UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4841
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MFS MUNICIPAL INCOME TRUST
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds 10/31/05
ANNUAL REPORT
[graphic omitted]
MFS(R) MUNICIPAL INCOME TRUST
A path for pursuing opportunity
M F S(SM)
INVESTMENT MANAGEMENT(R)
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NOT FDIC INSURED MAY LOSE VALUE NO BANK OR CREDIT UNION GUARANTEE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
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MFS(R) MUNICIPAL INCOME TRUST 10/31/05
The trust seeks to provide high current income exempt from federal income taxes.
New York Stock Exchange Symbol: MFM
TABLE OF CONTENTS
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LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PORTFOLIO MANAGER'S PROFILE 4
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PERFORMANCE SUMMARY 5
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 8
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PORTFOLIO OF INVESTMENTS 9
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FINANCIAL STATEMENTS 29
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NOTES TO FINANCIAL STATEMENTS 34
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 40
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TRUSTEES AND OFFICERS 41
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 46
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PROXY VOTING POLICIES AND INFORMATION 50
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QUARTERLY PORTFOLIO DISCLOSURE 50
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FEDERAL TAX INFORMATION 50
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CONTACT INFORMATION BACK COVER
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s had
many people hoping they could become millionaires overnight. But the market
decline that started in the spring of 2000 taught everyone how misguided those
hopes had been.
Now, less than five years after the market taught a harsh lesson in the follies
of speculative investing, we are seeing a number of trends that suggest many
investors, including professionals, are hoping for overnight miracles again. We
see a steady stream of market "gurus" on television news shows, promising to
teach amateur investors the strategies that will allow them to get rich quick.
Hedge funds - which by their nature move in and out of investments rapidly -
have soared in popularity over the past five years. We are reminded every day
that we live in a "what have you done for me lately?" world, but this mindset
should not influence how we invest and manage our money. In fact, investors
often fall short of their goals because they trade in and out of investments too
frequently and at inopportune times.
Throughout our entire 80-year history, MFS" money management process has focused
on long-term investment opportunities. We firmly believe that one of the best
ways to realize long-term financial goals - be it a college education, a
comfortable retirement, or a secure family legacy - is to follow a three-pronged
approach that focuses on longer time horizons. Allocate holdings across the
major asset classes - including stocks, bonds, and cash. Diversify within each
class to take advantage of different market segments and investing styles. And
rebalance assets regularly to maintain a desired asset allocation.*
This long-term approach requires diligence and patience, two traits that in our
experience are essential to capitalizing on the many opportunities the financial
markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 15, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a profit
or protect against a loss. The opinions expressed in this letter are those of
MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Bonds 99.4%
Cash & Other Net Assets 0.6%
TOP FIVE FIXED INCOME INDUSTRIES*
Healthcare Revenue/Hospitals 27.9%
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Healthcare Revenue/Long-term Care 8.4%
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Utilities/Investor Owned 7.2%
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Industrial Revenue/Paper 4.8%
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Tobacco 4.2%
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CREDIT QUALITY OF BONDS**
AAA 17.0%
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AA 3.2%
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A 11.0%
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BBB 31.8%
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BB 8.7%
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B 5.0%
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CCC 2.7%
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Not Rated 20.6%
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PORTFOLIO FACTS
Average Duration***** 7.1
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Average Life*** 16.6 yrs.
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Average Maturity*** 18.3 yrs.
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Average Credit Quality of Rated
Securities**** BBB+
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Average Short Term Credit Quality A-1
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* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in a "AAA"-rating
category. Percentages are based on the total market value of investments
as of 10/31/05.
*** The average maturity shown is calculated using the final stated maturity
on the portfolio's holdings without taking into account any holdings which
have been pre-refunded to an earlier date or which have a mandatory put
date prior to the stated maturity. The average life shown takes into
account these earlier dates.
**** The Average Credit Quality of Rated Securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
***** Duration is a measure of how much a bond fund's price is likely to
fluctuate with general changes in interest rates, e.g., if rates rise
1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its
value.
Percentages are based on net assets, including preferred shares, as of
10/31/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended October 31, 2005, shares of the MFS Municipal Income
Trust provided a total return of 7.92%, at net asset value. In comparison, the
trust's benchmark, the Lehman Brothers Municipal Bond Index, returned 2.54%.
CONTRIBUTORS TO PERFORMANCE
Our overweighted positions in the strong-performing health care and tobacco
sectors boosted the trust's performance relative to the benchmark. Security
selection in the health care, industrials, transportation, and utilities sectors
also aided relative results during the period.
Relative performance was also positively impacted by credit quality. The trust
benefited from its exposure to "BBB"-rated bonds which outperformed higher-
quality issues over the period (bonds rated "BBB" or higher are considered
investment-grade; bonds rated "BB" or lower are considered non-investment-
grade). In addition, the trust's positions in non-investment-grade debt, which
is not held by the benchmark, also aided relative returns.
DETRACTORS FROM PERFORMANCE
Our positioning along the yield curve detracted from relative performance for
the period. (A yield curve graphically depicts the yields of different maturity
bonds of the same credit quality and type. A normal yield curve is upward
sloping, with short-term rates lower than long-term rates.) Compared with our
benchmark, the trust was underweighted in bonds on the long end of the curve
(represented by bonds with durations of 11-to-25+ years). (Duration is a measure
of a portfolio's sensitivity to changes in interest rates.) On a relative basis,
our underweighting in longer-maturity bonds hurt relative performance as
long-term municipal bond rates declined during the period, most notably on the
lower-quality securities.
Respectfully,
Geoffrey Schechter
Portfolio Manager
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report, as stated on the cover, and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS fund. References to specific securities are
not recommendations of such securities and may not be representative of any MFS
fund's current or future investments.
PORTFOLIO MANAGER'S PROFILE
Geoffrey L. Schechter, CFA, CPA, is a Senior Vice President of MFS Investment
Management (MFS) and a portfolio manager of our municipal bond funds. He also
manages several other state municipal bond portfolios for MFS. He joined MFS as
a portfolio manager, and named Senior Vice President in 2002.
Geoff is a graduate of the University of Texas and has an M.B.A. degree from
Boston University. He holds the Chartered Financial Analyst (CFA) and Certified
Public Accountant (CPA) designations.
PERFORMANCE SUMMARY THROUGH 10/31/05
All results are historical. Investment return and principal value will
fluctuate, and shares, when sold, may be worth more or less than their original
cost. More recent returns may be more or less than those shown. Past performance
is no guarantee of future results.
PRICE SUMMARY
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Year ended 10/31/05
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Date Price
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Net asset value 10/31/2005 $7.92
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10/31/2004 $7.86
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New York Stock Exchange Price 10/31/2005 $8.27
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7/14/2005 (high)* $8.47
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3/23/2005 (low)* $7.32
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10/31/2004 $7.83
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* For the period from November 1, 2004, through October 31, 2005.
TOTAL RETURN VS BENCHMARKS
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Year ended 10/31/05
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New York Stock Exchange price** 13.18%
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Net asset value** 7.92%
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Lehman Brothers Municipal Bond Index# 2.54%
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Lipper Closed-End High Yield Municipal Index+ 8.29%
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** Includes reinvestment of dividend and capital gain distributions.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
Lehman Brothers Municipal Bond Index - is a market-value-weighted index
representative of the tax-exempt bond market.
Lipper Closed-End High Yield Municipal Index - measures the performance of the
closed-end funds in the Lipper database which invest at least 50% of assets in
lower-rated municipal debt issues.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
The trust's shares may trade at a discount to net asset value. Shareholders do
not have the right to cause the trust to repurchase their shares at net asset
value. The trust's shares also may trade at a premium to their net asset value.
When trust shares trade at a premium, buyers pay more than the asset value
underlying trust shares, and shares purchased at a premium would receive less
than the amount paid for them in the event of the trust's liquidation. As a
result, the total return that is calculated based on the net asset value and New
York Stock Exchange price can be different.
The trust's monthly distributions may include a return of capital to
shareholders. Distributions that are treated for federal income tax purposes as
a return of capital will reduce each shareholder's basis in his or her shares
and, to the extent the return of capital exceeds such basis, will be treated as
gain to the shareholder from a sale of shares. Returns of shareholder capital
have the effect of reducing the trust's assets and increasing the trust's
expense ratio.
From time to time the trust may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio invests in municipal securities that are general obligations
backed by the full faith and credit of the municipal issuer and revenue
obligations that are not backed by the issuer. Therefore, revenue obligations
are subject to a higher degree of credit risk than general obligations. Any
municipal security that is backed by current or anticipated revenues from a
specific project or specific assets can be negatively affected by the
discontinuance of the taxation supporting the project or assets or the inability
to collect revenues for the project or from the assets. If the Internal Revenue
Service determines an issuer of a municipal security has not complied with
applicable tax requirements, interest from the security could become taxable and
the security could decline significantly in value. The portfolio may invest in
derivative securities, which may include futures, options and swaps. These types
of instruments can increase price fluctuation. The portfolio invests in high
yield or lower-rated securities which may provide greater returns but are
subject to greater-than-average risk. A portion of income may be subject to
state, federal, and/or alternative minimum tax. Capital gains, if any, are
subject to a capital gains tax.
The portfolio's value will fluctuate in response to market conditions and
issuer, regulatory, economic, or political developments. In general, fixed
income securities will decline when interest rates rise and will increase when
interest rates fall. Many fixed income securities also involve credit risk,
which is the risk that issuers may fail to make timely principal or interest
payments. In addition, fixed income securities with longer maturity dates will
be subject to greater price fluctuations than those with shorter maturity
periods.
The portfolio may invest a higher percentage of its assets in a small number of
issuers, thereby making it more susceptible to any single economic, political or
regulatory event affecting those issuers than is a diversified fund.
These risks may increase share price volatility.
In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of the
trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The trust offers a Dividend Reinvestment and Cash Purchase Plan that allows you
to reinvest either all of the distributions paid by the trust or only the
long-term capital gains. Purchases are made at the market price unless that
price exceeds the net asset value (the shares are trading at a premium). If the
shares are trading at a premium, purchases will be made at a discounted price of
either the net asset value or 95% of the market price, whichever is greater.
Twice each year you can also buy shares. Investments may be made in any amount
over $100 in January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the plan on your behalf. If the
nominee does not offer the plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are bought
on the New York Stock Exchange or otherwise on the open market, each participant
pays a pro rata share of the commissions. The automatic reinvestment of
distributions does not relieve you of any income tax that may be payable (or
required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please have
available the name of the trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw from the plan, you can receive the value of the reinvested shares in
one of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
PORTFOLIO OF INVESTMENTS - 10/31/05
The Portfolio of Investments is a complete list of all securities owned by your
trust. It is categorized by broad-based asset classes.
Municipal Bonds - 140.1%
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ISSUER PAR AMOUNT $ VALUE
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Airport & Port Revenue - 4.5%
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Chicago, IL, O'Hare International Airport Rev., RITES, FSA,
8.002%, 2022+(+) $ 1,500,000 $ 1,779,270
Oklahoma City, OK, Airport Trust Rev., FSA, 5.75%, 2016 3,125,000 3,326,561
Port Authority, NY, Special Obligations Rev. (JFK
International), MBIA, 5.75%, 2022 7,000,000 7,421,171
Seattle, WA, Airport Trust Rev., FGIC, 5.625%, 2018 1,500,000 1,597,080
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$ 14,124,082
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Chemicals - 0.6%
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Red River Authority, TX, Pollution Control Rev. (Celanese
Project), 6.7%, 2030 $ 1,920,000 $ 2,053,094
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General Obligations - General Purpose - 3.1%
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Huntsville, AL, Capital Improvement Water, "C", MBIA, 5%, 2024 $ 275,000 $ 285,442
Jefferson County, OH, ASST GTY, 7.125%, 2005(++) 1,000,000 1,023,370
Kane Kendall Countys, IL, Capital Appreciation, "E", FGIC,
0%, 2023 1,945,000 770,103
Kane Kendall Countys, IL, Capital Appreciation, "E", FGIC,
0%, 2025 1,915,000 672,529
Lake County, IL, Land Acquisition & Development, 5.75%, 2017 1,000,000 1,089,850
New York City, NY, 6.125%, 2006(++) 2,000,000 2,045,220
New York City, NY, "M", 5%, 2035 3,800,000 3,856,848
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$ 9,743,362
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General Obligations - Schools - 0.5%
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Aledo, TX, Independent School District, School Building, "A",
PSF, 5.125%, 2033 $ 955,000 $ 988,091
Leander, TX, Independent School District, Capital
Appreciation, Refunding, School Building, FGIC, 0%, 2026 1,285,000 430,385
Leander, TX, Independent School District, Capital
Appreciation, Refunding, School Building, FGIC, 0%, 2031 1,295,000 320,927
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$ 1,739,403
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Healthcare Revenue - Hospitals - 39.5%
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Allegheny County, PA, Hospital Development Authority Rev
(South Hills Health Systems), "B", 6.75%, 2025 $ 500,000 $ 527,230
Allegheny County, PA, Hospital Development Authority Rev
(West Penn Allegheny Health), 9.25%, 2030 2,000,000 2,365,620
Allegheny County, PA, Hospital Development Authority Rev
(West Penn Allegheny Health), "B", 9.25%, 2022 1,000,000 1,187,310
Athens County, OH, Hospital Facilities Rev. (O'Bleness
Memorial Hospital), "A", 7.125%, 2033 1,500,000 1,553,205
Baldwin County, AL, Eastern Shore Health Care Authority Rev
(Thomas Hospital), 5.75%, 2008(++) 700,000 752,521
Brookhaven, NY, Civic Facilities Rev. (Memorial Hospital
Medical Center, Inc.), 7.75%, 2010 695,000 739,515
California Valley Health Systems, COP, 6.875%, 2023 740,000 743,981
Healthcare Revenue - Hospitals - continued
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Chautauqua County, NY, Industrial Development Agency, Civic
Facilities Rev. (Women's Christian Assn.), "A", 6.35%, 2017 $ 255,000 $ 258,045
Chautauqua County, NY, Industrial Development Agency, Civic
Facilities Rev. (Women's Christian Assn.), "A", 6.4%, 2029 980,000 974,777
Chemung County, NY, Civic Facilities Rev. (St. Joseph's
Hospital-Elmira), "A", 6%, 2013 540,000 542,198
Chemung County, NY, Civic Facilities Rev. (St. Joseph's
Hospital-Elmira), "B", 6.35%, 2013 140,000 142,901
Chester County, PA, Health & Educational Facilities Rev
(Chester County Hospital), 6.75%, 2021 1,625,000 1,717,381
Citrus County, FL, Hospital Development Authority Rev
(Citrus Memorial Hospital), 6.25%, 2023 955,000 1,018,555
Coffee County, GA, Hospital Authority Rev. (Coffee Regional
Medical Center, Inc.), 5%, 2026 40,000 40,143
Colorado Health Facilities Authority Rev. (Parkview Medical
Center), 6.5%, 2020 1,230,000 1,352,139
Colorado Health Facilities Authority Rev. (Parkview Medical
Center), 6.6%, 2025 1,000,000 1,095,800
Colorado Health Facilities Authority Rev. (Portercare
Adventist Health Systems), 6.625%, 2011(++) 675,000 789,480
Comal County, TX, Health Facilities Development Rev. (McKenna
Memorial Hospital), "A", 6.125%, 2022 500,000 529,740
Crittenden County, AR, Arkansas Hospital Rev., 7%, 2020 1,030,000 1,031,092
Cuyahoga County, OH, Hospital Facilities Rev. (Canton, Inc.),
7.5%, 2030 1,330,000 1,477,750
Delaware Health Facilities Authority Rev. (Nanticoke Memorial
Hospital), 5.625%, 2032 1,250,000 1,314,063
Denver, CO, Health & Hospital Authority Rev., 5.25%, 2013 635,000 647,090
Denver, CO, Health & Hospital Authority Rev., 5.375%, 2018 1,500,000 1,529,310
Denver, CO, Health & Hospital Authority Rev., 5.375%, 2028 860,000 861,359
Denver, CO, Health & Hospital Authority Rev., "A", 6%, 2023 250,000 265,373
District of Columbia, Health & Hospital Authority Rev
(Medstar University Hospital), "D", 6.875%, 2007(++) 1,200,000 1,256,760
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial
Hospital), 6.2%, 2025 250,000 245,225
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial
Hospital), 6.5%, 2031 295,000 291,345
Grand Forks, ND, Health Care Authority Rev. (Altru Health
Systems Obligated Group), 7.125%, 2024 755,000 839,620
Gulfport, MS, Hospital Facilities Rev. (Memorial Hospital),
5.75%, 2031 1,000,000 1,022,660
Highlands County, FL, Health Facilities Authority Rev
(Adventist/Sunbelt Hospital), 6%, 2031 900,000 970,083
Houston County, AL, Health Care Authority Rev., AMBAC,
6.25%, 2030 2,000,000 2,216,800
Huntsville, AL, Health Care Authority Rev., 5.625%, 2026 875,000 911,269
Illinois Development Finance Authority, Hospital Authority
Rev. (Adventist/Sunbelt Hospital), 5.65%, 2024 1,750,000 1,824,253
Illinois Health Facilities Authority Rev. (Centegra Heath
Systems), 5.25%, 2018 1,000,000 1,013,960
Indiana Health Facilities Financing Authority, Hospital Rev
(Community Hospital), "A", AMBAC, 5%, 2035 1,780,000 1,823,254
Indiana Health Facilities Financing Authority, Hospital Rev
(Munster Medical Research Foundation, Inc.), 6.375%, 2031 3,990,000 4,207,934
Indiana Health Facilities Financing Authority, Hospital Rev
(Riverview Hospital), 6.125%, 2031 1,000,000 1,042,720
Joplin, MO, Industrial Development Authority Health
Facilities Rev. (Freeman Health Systems), 5.5%, 2029 440,000 453,776
Joplin, MO, Industrial Development Authority Health
Facilities Rev. (Freeman Health Systems), 5.75%, 2035 475,000 502,873
Kentucky Economic Development Finance Authority, Health
Systems Rev. (Norton Healthcare, Inc.), 6.5%, 2020 5,000,000 5,457,700
Knox County, TN, Health Educational Housing Facilities Board,
Hospital Facilities Rev. (Baptist Health Systems), 6.5%, 2031 1,725,000 1,828,362
Lauderdale County & Florence, AL, Health Care Authority Rev
(Coffee Health Group), MBIA, 5.625%, 2021 3,000,000 3,257,820
Lufkin, TX, Health Facilities Rev. (Memorial Health System of
East Texas), 6.875%, 2006(++) 1,590,000 1,638,416
Lufkin, TX, Health Facilities Rev. (Memorial Health System of
East Texas), 5.7%, 2008(++) 995,000 1,064,610
Macomb County, MI, Hospital Finance Authority Rev. (Mount
Clemens General Hospital), 5.75%, 2025 1,000,000 997,470
Macomb County, MI, Hospital Finance Authority Rev. (Mount
Clemens General Hospital), 5.875%, 2034 905,000 882,384
Maryland Health & Higher Educational Facilities Authority
Rev. (Medstar Health), 5.5%, 2033 380,000 389,812
Maryland Health & Higher Educational Facilities Authority
Rev. (North Arundel Hospital), 6.5%, 2010(++) 1,500,000 1,705,350
Massachusetts Health & Educational Facilities Authority Rev
(Berkshire Health Systems), 6.25%, 2031 1,900,000 2,015,330
Massachusetts Health & Educational Facilities Authority Rev
(Caritas Christi), 6.5%, 2012 600,000 653,592
Massachusetts Health & Educational Facilities Authority Rev
(Caritas Christi), 5.7%, 2015 500,000 513,470
Massachusetts Health & Educational Facilities Authority Rev
(Jordan Hospital), 5.25%, 2018 1,400,000 1,399,426
Massachusetts Health & Educational Facilities Authority Rev
(Northern Berkshire Health), "B", 6.375%, 2034 640,000 658,720
Massachusetts Health & Educational Facilities Authority Rev
(Saints Memorial Medical Center), 6%, 2023 465,000 467,753
Miami Beach, FL, Health Facilities Rev. (Mount Sinai Medical
Center), 6.75%, 2029 810,000 887,744
Miami Beach, FL, Health Facilities Rev. (Mount Sinai Medical
Center), "A", 6.7%, 2019 995,000 1,080,540
Mississippi Business Finance Corp., Health Facilities Rev
(Rush Medical Foundation, Inc.), 5.625%, 2023 845,000 833,035
Mississippi Hospital Equipment, Health Facilities Rev. (Rush
Medical Foundation, Inc.), 5.4%, 2007 210,000 212,363
Monroe County, NY, Industrial Development Agency, Civic
Facilities Rev. (Highland Hospital of Rochester), 5%, 2025 65,000 65,344
Montgomery, AL, Special Care Facilities, Financing Authority
Rev. (Baptist Health), "A-2", MBIA, 0% to 2007, 5% to 2022 1,725,000 1,581,118
Montgomery, AL, Special Care Facilities, Financing Authority
Rev. (Baptist Health), "C", 5.25%, 2029 760,000 765,419
Mount Lebanon, PA, Hospital Authority Rev. (St. Clair
Memorial Hospital), 5.625%, 2032 435,000 452,457
Nassau County, NY, Industrial Development Agency, Civic
Facilities Rev. (North Shore Health System), 5.625%, 2010 620,000 646,827
Nassau County, NY, Industrial Development Agency, Civic
Facilities Rev. (North Shore Health System), 5.875%, 2011 485,000 512,029
New Hampshire Health & Educational Facilities Authority Rev
(Covenant Health), 6.5%, 2017 870,000 977,254
New Hampshire Higher Educational & Health Facilities
Authority Rev. (Catholic Medical Center), 6.125%, 2032 1,000,000 1,036,250
New Jersey Health Care Facilities, Financing Authority Rev
(Children's Specialized Hospital), "A", 5.5%, 2030 245,000 252,377
New Jersey Health Care Facilities, Financing Authority Rev
(St. Peter's University Hospital), 6.875%, 2030 3,000,000 3,285,780
New York City, NY, Industrial Development Agency, Civic
Facilities Rev. (Staten Island University Hospital), "A",
6.375%, 2031 500,000 506,135
New York City, NY, Health & Hospital Corp. Rev., "A",
5.25%, 2017 700,000 730,359
New York State Dormitory Authority Rev., Non State Supported
Debt (Mt. Sinai NYU Health), 5.5%, 2026 635,000 643,058
New York State Dormitory Authority Rev., Non State Supported
Debt (Mt. Sinai NYU Health), C", 5.5%, 2026 500,000 506,370
North Texas Health Facilities Development Corp. Rev. (United
Regional Health Care System, Inc.), 6%, 2023 1,000,000 1,073,410
Ohio County, WV, County Commission Health System Rev. (Ohio
Valley Medical Center), 5.75%, 2013 850,000 809,880
Oklahoma Development Finance Authority Rev. (Comanche County
Hospital), 6.6%, 2031 1,665,000 1,815,549
Rhode Island Health & Education Building Rev., Hospital
Financing (Lifespan Obligated Group), 6.375%, 2021 1,805,000 2,005,265
Rhode Island Health & Education Building Rev., Hospital
Financing (Lifespan Obligated Group), 6.5%, 2032 505,000 556,308
Royston, GA, Hospital Authority Rev. (Ty Cobb Healthcare
Systems, Inc.), 6.375%, 2014 955,000 939,118
Russell, KY (Bon Secours Health Systems), ETM, 5.85%, 2005(++) 3,000,000 3,003,180
Salt Lake City, UT, Hospital Authority Rev. INFLOS, AMBAC,
ETM (Intermountain Health Care), 10.833%, 2020(+),(++) 600,000 602,532
Shelby County, TN, Educational & Hospital Facilities Board
Hospital Rev. (Methodist Healthcare), 6.375%, 2012(++) 625,000 723,388
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.25%, 2012(++) 185,000 212,741
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.25%, 2012(++) 315,000 362,234
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.375%, 2012(++) 375,000 434,033
South Carolina Jobs & Economic Development Authority (Bon
Secours Health Systems, Inc.), "A", 5.625%, 2030 710,000 732,628
South Carolina Jobs & Economic Development Authority,
Hospital Facilities Rev. (Palmetto Health Alliance),
6.25%, 2031 835,000 899,596
South Carolina Medical University, Hospital Facilities Rev.,
"A", MBIA, 5%, 2031 685,000 699,597
South Dakota Health & Education Facilities Authority Rev
(Prairie Lakes Health Care System), 5.625%, 2032 670,000 687,293
Southwestern Illinois Development Authority Rev. (Anderson
Hospital), 5.5%, 2020 60,000 62,420
Southwestern Illinois Development Authority Rev. (Anderson
Hospital), 5.625%, 2029 870,000 892,550
Springfield, TN, Health & Educational Facilities Rev
(Northcrest Medical Center), 5.25%, 2018 1,400,000 1,383,242
State of Arkansas, Development Finance Authority Rev
(Washington Regional Medical Center), 7.25%, 2010(++) 500,000 573,320
Steubenville, OH, Hospital Authority Rev. (Trinity Health
Center), 6.5%, 2030 1,300,000 1,424,137
Stillwater, OK, Medical Center Authority, 5.625%, 2023 1,000,000 1,048,170
Tallahassee, FL, Health Facilities Rev. (Tallahassee Memorial
Healthcare), 6.25%, 2020 3,085,000 3,274,357
Texas Metro Health Facilities Development Corp., Metro Health
Facilities Development Rev. (Wilson N. Jones Memorial
Hospital), 7.2%, 2021 700,000 711,697
Texas Metro Health Facilities Development Corp., Metro Health
Facilities Development Rev. (Wilson N. Jones Memorial
Hospital), 7.25%, 2031 1,000,000 1,013,210
Tom Green County, TX, Health Facilities Rev. (Shannon Health
System), 6.75%, 2021 1,250,000 1,347,700
Upper Illinois River Valley Development, Health Facilities
Rev. (Morris Hospital), 6.625%, 2031 600,000 652,020
Valley, AL, Special Care Facilities, Financing Authority Rev
(Lanier Memorial Hospital), 5.6%, 2016 600,000 599,508
Wapello County, IA, Hospital Authority Rev. (Ottumwa Regional
Health Center), 6.375%, 2031 1,500,000 1,575,405
Washington County, AR, Hospital Rev., Regional Medical Center
"A", 5%, 2035 250,000 243,240
Washington County, AR, Hospital Rev., Regional Medical Center
"B", 5%, 2025 1,000,000 998,700
Weirton, WV, Municipal Hospital Building, Commission Rev
(Weirton Hospital Medical Center), 6.375%, 2031 1,115,000 1,117,431
Weslaco, TX, Health Facilities Rev. (Knapp Medical Center),
6.25%, 2032 1,000,000 1,056,670
West Plains, MO, Industrial Development Authority Rev
(Ozarks Medical Center), 6.75%, 2024 170,000 174,891
West Shore Pennsylvania, Hospital Authority Rev. (Holy Spirit
Hospital), 6.2%, 2026 1,250,000 1,330,638
Wichita, KS, Hospital Authority Rev. (Via Christi Health
System), 6.25%, 2020 1,500,000 1,664,730
Wisconsin Health & Educational Facilities Authority Rev
(Aurora Health Care, Inc.), 6.875%, 2030 1,000,000 1,143,450
Wisconsin Health & Educational Facilities Authority Rev
(Aurora Health Care, Inc.), MBIA, 5.25%, 2017 5,000,000 5,237,500
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. John's Riverside Hospital), 6.8%, 2016 710,000 733,842
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. John's Riverside Hospital), "A", 7.125%, 2031 490,000 503,730
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. Joseph's Hospital), "C", 6.2%, 2020 750,000 659,700
--------------
$ 124,962,794
-------------------------------------------------------------------------------------------------
Healthcare Revenue - Long Term Care - 11.9%
-------------------------------------------------------------------------------------------------
Abilene, TX, Health Facilities Development Co., Retirement
Facilities Rev. (Sears Methodist Retirement), "A", 7%, 2033 $ 345,000 $ 370,292
Arizona Health Facilities Authority Rev. (The Terraces
Project), 7.75%, 2033+ 750,000 825,878
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 7.75%, 2006 130,000 128,346
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 8.125%, 2016 1,085,000 1,007,661
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 8.5%, 2026 2,405,000 2,183,091
Bridgeport, CT, Senior Living Facility Rev. (3030 Park
Retirement Community), 7.25%, 2035 1,020,000 1,012,442
Cambria County, PA, Industrial Development Authority Rev
(Beverly Enterprises, Inc.), 10%, 2012 400,000 456,144
Chester County, PA, Industrial Development Authority Rev
(RHA Nursing Home), 8.5%, 2032 595,000 616,646
Clarion, PA, Industrial Development Authority Rev. (Beverly
Enterprises, Inc.), 7.5%, 2012 1,000,000 1,017,680
Colorado Health Facilities Authority Rev. (Covenant
Retirement Communities, Inc.), "B", 6.125%, 2033 1,000,000 1,070,870
Colorado Health Facilities Authority Rev. (Evangelical
Lutheran), 6.9%, 2025 3,000,000 3,403,590
Contra Costa County, CA, Residential Rental Facilities Rev
(Cypress Meadows), 7%, 2028+** 217,707 65,312
Cumberland County, PA, Retirement Community Rev. (Wesley
Affiliated Services), 7.25%, 2035 1,000,000 1,066,930
Franklin County, OH, Healthcare Facilities Rev. (Ohio
Presbyterian), 7.125%, 2029 1,000,000 1,094,050
Fulton County, GA, Residential Care Facilities (Canterbury
Court), "A", 6.125%, 2034 330,000 332,277
Greenville County, SC, Hospital Rev. (Chestnut Hill) "A",
8%, 2015 2,190,000 2,199,483
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), 5.75%, 2018 895,000 883,177
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), 9.25%, 2025 1,645,000 1,963,127
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village,
Inc.), 6.875%, 2032 500,000 537,985
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village,
Inc.), "B", 6.25%, 2026 500,000 509,635
Maine Health & Higher Educational Facilities Rev. (Piper
Shores), 7.5%, 2009(++) 825,000 906,535
Millbrae, CA, Residential Facilities Rev. (Magnolia of
Millbrae), "A", 7.375%, 2027 1,900,000 1,988,084
Montgomery County, PA, Higher Education & Health Authority
Rev. (AHF/Montgomery), 10.5%, 2020 2,175,000 2,190,791
Montgomery County, PA, Industrial Development Authority Rev
(Whitemarsh Continuing Care), 6.125%, 2028 250,000 257,355
Montgomery County, PA, Industrial Development Authority Rev
(Whitemarsh Continuing Care), 6.25%, 2035 700,000 723,002
New Jersey Economic Development Authority Rev. (Courthouse
Convalescent Center), "A", 8.7%, 2014 650,000 650,858
New Jersey Economic Development Authority Rev. (Lions Gate),
"A", 5.875%, 2037 310,000 313,181
New Jersey Health Care Facilities Financing Authority Rev
(Cherry Hill), 8%, 2027 1,000,000 1,036,140
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort
Norfolk Retirement Community), "A", 6%, 2025 125,000 125,463
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort
Norfolk Retirement Community), "A", 6.125%, 2035 90,000 89,922
Reedley, CA, COP (Mennonite Home), 7.5%, 2006(++) 2,705,000 2,864,108
Shelby County, TN, Health Educational Rev. (Germantown
Village), 7.25%, 2034 820,000 857,113
State of Hawaii, Department of Budget & Finance, Special
Purpose Rev. (Kahala Nui Senior Living Community), 8%, 2033 500,000 577,700
Sterling, IL (Hoosier Care), 7.125%, 2034 710,000 647,605
Travis County, TX, Health Facilities Development Corp.,
Retirement Facilities Rev. (Querencia Barton Creek),
5.5%, 2025 220,000 212,951
Travis County, TX, Health Facilities Development Corp.,
Retirement Facilities Rev. (Querencia Barton Creek),
5.65%, 2035 310,000 299,928
Washington County, FL, Industrial Development Authority Rev
(Washington County), 10%, 2016 860,000 860,688
Waterford Township, MI, Economic Development Corp. Rev
(Canterbury Health), 6%, 2039+ 1,500,000 1,243,170
Wilkinsburg, PA, Municipal Authority Health Rev. (Monroeville
Christian/Judea), 8.25%, 2027 985,000 1,009,980
--------------
$ 37,599,190
-------------------------------------------------------------------------------------------------
Human Services - 2.8%
-------------------------------------------------------------------------------------------------
Cheneyville, LA, Westside Habilitation Center Rev., 8.375%, 2013 $ 1,410,000 $ 1,427,343
Iowa Finance Authority, Community Provider (Boys & Girls
Home), 6.25%, 2028 500,000 474,720
Lehigh County, PA, General Purpose Authority (Kidspeace Corp.),
6%, 2023 3,000,000 2,810,520
New York City, NY, Industrial Development Agency, Civic
Facility Rev. (Special Needs Facilities), 6.5%, 2017 1,030,000 1,062,775
New York City, NY, Industrial Development Agency, Civic
Facility Rev. (A Very Special Place, Inc.), "A", 5.75%, 2029 1,000,000 937,800
Orange County, FL, Health Facilities Authority Rev. (GF/
Orlando Healthcare Facilities), 8.75%, 2011 510,000 533,078
Orange County, FL, Health Facilities Authority Rev. (GF/
Orlando Healthcare Facilities), 9%, 2031 1,000,000 1,071,970
Osceola County, FL, Industrial Development Authority Rev
(Community Provider), 7.75%, 2017 454,000 454,958
--------------
$ 8,773,164
-------------------------------------------------------------------------------------------------
Industrial Revenue - Airlines - 2.5%
-------------------------------------------------------------------------------------------------
Alliance Airport Authority, Inc., TX, Special Facilities Rev
(AMR Corp.), 7.5%, 2029 $ 215,000 $ 161,347
Dallas Fort Worth, TX, International Airport Facility
Improvement Corp. (American Airlines, Inc.), 7.25%, 2030 1,305,000 946,686
Dallas Fort Worth, TX, International Airport Facility
Improvement Corp. (American Airlines, Inc.), 6.375%, 2035 2,150,000 1,400,618
Houston, TX, Airport Systems Rev., Special Facilities
(Continental, Inc.), "E", 6.75%, 2029 1,000,000 857,080
New Jersey Economic Development Authority (Continental
Airlines, Inc.), 7.2%, 2030 1,595,000 1,381,764
New Jersey Economic Development Authority, Special Facilities
Rev. (Continental Airlines, Inc.), 6.25%, 2029 505,000 406,121
New York City, NY, Industrial Development Agencies Rev
(Continental Airlines, Inc.), 7.25%, 2008 160,000 157,934
New York City, NY, Industrial Development Agencies Rev
(Continental Airlines, Inc.), 8%, 2012 300,000 288,156
Tulsa, OK, Municipal Airport Trust Rev. (American Airlines,
Inc.) "B", 5.65%, 2035 40,000 37,642
Tulsa, OK, Municipal Airport Trust Rev. (AMR Corp.) "B", 6%, 2035 2,500,000 2,376,150
--------------
$ 8,013,498
-------------------------------------------------------------------------------------------------
Industrial Revenue - Chemicals - 1.0%
-------------------------------------------------------------------------------------------------
Sweetwater County, WY, Solid Waste Disposal Rev. (FMC Corp.),
"A", 7%, 2024 $ 3,000,000 $ 3,020,310
-------------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 3.5%
-------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, Solid Waste
Disposal Rev. (Browning Ferris, Inc.), "A", 5.8%, 2016 $ 1,000,000 $ 981,430
California Statewide Community Development Authority, Solid
Waste Facilities Rev. (Republic Services, Inc.), "A",
4.95%, 2012 1,000,000 1,031,880
Gloucester County, NJ, Solid Waste Resource Recovery Rev
(Waste Management, Inc.), 6.85%, 2029 850,000 940,857
Henrico County, VA, Industrial Development Authority Rev
(Browning Ferris, Inc.), 5.45%, 2014 1,750,000 1,699,460
Illinois Development Finance Authority, Solid Waste Disposal
Rev. (Waste Management, Inc.), 5.85%, 2007 4,500,000 4,611,330
Nevada Department of Business Rev. (Republic Services, Inc.),
5.625%, 2026 750,000 794,063
New Morgan, PA, Industrial Development Authority, Solid Waste
Disposal Rev. (New Morgan Landfill Co, Inc./Browning Ferris,
Inc.), 6.5%, 2019 1,000,000 1,004,750
--------------
$ 11,063,770
-------------------------------------------------------------------------------------------------
Industrial Revenue - Metals - 0.2%
-------------------------------------------------------------------------------------------------
Mobile County, AL, Industrial Development Authority Rev
(Ipsco, Inc.), 6.875%, 2030 $ 650,000 $ 697,431
-------------------------------------------------------------------------------------------------
Industrial Revenue - Other - 5.4%
-------------------------------------------------------------------------------------------------
Delaware Economic Development Authority, Economic Development
Rev. (General Motors Corp.), 5.6%, 2009 $ 455,000 $ 446,965
Gulf Coast, TX, Industrial Development Authority (Valero
Energy Corp.), 5.6%, 2031 1,750,000 1,752,538
Gulf Coast, TX, Waste Disposal Rev. (Valero Energy Corp.),
6.65%, 2032 1,000,000 1,082,480
Hardeman County, TN, Correctional Facilities Rev., 7.75%, 2017 2,220,000 2,304,826
Madison County, FL, Rev. (Twin Oaks Project), "A", 6%, 2025+ 565,000 547,841
New Jersey Economic Development Authority, Economic
Development Rev. (Holt Hauling & Warehousing), 8.4%, 2015+*** 1,000,000 800,000
New Jersey Economic Development Authority, Economic
Development Rev. (Holt Hauling & Warehousing), 8.6%, 2017+*** 1,000,000 800,000
New York City, NY, City Industrial Development Agency Rev.,
Liberty IAC/Interactivecorp, 5%, 2035 620,000 622,716
Park Creek Metropolitan District, CO, Rev., Custodial
Receipts, CR-1, 7.875%, 2032## 1,270,000 1,413,307
Park Creek Metropolitan District, CO, Rev., Custodial
Receipts, CR-2, 7.875%, 2032## 580,000 645,447
Pennsylvania Economic Development Financing Authority,
Finance Authority Facilities Rev. (Amtrak), "A", 6.25%, 2031 2,000,000 2,127,140
Philadelphia, PA, Industrial Development Authority Rev. (Host
Marriott LP), 7.75%, 2017 3,255,000 3,287,355
Port Corpus Christ, TX, Industrial Development Authority Rev
(Citgo Petroleum Corp.), 8.25%, 2031 700,000 742,035
Tooele County, UT, Hazardous Waste Treatment Rev. (Union
Pacific Corp.), 5.7%, 2026 385,000 399,318
--------------
$ 16,971,968
-------------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 6.9%
-------------------------------------------------------------------------------------------------
Beauregard Parish, LA (Boise Cascade Corp.), 6.8%, 2027 $ 1,000,000 $ 1,073,540
Bedford County, VA, Industrial Development Authority Rev
(Nekoosa Packaging), "A", 6.55%, 2025 1,000,000 1,017,500
Butler, AL, Industrial Development Board, Solid Waste
Disposal Rev. (Georgia Pacific Corp.), 5.75%, 2028 155,000 155,558
Columbus County, NC, Industrial Facilities & Pollution
Control Financing Authority (International Paper, Co.), "A",
6.15%, 2021 5,000,000 5,173,200
Delta County, MI, Economic Development Corp., Environmental
Improvements Rev. (Mead Westvaco Escanaba), "A", 6.25%, 2012(++) 1,000,000 1,142,030
Delta County, MI, Economic Development Corp., Environmental
Improvements Rev. (Mead Westvaco Escanaba), "B", 6.45%, 2012(++) 500,000 572,080
Effingham County, GA, Development Authority, Solid Waste
Disposal Rev. (Fort James), 5.625%, 2018 850,000 835,559
Hodge, LA, Utilities Rev. (Stone Container Corp.), 7.45%, 2024 3,335,000 3,933,899
Lowndes County, MS, Solid Waste Disposal & Pollution Control
Rev. (Weyerhaeuser Co.), 6.8%, 2022 2,000,000 2,404,760
Navajo County, AZ, Industrial Development Authority (Stone
Container Corp.), 7.2%, 2027 880,000 911,108
Onondaga County, NY, Industrial Development Authority Rev.,
Solid Waste Disposal Rev. (Solvay Paperboard LLC), 6.8%, 2014 1,000,000 1,051,870
West Point, VA, Industrial Development Authority, Solid Waste
Disposal Rev. (Chesapeake Corp.), 6.25%, 2019 1,815,000 1,831,426
West Point, VA, Industrial Development Authority, Solid Waste
Disposal Rev. (Chesapeake Corp.), "A", 6.375%, 2019 700,000 706,398
York County, SC, Pollution Control Rev. (Bowater, Inc.), "A",
7.4%, 2010 935,000 943,611
--------------
$ 21,752,539
-------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 0.9%
-------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev.,
East Valley Tourist (Cabazon Casino)"A", 9.25%, 2020## $ 1,155,000 $ 1,257,899
Mississippi Development Bank, Special Obligation (Diamond
Lakes Utilities), 6.25%, 2017 1,000,000 1,023,410
Sandoval County, NM (Santa Ana Pueblo), 7.75%, 2015## 635,000 651,256
--------------
$ 2,932,565
-------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 2.0%
-------------------------------------------------------------------------------------------------
Austin, TX, Convention Center (Convention Enterprises, Inc.),
"A", 6.6%, 2021 $ 400,000 $ 425,772
Austin, TX, Convention Center (Convention Enterprises, Inc.),
"A", 6.7%, 2028 600,000 636,888
Central Falls, RI, Detention Facility Rev., 7.25%, 2035 250,000 257,303
Cleveland Cuyahoga County, OH, Port Authority Rev. (Cleveland
City), "B", 4.5%, 2030 1,320,000 1,298,774
Cleveland-Cuyahoga County, OH, Port Authority Rev
(Fairmount) "B", 5.125%, 2025 190,000 184,855
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Myers
University), "E", 5.6%, 2025 135,000 134,997
Dayton Montgomery County, OH, Port Authority Rev. (Parking
Garage), 6.125%, 2024 1,130,000 1,180,692
Gallery Certificate Trust, PA, Parking Rev., FSA, 4.5%, 2013+ 875,000 867,983
San Antonio, TX, Convention Center, Hotel Financial Corp.,
Contract Rev. (Empowerment Zone), "A", AMBAC, 5%, 2034 695,000 701,331
Southwestern Illinois Development Authority Rev., Solid Waste
Disposal Rev., 5.9%, 2014 340,000 344,077
Summit County, OH, Port Authority Building (Seville), "A",
5.1%, 2025 210,000 206,176
Summit County, OH, Port Authority Building (Twingsburg
Township), "D", 5.125%, 2025 160,000 155,667
--------------
$ 6,394,515
-------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 4.5%
-------------------------------------------------------------------------------------------------
Bay County, FL, Housing Finance Authority, Mulit-family Rev
(Andrews Place II Apartments), FSA, 5.1%, 2046 $ 390,000 $ 373,858
Bay County, FL, Housing Finance Authority, Multi-family Rev
(Andrews Place II Apartments), FSA, 5%, 2035 210,000 201,201
Bexar County TX, Multi-Family Housing Rev. (American
Opportunity Housing), "A", MBIA, 5.7%, 2021 1,250,000 1,300,513
Charter Mac Equity Issuer Trust, 7.1%, 2009 1,000,000 1,083,910
Charter Mac Equity Issuer Trust, 6%, 2019## 2,000,000 2,113,920
Eaglebend, CO, Affordable Housing Corp., Multi-Family Rev
(Housing Project), "A", 6.4%, 2017 1,000,000 986,990
Florida Multi-Family Housing Finance Agency Rev. (Center
Court Apartments), 8.5%, 2018 830,000 836,889
GMAC Municipal Mortgage Trust, "C-1", 5.7%, 2040## 500,000 497,090
GMAC Municipal Mortgage Trust, "B-1", 5.6%, 2039## 1,000,000 1,016,510
Metropolitan Government of Nashville & Davidson County, TN,
Health & Educational & Housing Facilities Board Rev
(Berkshire Place), GNMA, 6%, 2023 500,000 522,555
Munimae, TE, Bond Subsidiary LLC, 6.875%, 2009 2,000,000 2,169,860
Munimae, TE, Bond Subsidiary LLC, 5.4%, 2049## 1,000,000 1,005,560
San Bernardino County, CA (Equity Residential/Redlands), "A",
5.2%, 2029 2,000,000 2,056,220
--------------
$ 14,165,076
-------------------------------------------------------------------------------------------------
Sales & Excise Tax Revenue - 0.2%
-------------------------------------------------------------------------------------------------
Desloge, MO, Tax Increment Rev. (U.S. Highway 67/ST Street
Redevelopment), 5.2%, 2020 $ 525,000 $ 522,617
-------------------------------------------------------------------------------------------------
Single Family Housing - Local - 2.2%
-------------------------------------------------------------------------------------------------
Cook County, IL, Single Family Mortgage Rev., "A", 0%, 2015 $ 65,000 $ 13,827
Corpus Christi, TX, Housing Finance Authority Rev., "B", MBIA,
0%, 2011 3,000,000 1,722,030
Dallas, TX, Housing Finance Corp., Single Family Mortgage
Rev., MBIA, 0%, 2016 3,015,000 982,980
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA,
6.625%, 2023 300,000 311,616
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA,
6.75%, 2030 455,000 477,386
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA,
6.3%, 2032 840,000 878,774
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A", FNMA, 5.55%, 2037 1,005,000 1,059,270
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A", GNMA, 6.45%, 2029 545,000 565,029
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A", GNMA, 5.65%, 2037 795,000 837,175
--------------
$ 6,848,087
-------------------------------------------------------------------------------------------------
Single Family Housing - Other - 0.2%
-------------------------------------------------------------------------------------------------
Texas State Affordable Housing Corp., Single Family Mortgage
Rev., "B", 5.25%, 2039 $ 745,000 $ 766,732
-------------------------------------------------------------------------------------------------
Single Family Housing - State - 2.6%
-------------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., "A-2", 7.15%, 2014 $ 8,000 $ 8,049
Colorado Housing & Finance Authority Rev., "C-2", 5.9%, 2023 225,000 232,803
Colorado Housing & Finance Authority Rev., "C-2", FHA,
6.6%, 2032 230,000 239,136
Colorado Housing & Finance Authority Rev., C-3, FHA,
6.375%, 2033 105,000 108,422
Colorado Housing & Finance Authority Rev., D-2, 6.9%, 2029 480,000 499,670
Georgia Housing & Finance Authority Rev., 5.65%, 2021 2,490,000 2,541,543
Louisiana Housing Finance Agency, Single Family Mortgage
Rev., GNMA, 6.4%, 2032 260,000 264,527
Minnesota Housing Finance Agency Rev., Residential Housing
Finance "B", 4.8%, 2023 260,000 262,577
Missouri State Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), 6.35%, 2032 355,000 367,155
Missouri State Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), GNMA, 6.85%, 2032 190,000 198,744
Nebraska Investment Finance Authority Single Family Mortgage
Rev., 0%, 2015 6,675,000 2,703,375
Nebraska Investment Finance Authority, "C", 6.25%, 2021 605,000 620,210
New Hampshire Housing Finance Authority Rev., "B", 5.875%, 2030 130,000 131,808
--------------
$ 8,178,019
-------------------------------------------------------------------------------------------------
Solid Waste Revenue - 1.7%
-------------------------------------------------------------------------------------------------
Delaware County, PA, Industrial Development Authority Rev.,
Resource Recovery Facilities, (American Ref-fuel) "A", 6.5%, 2008 $ 1,600,000 $ 1,653,088
Massachusetts Development Finance Agency Rev. (Ogden
Haverhill Associates), 6.7%, 2014 725,000 767,007
Massachusetts Industrial Finance Agency, Resource Recovery
Rev. (Ogden Haverhill Associates), 5.6%, 2019 2,850,000 2,868,012
--------------
$ 5,288,107
-------------------------------------------------------------------------------------------------
State & Agency - Other - 0.4%
-------------------------------------------------------------------------------------------------
West Virginia, Higher Education Facilities Rev., "B", FGIC,
5%, 2034 $ 1,270,000 $ 1,302,372
-------------------------------------------------------------------------------------------------
State & Local Agencies - 2.8%
-------------------------------------------------------------------------------------------------
Chicago, IL, Public Building Commission, Building Rev.,
RITES, FGIC, 9.349%, 2016+(+) $ 1,300,000 $ 1,563,978
Chicago, IL, Public Building Commission, Building Rev.,
RITES, FGIC, 9.349%, 2017+(+) 1,050,000 1,265,523
College Park, GA, Industrial Development Authority Rev
(Civic Center), AMBAC, 5.75%, 2020 1,000,000 1,097,230
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement Rev., Enhanced, "B", 5.375%, 2010(++) 2,000,000 2,164,320
Houston, TX, COP, 6.3%, 2020 815,000 881,569
King George County, VA, Industrial Development Authority
Lease Rev., FSA, 5%, 2036 1,300,000 1,335,555
New Jersey Economic Development Authority Rev., School
Facilities Construction, "O", 5.25%, 2025 640,000 675,693
--------------
$ 8,983,868
-------------------------------------------------------------------------------------------------
Student Loan Revenue - 0.2%
-------------------------------------------------------------------------------------------------
Access to Loans for Learning, California Student Loan Rev.,
7.95%, 2030 $ 650,000 $ 683,742
-------------------------------------------------------------------------------------------------
Tax - Other - 1.8%
-------------------------------------------------------------------------------------------------
Black Hawk, CO, Device Tax Rev., 5.625%, 2017 $ 250,000 $ 248,970
Dade County, FL, Special Obligations Rev., Capital
Appreciation Bond, "B", AMBAC, 0%, 2008(++) 15,080,000 3,059,883
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.5%, 2024 340,000 353,498
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.75%, 2029 615,000 644,846
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.5%, 2031 270,000 277,479
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.75%, 2034 410,000 428,438
Virgin Islands Public Finance Authority Rev., 6%, 2006 250,000 255,660
Virgin Islands Public Finance Authority Rev., "E", 5.875%, 2018 500,000 512,200
--------------
$ 5,780,974
-------------------------------------------------------------------------------------------------
Tax Assessment - 4.8%
-------------------------------------------------------------------------------------------------
Allegheny County, PA, Redevelopment Authority Rev
(Pittsburgh Mills), 5.1%, 2014 $ 235,000 $ 240,182
Allegheny County, PA, Redevelopment Authority Rev
(Pittsburgh Mills), 5.6%, 2023 150,000 155,723
Arborwood Community Development District, Florida Capital
Improvement Rev. (Master Infrastructure Projects), "A",
5.35%, 2036 630,000 618,458
Arborwood Community Development District, Florida Capital
Improvement Rev. (Master Infrastructure Projects), "B",
5.1%, 2014 250,000 247,505
Atlanta, GA, Tax Allocation (Eastside Project), "B", 5.6%, 2030 815,000 806,923
Capital Region Community Development District, FL, Capital
Improvement Rev., "B", 5.95%, 2006 65,000 65,844
Chicago IL, Ryan Garfield Tax Increment Allocation, 10.125%, 2007 610,000 609,976
Concorde Estates Community Development District, FL, Capital
Improvement Rev., "B", 5%, 2011 770,000 768,398
Fishhawk Community Development District, FL, 5.125%, 2009 985,000 985,985
Katy, TX, Development Authority Rev., 5.8%, 2011 825,000 849,329
Katy, TX, Development Authority Rev., "B", 6%, 2018 925,000 952,177
Killarney, FL, Community Development District, "B", 5.125%, 2009 465,000 465,158
Lakes By The Bay South Community Development District, FL,
Special Assessment, "B", 5.3%, 2009 1,025,000 1,026,609
Markham, IL, Tax Increment Rev., 9%, 2012 1,010,000 1,012,222
Middle Village Community Development District, FL, Special
Assessment, "B", 5%, 2009 585,000 586,427
Old Palm Community Development District, FL, Special
Assessment (Palm Beach Gardens), "A", 5.9%, 2035 255,000 258,348
Old Palm Community Development District, FL, Special
Assessment (Palm Beach Gardens), "B", 5.375%, 2014 380,000 378,586
Panther Trace, FL, Community Development District Rev.,
5.4%, 2008 25,000 24,966
Panther Trace, FL, Community Development District Rev., "B",
5%, 2010 790,000 787,401
Parkway Center, FL, Community Development District Rev., "B",
5.625%, 2014 1,260,000 1,298,480
Paseo, FL, Community Development District, "B", 4.875%, 2010 505,000 499,223
Preserve At Wilderness Lake, FL, Community Development
District, Capital Improvement, "B", 5%, 2009 455,000 450,982
Prince George's County, MD, Special Obligations (National
Harbor Project), 5.2%, 2034 245,000 244,388
Reunion East Community Development District, FL, Special
Assessment, 5.9%, 2007 115,000 116,245
Sterling Hill Community Development District, FL, Capital
Improvement Rev., 5.5%, 2010 470,000 473,107
Villasol Community Development District, FL, Special
Assessment Rev., "B", 5.375%, 2008 375,000 377,194
Watergrass Community Development District, FL, Special
Assessment Rev., "B", 4.875%, 2010 935,000 931,671
--------------
$ 15,231,507
-------------------------------------------------------------------------------------------------
Tobacco - 5.9%
-------------------------------------------------------------------------------------------------
Badger, WI, Tobacco Asset Securitization Corp., 6.125%, 2027 $ 4,105,000 $ 4,332,294
California Statewide Financing Authority, Tobacco Settlement,
5.625%, 2029 1,775,000 1,861,727
Childrens Trust Fund, Tobacco Settlement Rev., Puerto Rico, "A",
0%, 2050 4,000,000 246,840
Childrens Trust Fund, Tobacco Settlement Rev., Puerto Rico, "B",
0%, 2055 4,000,000 131,480
District of Columbia, Tobacco Settlement, 6.25%, 2024 1,210,000 1,286,980
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement, 7.8%, 2042 1,000,000 1,215,780
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement "A", 5%, 2021 740,000 749,095
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement "A-1", 6.25%, 2033 785,000 860,800
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement "A-1", 6.625%, 2040 125,000 140,454
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev.,
Asset Backed, "B", 5.3%, 2025 2,000,000 2,034,060
Louisiana Tobacco Settlement Authority, 5.5%, 2030 1,435,000 1,484,881
New Jersey Tobacco Settlement Authority, 5.75%, 2032 960,000 995,971
Rockland Tobacco Asset Securitization Corp., NY, Tobacco
Asset Backed, "C", 0%, 2060 11,045,000 183,457
South Carolina Tobacco Settlement Authority, 6.375%, 2028 1,000,000 1,062,130
South Carolina Tobacco Settlement Authority, "B", 6%, 2022 1,260,000 1,320,732
Washington Tobacco Settlement Authority, 6.5%, 2026 155,000 167,791
Westchester, NY Tobacco Asset Securitization Corp.,
5.125%, 2038 250,000 249,480
Westchester, NY, Tobacco Asset Securitization Corp.,
5.125%, 2045 345,000 332,939
--------------
$ 18,656,891
-------------------------------------------------------------------------------------------------
Toll Roads - 1.2%
-------------------------------------------------------------------------------------------------
E-470 Public Highway Authority, Colorado Rev., Capital
Appreciation, "B", MBIA, 0%, 2027 $ 4,115,000 $ 1,294,538
Niagara Falls, NY, Bridge Commission, Toll Rev., RITES, FGIC,
7.071%, 2015+(+) 1,500,000 1,765,350
Pocahontas Parkway Assn., VA, Toll Road Rev., 0%, 2011 1,000,000 690,630
--------------
$ 3,750,518
-------------------------------------------------------------------------------------------------
Transportation - Special Tax - 3.1%
-------------------------------------------------------------------------------------------------
Missouri Highways & Transportation Commission, State Road
Rev., "A", 5.625%, 2018 $ 4,500,000 $ 4,855,815
Telluride, CO (Gondola Transit Co.), 9%, 2006(++) 750,000 771,908
Telluride, CO, Real Estate Transfer Assessment Rev. (Gondola
Transit Co.), ETM, 11.5%, 2012(++) 2,900,000 4,061,740
--------------
$ 9,689,463
-------------------------------------------------------------------------------------------------
Universities - Colleges - 3.5%
-------------------------------------------------------------------------------------------------
California Educational Facilities Authority Rev. (L.A
College of Chiropractic), 5.6%, 2017 $ 750,000 $ 724,905
Houston, TX, Community College Systems, MBIA, 7.875%, 2025 2,500,000 3,054,900
Illinois Educational Facilities Authority Rev. (Augustana
College), "A", 5.625%, 2022 400,000 422,568
Islip, NY, Community Development Agency Rev. (New York
Institute of Technology), 7.5%, 2006(++) 2,500,000 2,586,150
Louisiana State University (Health Sciences Center Project),
MBIA, 6.375%, 2031 2,500,000 2,772,750
Savannah, GA, Economic Development Authority Rev. (College of
Art & Design, Inc.), 6.5%, 2009(++) 625,000 698,256
University of Arkansas, University Rev. (UAMS Campus), "B",
MBIA, 5%, 2034 300,000 309,204
University of Colorado Enterprise Systems Rev., Refunding &
Improvement, FGIC, 5%, 2030 635,000 658,959
--------------
$ 11,227,692
-------------------------------------------------------------------------------------------------
Universities - Secondary Schools - 1.4%
-------------------------------------------------------------------------------------------------
California Statewide Communities, Development Authority Rev
(Escondido Charter High School), 7.5%, 2023 $ 570,000 $ 577,182
California Statewide Communities, Development Authority Rev
(Escondido Charter High School), 7.5%, 2036 1,000,000 1,014,970
Maryland Industrial Development Financing Authority, Economic
Development Authority Rev., (Our Lady of Good Council) "A",
6%, 2035 150,000 151,497
Michigan Municipal Bond Authority Rev. (Detroit Academy of
Arts & Sciences), 8%, 2031 1,000,000 1,070,490
Michigan Municipal Bond Authority Rev. (YMCA Service Learning
Academy), 7.625%, 2021 1,000,000 1,065,930
Pima County, AZ, Industrial Development Authority Education
Rev. (Arizona Charter Schools), "C", 6.75%, 2031 500,000 521,590
--------------
$ 4,401,659
-------------------------------------------------------------------------------------------------
Utilities - Cogeneration - 2.2%
-------------------------------------------------------------------------------------------------
Alaska Industrial Development Export Authority, Power Rev.,
Upper Lynn Canal Regional Power, 5.8%, 2018 $ 830,000 $ 803,224
Carbon County, PA, Industrial Development Authority Rev
(Panther Creek Partners), 6.65%, 2010 2,370,000 2,512,769
Klamath Falls, OR, Electric Rev. (Klamath Cogeneration),
6%, 2025 2,260,000 1,951,397
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Colver) "G", 5.125%, 2015+ 350,000 345,181
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Northampton Generating), 6.4%, 2009 350,000 351,589
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Northampton Generating), 6.5%, 2013 1,000,000 1,004,720
--------------
$ 6,968,880
-------------------------------------------------------------------------------------------------
Utilities - Investor Owned - 10.2%
-------------------------------------------------------------------------------------------------
Brazos River Authority, TX, Authority Texas Rev. (Reliant
Energy, Inc.), "A", 5.375%, 2019 $ 500,000 $ 508,705
Brazos River Authority, TX, Authority Texas Rev. (Reliant
Energy, Inc.), "B", AMBAC, 5.125%, 2020 2,000,000 2,096,280
Brazos River Authority, TX, Pollution Control Rev. (Texas
Utility Co.), "B", 6.3%, 2032 315,000 335,837
Brazos River Authority, TX, Pollution Control Rev. (Texas
Utility Co.), "C", 6.75%, 2038 715,000 784,670
Calcasieu Parish, LA, Industrial Development Board, Pollution
Control Rev. (Entergy Gulf States, Inc.), 5.45%, 2010 1,250,000 1,258,963
Clark County, NV, Industrial Development Rev., Southwest Gas
Corp. "A", AMBAC, 4.85%, 2035 1,055,000 1,028,931
Connecticut Development Authority, Pollution Control Rev
(Connecticut Light & Power Co.), 5.85%, 2028 2,000,000 2,139,720
Connecticut Development Authority, Pollution Control Rev
(Connecticut Light & Power Co.), 5.95%, 2028 2,270,000 2,425,018
Farmington, NM, Pollution Control Rev. (New Mexico Public
Service), 5.8%, 2022 2,105,000 2,134,870
Farmington, NM, Pollution Control Rev. (New Mexico Public
Service), "A", 6.3%, 2016 2,195,000 2,308,877
Forsyth, MT, Pollution Control Rev. (Portland General),
5.2%, 2033 230,000 238,673
Matagorda County, TX (Centerpoint Energy), 5.6%, 2027 1,500,000 1,551,255
Matagorda County, TX, Pollution Control Rev. (Reliant
Energy), 5.95%, 2030 1,655,000 1,697,898
Mecklenburg County, VA, Industrial Development Authority Rev
(UAE Mecklenburg, LP), 6.5%, 2017 800,000 881,032
New Hampshire Business Finance Authority, Pollution Control
Rev. (Public Service of New Hampshire), 6%, 2021 1,000,000 1,043,020
Ohio Air Quality Development Authority Rev.,Pollution
Control, Rev. (Cleveland Electric)"B", 6%, 2020 3,000,000 3,149,640
Pennsylvania Economic Development Financing Authority Rev
(Reliant Energy Seward), "A", 6.75%, 2036 1,155,000 1,234,995
Pima County, AZ, Industrial Development Authority Rev
(Tucson Electric Power Co.), "A", 6.1%, 2025 650,000 650,540
Pittsylvania County, VA, Industrial Development Authority
Rev., 7.5%, 2014 3,000,000 3,098,010
Port Morrow, OR, Pollution Control Rev. (Portland General
Electric), 5.2%, 2033 550,000 572,963
Trinity River Authority, TX, Pollution Control Rev. (TXU
Electric Co.), 6.25%, 2028 500,000 545,065
West Feliciana Parish, LA, Pollution Control Rev. (Gulf
States Utilities Co.), 5.8%, 2015 1,500,000 1,517,655
West Feliciana Parish, LA, Pollution Control Rev. (Gulf
States Utilities Co.), 5.8%, 2016 1,000,000 1,004,480
--------------
$ 32,207,097
-------------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 3.1%
-------------------------------------------------------------------------------------------------
California State Department Water Resources Power Supply Rev
"A", 5.75%, 2017 $ 1,250,000 $ 1,371,663
North Carolina Eastern Municipal Power Agency, Power Systems
Rev., "B", 5.55%, 2014 2,150,000 2,269,368
North Carolina Municipal Power Agency (Catawba Electric Rev.)
"B", 6.5%, 2020 2,000,000 2,208,360
San Antonio, TX, Electric & Gas, "A", 5%, 2025 495,000 514,656
Seattle, WA, Municipal Light & Power Rev., 5.625%, 2017 3,000,000 3,217,650
Southern California Public Power Authority (Transmission
Project Rev.), RIBS, 8.877%, 2012(+) 100,000 101,106
--------------
$ 9,682,803
-------------------------------------------------------------------------------------------------
Water & Sewer Utility Revenue - 2.8%
-------------------------------------------------------------------------------------------------
Everett, WA, Water & Sewer Rev., MBIA, 5%, 2027 $ 280,000 $ 290,312
Louisville & Jefferson, KY, District Sewer & Drain System,
"A", FGIC, 5.25%, 2037 865,000 916,450
Mississippi Development Bank Special Obligations Grenada MS,
Water & Sewer Systems Project, "N", FSA, 5%, 2030 710,000 729,944
New York City, NY, Municipal Water & Sewer Finance Authority
Rev., 5.5%, 2033 5,000,000 5,361,300
New York City, NY, Municipal Water & Sewer Finance Authority,
Water & Sewer Systems Rev., "D", 5%, 2038 760,000 779,213
Upland, CA, Public Financing Authority Rev., Water Systems
Improvement, AMBAC, 5%, 2033 850,000 870,035
--------------
$ 8,947,254
-------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $419,104,972) $443,125,043
-------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 0.9%
-------------------------------------------------------------------------------------------------
Allegheny County, PA, Hospital Development Authority Rev
(Presbyterian University Hospital), "D", 2.7%, due 11/03/05 $ 200,000 $ 200,000
Burke County, GA, Development Authority Pollution Rev.,
2.7%, due 11/02/05 200,000 200,000
Jefferson County, AL, Sewer Rev., 2.7%, due 11/03/05 100,000 100,000
Jefferson County, AL, Sewer Rev., Capital Improvement
Warrants, "A", 2.7%, due 11/03/05 150,000 150,000
Missouri State Health & Educational Facilities Authority
Rev., Medical Research Facilities (Stowers Institute), 2.7%,
due 11/03/05 200,000 200,000
New Castle, PA, Area Hospital Authority (Jameson Memorial
Hospital), 2.75%, due 11/02/05 125,000 125,000
Oklahoma Industries Authority, Health System Rev. (Integris
Baptist Medical Center), "B", 2.74%, due 11/01/05 100,000 100,000
Sevier County, TN, Public Building Authority, 2.72%,
due 11/03/05 300,000 300,000
Triborough Bridge & Tunnel Authority, NY, Rev., "F",
2.68%, due 11/03/05 1,400,000 1,400,000
-------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 2,775,000
-------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $421,879,972) $ 445,900,043
-------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 3.3% 10,345,080
-------------------------------------------------------------------------------------------------
Preferred Shares (Issued by the Trust) - (44.3)% $ (140,049,136)
-------------------------------------------------------------------------------------------------
Net Assets applicable to common shares - 100.0% $ 316,195,987
-------------------------------------------------------------------------------------------------
SWAP AGREEMENTS
Interest Rate Swaps
CASH FLOWS UNREALIZED
NOTIONAL PRINCIPAL CASH FLOWS PAID RECEIVED BY APPRECIATION
EXPIRATION AMOUNT OF CONTRACT BY THE TRUST THE TRUST (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------------
11/28/15 USD $12,000,000 Fixed - 10 Year Floating - 3 Month $450,001
LIBOR Swap Index LIBOR Swap Index
(4.598%)
--------------------------------------------------------------------------------------------------------------------
5/16/18 USD 25,000,000 Fixed - 12 Year Floating - 7 Day 509,208
BMA Swap Index BMA Swap Index
(3.797%)
--------------------------------------------------------------------------------------------------------------------
11/29/20 USD 30,000,000 Fixed - 15 Year Floating - 3 Month 1,316,108
LIBOR Swap Index LIBOR Swap Index
(4.77%)
--------------------------------------------------------------------------------------------------------------------
$2,275,317
------------------------------------------------------------------------------------------------===================-
At October 31, 2005, the fund had sufficient cash and/or securities to cover any commitments under all derivative contracts.
(+) Inverse floating rate security. (++) Refunded bond.
** Non-income producing security - in default.
*** Interest received was less than stated coupon rate.
## SEC Rule 144A restriction.
+ Restricted securities (excluding 144A issues) are not registered under the Securities Act of 1933 and are subject to legal or
contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and prompt
sale at an acceptable price may be difficult. The trust holds the following restricted securities:
TOTAL % OF
NET ASSETS
CURRENT APPLICABLE TO
ACQUISITION ACQUISITION MARKET COMMON
SECURITY DATE COST VALUE SHARES
------------------------------------------------------------------------------------------------------------------
Arizona Health Facilities Authority Rev. (The
Terraces Project), 7.75%, 2033 10/17/03 $736,845 $825,878
Chicago, IL, O'Hare International Airport
Rev., RITES, FSA, 8.002%, 2022 8/21/03 1,599,510 1,779,270
Chicago, IL, Public Building Commission,
Building Rev., RITES, FGIC, 9.349%, 2016 3/11/99 1,403,610 1,563,978
Chicago, IL, Public Building Commission,
Building Rev., RITES, FGIC, 9.349%, 2017 3/11/99 1,123,542 1,265,523
Contra Costa County, CA, Residential Rental
Facilities Rev. (Cypress Meadows), 7%, 2028 9/21/98 217,707 65,312
Gallery Certificate Trust, PA, Parking Rev.,
FSA, 4.5%, 2013 12/17/03 875,688 867,983
Madison County, FL, Rev. (Twin Oaks Project)
"A", 6%, 2025 7/13/05 555,310 547,841
New Jersey Economic Development Authority,
Economic Development Rev. (Holt Hauling &
Warehousing), 8.4%, 2015 1/30/97 1,049,280 800,000
New Jersey Economic Development Authority,
Economic Development Rev. (Holt Hauling &
Warehousing), 8.6%, 2017 1/30/97 1,051,940 800,000
Niagra Falls, NY, Bridge Commission, Toll
Rev., RITES, FGIC, 7.071%, 2015 5/21/99 1,609,680 1,765,350
Pennsylvania Economic Development Financing
Authority Rev., Resources Recovery Rev.
(Colver) "G", 5.125%, 2015 7/15/05 350,000 345,181
Waterford Township, MI, Economic Development
Corp. Rev. (Canterbury Health), 6%, 2039 12/31/98 1,500,000 1,243,170
------------------------------------------------------------------------------------------------------------------
Total Restricted Securities $11,869,486 3.8%
------------------------------------------------------------------------------------------------------------------
The following abbreviations are used in the Portfolio of Investments and are defined:
BMA Bond Market Assn.
COP Certificate of Participation
ETM Escrowed to Maturity
LIBOR London Interbank Offered Rate
Insurers Inverse Floaters
--------------------------------------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corp. INFLOS Inverse Floating Security
ASST GTY Asset Guaranty Insurance Co. RIBS Residual Interest Bonds
FGIC Financial Guaranty Insurance Co. RITES Residual Interest Tax-Exempt
FHA Federal Housing Administration Security
FNMA Federal National Mortgage Assn.
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage Assn.
MBIA MBIA Insurance Corp.
PSF Permanent School Fund
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Assets and Liabilities
This statement represents your trust's balance sheet, which details the assets
and liabilities composing the total value of the trust.
AT 10/31/05
ASSETS
-----------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $421,879,972) $445,900,043
Cash 83,401
Receivable for investments sold 3,021,069
Interest receivable 8,188,055
Unrealized appreciation on interest rate swap agreements 2,275,317
Other assets 2,180
-----------------------------------------------------------------------------------------------------
Total assets $459,470,065
-----------------------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------------------
Distributions payable on common shares $1,815,513
Payable for investments purchased 1,120,578
Payable to affiliates
Management fee 28,974
Transfer agent and dividend disbursing costs 9,420
Administrative services fee 433
Accrued expenses and other liabilities 250,024
-----------------------------------------------------------------------------------------------------
Total liabilities $3,224,942
-----------------------------------------------------------------------------------------------------
PREFERRED SHARES
-----------------------------------------------------------------------------------------------------
Series T and Series TH auction preferred shares (5,600 shares issued and
outstanding at $25,000 per share) at
liquidation value plus cumulative unpaid dividends $140,049,136
-----------------------------------------------------------------------------------------------------
Net assets applicable to common shares $316,195,987
-----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
-----------------------------------------------------------------------------------------------------
Paid-in capital - common shares $312,800,660
Unrealized appreciation (depreciation) on investments 26,295,388
Accumulated net realized gain (loss) on investments (28,820,033)
Undistributed net investment income 5,919,972
-----------------------------------------------------------------------------------------------------
Net assets applicable to common shares $316,195,987
-----------------------------------------------------------------------------------------------------
Preferred shares, at value
(5,600 shares issued and outstanding at $25,000 per share) 140,000,000
-----------------------------------------------------------------------------------------------------
Net assets including preferred shares $456,195,987
-----------------------------------------------------------------------------------------------------
Common shares of beneficial interest outstanding
(39,956,885 shares issued less 55,500 treasury shares) 39,901,385
-----------------------------------------------------------------------------------------------------
Net asset value per common share ($316,195,987 / 39,901,385) $7.92
-----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your trust received in investment income and
paid in expenses. It also describes any gains and/or losses generated by trust
operations.
YEAR ENDED 10/31/05
NET INVESTMENT INCOME
-----------------------------------------------------------------------------------------------------
Interest income $28,133,695
-----------------------------------------------------------------------------------------------------
Expenses
Management fee $3,576,054
Transfer agent and dividend disbursing costs 104,186
Administrative services fee 53,073
Independent trustees" compensation 46,318
Stock exchange fee 29,566
Preferred shares remarketing agent fee 350,344
Custodian fee 125,621
Printing 48,597
Postage 116,278
Auditing fees 67,847
Legal fees 8,398
Shareholder solicitation expenses 2,178
Miscellaneous 28,096
-----------------------------------------------------------------------------------------------------
Total expenses $4,556,556
-----------------------------------------------------------------------------------------------------
Fees paid indirectly (21,877)
Reduction of expenses by investment adviser (1,265)
-----------------------------------------------------------------------------------------------------
Net expenses $4,533,414
-----------------------------------------------------------------------------------------------------
Net investment income $23,600,281
-----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
-----------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(5,179,371)
Swap transactions (4,199,183)
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(9,378,554)
-----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $7,844,561
Swap transactions 5,078,927
-----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $12,923,488
-----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $3,544,934
-----------------------------------------------------------------------------------------------------
Distributions declared from preferred shares $(3,025,056)
-----------------------------------------------------------------------------------------------------
Change in net assets from operations $24,120,159
-----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets resulting
from operations, any distributions, and any shareholder transactions.
FOR YEARS ENDED 10/31 2005 2004
CHANGE IN NET ASSETS
-------------------------------------------------------------------------------------------------------
FROM OPERATIONS
-------------------------------------------------------------------------------------------------------
Net investment income $23,600,281 $23,772,695
Net realized gain (loss) on investments (9,378,554) (1,940,843)
Net unrealized gain (loss) on investments 12,923,488 8,313,314
Distributions declared from preferred shares (3,025,056) (1,507,808)
-------------------------------------------------------------------------------------------------------
Change in net assets from operations $24,120,159 $28,637,358
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
-------------------------------------------------------------------------------------------------------
From net investment income $(21,742,129) $(21,706,248)
-------------------------------------------------------------------------------------------------------
Net asset value of shares issued to common shareholders in
reinvestment of distributions $993,010 $511,173
-------------------------------------------------------------------------------------------------------
Total change in net assets $3,371,040 $7,442,283
-------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES
-------------------------------------------------------------------------------------------------
At beginning of period $312,824,947 $305,382,664
At end of period (including accumulated undistributed net
investment income of $5,919,972 and $6,809,238,
respectively) $316,195,987 $312,824,947
-------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Financial Highlights
The financial highlights table is intended to help you understand the trust's financial performance for the past 5 years.
Certain information reflects financial results for a single trust share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the trust share class (assuming reinvestment of all
distributions) held for the entire period. This information has been audited by the trust's independent registered public
accounting firm, whose report, together with the trust's financial statements, are included in this report.
YEARS ENDED 10/31
-------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $7.86 $7.69 $7.61 $7.93 $7.79
-----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS(S)
-----------------------------------------------------------------------------------------------------------------------------
Net investment income# $0.59 $0.60 $0.61 $0.64 $0.64
Net realized and unrealized gain (loss)
on investments 0.10 0.16 0.04 (0.38) 0.18
Distributions declared to shareholders on
preferred shares (0.08) (0.04) (0.04) (0.05) (0.10)
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.61 $0.72 $0.61 $0.21 $0.72
-----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------------------
From net investment income, common shares $(0.55) $(0.55) $(0.53) $(0.53) $(0.53)
-----------------------------------------------------------------------------------------------------------------------------
Preferred shares offering cost charged to
paid-in capital $-- $-- $-- $-- $(0.05)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.92 $7.86 $7.69 $7.61 $7.93
-----------------------------------------------------------------------------------------------------------------------------
Common share market value, end of period $8.27 $7.83 $7.49 $7.15 $7.83
-----------------------------------------------------------------------------------------------------------------------------
Total return at common market value
(%)&***++++ 13.18 12.22 12.51 (2.23) 13.58
-----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHARES) AND SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions##++++ 1.44 1.46 1.51 1.56 1.49
Expenses after expense reductions##++++ 1.44 1.46 1.51 1.56 1.49
Net investment income++++(S) 7.45 7.70 7.98 8.26 8.12
Portfolio turnover 14 9 11 16 26
Net assets at end of period (000 Omitted) $316,196 $312,825 $305,383 $302,010 $312,996
-----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL RATIOS (%):
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
including preferred shares##++++ 0.99 1.00 1.03 1.07 1.07
Preferred shares dividends 0.95 0.49 0.48 0.68 1.28
Net investment income available to
common shares(S) 6.49 7.22 7.50 7.58 6.84
-----------------------------------------------------------------------------------------------------------------------------
SENIOR SECURITIES:
-----------------------------------------------------------------------------------------------------------------------------
Total preferred shares outstanding 5,600 5,600 5,600 5,600 5,600
Asset coverage per preferred share(+) $81,464 $80,862 $79,533 $79,090 $80,897
Involuntary liquidation preference per
preferred share $25,000 $25,000 $25,000 $25,000 $25,000
Approximate market value per preferred
share $25,000 $25,000 $25,000 $25,000 $25,000
-----------------------------------------------------------------------------------------------------------------------------
*** Certain expenses have been reduced without which performance would have been lower.
++++ Ratio excludes dividend payment on auction preferred shares.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Calculated by subtracting the trust's total liabilities (not including preferrered shares) from the trust's total assets
and dividing this number by the number of preferred shares outstanding.
(S) Effective November 1, 2001, the trust adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing and accreting all premiums and discounts on debt securities. Per share data and ratios for
periods prior to November 1, 2001 have not been restated to reflect this change.
& From time to time the trust may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Municipal Income Trust (the trust) is a non-diversified trust that is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a closed-end management
investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The trust
can invest up to 100% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions. Municipal securities backed by
current or anticipated revenues from a specific project or specific assets can
be negatively affected by the discontinuance of the taxation supporting the
projects or assets or the inability to collect revenues for the project or from
the assets. If the Internal Revenue Service determines an issuer of a municipal
security has not complied with applicable tax requirements, the security could
decline in value, interest from the security could become taxable and the fund
may be required to issue Forms 1099-DIV.
INVESTMENT VALUATIONS - Bonds and other fixed income securities, including
restricted fixed income securities, (other than short-term obligations) in the
trust's portfolio are valued at an evaluated bid price as reported by an
independent pricing service, or to the extent a valuation is not reported by a
pricing service, such securities are valued on the basis of quotes from brokers
and dealers. Prices obtained from pricing services utilize both dealer-supplied
valuations and electronic data processing techniques which take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data without exclusive reliance upon quoted
prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations with a remaining maturity in excess of 60 days will be
valued upon dealer-supplied valuations. All other short-term obligations in the
trust's portfolio are valued at amortized cost, which approximates market value
as determined by the Board of Trustees. When pricing service information or
market quotations are not readily available, securities are priced at fair value
as determined under the direction of the Board of Trustees.
DERIVATIVE RISK - The trust may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the trust uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include swap agreements.
SWAP AGREEMENTS - The trust may enter into swap agreements. A swap is an
exchange of cash payments between the trust and another party. Net cash payments
are exchanged at specified intervals and the expected income or expense is
recorded on the accrual basis. The value of the swap is adjusted daily and the
change in value is recorded as unrealized appreciation or depreciation. Risks
may arise upon entering into these agreements from the potential inability of
counterparties to meet the terms of their contract and from unanticipated
changes in the value of the financial index on which the swap agreement is
based. The trust may use swaps for both hedging and non- hedging purposes. For
hedging purposes, the trust may use swaps to reduce its exposure to interest and
foreign exchange rate fluctuations. For non-hedging purposes, the trust may use
swaps to take a position on anticipated changes in the underlying financial
index.
INTEREST RATE SWAP AGREEMENTS - Interest rate swap agreements are agreements to
exchange cash flows periodically based on a notional principal amount, such as
the exchange of fixed rate interest payments for floating rate interest
payments, which are based on a specific financial index, or the exchange of two
distinct floating rate payments. The net receivable or payable associated with
these payments is accrued daily and recorded as an unrealized gain or loss, and
any payments received or made are recorded as realized gains or losses, in the
Statement of Operations. The primary risk associated with interest rate swap
agreements is that unfavorable changes in the fluctuation of interest rates
could adversely impact the trust.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with U.S. generally accepted accounting principles. All premium and original
issue discount is amortized or accreted for tax reporting purposes as required
by federal income tax regulations. The trust may receive proceeds from
litigation settlements involving its portfolio holdings. Any proceeds received
are reflected in realized gain/loss in the Statement of Operations, or in
unrealized gain/loss if the security is still held by the trust. Legal fees and
other related expenses incurred to preserve and protect the value of a security
owned are added to the cost of the security; other legal fees are expensed.
Capital infusions made directly to the security issuer, which are generally
non-recurring, incurred to protect or enhance the value of high- yield debt
securities, are reported as additions to the cost basis of the security. Costs
that are incurred to negotiate the terms or conditions of capital infusions or
that are expected to result in a plan of reorganization are reported as realized
losses. Ongoing costs incurred to protect or enhance an investment, or costs
incurred to pursue other claims or legal actions, are expensed.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. This amount, for the year ended October 31, 2005, is shown as a reduction
of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net tax-
exempt and taxable net income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is provided.
Distributions paid by the trust from net interest received on tax-exempt
municipal bonds are not includable by shareholders as gross income for federal
income tax purposes because the trust intends to meet certain requirements of
the Code applicable to regulated investment companies, which will enable the
trust to pay exempt-interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986 may be considered a
tax-preference item to shareholders.
Distributions to shareholders are recorded on the ex-dividend date. The trust
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for expiration of capital loss carry forward, amortization and
accretion on debt securities, defaulted bonds and capitalized workout expenses.
The tax character of distributions declared for the years ended October 31, 2005
and October 31, 2004 was as follows:
10/31/05 10/31/04
Distributions declared from:
Tax-exempt income $24,707,099 $23,043,028
Ordinary income 60,086 171,028
------------------------------------------------------------------------------
Total distributions declared $24,767,185 $23,214,056
During the year ended October 31, 2005, accumulated undistributed net investment
income increased by $277,638, accumulated net realized loss on investments
decreased by $16,241,181, and paid-in capital decreased by $16,518,819 due to
differences between book and tax accounting for expiration of capital loss carry
forward, amortization and accretion on debt securities, defaulted bonds and
capitalized workout expenses. This change had no effect on the net assets or net
asset value per share.
As of October 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed tax-exempt income $6,143,813
Undistributed ordinary income 181,879
Capital loss carryforward (29,598,105)
Unrealized appreciation (depreciation) 24,798,143
Other temporary differences 1,869,597
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration.
EXPIRATION DATE
October 31, 2006 $(1,383,806)
October 31, 2009 (2,847,429)
October 31, 2010 (2,883,947)
October 31, 2011 (10,944,821)
October 31, 2012 (1,858,513)
October 31, 2013 (9,679,589)
----------------------------------------------------------
Total $(29,598,105)
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.40% of
the trust's average daily net assets and 6.32% of gross investment income. The
management fee, from net assets and gross investment income, incurred for the
year ended October 31, 2005 was equivalent to an annual effective rate of 0.78%
of the trust's average daily net assets including preferred shares.
TRANSFER AGENT - The trust pays a portion of transfer agent and dividend-
disbursing costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary
of MFS. MFSC receives a fee from the trust, for its services as registrar and
dividend-disbursing agent. The agreement provides that the trust will pay MFSC
an account maintenance fee of no more than $9.00 and a dividend services fee of
$0.75 per reinvestment. For the year ended October 31, 2005, these fees amounted
to $65,291. MFSC also receives payment from the trust for out-of-pocket expenses
paid by MFSC on behalf of the trust. For the year ended October 31, 2005, these
costs amounted to $27,764.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000. The
administrative services fee incurred for the year ended October 31, 2005 was
equivalent to an annual effective rate of 0.0116% of the trust's average daily
net assets including preferred shares.
TRUSTEES" AND OFFICERS" COMPENSATION - The trust pays compensation to
Independent Trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The trust does not pay
compensation directly to Trustees who are officers of the investment adviser, or
to officers of the trust, all of whom receive remuneration for their services to
the trust from MFS. Certain officers and Trustees of the trust are officers or
directors of MFS and MFSC. The trust has an unfunded, defined benefit plan for
retired Independent Trustees which resulted in a pension expense of $8,817. This
amount is included in Independent trustees" compensation for the year ended
October 31, 2005.
OTHER - This trust and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. MFS has agreed to reimburse the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $1,265, which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided to the ICCO.
The funds can terminate the Agreement with Tarantino LLC at any time under the
terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$64,417,586 and $67,786,102, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the trust, as computed on a federal income tax basis, are
as follows:
Aggregate cost $421,101,900
---------------------------------------------------------
Gross unrealized appreciation $27,385,808
Gross unrealized depreciation (2,587,665)
---------------------------------------------------------
Net unrealized appreciation (depreciation) $24,798,143
(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. During the year ended October 31, 2005, the trust did
not repurchase any shares. Transactions in the trust were as follows:
Year ended 10/31/05 Year ended 10/31/04
SHARES AMOUNT SHARES AMOUNT
Shares issued to shareholders in reinvestment of
distributions 124,307 $993,010 64,891 $511,173
(6) LINE OF CREDIT
The trust and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve funds
rate plus 0.35%. In addition, a commitment fee, based on the average daily,
unused portion of the line of credit, is allocated among the participating funds
at the end of each calendar quarter. The commitment fee allocated to the trust
for the year ended October 31, 2005 was $1,974, and is included in miscellaneous
expense. The trust had no significant borrowings during the year ended October
31, 2005.
(7) AUCTION PREFERRED SHARES
The trust issued 2,800 shares of Auction Preferred Shares ("APS"), series T and
2,800 of Auction Preferred Shares, series TH. Dividends are cumulative at a rate
that is reset every seven days for both series through an auction process.
During the year ended October 31, 2005, the dividend rates ranged from 1.495% to
2.86%. The trust pays an annual fee equivalent to 0.25% of the preferred share
liquidation value for remarketing efforts associated with the preferred auction.
The APS are redeemable at the option of the trust in whole or in part at the
redemption price equal to $25,000 per share, plus accumulated and unpaid
dividends. The APS are also subject to mandatory redemption if certain
requirements relating to their asset maintenance coverage are not satisfied. The
trust is required to maintain certain asset coverage with respect to the APS as
defined in the trust's By-Laws and the Investment Company Act of 1940.
(8) CONCENTRATION OF CREDIT RISK
At October 31, 2005, 22.53% of securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 6.87% of total investments.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and the Shareholders of
MFS Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Municipal Income Trust (the "Trust") as of
October 31, 2005, and the related statement of operations 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 Trust'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. The Trust
is not required to have, nor were we engaged to perform, an audit of its
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 Trust'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, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 MFS
Municipal Income Trust as of October 31, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 22, 2005
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 2, 2005, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee February 2004 Massachusetts Financial
(born 10/20/63) Services Company, Chief
Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial
(born 08/08/46) Services Company, Chairman
(since February 2004); Harvard Law
School (education), John Olin
Visiting Professor (since July
2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity
Investments, Vice Chairman (June
2000 to December 2001); Fidelity
Management & Research Company
(investment adviser), President
(March 1997 to July 2001); Bell
Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications), Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair of February 1992 Private investor; Eastern Enterprises
(born 05/01/36) Trustees (diversified services company), Chairman,
Trustee and Chief Executive Officer
(until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Senior Cardiac
(born 03/11/37) Surgeon, Chief of Cardiac Surgery
(until 2005); Harvard Medical
School, Professor of Surgery;
Brigham and Women's Hospital
Physicians" Organization, Chair
(2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining products
(born 05/30/42) and service provider), Vice
Chairman/Director (since April
2001); Encinitos Ventures (private
investment company), Principal (1997
to April 2001); Lincoln Electric
Holdings, Inc. (welding equipment
manufacturer), Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating Officer
(until May 2001); The Equitable Life
Assurance Society (insurance),
President and Chief Operating
Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment
Banking Group (1997 to February
2001); Borders Group, Inc. (book and
music retailer), Director; Federal
Realty Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President; Wellfleet
Investments (investor in health care
companies), Managing General Partner
(since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-founder
and General Partner (until June
2004); St. Paul Travelers Companies
(commercial property liability
insurance), Director
OFFICERS
Maria F. Dwyer(3) President November 2005 Massachusetts Financial Services Company,
(born 12/01/58) Executive Vice President and Chief
Regulatory Officer (since March
2004); Fidelity Management &
Research Company, Vice President
(prior to March 2004); Fidelity
Group of Funds, President and
Treasurer (prior to March 2004)
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services Company,
(born 12/30/64) Senior Vice President (since
September 2004);
PricewaterhouseCoopers LLP, Partner
(prior to September 2004)
Christopher R. Bohane(3) Assistant Secretary July 2005 Massachusetts Financial Services Company,
(born 1/18/74) and Assistant Clerk Vice President and Senior Counsel (since
April 2003); Kirkpatrick & Lockhart
LLP (law firm), Associate (prior to
April 2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to January
2001)
Jeffrey N. Carp(3) Secretary and Clerk September 2004 Massachusetts Financial Services Company,
(born 12/19/56) Executive Vice President, General Counsel and
Secretary (since April 2004); Hale
and Dorr LLP (law firm), Partner
(prior to April 2004)
Ethan D. Corey(3) Assistant Secretary July 2005 Massachusetts Financial Services Company,
(born 11/21/63) and Assistant Clerk Special Counsel (since December 2004);
Dechert LLP (law firm), Counsel
(prior to December 2004)
David L. DiLorenzo(3) Assistant Treasurer July 2005 Massachusetts Financial Services Company,
(born 8/10/68) Vice President (since June 2005); JP
Morgan Investor Services, Vice
President (January 2001 to June
2005); State Street Bank, Vice
President and Corporate Audit
Manager (prior to January 2001)
Timothy M. Fagan(3) Assistant Secretary September 2005 Massachusetts Financial Services Company,
(born 7/10/68) and Assistant Clerk Vice President and Senior Counsel (since
September 2005); John Hancock
Advisers, LLC, Vice President and
Chief Compliance Officer (September
2004 to August 2005), Senior
Attorney (prior to September 2004);
John Hancock Group of Funds, Vice
President and Chief Compliance
Officer (September 2004 to December
2004)
Mark D. Fischer(3) Assistant Treasurer July 2005 Massachusetts Financial Services Company,
(born 10/27/70) Vice President (since May 2005); JP
Morgan Investment Management
Company, Vice President (prior to
May 2005)
Brian T. Hourihan(3) Assistant Secretary September 2004 Massachusetts Financial Services Company,
(born 11/11/64) and Assistant Clerk Vice President, Senior Counsel and
Assistant Secretary (since June
2004); Affiliated Managers Group,
Inc., Chief Legal Officer/
Centralized Compliance Program
(January to April 2004); Fidelity
Research & Management Company,
Assistant General Counsel (prior to
January 2004)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services Company,
(born 11/13/57) Vice President
Susan S. Newton(3) Assistant Secretary May 2005 Massachusetts Financial Services Company,
(born 03/07/50) and Assistant Clerk Senior Vice President and Associate General
Counsel (since April 2005); John
Hancock Advisers, LLC, Senior Vice
President, Secretary and Chief Legal
Officer (prior to April 2005); John
Hancock Group of Funds, Senior Vice
President, Secretary and Chief Legal
Officer (prior to April 2005)
Susan A. Pereira(3) Assistant Secretary July 2005 Massachusetts Financial Services Company,
(born 11/05/70) and Assistant Clerk Vice President and Senior Counsel (since
June 2004); Bingham McCutchen LLP
(law firm), Associate (January 2001
to June 2004); Preti, Flaherty,
Beliveau, Pachios & Haley, LLC,
Associate (prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of compliance
(born 03/07/44) Compliance Officer services), Principal (since June 2004);
CRA Business Strategies Group
(consulting services), Executive
Vice President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February 1997
to March 2003)
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services Company,
(born 06/12/60) Senior Vice President
------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred to as
the 1940 Act), which is the principal federal law governing investment companies like the fund, as a
result of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
The Trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for
fixed terms. The Board of Trustees is currently divided into three classes, each having a term of three years.
Each year the term of one class expires. Each Trustee's term of office expires on the date of the third annual
meeting following the election to office of the Trustee's class. Each Trustee has been elected by shareholders
and each Trustee and officer will serve until next elected or his or her earlier death, resignation,
retirement or removal.
Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain
affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds within the MFS
Family of Funds.
The Statement of Additional Information for the Trust and further information about the Trustees are available
without charge upon request by calling 1-800-225-2606.
On April 20, 2005, Robert J. Manning, as Chief Executive Officer of the Trust, certified to the New York Stock
Exchange that as of the date of his certification he was not aware of any violation by the Trust of the
corporate governance listing standards of the New York Stock Exchange.
The Trust filed with the Securities and Exchange Commission the certifications of its principal executive
officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 2003 as an exhibit to
the Trust's Form N-CSR for the period covered by this report.
-------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
PORTFOLIO MANAGER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Geoffrey L. Schechter Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees
and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of MFS Municipal Income Trust's
(the "Fund's") investment advisory agreement with MFS. The Trustees consider
matters bearing on the Fund and its advisory arrangements at their meetings
throughout the year, including a review of performance data at each regular
meeting. In addition, the independent Trustees met several times over the course
of three months beginning in May and ending in July, 2005 ("contract review
meetings") for the specific purpose of considering whether to approve the
continuation of the investment advisory agreement for the Fund and the other
investment companies that the Board oversees (the "MFS Funds"). The independent
Trustees were assisted in their evaluation of the Fund's investment advisory
agreement by independent legal counsel, from whom they received separate legal
advice and with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the MFS
Funds" Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent Trustees,
considered such information and factors as they believed, in light of the legal
advice furnished to them and their own business judgment, to be relevant. The
investment advisory agreement for the Fund was considered separately, although
the Trustees also took into account the common interests of all MFS Funds in
their review. As described below, the Trustees considered the nature, quality,
and extent of the various investment advisory, administrative, and shareholder
services performed by MFS under the existing investment advisory agreement and
other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance (based on net asset value)
of the Fund for various time periods ended December 31, 2004 and the investment
performance (based on net asset value) of a group of funds with substantially
similar investment classifications/objectives (the "Lipper performance
universe"), as well as the investment performance (based on net asset value) of
a group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of peer funds identified by objective criteria suggested by
MFS, (iii) information provided by MFS on the advisory fees of comparable
portfolios of other clients of MFS, including institutional separate account and
other clients, (iv) information as to whether and to what extent applicable
expense waivers, reimbursements or fee "breakpoints" are observed for the Fund,
(v) information regarding MFS" financial results and financial condition,
including MFS" and certain of its affiliates" estimated profitability from
services performed for the Fund and the MFS Funds as a whole, (vi) MFS" views
regarding the outlook for the mutual fund industry and the strategic business
plans of MFS, (vii) descriptions of various functions performed by MFS for the
Funds, such as compliance monitoring and portfolio trading practices, and (viii)
information regarding the overall organization of MFS, including information
about MFS" senior management and other personnel providing investment advisory,
administrative and other services to the Fund and the other MFS Funds. The
comparative performance, fee and expense information prepared and provided by
Lipper Inc. was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS.
The Trustees" conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information provided
to the Trustees and not the result of any single factor. Some of the factors
that figured particularly in the Trustees" deliberations are described below,
although individual Trustees may have evaluated the information presented
differently from one another, giving different weights to various factors. It is
also important to recognize that the fee arrangements for the Fund and other MFS
Funds are the result of years of review and discussion between the independent
Trustees and MFS, that certain aspects of such arrangements may receive greater
scrutiny in some years than others, and that the Trustees" conclusions may be
based, in part, on their consideration of these same arrangements during the
course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's common shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was a
long enough period to reflect differing market conditions. The Fund's
performance was in the 24th percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's common shares was in the 44th percentile
for the one-year period and the 16th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because of
the passage of time, these performance results are likely to differ from the
performance results for more recent periods, including those shown elsewhere in
this report.
In the course of their deliberations, the Trustees took into account information
provided by MFS in connection with the contract review meetings, as well as
during investment review meetings conducted with portfolio management personnel
during the course of the year regarding the Fund's performance. After reviewing
these and related factors, the Trustees concluded, within the context of their
overall conclusions regarding the investment advisory agreement, that they were
satisfied with MFS" responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's common shares as a percentage of average net assets
and the advisory fee and total expense ratios of peer groups of funds based on
information provided by Lipper Inc. and MFS. The Trustees considered whether the
Fund was subject to any fee waivers or reductions or expense limitations. The
Trustees also considered that, according to the Lipper data, the Fund's
effective advisory fee rate and total expense ratio were each higher than the
Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the Fund
in comparison to institutional accounts and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees considered that, as a closed-end fund, the Fund is unlikely to
experience meaningful asset growth. As a result, the Trustees did not view the
potential for realization of economies of scale as the Fund's assets grow to be
a material factor in their deliberations. The Trustees noted that they would
consider economies of scale in the future in the event the Fund experiences
significant asset growth, such as through a material increase in the market
value of the Fund's portfolio securities.
The Trustees also considered information prepared by MFS relating to MFS" costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS"
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS" resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser which also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative services provided to the Fund by MFS under agreements other than
the investment advisory agreement. The Trustees also considered the nature,
extent and quality of certain other services MFS performs or arranges for on the
Fund's behalf, including securities lending programs, directed expense payment
programs, class action recovery programs, and MFS" interaction with third-party
service providers, principally custodians and sub-custodians. The Trustees
concluded that the various non-advisory services provided by MFS and its
affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS" general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before December 1, 2005 by
visiting the Closed-End section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds" proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is available
without charge by visiting the Proxy Voting section of mfs.com or by visiting
the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities
and Exchange Commission (the Commission) for the first and third quarters of
each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed and copied at
the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http:// www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Tax Form Summary or Form 1099-
DIV, if applicable, reporting the federal tax status of all distributions paid
during the calendar year 2005.
For federal income tax purposes, approximately 99.76% of the total dividends
paid by the trust from net investment income during the year ended October 31,
2005, is designated as an exempt-interest dividend.
CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time
Write to: State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024 Boston, MA 02205-5024
NUMBER OF SHAREHOLDERS
As of October 31, 2005, our records indicate that there are 3,222 registered
shareholders and approximately 14,029 shareholders owning trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our reports,
which contain important information about the trust, please write or call:
State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024 Boston, MA 02205-5024 1-800-637-2304
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116.
MFM-ANN-12/05 28M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has amended its Code of Ethics to reflect that the
Registrant's Principal Financial Officer and Principal Executive Officer have
changed.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Mr. J. Atwood Ives and Mses. Amy B. Lane and Laurie J. Thomsen, members of the
Audit Committee, have been determined by the Board of Trustees in their
reasonable business judgment to meet the definition of "audit committee
financial expert" as such term is defined in Form N-CSR. In addition, Mr. Ives
and Mses. Lane and Thomsen are "independent" members of the Audit Committee as
defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to the Registrant (hereinafter the "Registrant" or
the "Fund"). The tables below set forth the audit fees billed to the Fund as
well as fees for non-audit services provided to the Fund and/or to the Fund's
investment adviser, Massachusetts Financial Services Company ("MFS") and to
various entities either controlling, controlled by, or under common control
with MFS that provide ongoing services to the Fund ("MFS Related Entities").
For the fiscal years ended October 31, 2005 and 2004, audit fees billed to the
Fund by Deloitte were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2005 2004
---- ----
MFS Municipal Income Trust $40,017 $37,115
TOTAL
For the fiscal years ended October 31, 2005 and 2004, fees billed by Deloitte
for audit-related, tax and other services provided to the Funds and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY DELOITTE: 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
To MFS Municipal $38,900 $18,000 $10,850 $10,600 $0 $0
Income Trust
To MFS and MFS Related $959,191 $928,350 $62,000 $35,000 $830,675 $32,500
Entities of MFS
Municipal Income
Trust*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2005 2004
---- ----
To MFS Municipal Income $1,949,512 $1,060,450
Trust, MFS and MFS Related
Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the
operations and financial reporting of the Fund (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte for non-audit services rendered to the Fund and for
non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably
related to the performance of the audit or review of financial statements, but not reported under "Audit Fees,"
including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal
control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees", including fees for services related to sales tax
refunds, consultation on internal cost allocations, consultation on allocation of monies pursuant to an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, and
analysis of certain portfolio holdings verses investment styles.
For periods prior to May 6, 2003, the amounts shown above under "Audit-Related
Fees," "Tax Fees" and "All Other Fees" relate to permitted non-audit services
that would have been subject to pre-approval if the Securities and Exchange
Commission's rules relating to pre-approval of non-audit services had been in
effect.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
ITEM 4(h): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services were provided prior to the
effectiveness of SEC rules requiring pre-approval or because such services did
not relate directly to the operations and financial reporting of the
Registrant) was compatible with maintaining the independence of the independent
registered public accounting firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has an Audit Committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit
Committee are Messrs. J. Atwood Ives and J. Dale Sherratt and Mses. Amy B. Lane
and Laurie J. Thomsen.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report
to shareholders of the Registrant under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Trustees and the Board of Managers of the investment
companies (the "MFS Funds") advised by Massachusetts Financial Services Company
("MFS") have delegated to MFS the right and obligation to vote proxies for
shares that are owned by the MFS Funds, in accordance with MFS' proxy voting
policies and procedures (the "MFS Proxy Policies"). The MFS Proxy Policies are
set forth below:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
PROXY VOTING POLICIES AND PROCEDURES
SEPTEMBER 17, 2003, AS REVISED ON SEPTEMBER 20, 2004 AND MARCH 15, 2005
Massachusetts Financial Services Company, MFS Institutional Advisors,
Inc. and MFS' other investment adviser subsidiaries (collectively, "MFS") have
adopted proxy voting policies and procedures, as set forth below, with respect
to securities owned by the clients for which MFS serves as investment adviser
and has the power to vote proxies, including the registered investment
companies sponsored by MFS, other than the MFS Union Standard Equity Fund (the
"MFS Funds"). References to "clients" in these policies and procedures include
the MFS Funds and other clients of MFS, such as funds organized offshore,
sub-advised funds and separate account clients, to the extent these clients
have delegated to MFS the responsibility to vote proxies on their behalf under
MFS' proxy and voting policies.
These policies and procedures include:
A. Voting Guidelines;
B. Administrative Procedures;
C. Monitoring System;
D. Records Retention; and
E. Reports.
A. VOTING GUIDELINES
1. GENERAL POLICY; POTENTIAL CONFLICTS OF INTEREST
MFS' policy is that proxy voting decisions are made in what MFS
believes to be the best long-term economic interests of MFS' clients, and not
in the interests of any other party or in MFS' corporate interests, including
interests such as the distribution of MFS Fund shares, administration of 401(k)
plans, and institutional relationships.
MFS has carefully reviewed matters that in recent years have been
presented for shareholder vote by either management or shareholders of public
companies. Based on the overall principle that all votes cast by MFS on behalf
of its clients must be in what MFS believes to be the best long-term economic
interests of such clients, MFS has adopted proxy voting guidelines, set forth
below, that govern how MFS generally plans to vote on specific matters
presented for shareholder vote. In all cases, MFS will exercise its discretion
in voting on these matters in accordance with this overall principle. In other
words, the underlying guidelines are simply that - guidelines. Proxy items of
significance are often considered on a case-by-case basis, in light of all
relevant facts and circumstances, and in certain cases MFS may vote proxies in
a manner different from these guidelines.
As a general matter, MFS maintains a consistent voting position on
similar proxy proposals with respect to various issuers. In addition, MFS
generally votes consistently on the same matter when securities of an issuer
are held by multiple client accounts. However, MFS recognizes that there are
gradations in certain types of proposals that might result in different voting
positions being taken with respect to different proxy statements. There also
may be situations involving matters presented for shareholder vote that are not
clearly governed by the guidelines, such as proposed mergers and acquisitions.
Some items that otherwise would be acceptable will be voted against the
proponent when it is seeking extremely broad flexibility without offering a
valid explanation. MFS reserves the right to override the guidelines with
respect to a particular shareholder vote when such an override is, in MFS' best
judgment, consistent with the overall principle of voting proxies in the best
long-term economic interests of MFS' clients.
From time to time, MFS receives comments on these guidelines as well
as regarding particular voting issues from its clients and corporate issuers.
These comments are carefully considered by MFS, when it reviews these
guidelines each year and revises them as appropriate.
These policies and procedures are intended to address any potential
material conflicts of interest on the part of MFS or its affiliates that are
likely to arise in connection with the voting of proxies on behalf of MFS'
clients. If such potential conflicts of interest do arise, MFS will analyze,
document and report on such potential conflicts (see Sections B.2 and E below),
and shall ultimately vote these proxies in what MFS believes to be the best
long-term economic interests of its clients. The MFS Proxy Review Group is
responsible for monitoring and reporting with respect to such potential
conflicts of interest.
2. MFS' POLICY ON SPECIFIC ISSUES
ELECTION OF DIRECTORS
MFS believes that good governance should be based on a board with a majority of
directors who are "independent" of management, and whose key committees (e.g.
compensation, nominating, and audit committees) are comprised entirely of
"independent" directors. While MFS generally supports the board's nominees in
uncontested elections, we will withhold our vote for a nominee for a board of a
U.S. issuer if, as a result of such nominee being elected to the board, the
board would be comprised of a majority of members who are not "independent" or,
alternatively, the compensation, nominating or audit committees would include
members who are not "independent." MFS will also withhold its vote for a
nominee to the board if he or she failed to attend at least 75% of the board
meetings in the previous year without a valid reason. In addition, MFS will
withhold its vote for all nominees standing for election to a board of a U.S.
issuer: (1) if, since the last annual meeting of shareholders and without
shareholder approval, the board or its compensation committee has repriced
underwater options; or (2) if, within the last year, shareholders approved by
majority vote a resolution recommending that the board rescind a "poison pill"
and the board has failed to take responsive action to that resolution.
Responsive action would include the rescission of the "poison pill"(without a
broad reservation to reinstate the "poison pill" in the event of a hostile
tender offer), or public assurances that the terms of the "poison pill" would
be put to a binding shareholder vote within the next five to seven years.
MFS evaluates a contested election of directors on a case-by-case basis
considering the long-term financial performance of the company relative to its
industry, management's track record, the qualifications of the nominees for
both slates and an evaluation of what each side is offering shareholders.
CLASSIFIED BOARDS
MFS opposes proposals to classify a board (e.g., a board in which only
one-third of board members are elected each year). MFS supports proposals to
declassify a board.
NON-SALARY COMPENSATION PROGRAMS
Restricted stock plans are supposed to reward results rather than
tenure, so the issuance of restricted stock at bargain prices is not favored.
In some cases, restricted stock is granted to the recipient at deep discounts
to fair market value, sometimes at par value. The holder cannot sell for a
period of years, but in the meantime the holder is able to vote and receive
dividends. Eventually the restrictions lapse and the stock can be sold by the
holder.
MFS votes against stock option programs for officers, employees or
non-employee directors that do not require an investment by the optionee, that
give "free rides" on the stock price, or that permit grants of stock options
with an exercise price below fair market value on the date the options are
granted.
MFS opposes stock option programs that allow the board or the
compensation committee, without shareholder approval, to reprice underwater
options or to automatically replenish shares (i.e., evergreen plans). MFS will
consider on a case-by-case basis proposals to exchange existing options for
newly issued options (taking into account such factors as whether there is a
reasonable value-for-value exchange).
MFS opposes stock option and restricted stock plans that provide
unduly generous compensation for officers, directors or employees, or could
result in excessive dilution to other shareholders. As a general guideline, MFS
votes against stock option and restricted stock plans if all such plans for a
particular company involve potential dilution, in the aggregate, of more than
15%. However, MFS may accept a higher percentage (up to 20%) in the case of
startup or small companies which cannot afford to pay large salaries to
executives, or in the case where MFS, based upon the issuer's public
disclosures, believes that the issuer has been responsible with respect to its
recent compensation practices, including the mix of the issuance of restricted
stock and options.
MFS votes in favor of stock option or restricted stock plans for
non-employee directors as long as they satisfy the requirements set forth above
with respect to stock option and restricted stock plans for company executives.
EXPENSING OF STOCK OPTIONS
While we acknowledge that there is no agreement on a uniform
methodology for expensing stock options, MFS supports shareholder proposals to
expense stock options because we believe that the expensing of options presents
a more accurate picture of the company's financial results to investors. We
also believe that companies are likely to be more disciplined when granting
options if the value of stock options were treated as an expense item on the
company's income statements.
EXECUTIVE COMPENSATION
MFS believes that competitive compensation packages are necessary to
attract, motivate and retain executives. Therefore, MFS opposes shareholder
proposals that seek to set limits on executive compensation. Shareholder
proposals seeking to set limits on executive compensation tend to specify
arbitrary compensation criteria. MFS also opposes shareholder requests for
disclosure on executive compensation beyond regulatory requirements because we
believe that current regulatory requirements for disclosure of executive
compensation are appropriate and that additional disclosure is often
unwarranted and costly. Although we support linking executive stock option
grants to a company's stock performance, MFS opposes shareholder proposals that
mandate a link of performance-based options to a specific industry or peer
group index. MFS believes that compensation committees should retain the
flexibility to propose the appropriate index or other criteria by which
performance-based options should be measured. MFS evaluates other executive
compensation restrictions (e.g., terminating the company's stock option or
restricted stock programs, freezing executive pay during periods of large
layoffs, and establishing a maximum ratio between the highest paid executive
and lowest paid employee) based on whether such proposals are in the best
long-term economic interests of our clients.
EMPLOYEE STOCK PURCHASE PLANS
MFS supports the use of a broad-based employee stock purchase plans to
increase company stock ownership by employees, provided that shares purchased
under the plan are acquired for no less than 85% of their market value and do
not result in excessive dilution.
"GOLDEN PARACHUTES"
From time to time, shareholders of companies have submitted proxy
proposals that would require shareholder approval of severance packages for
executive officers that exceed certain predetermined thresholds. MFS votes in
favor of such shareholder proposals when they would require shareholder
approval of any severance package for an executive officer that exceeds a
certain multiple of such officer's annual compensation that is not determined
in MFS' judgment to be excessive.
ANTI-TAKEOVER MEASURES
In general, MFS votes against any measure that inhibits capital
appreciation in a stock, including proposals that protect management from
action by shareholders. These types of proposals take many forms, ranging from
"poison pills" and "shark repellents" to super-majority requirements.
MFS will vote for proposals to rescind existing "poison pills" and
proposals that would require shareholder approval to adopt prospective "poison
pills." Nevertheless, MFS will consider supporting the adoption of a
prospective "poison pill" or the continuation of an existing "poison pill" if
the following two conditions are met: (1) the "poison pill" allows MFS clients
to hold an aggregate position of up to 15% of a company's total voting
securities (and of any class of voting securities); and (2) either (a) the
"poison pill" has a term of not longer than five years, provided that MFS will
consider voting in favor of the "poison pill" if the term does not exceed seven
years and the "poison pill" is linked to a business strategy or purpose that
MFS believes is likely to result in greater value for shareholders; or (b) the
terms of the "poison pill" allow MFS clients the opportunity to accept a fairly
structured and attractively priced tender offer (e.g., a "chewable poison pill"
that automatically dissolves in the event of an all cash, all shares tender
offer at a premium price).
MFS will consider on a case-by-case basis proposals designed to
prevent tenders which are disadvantageous to shareholders such as tenders at
below market prices and tenders for substantially less than all shares of an
issuer.
REINCORPORATION AND REORGANIZATION PROPOSALS
When presented with a proposal to reincorporate a company under the
laws of a different state, or to effect some other type of corporate
reorganization, MFS considers the underlying purpose and ultimate effect of
such a proposal in determining whether or not to support such a measure. While
MFS generally votes in favor of management proposals that it believes are in
the best long-term economic interests of its clients, MFS may oppose such a
measure if, for example, the intent or effect would be to create additional
inappropriate impediments to possible acquisitions or takeovers.
ISSUANCE OF STOCK
There are many legitimate reasons for issuance of stock. Nevertheless,
as noted above under "Non-Salary Compensation Programs", when a stock option
plan (either individually or when aggregated with other plans of the same
company) would substantially dilute the existing equity (e.g., by approximately
15% or more), MFS generally votes against the plan. In addition, MFS votes
against proposals where management is asking for authorization to issue common
or preferred stock with no reason stated (a "blank check") because the
unexplained authorization could work as a potential anti-takeover device.
REPURCHASE PROGRAMS
MFS supports proposals to institute share repurchase plans in which
all shareholders have the opportunity to participate on an equal basis. Such
plans may include a company acquiring its own shares on the open market, or a
company making a tender offer to its own shareholders.
CONFIDENTIAL VOTING
MFS votes in favor of proposals to ensure that shareholder voting
results are kept confidential. For example, MFS supports proposals that would
prevent management from having access to shareholder voting information that is
compiled by an independent proxy tabulation firm.
CUMULATIVE VOTING
MFS opposes proposals that seek to introduce cumulative voting and for
proposals that seek to eliminate cumulative voting. In either case, MFS will
consider whether cumulative voting is likely to enhance the interests of MFS'
clients as minority shareholders. In our view, shareholders should provide
names of qualified candidates to a company's nominating committee, which now
for the first time (for U.S. listed companies) must be comprised solely of
"independent" directors.
WRITTEN CONSENT AND SPECIAL MEETINGS
Because the shareholder right to act by written consent (without
calling a formal meeting of shareholders) can be a powerful tool for
shareholders, MFS generally opposes proposals that would prevent shareholders
from taking action without a formal meeting or would take away a shareholder's
right to call a special meeting of company shareholders.
INDEPENDENT AUDITORS
MFS believes that the appointment of auditors is best left to the
board of directors of the company and therefore supports the ratification of
the board's selection of an auditor for the company. Recently, some shareholder
groups have submitted proposals to limit the non-audit activities of a
company's audit firm. Some proposals would prohibit the provision of any
non-audit services by a company's auditors to that company. MFS opposes
proposals recommending the prohibition or limitation of the performance of
non-audit services by an auditor, and proposals recommending the removal of a
company's auditor due to the performance of non-audit work for the company by
its auditor. MFS believes that the board, or its audit committee, should have
the discretion to hire the company's auditor for specific pieces of non-audit
work in the limited situations permitted under current law.
BEST PRACTICES STANDARDS
Best practices standards are rapidly developing in the corporate
governance areas as a result of recent corporate scandals, the Sarbanes-Oxley
Act of 2002 and revised listing standards on major stock exchanges. MFS
generally support these developments. However, many issuers are not publicly
registered, are not subject to these enhanced listing standards, or are not
operating in an environment that is comparable to that in the United States. In
reviewing proxy proposals under these circumstances, MFS votes for proposals
that enhance standards of corporate governance so long as we believe that -
given the circumstances or the environment within which the issuers operate -
the proposal is consistent with the best long-term economic interests of our
clients.
FOREIGN ISSUERS - SHARE BLOCKING
In accordance with local law or business practices, many foreign
companies prevent the sales of shares that have been voted for a certain period
beginning prior to the shareholder meeting and ending on the day following the
meeting ("share blocking"). Depending on the country in which a company is
domiciled, the blocking period may begin a stated number of days prior to the
meeting (e.g., one, three or five days) or on a date established by the
company. While practices vary, in many countries the block period can be
continued for a longer period if the shareholder meeting is adjourned and
postponed to a later date. Similarly, practices vary widely as to the ability
of a shareholder to have the "block" restriction lifted early (e.g., in some
countries shares generally can be "unblocked" up to two days prior to the
meeting whereas in other countries the removal of the block appears to be
discretionary with the issuer's transfer agent). Due to these restrictions, MFS
must balance the benefits to its clients of voting proxies against the
potentially serious portfolio management consequences of a reduced flexibility
to sell the underlying shares at the most advantageous time. For companies in
countries with potentially long block periods, the disadvantage of being unable
to sell the stock regardless of changing conditions generally outweighs the
advantages of voting at the shareholder meeting for routine items. Accordingly,
MFS generally will not vote those proxies in the absence of an unusual,
significant vote. Conversely, for companies domiciled in countries with very
short block periods, MFS generally will continue to cast votes in accordance
with these policies and procedures.
SOCIAL ISSUES
There are many groups advocating social change, and many have chosen
the publicly-held corporation as a vehicle for advancing their agenda. Common
among these are resolutions requiring the corporation to refrain from investing
or conducting business in certain countries, to adhere to some list of goals or
principles (e.g., environmental standards) or to promulgate special reports on
various activities. MFS votes against such proposals unless their
shareholder-oriented benefits will outweigh any costs or disruptions to the
business, including those that use corporate resources to further a particular
social objective outside the business of the company or when no discernible
shareholder economic advantage is evident.
The laws of various states may regulate how the interests of certain
clients subject to those laws (e.g., state pension plans) are voted with
respect to social issues. Thus, it may be necessary to cast ballots differently
for certain clients than MFS might normally do for other clients.
B. ADMINISTRATIVE PROCEDURES
1. MFS PROXY REVIEW GROUP
The administration of these policies and procedures is overseen by the
MFS Proxy Review Group, which includes senior MFS Legal Department officers and
MFS' Proxy Consultant. The MFS Proxy Review Group:
a. Reviews these policies and procedures at least annually and
recommends any amendments considered to be necessary or
advisable;
b. Determines whether any material conflicts of interest exist with
respect to instances in which (i) MFS seeks to override these
guidelines and (ii) votes not clearly governed by these
guidelines; and
c. Considers special proxy issues as they may arise from time to
time.
The current MFS Proxy Consultant is an independent proxy consultant
who performs these services exclusively for MFS.
2. POTENTIAL CONFLICTS OF INTEREST
The MFS Proxy Review Group is responsible for monitoring potential
material conflicts of interest on the part of MFS or its affiliates that could
arise in connection with the voting of proxies on behalf of MFS' clients. Any
significant attempt to influence MFS' voting on a particular proxy matter
should be reported to the MFS Proxy Review Group. The MFS Proxy Consultant will
assist the MFS Proxy Review Group in carrying out these monitoring
responsibilities.
In cases where proxies are voted in accordance with these policies and
guidelines, no conflict of interest will be deemed to exist. In cases where (i)
MFS is considering overriding these policies and guidelines, or (ii) matters
presented for vote are not clearly governed by these policies and guidelines,
the MFS Proxy Review Group and the MFS Proxy Consultant will follow these
procedures:
a. Compare the name of the issuer of such proxy against a list of
significant current and potential (i) distributors of MFS Fund
shares, (ii) retirement plans administered by MFS, and (iii) MFS
institutional clients (the "MFS Significant Client List");
b. If the name of the issuer does not appear on the MFS Significant
Client List, then no material conflict of interest will be deemed
to exist, and the proxy will be voted as otherwise determined by
the MFS Proxy Review Group;
c. If the name of the issuer appears on the MFS Significant Client
List, then at least one member of the MFS Proxy Review Group will
carefully evaluate the proposed votes in order to ensure that the
proxy ultimately is voted in what MFS believes to be the best
long-term economic interests of MFS' clients, and not in MFS'
corporate interests; and
d. For all potential material conflicts of interest identified under
clause (c) above, the MFS Proxy Review Group will document: the
name of the issuer, the issuer's relationship to MFS, the
analysis of the matters submitted for proxy vote, and the basis
for the determination that the votes ultimately were cast in what
MFS believes to be the best long-term economic interests of MFS'
clients, and not in MFS' corporate interests. A copy of the
foregoing documentation will be provided to the MFS' Conflicts
Officer.
The members of the MFS Proxy Review Group other than the Proxy Consultant
are responsible for creating and maintaining the MFS Significant Client
List, in consultation with MFS' distribution, retirement plan
administration and institutional business units. The MFS Significant
Client List will be reviewed and updated periodically as appropriate.
3. GATHERING PROXIES
Most proxies received by MFS and its clients originate at Automatic
Data Processing Corp. ("ADP") although a few proxies are transmitted to
investors by corporate issuers through their custodians or depositories. ADP
and issuers send proxies and related material directly to the record holders of
the shares beneficially owned by MFS' clients, usually to the client's
custodian or, less commonly, to the client itself. This material will include
proxy cards, reflecting the proper shareholdings of Funds and of clients on the
record dates for such shareholder meetings, as well as proxy statements with
the issuer's explanation of the items to be voted upon.
MFS, on behalf of itself and the Funds, has entered into an agreement
with an independent proxy administration firm, Institutional Shareholder
Services, Inc. (the "Proxy Administrator"), pursuant to which the Proxy
Administrator performs various proxy vote processing and recordkeeping
functions for MFS' Fund and institutional client accounts. The Proxy
Administrator does not make recommendations to MFS as to how to vote any
particular item. The Proxy Administrator receives proxy statements and proxy
cards directly or indirectly from various custodians, logs these materials into
its database and matches upcoming meetings with MFS Fund and client portfolio
holdings, which are input into the Proxy Administrator's system by an MFS
holdings datafeed. Through the use of the Proxy Administrator system, ballots
and proxy material summaries for the upcoming shareholders' meetings of over
10,000 corporations are available on-line to certain MFS employees, the MFS
Proxy Consultant and the MFS Proxy Review Group.
4. ANALYZING PROXIES
After input into the Proxy Administrator system, proxies which are
deemed to be routine and which do not require the exercise of judgment under
these guidelines (e.g., those involving only uncontested elections of directors
and the appointment of auditors)(1) are automatically voted in favor by the
Proxy Administrator without being sent to either the MFS Proxy Consultant or
the MFS Proxy Review Group for further review. All proxies that are reviewed by
either the MFS Proxy Consultant or a portfolio manager or analyst (e.g., those
that involve merger or acquisition proposals) are then forwarded with the
corresponding recommendation to the MFS Proxy Review Group.(2)
-----------
(1) Proxies for foreign companies often contain significantly more voting items
than those of U.S. companies. Many of these items on foreign proxies
involve repetitive, non-controversial matters that are mandated by local
law. Accordingly, the items that are generally deemed routine and which do
not require the exercise of judgment under these guidelines (and therefore
automatically voted in favor) for foreign issuers include the following:
(i) receiving financial statements or other reports from the board; (ii)
approval of declarations of dividends; (iii) appointment of shareholders to
sign board meeting minutes; (iv) discharge of management and supervisory
boards; (v) approval of share repurchase programs; (vi) election of
directors in uncontested elections and (vii) appointment of auditors.
(2) From time to time, due to travel schedules and other commitments, an
appropriate portfolio manager or research analyst is not available to
provide a recommendation on a merger or acquisition proposal. If such a
recommendation cannot be obtained within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group may determine the vote in
what it believes to be the best long-term economic interests of MFS'
clients.
Recommendations with respect to voting on non-routine issues are
generally made by the MFS Proxy Consultant in accordance with the policies
summarized under "Voting Guidelines," and other relevant materials. His or her
recommendation as to how each proxy proposal should be voted, including his or
her rationale on significant items, is indicated on copies of proxy cards.
These cards are then forwarded to the MFS Proxy Review Group.
As a general matter, portfolio managers and investment analysts have
little or no involvement in specific votes taken by MFS. This is designed to
promote consistency in the application of MFS' voting guidelines, to promote
consistency in voting on the same or similar issues (for the same or for
multiple issuers) across all client accounts, and to minimize the potential
that proxy solicitors, issuers, or third parties might attempt to exert
inappropriate influence on the vote. In limited types of votes (e.g., mergers
and acquisitions), the MFS Proxy Consultant or the MFS Proxy Review Group may
consult with or seek recommendations from portfolio managers or analysts. But,
the MFS Proxy Review Group would ultimately determine the manner in which all
proxies are voted.
As noted above, MFS reserves the right to override the guidelines when
such an override is, in MFS' best judgment, consistent with the overall
principle of voting proxies in the best long-term economic interests of MFS'
clients. Any such override of the guidelines shall be analyzed, documented and
reported in accordance with the procedures set forth in these policies.
5. VOTING PROXIES
After the proxy card copies are reviewed, they are voted
electronically through the Proxy Administrator's system. In accordance with its
contract with MFS, the Proxy Administrator also generates a variety of reports
for the MFS Proxy Consultant and the MFS Proxy Review Group, and makes
available on-line various other types of information so that the MFS Proxy
Review Group and the MFS Proxy Consultant may monitor the votes cast by the
Proxy Administrator on behalf of MFS' clients.
C. MONITORING SYSTEM
It is the responsibility of the Proxy Administrator and MFS' Proxy
Consultant to monitor the proxy voting process. As noted above, when proxy
materials for clients are received, they are forwarded to the Proxy
Administrator and are input into the Proxy Administrator's system.
Additionally, through an interface with the portfolio holdings database of MFS,
the Proxy Administrator matches a list of all MFS Funds and clients who hold
shares of a company's stock and the number of shares held on the record date
with the Proxy Administrator's listing of any upcoming shareholder's meeting of
that company.
When the Proxy Administrator's system "tickler" shows that the date of
a shareholders' meeting is approaching, a Proxy Administrator representative
checks that the vote for MFS Funds and clients holding that security has been
recorded in the computer system. If a proxy card has not been received from the
client's custodian, the Proxy Administrator calls the custodian requesting that
the materials be forward immediately. If it is not possible to receive the
proxy card from the custodian in time to be voted at the meeting, MFS may
instruct the custodian to cast the vote in the manner specified and to mail the
proxy directly to the issuer.
D. RECORDS RETENTION
MFS will retain copies of these policies and procedures in effect from
time to time and will retain all proxy voting reports submitted to the Board of
Trustees and Board of Managers of the MFS Funds for the period required by
applicable law. Proxy solicitation materials, including electronic versions of
the proxy cards completed by the MFS Proxy Consultant and the MFS Proxy Review
Group, together with their respective notes and comments, are maintained in an
electronic format by the Proxy Administrator and are accessible on-line by the
MFS Proxy Consultant and the MFS Proxy Review Group. All proxy voting materials
and supporting documentation, including records generated by the Proxy
Administrator's system as to proxies processed, the dates when proxies were
received and returned, and the votes on each company's proxy issues, are
retained as required by applicable law.
E. REPORTS
MFS FUNDS
Annually, MFS will report the results of its voting to the Board of
Trustees and Board of Managers of the MFS Funds. These reports will include:
(i) a summary of how votes were cast; (ii) a review of situations where MFS did
not vote in accordance with the guidelines and the rationale therefor; (iii) a
review of the procedures used by MFS to identify material conflicts of
interest; and (iv) a review of these policies and the guidelines and, as
necessary or appropriate, any proposed modifications thereto to reflect new
developments in corporate governance and other issues. Based on these reviews,
the Trustees and Managers of the MFS Funds will consider possible modifications
to these policies to the extent necessary or advisable.
ALL MFS ADVISORY CLIENTS
At any time, a report can be printed by MFS for each client who has
requested that MFS furnish a record of votes cast. The report specifies the
proxy issues which have been voted for the client during the year and the
position taken with respect to each issue.
Generally, MFS will not divulge actual voting practices to any party
other than the client or its representatives (unless required by applicable
law) because we consider that information to be confidential and proprietary to
the client.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
GENERAL. Information regarding the portfolio manager(s) of the MFS Municipal
Income Trust (the "Fund") is set forth below.
TITLE AND FIVE YEAR
PORTFOLIO MANAGER PRIMARY ROLE SINCE HISTORY
----------------- ------------ ----- -------------------
Geoffrey L. Schechter Portfolio Manager 2004 Senior Vice President of
MFS; employed in the
investment management
area of MFS since 1993
COMPENSATION. Portfolio manager total cash compensation is a combination of
base salary and performance bonus:
o Base Salary - Base salary represents a relatively smaller percentage of
portfolio manager total cash compensation (generally below 33%) than
incentive compensation.
o Performance Bonus - Generally, incentive compensation represents a
majority of portfolio manager total cash compensation. The performance
bonus is based on a combination of quantitative and qualitative factors,
with more weight given to the former (generally over 60 %) and less
weight given to the latter.
>> The quantitative portion is based on pre-tax performance of all of
the accounts managed by the portfolio manager (which includes the
Fund and any other accounts managed by the portfolio manager) over a
one-, three- and five-year period relative to the appropriate Lipper
peer group universe and/or one or more benchmark indices with respect
to each account. The primary weight is given to portfolio performance
over a three-year time period with lesser consideration given to
portfolio performance over one- and five-year periods (adjusted as
appropriate if the portfolio manager has served for shorter periods).
>> The qualitative portion is based on the results of an annual
internal peer review process (conducted by other portfolio managers,
analysts and traders) and management's assessment of overall
portfolio manager contributions to the investment process (distinct
from portfolio performance).
Portfolio managers also typically benefit from the opportunity to participate
in the MFS Equity Plan. Equity interests in MFS or its parent company are
awarded by management, on a discretionary basis, taking into account tenure at
MFS, contribution to the investment process and other factors.
Finally, portfolio managers are provided with a benefits package including a
defined contribution plan, health coverage and other insurance, which are
available to other employees of MFS on substantially similar terms. The
percentage of compensation provided by these benefits depends upon the length
of the individual's tenure at MFS and salary level as well as other factors.
OWNERSHIP OF FUND SHARES. The following table shows the dollar range of equity
securities of the Fund beneficially owned by the Fund's portfolio manager as of
the Fund's fiscal year ended October 31, 2005. The following dollar ranges
apply:
N. None
A. $1 - $10,000
B. $10,001 - $50,000
C. $50,001 - $100,000
D. $100,001 - $500,000
E. $500,001 - $1,000,000
F. Over $1,000,000
NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF EQUITY SECURITIES IN FUND
------------------------- -----------------------------------------
Geoffrey L. Schechter N
OTHER ACCOUNTS. In addition to the Fund, the Fund's portfolio manager is
responsible (either individually or jointly) for the day-to-day management of
certain other accounts, the number and total assets of which as of the Fund's
fiscal year ended October 31, 2005 were as follows:
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
-------------------------- ------------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
NAME ACCOUNTS* TOTAL ASSETS* ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS
---- --------- ------------- -------- ------------ -------- ------------
Geoffrey L. Schechter 5 $3.5 billion 0 N/A 1 $2.5 million
-----------------
* Includes the Fund.
Advisory fees are not based upon performance of any of the accounts identified
in the table above.
POTENTIAL CONFLICTS OF INTEREST. MFS seek to identify potential conflicts of
interest resulting from a portfolio manager's management of both the Fund and
other accounts and has adopted policies and procedures designed to address such
potential conflicts.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for accounts with similar investment objectives of the
Adviser or subsidiary of the Adviser. Securities transactions for the Fund and
other accounts with similar investment objectives are generally executed on the
same day, or the next day. Nevertheless, it may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling that
same security.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed by MFS to be fair and equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned. In most cases, however, MFS believes
that the Fund's ability to participate in volume transactions will produce
better executions for the Fund.
MFS does not receive a performance fee for its management of the Fund. MFS
and/or a portfolio manager may have an incentive to allocate favorable or
limited opportunity investments or structure the timing of investments to favor
accounts other than the Fund--for instance, those that pay a higher advisory
fee and/or have a performance fee.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
------------------------------------------------------------------------------------------------------------------
MFS MUNICIPAL INCOME TRUST
------------------------------------------------------------------------------------------------------------------
(D) MAXIMUM NUMBER
(C) TOTAL NUMBER OF (OR APPROXIMATE
SHARES PURCHASED AS DOLLAR VALUE) OF
(B) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
(A) TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE OR PROGRAMS THE PLANS OR PROGRAMS
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
11/1/04-11/30/04 0 n/a 0 3,973,301
------------------------------------------------------------------------------------------------------------------
12/1/04-12/31/04 0 n/a 0 3,973,301
------------------------------------------------------------------------------------------------------------------
1/1/05-1/31/05 0 n/a 0 3,973,301
------------------------------------------------------------------------------------------------------------------
2/1/05-2/28/05 0 n/a 0 3,973,301
------------------------------------------------------------------------------------------------------------------
3/1/05-3/31/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
4/1/05-4/30/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
05/01/05-05/31/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
06/01/05-06/30/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
07/01/05-07/31/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
08/01/05-08/31/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
09/01/05-09/30/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
10/01/05-10/31/05 0 n/a 0 3,979,505
------------------------------------------------------------------------------------------------------------------
TOTAL 0 n/a 0
------------------------------------------------------------------------------------------------------------------
Note: The Board of Trustees approves procedures to repurchase shares annually.
The notification to shareholders of the program is part of the semi-annual and
annual reports sent to shareholders. These annual programs begin on March 1st
of each year. The programs conform to the conditions of Rule 10b-18 of the
securities Exchange Act of 1934 and limit the aggregate number of shares that
may be purchased in each annual period (March 1 through the following February
28) to 10% of the Registrant's outstanding shares as of the first day of the
plan year (March 1). The aggregate number of shares available for purchase for
the March 1, 2005 plan year are 3,979,505.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940 (the "Act")) as conducted within 90 days of the filing date of this
Form N-CSR, the registrant's principal financial officer and principal
executive officer have concluded that those disclosure controls and
procedures provide reasonable assurance that the material information
required to be disclosed by the registrant on this report is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter covered by the report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act sent or given during the period covered by the report by or on
behalf of the Registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant MFS MUNICIPAL INCOME TRUST
--------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: December 22, 2005
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: December 22, 2005
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 22, 2005
-----------------
* Print name and title of each signing officer under his or her signature.