maximum rate." During the year ended November 30, 2014, the dividend rates ranged from 0.075% to 0.163% for Series B, 0.075% to 0.163% for Series C, and 0.088% to 0.163% for Series E. Prolonged remarketing failures may increase the cost of leverage to the Fund.

Under the terms of a Purchase Agreement between the Fund and the initial purchaser of the MTPS, the Fund is subject to various investment restrictions that are, in certain respects, more restrictive than those to which the Fund is otherwise subject in accordance with its investment objective and policies. Such restrictions may limit the investment flexibility that might otherwise be pursued by the Fund if the MTPS were not outstanding. In addition, the Fund is subject to certain restrictions on its investments imposed by guidelines of the rating agencies that rate the Remarketed Preferred Shares and the MTPS, which guidelines may be changed by the applicable rating agency, in its sole discretion, from time to time. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. Moreover, the Fund is required to maintain various asset coverage ratios with respect to the Remarketed Preferred Shares and the MTPS as defined in the Fund's charter documents and the 1940 Act. The Fund is not permitted to declare common share dividends unless the Remarketed Preferred Shares and the MTPS have a minimum asset coverage ratio of 200% at the time of declaration of the common share dividends after deducting the amount of such dividend.

The 1940 Act requires that the preferred shareholders of the Fund, voting as a separate class, have the right to: a) elect at least two trustees at all times, and b) elect a majority of the trustees at any time when dividends on the preferred shares are unpaid for two full years. Unless otherwise required by law or under the terms of the preferred shares, each preferred shareholder is entitled to one vote and preferred shareholders will vote together with common shareholders as a single class.

Leverage involves risks and special considerations for the Fund's common shareholders, including the likelihood of greater volatility of net asset value and market price of, and dividends on, the Fund's common shares than a comparable portfolio without leverage; the risk that fluctuations in interest rates will reduce the return to common shareholders; and the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the Fund's common shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the Fund's common shares. Changes in the value of the Fund's portfolio will be borne entirely by the common shareholders. If there is a net decrease (or increase) in the value of the Fund's investment portfolio, leverage will decrease (or increase) the net asset value per share to a greater extent than if leverage were not used. It is also possible that the Fund will be required to sell assets at a time when it would otherwise not do so, possibly at a loss, in order to redeem preferred shares to comply with asset coverage or other restrictions imposed by the rating agencies that rate the preferred shares. There is no assurance that the Fund's leveraging strategy will be successful.

Statement of Cash Flows. Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows represents the cash position at the Fund's custodian bank at November 30, 2014.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities in default of principal.

B. Purchases and Sales of Securities

During the year ended November 30, 2014, purchases and sales of investment securities (excluding short-term investments) aggregated $147,787,662 and $153,018,470, respectively.

C. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Investment Management Agreement. The management fee payable under the Investment Management Agreement is equal to an annual rate of 0.55% of the Fund's average weekly net assets, computed and accrued daily and payable monthly. Average weekly net assets, for purposes of determining the management fee, means the average weekly value of the total assets of the Fund, minus the sum of accrued liabilities of the Fund (other than the liquidation value of the Remarketed Preferred Shares and MTPS).

Service Provider Fees. DeAWM Service Company ("DSC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. ("DST"), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended November 30, 2014, the amount charged to the Fund by DSC aggregated $25,329, of which $6,206 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended November 30, 2014, the amount charged to the Fund by DIMA included in the Statement of Operations under "Reports to shareholders" aggregated $12,166, of which $8,116 is unpaid.

Trustees' Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Other Related Parties. Deutsche Bank Trust Company Americas, an affiliate of the Advisor, charges an administration fee for the Remarketed Preferred Shares and the MTPS. For the year ended November 30, 2014, the amount charged to the Fund by Deutsche Bank Trust Company Americas included in the Statement of Operations under "other" aggregated $20,000, of which $5,000 is unpaid.

D. Share Repurchases

The Board has authorized the Fund to effect periodic repurchases of its outstanding shares in the open market from time to time when the Fund's shares trade at a discount to their net asset value. During the year ended November 30, 2014 and the year ended November 30, 2013, the Fund did not repurchase shares in the open market.

On July 9, 2014, the Fund announced that the Fund’s Board of Trustees extended the Fund’s existing open market share repurchase program for an additional 16 month period. The Fund may continue to purchase outstanding shares of common stock in open-market transactions over the period from August 1, 2014 until November 30, 2015, when the Fund’s shares trade at a discount to net asset value. The Board’s authorization of the repurchase program extension follows the previous repurchase program, which commenced on August 1, 2013 and ran until July 31, 2014.

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of Deutsche Municipal Income Trust:

We have audited the accompanying statement of assets and liabilities of Deutsche Municipal Income Trust (formerly DWS Municipal Income Trust) (the "Fund"), including the investment portfolio, as of November 30, 2014, and the related statements of operations and cash flows for the year then ended, the statements of changes in 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. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Deutsche Municipal Income Trust at November 30, 2014, the results of its operations and its cash flows 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 U.S. generally accepted accounting principles.


Boston, Massachusetts January 23, 2015

Tax Information (Unaudited)

Of the dividends paid from net investment income for the taxable year ended November 30, 2014, 100% are designated as exempt-interest dividends for federal income tax purposes.

Please contact a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 728-3337.

Other Information

On December 23, 2013, Standard & Poor's Ratings Services ("S&P") announced that it had initially reviewed all of its current ratings of preferred shares issued by closed-end funds based on S&P's updated criteria published on September 17, 2013 for rating market value securities, which include preferred shares issued by closed-end funds. After completing its initial review, S&P did not place the Fund's MTPS and Remarketed Preferred Shares on CreditWatch negative.

On March 6, 2014, Fitch Ratings ("Fitch") assigned a rating of AAA to the Fund’s MTPS. Concurrent with the new Fitch rating, the Fund requested S&P to withdraw its ratings of the Fund’s MTPS and Remarketed Preferred Shares. On March 27, 2014, S&P withdrew its ratings of the Fund’s MTPS and Remarketed Preferred Shares. Immediately prior to such withdrawals, S&P confirmed its AAA ratings of the Fund’s MTPS and Remarketed Preferred Shares. Moody’s Investors Service ("Moody’s") continues to rate the Fund’s MTPS and Remarketed Preferred Shares, and its Aa1 rating of each remains unchanged.

Shareholder Meeting Results (Unaudited)

The Annual Meeting of Shareholders (the "Meeting") of Deutsche Municipal Income Trust (the "Fund") was held on September 3, 2014. At the close of business on July 2, 2014, the record date for the determination of shareholders entitled to vote at the Meeting, there were issued and outstanding 39,272,911 common shares and 39,750 preferred shares, each share being entitled to one vote, constituting all of the Fund’s outstanding voting securities. At the Meeting, the holders of 35,620,087 common and preferred shares were represented in person or by proxy, constituting a quorum. The following matter was voted upon by the shareholders of the Fund.

1. To elect the following five individuals as Trustees of the Fund:

All of the nominees received a sufficient number of votes to be elected (the resulting votes are presented below):

Class III Trustees — elected by Common and Preferred Shareholders voting together

	Number of Votes:
	For	Withheld
John W. Ballantine	34,651,248	968,839
Kenneth C. Froewiss	34,585,019	1,035,068
Rebecca W. Rimel	34,490,341	1,129,746

Trustees — elected by Preferred Shareholders only

	Number of Votes:
	For	Withheld
Keith R. Fox	37,773	0
Paul K. Freeman	37,773	0

Dividend Reinvestment and Cash Purchase Plan

The Board of Trustees of the Fund has established a Dividend Reinvestment and Cash Purchase Plan (the "Plan") for shareholders that elect to have all dividends and distributions automatically reinvested in shares of the Fund (each a "Participant"). DST Systems, Inc. (the "Plan Agent") has been appointed by the Fund’s Board of Trustees to act as agent for each Participant.

A summary of the Plan is set forth below. Shareholders may obtain a copy of the entire Dividend Reinvestment and Cash Purchase Plan by visiting the Fund’s Web site at deutschefunds.com or by calling (800) 294-4366.

If you wish to participate in the Plan and your shares are held in your own name, contact DeAWM Service Company (the "Transfer Agent") at P.O. Box 219066, Kansas City, Missouri 64121-9066 or (800) 294-4366 for the appropriate form. Current shareholders may join the Plan by either enrolling their shares with the Transfer Agent or making an initial cash deposit of at least $250 with the Transfer Agent. First-time investors in the Fund may join the Plan by making an initial cash deposit of at least $250 with the Transfer Agent. Initial cash deposits will be invested within approximately 30 days. If your shares are held in the name of a broker or other nominee, you should contact the broker or nominee in whose name your shares are held to determine whether and how you may participate in the Plan.

The Transfer Agent will establish a Dividend Investment Account (the "Account") for each Participant in the Plan. The Transfer Agent will credit to the Account of each Participant any cash dividends and capital gains distributions (collectively, "Distributions") paid on shares of the Fund (the "Shares") and any voluntary cash contributions made pursuant to the Plan. Shares in a Participant’s Account are transferable upon proper written instructions to the Transfer Agent.

If, on the valuation date for a Distribution, Shares are trading at a discount from net asset value per Share, the Plan Agent shall apply the amount of such Distribution payable to a Participant (less a Participant’s pro rata share of brokerage commissions incurred with respect to open-market purchases in connection with the reinvestment of such Distribution) to the purchase on the open market of Shares for a Participant’s Account. If, on the valuation date for a Distribution, Shares are trading at a premium over net asset value per Share, the Fund will issue on the payment date, Shares valued at net asset value per Share on the valuation date to the Transfer Agent in the aggregate amount of the funds credited to a Participant’s Account. The Fund will increase the price at which Shares may be issued under the Plan to 95% of the fair market value of the Shares on the valuation date if the net asset value per Share of the Shares on the valuation date is less than 95% of the fair market value of the Shares on the valuation date. The valuation date will be the payment date for Distributions. Open-market purchases will be made on or shortly after the valuation date for Distributions, and in no event more than 30 days after such date except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities law.

A Participant may from time to time make voluntary cash contributions to his or her Account in a minimum amount of $100 in any month (with a $36,000 annual limit) for the purchase on the open market of Shares for the Participant’s Account. Such voluntary contributions will be invested by the Plan Agent on or shortly after the 15th of each month and in no event more than 30 days after such dates, except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities law. Voluntary cash contributions received from a Participant on or prior to the fifth day preceding the 15th of each month will be applied by the Plan Agent to the purchase of additional Shares as of that investment date. No interest will be paid on voluntary cash contributions held until investment. Consequently, Participants are strongly urged to ensure that their payments are received by the Transfer Agent on or prior to the fifth day preceding the 15th of any month. Voluntary cash contributions should be made in U.S. dollars and be sent by first-class mail, postage prepaid only to the following address (deliveries to any other address do not constitute valid delivery):

Deutsche Municipal Income Trust

Dividend Reinvestment and Cash Purchase Plan

c/o DeAWM Service Company

P.O. Box 219066

Kansas City, MO 64121-9066

(800) 294-4366

Participants may withdraw their entire voluntary cash contribution by written notice received by the Transfer Agent not less than 48 hours before such payment is to be invested.

The cost of Shares acquired for each Participant’s Account in connection with the Plan shall be determined by the average cost per Share, including brokerage commissions, of the Shares acquired. There will be no brokerage charges with respect to Shares issued directly by the Fund as a result of Distributions. However, each Participant will pay a pro rata share of brokerage commissions incurred with respect to open market purchases.

The reinvestment of Distributions does not relieve the Participant of any tax that many be payable on the Distributions. The Transfer Agent will report to each Participant the taxable amount of Distributions credited to his or her Account. Participants will be treated for federal income tax purposes as receiving the amount of the Distributions made by the Fund, which amount generally will be either equal to the amount of the cash distribution the Participant would have received if the Participant had elected to receive cash or, for Shares issued by the Fund, the fair market value of the Shares issued to the Participant.

The Fund may amend the Plan at any time or times but, only by mailing to each Participant appropriate written notice at least 90 days prior to the effective date thereof except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority in which case such amendment shall be effective as soon as practicable. The Plan also may be terminated by the Fund.

Shareholders may withdraw from the Plan at any time by giving the Transfer Agent a written notice. A notice of withdrawal will be effective immediately following receipt of the notice by the Transfer Agent provided the notice is received by the Transfer Agent at least ten calendar days prior to the record date for the Distribution; otherwise such withdrawal will be effective after the investment of the current Distribution. When a Participant withdraws from the Plan, or when the Plan is terminated by the Fund, the Participant will receive a certificate for full Shares in the Account, plus a check for any fractional Shares based on market price; or, if a Participant so desires, the Transfer Agent will notify the Plan Agent to sell his or her Shares in the Plan and send the proceeds to the Participant, less brokerage commissions.

All correspondence and inquiries concerning the Plan, and requests for additional information about the Plan, should be directed to DeAWM Service Company at P.O. Box 219066, Kansas City, Missouri 64121-9066 or (800) 294-4366.

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees approved the renewal of Deutsche Municipal Income Trust’s investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DIMA") in September 2014.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

— In September 2014, all of the Fund’s Trustees were independent of DIMA and its affiliates.

— The Trustees met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee, in coordination with the Board’s Fixed Income and Asset Allocation Oversight Committee, reviewed comprehensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability compiled by a fee consultant retained by the Fund’s Independent Trustees (the "Fee Consultant"). The Board also received extensive information throughout the year regarding performance of the Fund.

— The Independent Trustees regularly meet privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

— In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s transfer agency agreement and other material service agreements.

— Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund. DIMA is part of Deutsche Bank AG ("DB"), a major global banking institution that is engaged in a wide range of financial services. The Board believes that there are advantages to being part of a global asset management business that offers a wide range of investing expertise and resources, including hundreds of portfolio managers and analysts with research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

In 2012, DB combined its Asset Management (of which DIMA was a part) and Wealth Management divisions into a new Asset and Wealth Management ("AWM") division. DB has advised the Independent Trustees that the U.S. asset management business is a critical and integral part of DB, and that DB will continue to invest in AWM a significant portion of the savings it has realized by combining its Asset and Wealth Management divisions, including ongoing enhancements to AWM’s investment capabilities. DB also has confirmed its commitment to maintaining strong legal and compliance groups within the AWM division.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and such other issues as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management and administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of DIMA to attract and retain high-quality personnel, and the organizational depth and stability of DIMA. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled by the Fee Consultant using information supplied by Morningstar Direct ("Morningstar"), an independent fund data service. The Board also noted that it has put into place a process of identifying "Focus Funds" (e.g., funds performing poorly relative to a peer universe), and receives more frequent reporting and information from DIMA regarding such funds, along with DIMA’s plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2013, the Fund’s net asset value performance was in the 2nd quartile, 1st quartile and 2nd quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in the three- and five-year periods and has underperformed its benchmark in the one-year period ended December 31, 2013.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Lipper Inc. ("Lipper") and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund were equal to the median of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2013). The Board noted that the Fund’s total operating expenses excluding certain investment related expenses and based on managed assets were expected to be lower than the median (2nd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2013). The Board also considered how the Fund’s total operating expenses compared to the total operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size). The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable funds and considered differences between the Fund and the comparable funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts and funds offered primarily to European investors ("Deutsche Europe funds") managed by DIMA and its affiliates. The Board noted that DIMA indicated that it does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs and pre-tax profits realized by DIMA from advising the Deutsche U.S. mutual funds ("Deutsche Funds"), as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities, along with the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board concluded that management fees were reasonable in light of these fallout benefits.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience and seniority of DIMA’s and the Fund’s chief compliance officer; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the fund. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Kenneth C. Froewiss, Chairman, Deutsche Mutual Funds, P.O. Box 390601, Cambridge, MA 02139. The Board is divided into three classes of Board Members, Class I, Class II and Class III. At each annual meeting of shareholders of the Trust, the class of Board Members elected at such meeting is elected to hold office until the annual meeting held in the third succeeding year and until the election and qualification of such Board Member's successor, if any, or until such Board Member sooner dies, resigns, retires or is removed. In addition, at each annual meeting of shareholders of the Trust, two Board Members are elected by the holders of Preferred Shares, voting as a separate class ("Preferred Class"), to serve until the next annual meeting and until the election and qualification of such Board Member's successor, if any, or until such Board Member sooner dies, resigns, retires or is removed. The Board Members may also serve in similar capacities with other funds in the fund complex.

Class I Board Members were last elected in 2012 and will serve until the 2015 Annual Meeting of Shareholders. Class II Board Members were last elected in 2013 and will serve until the 2016 Annual Meeting of Shareholders. Class III Board Members were last elected in 2014 and will serve until the 2017 Annual Meeting of Shareholders. Preferred Class Board Members were last elected in 2014 and will serve until the 2015 Annual Meeting of Shareholders.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen	Other Directorships Held by Board Member
Kenneth C. Froewiss (1945) Class III Chairperson since 2013, and Board Member since 2001	Adjunct Professor of Finance, NYU Stern School of Business (September 2009–present; Clinical Professor from 1997–September 2009); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)	105	—
William McClayton (1944) Class II Vice Chairperson since 2013, and Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival	105	—
John W. Ballantine (1946) Class III Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (provider of disease and care management services) (2003–2014); Stockwell Capital Investments PLC (private equity); First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International	105	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Class II Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); North Bennett Street School (Boston); former Directorships: Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College	105	Lead Director, Becton Dickinson and Company2 (medical technology company)
Dawn-Marie Driscoll (1946) Class I Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene's (retail) (1978–1988). Directorships: Director of ICI Mutual Insurance Company (since 2007); Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)	105	—
Keith R. Fox, CFA (1954) Preferred Class Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)	105	—
Paul K. Freeman (1950) Preferred Class Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Chair, Independent Directors Council; Investment Company Institute (executive and nominating committees); formerly, Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); former Directorships: Prisma Energy International	105	—
Richard J. Herring (1946) Class I Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; Co-Chair, U.S. Shadow Financial Regulatory Committee; Executive Director, Financial Economists Roundtable; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)	105	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
Rebecca W. Rimel (1951) Class III Board Member since 1995	President and Chief Executive Officer, The Pew Charitable Trusts (charitable organization) (1994 to present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)	105	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc.2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Class I Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)	105	—
Jean Gleason Stromberg (1943) Class II Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996). Directorships: The William and Flora Hewlett Foundation (charitable organization); former Directorships: Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)	105	—

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5		Business Experience and Directorships During the Past Five Years
Brian E. Binder8 (1972) President and Chief Executive Officer, 2013–present		Managing Director3 and Head of Fund Administration, Deutsche Asset & Wealth Management (2013–present); formerly: Head of Business Management and Consulting at Invesco, Ltd. (2010–2012); Chief Administrative Officer, Van Kampen Funds Inc. (2008–2010); and Chief Administrative Officer, Morgan Stanley Investment Management Americas Distribution (2003–2008)
John Millette7 (1962) Vice President and Secretary, 1999–present		Director,3 Deutsche Asset & Wealth Management
Melinda Morrow6 (1970) Vice President, 2012–present