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, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
MFS(R) MUNICIPAL INCOME TRUST
[graphic omitted]
Annual report
10/31/07
MFM-ANN
MFS(R) Municipal Income Trust
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PERFORMANCE SUMMARY 5
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INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES
AND RISKS OF THE FUND 7
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PORTFOLIO MANAGERS' PROFILES 9
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 10
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PORTFOLIO OF INVESTMENTS 11
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STATEMENT OF ASSETS AND LIABILITIES 39
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STATEMENT OF OPERATIONS 41
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STATEMENTS OF CHANGES IN NET ASSETS 42
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FINANCIAL HIGHLIGHTS 43
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NOTES TO FINANCIAL STATEMENTS 45
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 54
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RESULTS OF SHAREHOLDER MEETING 55
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TRUSTEES AND OFFICERS 56
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 62
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PROXY VOTING POLICIES AND INFORMATION 66
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QUARTERLY PORTFOLIO DISCLOSURE 66
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FEDERAL TAX INFORMATION 66
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MFS(R) PRIVACY NOTICE 67
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CONTACT INFORMATION BACK COVER
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New York Stock Exchange Symbol: MFM
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19% and was fairly stable.
This year we have seen a greater level of volatility than has been experienced
in recent years. The Dow hit several new highs but also experienced swift drops
as a global credit crisis swept through markets, spurred by defaults on U.S.
subprime loans and a liquidity crunch. Still, even with this volatility, the
Dow ended the first three quarters of 2007 with a return near 13%.
U.S. Treasury bonds gained ground, especially in the third quarter as investors
sought less risky asset classes. The spreads of many lower quality debt
investments widened.
In 2007 the U.S. dollar fell against the euro, oil prices have hit their
highest levels yet, and gold has spiked to its steepest price in 28 years.
Around the globe, stocks sold off as risk aversion mounted. As we have said
before, markets can be volatile, and investors should make sure they have an
investment plan that can carry them through the peaks and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. In our view, investors who remain committed to a long-term plan are more
likely to achieve their financial goals.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require diligence and patience, two traits that
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 14, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 101.0%
Cash & Other Net Assets (1.0)%
TOP FIVE INDUSTRIES (i)
Healthcare Revenue - Hospitals 28.8%
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Healthcare Revenue - Long Term Care 10.8%
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Industrial Revenue - Airlines 6.2%
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Tobacco 5.7%
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Utilities - Investor Owned 5.6%
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CREDIT QUALITY OF BONDS (r)
AAA 12.4%
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AA 1.6%
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A 8.9%
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BBB 29.2%
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BB 8.8%
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B 9.1%
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CCC 2.3%
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CC (o) 0.0%
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Not Rated 27.7%
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PORTFOLIO FACTS
Average Duration (d)(i) 7.7
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Average Life (i)(m) 15.8 yrs.
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Average Maturity (i)(m) 18.7 yrs.
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Average Credit Quality of
Rated Securities (long-term) (a) BBB
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Average Credit Quality of
Rated Securities (short-term) (a) A-1
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(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable.
(m) 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 or pre-paid 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.
(o) Less than 0.1%.
(r) 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 the "AAA"-rating
category. Percentages are based on the total market value of investments as
of 10/31/07.
From time to time "Cash & Other Net Assets" may be negative due to timing of
cash receipts and/or equivalent exposure from any derivative holdings.
Percentages are based on net assets, including preferred shares, as of 10/31/07,
unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
MFS Municipal Income Trust (the fund) is a closed-end fund and maintains a
portfolio that includes investments in debt securities issued by or on behalf
of states, territories and possessions of the United States and the District of
Columbia, the interest on which is exempt from federal income tax.
For the twelve months ended October 31, 2007, shares of the MFS Municipal
Income Trust provided a total return of 1.17%, at net asset value. This
compares with a return of 2.91% for the fund's benchmark, the Lehman Brothers
Municipal Bond Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world. Despite
seemingly robust growth rates during the second and third quarters of 2007,
underlying economic activity in the U.S. remains muted relative to other major
economies. Overall, global economies have seen moderate to strong growth over
the last twelve months as domestic demand improves and world trade accelerates.
With the strong global growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. During the reporting period, global central
banks tightened monetary conditions, which in turn pushed global bond yields to
their highest levels during this economic expansion.
However, beginning in late July, heightened uncertainty and distress concerning
the subprime mortgage market caused several global credit markets to seize up,
forcing central banks to inject liquidity and to reassess their tightening
biases as sovereign bond yields declined and credit spreads widened. While
credit conditions improved somewhat by late October as the Federal Reserve
Board cut interest rates, the level of market turbulence remains significant.
Increased market volatility has also been exacerbated by U.S. home
foreclosures, falling housing prices, and a weakening trend in the labor
market. Despite increased volatility across all asset classes and the widening
in credit spreads, global equity markets remained elevated, generally having
erased losses incurred earlier in the summer.
DETRACTORS FROM PERFORMANCE
The fund's allocation to bonds rated "BBB"(s) and below hurt performance over
the reporting period as credit spreads widened. The fund's positioning in the
health care sector also detracted from relative performance.
CONTRIBUTORS TO PERFORMANCE
The fund's shorter duration(d) stance benefited relative performance as
interest rates generally declined on the shorter end of the yield curve(y).
Security selection was another factor that enhanced relative results.
Respectfully,
Gary Lasman Geoffrey Schechter
Portfolio Manager Portfolio Manager
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(s) Bonds rated "BBB", "Baa", or higher are considered investment grade; bonds
rated "BB", "Ba", or below are considered non-investment grade. The primary
source for bond quality ratings is Moody's Investors Service. If not
available, ratings by Standard & Poor's are used, else ratings by Fitch,
Inc. For securities which are not rated by any of the three agencies, the
security is considered Not Rated.
(y) 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.
The views expressed in this report are those of the portfolio managers 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 or
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS portfolio. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 10/31/07
The following chart represents the fund's historical performance in comparison
to its benchmark. Investment return and principal value will fluctuate, and
shares, when sold, may be worth more or less than their original cost; current
performance may be lower or higher than quoted. The performance shown does not
reflect the deduction of taxes, if any, that a shareholder would pay on fund
distributions or the sale of fund shares.
PRICE SUMMARY
Year ended 10/31/07
Date Price
Net Asset Value 10/31/07 $7.69
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10/31/06 $8.06
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New York Stock Exchange Price 10/31/07 $7.31
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12/12/06 (high)(t) $8.66
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8/16/07 (low) (t) $7.15
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10/31/06 $8.20
TOTAL RETURNS VS BENCHMARKS
Year ended 10/31/07
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New York Stock Exchange Price (r) (5.48)%
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Net Asset Value (r) 1.17%
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Lehman Brothers Municipal Bond Index (f) 2.91%
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(f) Source: FactSet Research Systems Inc.
(r) Includes reinvestment of dividends and capital gain distributions.
(t) For the period November 1, 2006 through October 31, 2007.
INDEX DEFINITION
Lehman Brothers Municipal Bond Index - a market-value-weighted index
representative of the tax-exempt bond market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
The fund's shares may trade at a discount or premium to net asset value.
Shareholders do not have the right to cause the fund to repurchase their shares
at net asset value. When fund shares trade at a premium, buyers pay more than
the net asset value underlying fund shares, and shares purchased at a premium
would receive less than the amount paid for them in the event of the fund'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.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
In accordance with Section 23(c) of the Investment Company Act of 1940, the
fund hereby gives notice that it may from time to time repurchase shares of the
fund in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS OF THE FUND
INVESTMENT OBJECTIVE
The fund's objective is to seek high current income exempt from federal income
tax, but may also consider capital appreciation. The fund's objective may be
changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
The fund invests, under normal market conditions, at least 80% of its net
assets in municipal bonds (debt securities issued by or on behalf of states,
territories, possessions of the United States, District of Columbia and their
political subdivisions, agencies or instrumentalities, the interest on which is
exempt from federal income tax). This policy may not be changed without
shareholder approval. Interest from the fund's investments may be subject to
the federal alternative minimum tax.
MFS may invest 25% or more of the fund's total assets in municipal instruments
that finance similar projects, such as those relating to education, healthcare,
housing, utilities, water, or sewers.
MFS may invest up to 100% of the fund's assets in lower quality debt
instruments, including those that are in default.
MFS may use derivatives for different purposes, including to earn income and
enhance returns, to increase or decrease exposure to a particular market, to
manage or adjust the risk profile of the fund, or as alternatives to direct
investments.
MFS uses a bottom-up investment approach in buying and selling investments for
the fund. Investments are selected primarily based on fundamental analysis of
instruments and their issuers in light of current market, economic, political,
and regulatory conditions. Factors considered may include the instrument's
credit quality, collateral characteristics, and indenture provisions, and the
issuer's management ability, capital structure, leverage, and ability to meet
its current obligations. Quantitative analysis of the structure of the
instrument and its features may also be considered.
The fund uses leverage through the issuance of preferred shares and investing
the proceeds pursuant to its investment strategies.
PRINCIPAL RISKS
The portfolio's yield and share prices change daily based on the credit quality
of its investments and changes in interest rates. In general, the value of debt
securities will decline when interest rates rise and will increase when
interest rates fall. Debt securities with longer maturity dates will generally
be subject to greater price fluctuations than those with shorter maturities.
Municipal instruments can be volatile and significantly affected by adverse tax
or court rulings, legislative or political changes and the financial condition
of the issuers and/or insurers of municipal instruments. 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. Derivatives can
be highly volatile and involve risks in addition to those of the underlying
indicator's in whose value the derivative is based. Gains or losses from
derivatives can be substantially greater than the derivatives' original cost.
Lower quality debt securities involve substantially greater risk of default and
their value can decline significantly over time. To the extent that investments
are purchased with the issuance of preferred shares, the fund's net asset value
will increase or decrease at a greater rate than a comparable unleveraged fund.
When you sell your shares, they may be worth more or less than the amount you
paid for them. Please see the prospectus for further information regarding
these and other risk considerations. A copy of the fund's prospectus is
available on the EDGAR database on the Securities and Exchange Commission's
Internet Web site at http://sec.gov.
PORTFOLIO MANAGERS' PROFILES
Gary A. Lasman -- Investment Officer of MFS; employed in the
investment management area of MFS since 2002;
Senior Municipal Analyst for Liberty Funds Group
prior to 2002. Portfolio Manager of the Fund
since April 2006.
Geoffrey L. Schechter -- Investment Officer of MFS; employed in the
investment management area of MFS since 1993.
Portfolio Manager of the Fund since July 2004.
DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
The fund offers a Dividend Reinvestment and Cash Purchase Plan that allows you
to reinvest either all of the distributions paid by the fund 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 $100 in January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the plan on your behalf. If the
nominee does not offer the plan, you may wish to request that your shares be
re-registered in your own name so that you can participate. There is no service
charge to reinvest distributions, nor are there brokerage charges for shares
issued directly by the fund. However, when shares are bought on the New York
Stock Exchange or otherwise on the open market, each participant pays a pro
rata share of the transaction expenses, including commissions. The automatic
reinvestment of distributions does not relieve you of any income tax that may
be payable (or required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time. Please have
available the name of the fund and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw from the plan, you can receive the value of the reinvested shares in
one of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
Effective May 1, 2007, Computershare Trust Company, N.A. (the Transfer Agent
for the fund) became the agent for the plan.
PORTFOLIO OF INVESTMENTS
10/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset
classes.
Municipal Bonds - 145.3%
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ISSUER SHARES/PAR VALUE ($)
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Airport & Port Revenue - 5.4%
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Branson, MO, Regional Airport Transportation Development District Airport Rev., "B", 6%, 2025 $ 325,000 $ 321,139
Branson, MO, Regional Airport Transportation Development District Airport Rev., "B", 6%, 2037 100,000 99,169
Branson, MO, Regional Airport Transportation Development District Airport Rev., "B", 6%, 2037 675,000 660,305
Chicago, IL, O'Hare International Airport Rev., XLCA, 5.75%, 2022 (u) 3,000,000 3,222,810
New York, NY, City Industrial Development Agency, Special Facilities Rev.
(Terminal One Group), 5.5%, 2024 275,000 288,604
Oklahoma City, OK, Airport Trust Rev., FSA, 5.75%, 2016 3,125,000 3,265,312
Port Authority, NY, Special Obligations Rev. (JFK International), MBIA, 5.75%, 2022 7,000,000 7,150,010
Seattle, WA, Airport Trust Rev., FGIC, 5.625%, 2018 1,500,000 1,578,405
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$ 16,585,754
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General Obligations - General Purpose - 0.9%
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Kane Kendall County, IL, Capital Appreciation, "E", FGIC, 0%, 2023 $ 1,945,000 $ 887,076
Kane Kendall County, IL, Capital Appreciation, "E", FGIC, 0%, 2025 1,915,000 781,243
Lake County, IL, Land Acquisition & Development, 5.75%, 2010 (c) 1,000,000 1,068,480
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$ 2,736,799
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General Obligations - Schools - 0.4%
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DeSoto, TX, Independent School District, School Building, PSF, 0%, 2031 $ 555,000 $ 165,129
DeSoto, TX, Independent School District, School Building, PSF, 0%, 2034 415,000 104,700
DeSoto, TX, Independent School District, School Building, PSF, 0%, 2036 555,000 125,580
Royse City, TX, Independent School District, School Building, PSF, 0%, 2027 955,000 355,575
Royse City, TX, Independent School District, School Building, PSF, 0%, 2029 965,000 321,200
Santa Clarita Community College District, CA, Election 2006, MBIA, 0%, 2030 595,000 190,156
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$ 1,262,340
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Healthcare Revenue - Hospitals - 41.4%
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Alexander City, AL, Special Care Facilities Financing Authority Medical Facilities Rev.,
"A" (Russell Hospital Corp.), 5.75%, 2036 $ 600,000 $ 605,880
Allegheny County, PA, Hospital Development Authority Rev.
(South Hills Health Systems), "B", 6.75%, 2010 (c) 500,000 538,655
Allegheny County, PA, Hospital Development Authority Rev.
(West Penn Allegheny Health), 9.25%, 2010 (c) 2,000,000 2,358,560
Allegheny County, PA, Hospital Development Authority Rev.
(West Penn Allegheny Health), "A", 5%, 2028 405,000 377,553
Allegheny County, PA, Hospital Development Authority Rev.
(West Penn Allegheny Health), "A", 5.375%, 2040 1,055,000 1,007,240
Allegheny County, PA, Hospital Development Authority Rev.
(West Penn Allegheny Health), "B", 9.25%, 2010 (c) 1,000,000 1,179,280
Arkansas Development Finance Authority Rev. (Washington Regional Medical Center), 7.25%, 2010 (c) 500,000 539,105
Athens County, OH, Hospital Facilities Rev. (O'Bleness Memorial Hospital), "A", 7.125%, 2033 1,500,000 1,581,945
Brookhaven, NY, Civic Facilities Rev. (Memorial Hospital Medical Center, Inc.),
ETM, 7.75%, 2010 (c) 445,000 471,273
California Statewide Communities Development Authority Rev.
(Valleycare Health Systems), "A", 5.125%, 2031 100,000 93,801
California Statewide Communities Development Authority Rev.
(Valleycare Health Systems), "A", 5%, 2022 205,000 198,557
California Valley Health Systems, COP, 6.875%, 2023 700,000 701,358
Cass County, MO, Hospital Authority Rev., 5.625%, 2038 340,000 342,496
Chautauqua County, NY, Industrial Development Agency, Civic Facilities Rev.
(Women's Christian Assn.), "A", 6.35%, 2017 135,000 137,002
Chautauqua County, NY, Industrial Development Agency, Civic Facilities Rev.
(Women's Christian Assn.), "A", 6.4%, 2029 955,000 957,655
Chemung County, NY, Civic Facilities Rev. (St. Joseph's Hospital-Elmira), "A", 6%, 2013 425,000 431,634
Chemung County, NY, Civic Facilities Rev. (St. Joseph's Hospital-Elmira), "B", 6.35%, 2013 105,000 107,311
Chester County, PA, Health & Educational Facilities Rev. (Chester County Hospital), 6.75%, 2021 1,625,000 1,721,200
Citrus County, FL, Hospital Development Authority Rev. (Citrus Memorial Hospital), 6.25%, 2023 895,000 941,522
Clinton County, MO, Industrial Development Agency, Health Facilities Rev.,
(Cameron Regional Medical Center), 5%, 2032 275,000 259,435
Coffee County, GA, Hospital Authority Rev. (Coffee Regional Medical Center, Inc.), 5%, 2026 40,000 38,616
Colorado Health Facilities Authority Rev. (Parkview Medical Center), 6.6%, 2025 1,000,000 1,116,270
Colorado Health Facilities Authority Rev. (Parkview Medical Center, Inc.), 6.5%, 2020 1,230,000 1,368,387
Colorado Health Facilities Authority Rev. (Portercare Adventist Health Systems), 6.625%, 2011 (c) 675,000 759,193
Crittenden County, AR, Hospital Rev., 7%, 2020 1,030,000 1,065,422
Cuyahoga County, OH, Hospital Facilities Rev. (Canton, Inc.), 7.5%, 2030 1,330,000 1,410,665
Delaware Health Facilities Authority Rev. (Nanticoke Memorial Hospital), 5.625%, 2032 1,250,000 1,263,550
Denver, CO, Health & Hospital Authority Rev., "A", 6%, 2011 (c) 250,000 272,433
Garden City, MI, Hospital Finance Authority Rev. (Garden City Hospital), "A", 4.875%, 2027 1,275,000 1,176,659
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial Hospital), 6.2%, 2025 250,000 255,428
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial Hospital), 6.5%, 2031 295,000 304,487
Genesee County, NY, Industrial Development Agency Civic Facility Rev.
(United Memorial Medical Center), 5%, 2027 170,000 158,760
Glendale, AZ, Industrial Development Authority, (John C. Lincoln Health), 5%, 2042 510,000 475,759
Grand Forks, ND, Health Care Authority Rev. (Altru Health Systems Obligated Group),
7.125%, 2010 (c) 755,000 834,071
Gulfport, MS, Hospital Facilities Rev. (Memorial Hospital), 5.75%, 2031 1,000,000 1,019,020
Highlands County, FL, Health Facilities Authority Rev. (Adventist/Sunbelt Hospital), 6%, 2011 (c) 900,000 989,523
Houston County, AL, Health Care Authority Rev., AMBAC, 6.25%, 2009 (c) 2,000,000 2,123,760
Huntsville, AL, Health Care Authority Rev., 5.625%, 2011 (c) 875,000 942,795
Illinois Development Finance Authority, Hospital Authority Rev.
(Adventist/Sunbelt Hospital), 5.65%, 2009 (c) 1,750,000 1,841,088
Illinois Finance Authority Rev. (Kewanee Hospital), 5.1%, 2031 410,000 369,771
Illinois Health Facilities Authority Rev. (Centegra Heath Systems), 5.25%, 2018 1,000,000 1,016,210
Indiana Health & Educational Facilities Authority, Hospital Rev.
(Community Foundation of Northwest Indiana), 5.5%, 2037 2,220,000 2,194,315
Indiana Health & Educational Facilities Authority, Hospital Rev.
(Community Foundation of Northwest Indiana), "A", 6.375%, 2011 (c) 3,025,000 3,346,951
Indiana Health & Educational Facilities Authority, Hospital Rev.
(Community Foundation of Northwest Indiana), "A", 6.375%, 2031 965,000 999,701
Indiana Health & Educational Facilities Authority, Hospital Rev.
(Riverview Hospital), 6.125%, 2031 1,000,000 1,039,270
Jefferson County, IA, Hospital Authority Rev. (Jefferson County Hospital), "C", 5.8%, 2032 1,415,000 1,394,751
Johnson City, TN, Health & Educational Facilities, Hospital Rev.
(Mountain States Health), "A", 5.5%, 2036 355,000 358,625
Joplin, MO, Industrial Development Authority Health Facilities Rev.
(Freeman Health Systems), 5.5%, 2029 440,000 445,702
Joplin, MO, Industrial Development Authority Health Facilities Rev.
(Freeman Health Systems), 5.75%, 2035 475,000 486,965
Kentucky Economic Development Finance Authority (Norton Healthcare), "A", 6.5%, 2010 (c) 1,965,000 2,142,498
Kentucky Economic Development Finance Authority, Unrefunded (Norton Healthcare), "A", 6.5%, 2020 3,035,000 3,219,983
Knox County, TN, Health, Educational, Hospital & Housing Facilities Board Rev.
(Baptist Health Systems), 6.5%, 2031 1,725,000 1,779,803
Lauderdale County & Florence, AL, Health Care Authority Rev.
(Coffee Health Group), MBIA, 5.625%, 2021 3,000,000 3,195,900
Louisiana Public Facilities Authority Hospital Rev.
(Lake Charles Memorial Hospital), 6.375%, 2034 1,525,000 1,496,955
Lufkin, TX, Health Facilities Development Corp. Rev. (Memorial Health System), 5.5%, 2032 110,000 111,265
Lufkin, TX, Health Facilities Development Corp. Rev. (Memorial Health System), 5.5%, 2037 110,000 110,816
Macomb County, MI, Hospital Finance Authority Rev. (Mount Clemens General Hospital), 5.75%, 2025 1,000,000 1,023,980
Macomb County, MI, Hospital Finance Authority Rev. (Mount Clemens General Hospital), 5.875%, 2034 935,000 955,645
Madison County, ID, Hospital Rev., COP, 5.25%, 2037 310,000 297,364
Maryland Health & Higher Educational Facilities Authority Rev. (Medstar Health), 5.5%, 2033 380,000 389,899
Maryland Health & Higher Educational Facilities Authority Rev.
(North Arundel Hospital), 6.5%, 2010 (c) 1,500,000 1,629,555
Massachusetts Health & Educational Facilities Authority Rev.
(Berkshire Health Systems), "E", 6.25%, 2031 1,900,000 1,978,299
Massachusetts Health & Educational Facilities Authority Rev. (Caritas Christi), "A", 5.7%, 2015 500,000 510,035
Massachusetts Health & Educational Facilities Authority Rev. (Caritas Christi), "B", 6.5%, 2012 600,000 634,878
Massachusetts Health & Educational Facilities Authority Rev. (Jordan Hospital), "D", 5.25%, 2018 1,400,000 1,401,792
Massachusetts Health & Educational Facilities Authority Rev.
(Northern Berkshire Health), "B", 6.375%, 2034 640,000 665,024
Massachusetts Health & Educational Facilities Authority Rev.
(Saints Memorial Medical Center), "A", 6%, 2023 445,000 446,006
Meeker County, MN, Gross Rev., Hospital Facilities (Memorial Hospital), 5.75%, 2027 180,000 181,906
Meeker County, MN, Gross Rev., Hospital Facilities (Memorial Hospital), 5.75%, 2037 385,000 386,155
Miami Beach, FL, Health Facilities Authority Rev. (Mount Sinai Medical Center), 6.75%, 2029 810,000 874,209
Miami Beach, FL, Health Facilities Authority Rev. (Mount Sinai Medical Center), "A", 6.7%, 2019 995,000 1,062,660
Mississippi Business Finance Corp., Health Facilities Rev.
(Rush Medical Foundation, Inc.), 5.625%, 2008 (c) 845,000 873,122
Monroe County, MI, Hospital Finance Authority, Hospital Rev.
(Mercy Memorial Hospital Corp.), 5.5%, 2035 1,020,000 964,716
Monroe County, NY, Industrial Development Agency, Civic Facilities Rev.
(Highland Hospital of Rochester), 5%, 2025 65,000 65,368
Montgomery, AL, Medical Clinic Board Health Care Facility Rev.
(Jackson Hospital & Clinic), 5.25%, 2031 225,000 218,214
Montgomery, AL, Medical Clinic Board Health Care Facility Rev.
(Jackson Hospital & Clinic), 5.25%, 2036 1,135,000 1,088,136
Mount Lebanon, PA, Hospital Authority Rev. (St. Clair Memorial Hospital), 5.625%, 2032 435,000 448,685
Nassau County, NY, Industrial Development Agency, Civic Facilities Rev.
(North Shore Health System), 5.625%, 2010 390,000 394,189
Nassau County, NY, Industrial Development Agency, Civic Facilities Rev.
(North Shore Health System), 5.875%, 2011 340,000 349,693
Neosho County, KS, Hospital Authority Rev., "A", 5.05%, 2026 325,000 316,053
Neosho County, KS, Hospital Authority Rev., "A", 5.15%, 2031 230,000 222,028
New Hampshire Health & Educational Facilities Authority Rev.
(Catholic Medical Center), "A", 6.125%, 2012 (c) 880,000 981,464
New Hampshire Health & Educational Facilities Authority Rev.
(Catholic Medical Center), "A", 6.125%, 2032 120,000 124,566
New Hampshire Health & Educational Facilities Authority Rev. (Covenant Health), 6.5%, 2017 765,000 827,195
New Jersey Health Care Facilities, Financing Authority Rev.
(Children's Specialized Hospital), "A", 5.5%, 2030 245,000 247,325
New Jersey Health Care Facilities, Financing Authority Rev.
(St. Peter's University Hospital), "A", 6.875%, 2030 3,000,000 3,113,060
New Mexico State Hospital Equipment Loan Council, Hospital Rev.
(Rehoboth McKinley Christian Hospital), "A", 5%, 2017 100,000 96,469
New Mexico State Hospital Equipment Loan Council, Hospital Rev.
(Rehoboth McKinley Christian Hospital), "A", 5.25%, 2026 440,000 405,407
New York, NY, Industrial Development Agency, Civic Facilities Rev.
(Staten Island University Hospital), "A", 6.375%, 2031 485,000 495,791
Norman, OK, Regional Hospital Authority Rev., 5.375%, 2036 1,395,000 1,385,779
North Texas Health Facilities Development Corp. Rev.
(United Regional Health Care System, Inc.), 6%, 2013 (c) 1,000,000 1,121,090
Ohio County, WV, County Commission Health System Rev. (Ohio Valley Medical Center), 5.75%, 2013 850,000 832,159
Oklahoma Development Finance Authority Rev. (Comanche County Hospital), "B", 6.6%, 2031 1,665,000 1,765,033
Philadelphia, PA, Hospitals & Higher Education Facilities Authority Rev.
(Temple University Hospital), "A", 5.5%, 2030 1,145,000 1,151,721
Rhode Island Health & Education Building Corp. Rev., Hospital Financing
(Lifespan Obligated Group), 6.5%, 2012 (c) 505,000 569,670
Rhode Island Health & Educational Building Corp., Hospital Financing
(Lifespan Obligated Group), 6.375%, 2012 (c) 1,560,000 1,751,272
Rhode Island Health & Educational Building Corp., Hospital Financing
(Lifespan Obligated Group), 6.375%, 2021 245,000 265,845
Royston, GA, Hospital Authority Rev. (Ty Cobb Healthcare Systems, Inc.), 6.375%, 2014 955,000 974,969
Salida, CO, Hospital District Rev., 5.25%, 2036 1,675,000 1,526,897
Salt Lake City, UT, Hospital Authority Rev., AMBAC, INFLOS, ETM
(Intermountain Health Care), 9.312%, 2020 (c)(p) 600,000 601,704
Shelby County, TN, Educational & Hospital Facilities Board Hospital Rev., Refunded Balance
(Methodist Healthcare), 6.375%, 2012 (c) 625,000 700,819
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6.25%, 2012 (c) 185,000 206,427
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6.25%, 2012 (c) 315,000 351,483
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6.375%, 2012 (c) 375,000 420,491
Skagit County, WA, Public Hospital District No. 001, 5.75%, 2032 165,000 170,470
South Carolina Jobs & Economic Development Authority Rev.
(Bon Secours Health Systems, Inc.), "A", 5.625%, 2030 710,000 732,046
South Carolina Jobs & Economic Development Authority, Hospital Facilities Rev.
(Palmetto Health Alliance), 6.25%, 2031 835,000 874,988
South Dakota Health & Education Facilities Authority Rev.
(Prairie Lakes Health Care System), 5.625%, 2032 670,000 684,814
Southwestern, IL, Development Authority Rev. (Anderson Hospital), 5.5%, 2020 60,000 60,831
Southwestern, IL, Development Authority Rev. (Anderson Hospital), 5.625%, 2029 870,000 876,525
Springfield, TN, Health & Educational Facilities Rev. (Northcrest Medical Center), 5.25%, 2018 1,400,000 1,402,352
Steubenville, OH, Hospital Authority Rev. (Trinity Health Center), 6.5%, 2010 (c) 1,300,000 1,409,421
Stillwater, OK, Medical Center Authority, 5.625%, 2023 1,000,000 1,091,410
Tallahassee, FL, Health Facilities Rev. (Tallahassee Memorial Healthcare), 6.25%, 2020 3,085,000 3,183,679
Texas Metro Health Facilities Development Corp., Metro Health Facilities Development Rev.
(Wilson N. Jones Memorial Hospital), 7.2%, 2021 700,000 713,097
Texas Metro Health Facilities Development Corp., Metro Health Facilities Development Rev.
(Wilson N. Jones Memorial Hospital), 7.25%, 2031 1,000,000 1,017,840
Tom Green County, TX, Health Facilities Rev. (Shannon Health System), 6.75%, 2021 1,250,000 1,325,025
Turlock, CA, Health Facilities Rev. (Emanuel Medical Center), 5.5%, 2037 1,275,000 1,287,597
Tyler, TX, Health Facilities Development Corp. (East Texas Medical Center), "A", 5.25%, 2032 985,000 967,506
Tyler, TX, Health Facilities Development Corp. (East Texas Medical Center), "A", 5.375%, 2037 810,000 804,387
University of Colorado, Hospital Authority Rev., "A", 5.25%, 2039 245,000 244,241
Upper Illinois River Valley Development, Health Facilities Rev. (Morris Hospital), 6.625%, 2031 600,000 632,922
Valley, AL, Special Care Facilities, Financing Authority Rev.
(Lanier Memorial Hospital), 5.6%, 2016 600,000 610,134
Vigo County, IN, Hospital Authority Rev. (Union Hospital), 5.8%, 2047 1,035,000 1,030,436
Wapello County, IA, Hospital Authority Rev. (Ottumwa Regional Health Center), 6.375%, 2012 (c) 1,500,000 1,684,875
Weirton, WV, Municipal Hospital Building, Commission Rev.
(Weirton Hospital Medical Center), 6.375%, 2031 1,115,000 1,152,564
Weslaco, TX, Health Facilities Rev. (Knapp Medical Center), 6.25%, 2032 1,000,000 1,038,900
West Plains, MO, Industrial Development Authority Rev. (Ozarks Medical Center), 6.75%, 2024 170,000 173,196
West Shore, PA, Hospital Authority Rev. (Holy Spirit Hospital), 6.2%, 2026 1,250,000 1,290,425
Wichita, KS, Hospital Authority Rev. (Via Christi Health System), 6.25%, 2020 1,500,000 1,623,210
Wisconsin Health & Educational Facilities Authority Rev.
(Aurora Health Care, Inc.), MBIA, 5.25%, 2017 5,000,000 5,106,340
Wisconsin Health & Educational Facilities Authority Rev. (Aurora Health Care, Inc.), 6.875%, 2030 1,000,000 1,073,120
Wisconsin Health & Educational Facilities Authority Rev. (Marshfield Clinic), "A", 5.375%, 2034 490,000 486,207
Wisconsin Health & Educational Facilities Authority Rev.
(Wheaton Franciscan Healthcare), "B", 5.125%, 2030 1,120,000 1,078,392
Yonkers, NY, Industrial Development Agency, Civic Facilities Rev.
(St. John's Riverside Hospital), 6.8%, 2016 615,000 657,072
Yonkers, NY, Industrial Development Agency, Civic Facilities Rev.
(St. Joseph's Hospital), "C", 6.2%, 2020 750,000 739,898
------------
$128,194,996
-------------------------------------------------------------------------------------------------------------------------------
Healthcare Revenue - Long Term Care - 15.6%
-------------------------------------------------------------------------------------------------------------------------------
Abilene, TX, Health Facilities Development Corp., Retirement
Facilities Rev. (Sears Methodist Retirement), "A", 7%, 2033 $ 345,000 $ 367,159
Arizona Health Facilities Authority Rev. (The Terraces Project), 7.75%, 2013 (c) 750,000 920,138
Bell County, TX, Health Facilities Development Rev. (Advanced Living Technology),
8.125%, 2016 (d) 1,085,000 976,869
Bell County, TX, Health Facilities Development Rev. (Advanced Living Technology), 8.5%, 2026 (d) 2,405,000 2,162,817
Bucks County, PA, Industrial Development Authority, Retirement Community Rev.
(Ann's Choice, Inc.), 6.125%, 2025 430,000 440,006
Burlington County, NJ (The Evergreens), 5.625%, 2038 555,000 552,958
Cambria County, PA, Industrial Development Authority Rev.
(Beverly Enterprises, Inc.) ETM, 10%, 2012 (c) 320,000 371,139
Chartiers Valley, PA, Industrial & Commercial Development Authority
(Asbury Health Center Project), 5.75%, 2022 150,000 151,683
Chester County, PA, Industrial Development Authority Rev. (RHA Nursing Home), 8.5%, 2032 580,000 596,420
Colorado Health Facilities Authority Rev. (American Baptist Homes), "A", 5.9%, 2037 755,000 755,476
Colorado Health Facilities Authority Rev. (Christian Living Communities Project), "A", 5.75%, 2037 395,000 390,560
Colorado Health Facilities Authority Rev. (Covenant Retirement Communities, Inc.),
"B", 6.125%, 2033 1,000,000 1,030,810
Colorado Health Facilities Authority Rev. (Evangelical), 6.9%, 2010 (c) 1,830,000 2,046,581
Colorado Health Facilities Authority Rev. (Evangelical), 6.9%, 2025 1,170,000 1,267,625
Cumberland County, PA, Municipal Authority Rev. (Wesley), "A", 7.25%, 2013 (c) 720,000 842,292
Cumberland County, PA, Municipal Authority Rev. (Wesley), "A", 7.25%, 2013 (c) 280,000 327,558
Franklin County, OH, Healthcare Facilities Rev. (Ohio Presbyterian), 7.125%, 2011 (c) 1,000,000 1,129,910
Fulton County, GA, Residential Care Facilities (Canterbury Court), "A", 6.125%, 2034 330,000 336,848
Greenville County, SC, Hospital Rev. (Chestnut Hill), "A", 8%, 2015 1,910,000 1,877,492
Hawaii Department of Budget & Finance, Special Purpose Rev.
(Kahala Nui Senior Living Community), 8%, 2033 500,000 557,485
Huntsville-Redstone Village, AL, Special Care Facilities Financing Authority
(Redstone Village Project), 5.5%, 2028 590,000 564,347
Huntsville-Redstone Village, AL, Special Care Facilities Financing Authority
(Redstone Village Project), 5.5%, 2043 540,000 499,106
Illinois Finance Authority Rev., Bond Anticipation Notes (Tallgrass), 13%, 2012 210,000 209,798
Illinois Finance Authority Rev. (Clare at Water Tower), "A", 6%, 2025 490,000 499,477
Illinois Finance Authority Rev. (Franciscan Communities, Inc.), "A", 5.5%, 2037 1,000,000 957,820
Illinois Finance Authority Rev. (Friendship Village), "A", 5.375%, 2025 1,270,000 1,200,874
Illinois Finance Authority Rev. (Landing at Plymouth Place), "A", 6%, 2037 490,000 496,346
Illinois Finance Authority Rev. (Montgomery Place), "A", 5.75%, 2038 520,000 506,142
Iowa Finance Authority Senior Housing Authority Rev. (Bethany Life Communities), "A", 5.55%, 2041 230,000 220,191
Iowa Finance Authority, Health Care Facilities Rev. (Care Initiatives), 9.25%, 2011 (c) 1,130,000 1,355,808
Iowa Finance Authority, Health Care Facilities Rev. (Care Initiatives), "A", 5.5%, 2025 800,000 803,712
Iowa Finance Authority, Health Care Facilities Rev. (Care Initiatives), "B", 5.75%, 2018 895,000 902,357
James City County, VA, Economic Development (Virginia United Methodist Homes, Inc.),
"A", 5.4%, 2027 585,000 563,027
James City County, VA, Economic Development (Virginia United Methodist Homes, Inc.),
"A", 5.5%, 2037 940,000 890,067
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village, Inc.), "C", 6.875%, 2012 (c) 500,000 571,875
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village, Inc.), 5.375%, 2027 420,000 413,952
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village, Inc.), 5.5%, 2039 720,000 703,138
Lynchburg, VA, Industrial Development Authority, Residential Care Facilities Rev.
(Westminster-Canterbury of Lynchburg, Inc.), 5%, 2031 85,000 76,908
Maine Health & Higher Educational Facilities Rev. (Piper Shores), 7.5%, 2009 (c) 770,000 800,877
Massachusetts Development Finance Agency Rev. (Adventcare), "A", 6.75%, 2037 1,270,000 1,255,446
Massachusetts Development Finance Agency Rev. (Linden Ponds, Inc.), "A", 5.5%, 2027 340,000 331,537
Massachusetts Development Finance Agency Rev. (Linden Ponds, Inc.), "A", 5.75%, 2035 85,000 84,181
Millbrae, CA, Residential Facilities Rev. (Magnolia of Millbrae), "A", 7.375%, 2027 1,825,000 1,880,462
Montana Facility Finance Authority Rev. (St. Johns Lutheran), "A", 6.125%, 2036 470,000 478,667
Montgomery County, PA, Higher Education & Health Authority Rev. (AHF/Montgomery), 6.875%, 2036 1,195,000 1,214,861
Montgomery County, PA, Industrial Development Authority Rev.
(Whitemarsh Continuing Care), 6.125%, 2028 250,000 256,353
Montgomery County, PA, Industrial Development Authority Rev.
(Whitemarsh Continuing Care), 6.25%, 2035 510,000 522,750
New Jersey Economic Development Authority Rev. (Courthouse Convalescent Center), "A", 8.7%, 2014 650,000 651,749
New Jersey Economic Development Authority Rev. (Lions Gate Project), "A", 5.875%, 2037 310,000 314,033
New Jersey Economic Development Authority Rev. (Seabrook Village, Inc.), 5.25%, 2036 715,000 667,667
New Jersey Health Care Facilities Financing Authority Rev. (Cherry Hill), 8%, 2027 1,000,000 1,017,100
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort Norfolk Retirement Community),
"A", 6%, 2025 125,000 128,346
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort Norfolk Retirement Community),
"A", 6.125%, 2035 110,000 113,020
North Carolina Medical Care Commission, First Mortgage (Southminster), "A", 5.75%, 2037 485,000 480,179
North Carolina Medical Care Commission, Health Care Facilities Rev.
(Presbyterian Homes), 5.4%, 2027 485,000 486,334
North Carolina Medical Care Commission, Health Care Facilities Rev.
(Presbyterian Homes), 5.5%, 2031 295,000 295,805
Orange County, FL, Health Facilities Authority Rev. (Orlando Lutheran Tower), 5.5%, 2038 320,000 309,850
Sarasota County, FL, Health Facility Authority Rev. (Sarasota Manatee), 5.75%, 2037 490,000 485,139
Sarasota County, FL, Health Facility Authority Rev. (Sarasota Manatee), 5.75%, 2045 105,000 103,087
Scott County, IA, Rev. (Ridgecrest Village), 5.25%, 2027 350,000 339,203
Shelby County, TN, Health, Educational & Housing Facilities Board Rev.
(Germantown Village), "A", 7.25%, 2034 820,000 836,416
South Carolina Jobs & Economic Development Authority Rev. (Woodlands at Furman), "A", 6%, 2027 515,000 520,397
South Carolina Jobs & Economic Development Authority Rev. (Woodlands at Furman), "A", 6%, 2042 470,000 468,623
South Carolina Jobs & Economic Development Authority Rev., First Mortgage
(Lutheran Homes of South Carolina), 5.5%, 2028 230,000 219,404
South Carolina Jobs & Economic Development Authority Rev., First Mortgage
(Lutheran Homes of South Carolina), 5.625%, 2042 150,000 141,017
Sterling, IL (Hoosier Care), 7.125%, 2034 695,000 703,757
Suffolk County, NY, Industrial Development Agency (Medford Hamlet Assisted Living), 6.375%, 2039 500,000 504,220
Travis County, TX, Health Facilities Development Corp., Retirement Facilities Rev.
(Querencia Barton Creek), 5.5%, 2025 460,000 457,806
Travis County, TX, Health Facilities Development Corp., Retirement Facilities Rev.
(Querencia Barton Creek), 5.65%, 2035 695,000 690,149
Ulster County, NY, Industrial Development Agency, "A", 6%, 2037 1,075,000 1,064,583
Washington Housing Finance Commission Non-profit Rev. (Skyline at First Hill), "A", 5.625%, 2027 215,000 214,108
Washington Housing Finance Commission Non-profit Rev. (Skyline at First Hill), "A", 5.625%, 2038 1,120,000 1,090,578
Wisconsin Health, Educational & Housing Facilities Board Rev.
(All Saints Assisted Living Project), 5.9%, 2027 175,000 175,317
Wisconsin Health, Educational & Housing Facilities Board Rev.
(All Saints Assisted Living Project), 6%, 2037 340,000 339,038
------------
$ 48,178,830
-------------------------------------------------------------------------------------------------------------------------------
Human Services - 3.4%
-------------------------------------------------------------------------------------------------------------------------------
Alaska Industrial Development & Export Authority Community Provider Rev.
(Boys & Girls Home of Alaska, Inc.), 5.875%, 2027 $ 210,000 $ 211,338
Alaska Industrial Development & Export Authority Community Provider Rev.
(Boys & Girls Home of Alaska, Inc.), 6%, 2036 325,000 325,738
Colorado Educational & Cultural Facilities Authority (Cerebral Palsy Project), "A", 6.25%, 2036 500,000 509,215
Iowa Finance Authority, Community Provider (Boys & Girls Home), 6.25%, 2008 (c) 500,000 514,170
Lehigh County, PA, General Purpose Authority (Kidspeace Corp.), 6%, 2023 3,000,000 3,007,260
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(CDF Healthcare), "A", 7%, 2036 500,000 499,595
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(CDF Healthcare), "C", 7%, 2036 375,000 355,545
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(Westside Rehab Center Project), "A", 6.85%, 2036 1,100,000 1,182,170
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(Westside Rehab Center Project), "B", 6.5%, 2013 115,000 117,555
New York, NY, Industrial Development Agency, Civic Facility Rev.
(A Very Special Place), "A", 5.75%, 2029 1,000,000 948,510
New York, NY, Industrial Development Agency, Civic Facility Rev.
(Special Needs Facilities), 6.5%, 2017 1,030,000 1,059,211
Orange County, FL, Health Facilities Authority Rev. (GF/Orlando Healthcare Facilities),
8.75%, 2011 365,000 382,735
Orange County, FL, Health Facilities Authority Rev. (GF/Orlando Healthcare Facilities), 9%, 2031 1,000,000 1,103,430
Osceola County, FL, Industrial Development Authority Rev. (Community Provider), 7.75%, 2017 292,000 292,613
------------
$ 10,509,085
-------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Airlines - 8.9%
-------------------------------------------------------------------------------------------------------------------------------
Alliance Airport Authority, TX (American Airlines, Inc.), 5.75%, 2029 $ 2,410,000 $ 2,266,629
Chicago, IL, O'Hare International Airport Special Facilities Rev.
(American Airlines, Inc.), 5.5%, 2030 2,140,000 1,999,552
Dallas Fort Worth, TX, International Airport Facility Improvement Corp.
(American Airlines, Inc.), 5.5%, 2030 1,175,000 1,074,925
Denver, CO, City & County Airport Rev. (United Airlines), 5.25%, 2032 1,145,000 1,059,663
Denver, CO, City & County Airport Rev. (United Airlines), 5.75%, 2032 925,000 927,017
Houston, TX, Airport Systems Rev., Special Facilities (Continental, Inc.), "E", 6.75%, 2029 1,810,000 1,880,590
Los Angeles, CA, Regional Airport Lease Rev. (AMR Corp.), "C", 7.5%, 2024 850,000 927,342
New Jersey Economic Development Authority, Special Facilities Rev.
(Continental Airlines, Inc.), 6.25%, 2029 580,000 584,681
New Jersey Economic Development Authority, Special Facilities Rev.
(Continental Airlines, Inc.), 7.2%, 2030 1,595,000 1,662,373
New York, NY, City Industrial Development Agencies Rev. (American Airlines, Inc.), 7.75%, 2031 1,065,000 1,217,646
New York, NY, Industrial Development Agencies Rev. (American Airlines, Inc.), 7.125%, 2011 1,355,000 1,399,864
New York, NY, Industrial Development Agencies Rev. (American Airlines, Inc.), 7.625%, 2025 8,400,000 9,520,140
New York, NY, Industrial Development Agencies Rev. (Continental Airlines, Inc.), 7.25%, 2008 110,000 110,899
New York, NY, Industrial Development Agencies Rev. (Continental Airlines, Inc.), 8%, 2012 300,000 316,305
Tulsa, OK, Municipal Airport Trust Rev. (American Airlines, Inc.), "B", 5.65%, 2035 (a) 40,000 39,990
Tulsa, OK, Municipal Airport Trust Rev. (AMR Corp.), "B", 6%, 2035 (a) 2,500,000 2,518,150
------------
$ 27,505,766
-------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Chemicals - 1.0%
-------------------------------------------------------------------------------------------------------------------------------
Red River Authority, TX, Pollution Control Rev. (Celanese Project) "B", 6.7%, 2030 $ 1,920,000 $ 1,999,315
Sweetwater County, WY, Solid Waste Disposal Rev. (FMC Corp.), 5.6%, 2035 985,000 998,347
------------
$ 2,997,662
-------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 2.1%
-------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, Solid Waste Disposal Rev.
(Browning Ferris, Inc.), "A", 5.8%, 2016 $ 1,000,000 $ 1,010,500
California Statewide Communities Development Authority, Solid Waste Facilities Rev.
(Republic Services, Inc.), "A", 4.95%, 2012 1,000,000 1,026,560
Gloucester County, NJ, Solid Waste Resource Recovery Rev.
(Waste Management, Inc.), 6.85%, 2029 (a) 850,000 890,435
Henrico County, VA, Industrial Development Authority Rev. (Browning Ferris, Inc.), 5.45%, 2014 1,750,000 1,783,740
Nevada Department of Business & Industry Rev. (Republic Services, Inc.), 5.625%, 2026 (a) 750,000 801,450
New Morgan, PA, Industrial Development Authority, Solid Waste Disposal Rev.
(New Morgan Landfill Co., Inc./Browning Ferris, Inc.), 6.5%, 2019 1,000,000 1,005,280
------------
$ 6,517,965
-------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Metals - 0.2%
-------------------------------------------------------------------------------------------------------------------------------
Mobile County, AL, Industrial Development Authority Rev. (Ipsco, Inc.), 6.875%, 2030 (a) $ 650,000 $ 676,026
-------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Other - 5.3%
-------------------------------------------------------------------------------------------------------------------------------
Aztalan, WI, Exempt Facility Rev. (Renew Energy LLC Project), 7.5%, 2018 $ 840,000 $ 823,276
Gulf Coast, TX, Industrial Development Authority (Valero Energy Corp.), 5.6%, 2031 1,750,000 1,764,893
Gulf Coast, TX, Industrial Development Authority Rev. (Microgy Holdings LLC Project), 7%, 2036 620,000 646,257
Gulf Coast, TX, Waste Disposal Rev. (Valero Energy Corp.), 6.65%, 2032 1,000,000 1,051,460
Hardeman County, TN, Correctional Facilities Rev., 7.75%, 2017 1,970,000 2,020,629
Madison County, FL, Rev. (Twin Oaks Project), "A", 6%, 2025 545,000 552,821
New Jersey Economic Development Authority (Gloucester Marine), "C", 6.5%, 2015 700,000 736,337
New Jersey Economic Development Authority Rev. (GMT Realty LLC), "B", 6.875%, 2037 430,000 453,065
New York, NY, City Industrial Development Agency Rev., Liberty Bonds
(IAC/InterActiveCorp), 5%, 2035 620,000 593,049
Park Creek Metropolitan District, CO, Rev. (Custodial Receipts), "CR-1", 7.875%, 2032 (a)(n) 1,270,000 1,381,290
Park Creek Metropolitan District, CO, Rev. (Custodial Receipts), "CR-2", 7.875%, 2032 (a)(n) 580,000 630,825
Pennsylvania Economic Development Financing Authority, Finance Authority Facilities Rev.
(Amtrak), "A", 6.25%, 2031 2,000,000 2,090,740
Philadelphia, PA, Industrial Development Authority Rev. (Host Marriott LP), 7.75%, 2017 3,255,000 3,257,181
Tooele County, UT, Hazardous Waste Treatment Rev. (Union Pacific Corp.), 5.7%, 2026 385,000 393,551
------------
$ 16,395,374
-------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 5.8%
-------------------------------------------------------------------------------------------------------------------------------
Bedford County, VA, Industrial Development Authority Rev. (Nekoosa Packaging), "A", 6.55%, 2025 $ 1,000,000 $ 1,018,110
Butler, AL, Industrial Development Board, Solid Waste Disposal Rev.
(Georgia Pacific Corp.), 5.75%, 2028 155,000 148,636
Cass County, TX, Industrial Development Corp. (International Paper Co.), "A", 4.625%, 2027 2,150,000 1,865,813
Delta County, MI, Economic Development Corp., Environmental Improvement Rev.
(Mead Westvaco Escanaba), "A", 6.25%, 2012 (c) 1,000,000 1,110,520
Delta County, MI, Economic Development Corp., Environmental Improvement Rev.
(Mead Westvaco Escanaba), "B", 6.45%, 2012 (c) 500,000 550,270
Effingham County, GA, Development Authority, Solid Waste Disposal Rev. (Fort James), 5.625%, 2018 850,000 846,898
Escambia County, FL, Environmental Improvement Rev. (International Paper Co.), "A", 4.75%, 2030 525,000 460,793
Hodge, LA, Utilities Rev. (Stone Container Corp.), 7.45%, 2024 3,335,000 3,886,976
Lowndes County, MS, Solid Waste Disposal & Pollution Control Rev. (Weyerhaeuser Co.), 6.8%, 2022 2,000,000 2,325,940
Navajo County, AZ, Industrial Development Authority Rev. (Stone Container Corp.), 7.2%, 2027 880,000 898,445
Onondaga County, NY, Industrial Development Authority Rev., Solid Waste Disposal Rev.
(Solvay Paperboard LLC), 6.8%, 2014 800,000 825,112
Rockdale County, GA, Development Authority Project Rev. (Visy Paper Project), "A", 6.125%, 2034 640,000 645,062
West Point, VA, Industrial Development Authority, Solid Waste Disposal Rev.
(Chesapeake Corp.), 6.25%, 2019 1,870,000 1,847,448
West Point, VA, Industrial Development Authority, Solid Waste Disposal Rev.
(Chesapeake Corp.), "A", 6.375%, 2019 700,000 690,228
York County, SC, Pollution Control Rev. (Bowater, Inc.), "A", 7.4%, 2010 730,000 736,884
------------
$ 17,857,135
-------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 0.7%
-------------------------------------------------------------------------------------------------------------------------------
Mississippi Development Bank, Special Obligation (Diamond Lakes Utilities), 6.25%, 2017 $ 1,000,000 $ 1,016,600
New York Liberty Development Corp. Rev. (National Sports Museum), "A", 6.125%, 2019 420,000 429,404
Seminole Tribe, FL, Special Obligation, "A", 5.25%, 2027 (n) 515,000 511,204
Seneca Nation Indians, NY, Capital Improvements Authority Special Obligation, 5%, 2023 (n) 275,000 264,558
------------
$ 2,221,766
-------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 2.4%
-------------------------------------------------------------------------------------------------------------------------------
Austin, TX, Convention Center (Convention Enterprises, Inc.), "A", 6.6%, 2011 (c) $ 400,000 $ 435,968
Austin, TX, Convention Center (Convention Enterprises, Inc.), "A", 6.7%, 2011 (c) 600,000 655,728
Austin, TX, Convention Center (Convention Enterprises, Inc.), "B", 5.75%, 2034 775,000 759,531
Cleveland Cuyahoga County, OH, Port Authority Rev. (Cleveland City), "B", 4.5%, 2030 1,055,000 961,559
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Fairmount), "B", 5.125%, 2025 185,000 187,242
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Myers University), "E", 5.6%, 2025 135,000 140,234
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Perrysburg Project), 4.8%, 2035 225,000 209,288
Dayton Montgomery County, OH, Port Authority Rev. (Parking Garage), 6.125%, 2024 1,130,000 1,209,123
Gallery Certificate Trust, PA, Parking Rev., FSA, 4.5%, 2013 (n) 695,000 695,028
Maryland Economic Development Corp. (Chesapeake Bay), "A", 5%, 2031 405,000 373,576
Southwestern Illinois Development Authority Rev., Solid Waste Disposal Rev., 5.9%, 2014 280,000 281,277
Summit County, OH, Port Authority Building Rev. (Seville Project), "A", 5.1%, 2025 190,000 188,045
Summit County, OH, Port Authority Building Rev. (Twinsburg Township), "D", 5.125%, 2025 160,000 158,810
Summit County, OH, Port Authority Building Rev. (Workforce Policy Board), "F", 4.875%, 2025 915,000 881,502
Toledo Lucas County, OH, Port Authority Development Rev.
(Northwest Ohio Bond Fund), "B", 4.8%, 2035 265,000 246,495
Toledo Lucas County, OH, Port Authority Development Rev.
(Northwest Ohio Bond Fund), "C", 5.125%, 2025 90,000 89,841
------------
$ 7,473,247
-------------------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 4.4%
-------------------------------------------------------------------------------------------------------------------------------
Bay County, FL, Housing Finance Authority, Multi-Family Rev.
(Andrews Place II Apartments), FSA, 5%, 2035 $ 210,000 $ 204,748
Bay County, FL, Housing Finance Authority, Multi-Family Rev.
(Andrews Place II Apartments), FSA, 5.1%, 2046 390,000 379,061
Bexar County TX, Multi-Family Housing Rev. (American Opportunity Housing), "A", MBIA, 5.7%, 2021 1,250,000 1,290,450
Charter Mac Equity Issuer Trust, 7.1%, 2009 (a)(n) 1,000,000 1,039,110
Charter Mac Equity Issuer Trust, 6%, 2019 (n) 2,000,000 2,129,920
GMAC Municipal Mortgage Trust, "B-1", 5.6%, 2039 (a)(n) 1,000,000 1,022,800
GMAC Municipal Mortgage Trust, "C-1", 5.7%, 2040 (a)(n) 500,000 498,900
Indianapolis, IN, Multi-Family Rev. (Cambridge Station Apartments II), FNMA, 5.25%, 2039 (a) 465,000 469,883
Metropolitan Government of Nashville & Davidson County, TN, Health,
Educational & Housing Facilities Board Rev. (Berkshire Place), GNMA, 6%, 2023 500,000 517,650
Munimae, TE, Bond Subsidiary LLC, 5.4%, 2049 (a)(n) 1,000,000 1,010,840
Munimae, TE, Bond Subsidiary LLC, 6.875%, 2009 (n) 2,000,000 2,067,920
North Charleston, SC, Housing Authority Rev. (Horizon Village), "A", FHA, 5.15%, 2048 445,000 433,902
San Bernardino County, CA (Equity Residential/Redlands), "A", 5.2%, 2029 (a) 2,000,000 2,040,760
Seattle, WA, Housing Authority Rev., Capped Fund Program (High Rise Rehab), "I", FSA, 5%, 2025 670,000 662,945
------------
$ 13,768,889
-------------------------------------------------------------------------------------------------------------------------------
Sales & Excise Tax Revenue - 0.1%
-------------------------------------------------------------------------------------------------------------------------------
Desloge, MO, Tax Increment Rev. (U.S. Highway 67 Street Redevelopment), 5.2%, 2020 $ 410,000 $ 407,023
-------------------------------------------------------------------------------------------------------------------------------
Single Family Housing - Local - 1.7%
-------------------------------------------------------------------------------------------------------------------------------
Cook County, IL, Single Family Mortgage Rev., "A", 0%, 2015 $ 25,000 $ 6,807
Corpus Christi, TX, Housing Finance Authority Rev., "B", 0%, 2011 1,665,000 739,427
Dallas, TX, Housing Finance Corp., Single Family Mortgage Rev., MBIA, 0%, 2016 1,935,000 773,690
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA, 6.3%, 2032 555,000 570,779
Jefferson Parish, LA, Single Family Mortgage Rev., "B-1", GNMA, 6.625%, 2023 205,000 214,438
Jefferson Parish, LA, Single Family Mortgage Rev., "B-1", GNMA, 6.75%, 2030 285,000 295,126
Jefferson Parish, LA, Single Family Mortgage Rev., "D", GNMA, 5%, 2038 570,000 581,845
Nortex, TX, Housing Finance Corp., Single Family Mortgage Rev., "B", 5.5%, 2038 140,000 137,962
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 6.45%, 2029 320,000 321,216
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 5.9%, 2035 335,000 354,614
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 6.25%, 2035 145,000 152,192
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-1", GNMA, 5.75%, 2037 275,000 293,073
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-2", GNMA, 5.75%, 2037 530,000 559,574
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-5", GNMA, 5.9%, 2037 195,000 209,606
------------
$ 5,210,349
-------------------------------------------------------------------------------------------------------------------------------
Single Family Housing - State - 1.5%
-------------------------------------------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., "A-2", AMBAC, 6.6%, 2028 $ 290,000 $ 298,265
Colorado Housing & Finance Authority Rev., "C-2", 5.9%, 2023 155,000 158,928
Colorado Housing & Finance Authority Rev., "C-2", FHA, 6.6%, 2032 160,000 169,443
Colorado Housing & Finance Authority Rev., "C-3", FHA, 6.375%, 2033 70,000 72,118
Colorado Housing & Finance Authority Rev., "D-2", 6.9%, 2029 330,000 342,920
Georgia Housing & Finance Authority Rev., 5.65%, 2021 190,000 194,461
Louisiana Housing Finance Agency, Single Family Mortgage Rev., GNMA, 6.4%, 2032 40,000 40,272
Missouri Housing Development Commission, Single Family Mortgage Rev.
(Home Loan Program), GNMA, 6.35%, 2032 240,000 240,427
Missouri Housing Development Commission, Single Family Mortgage Rev.
(Home Loan Program), GNMA, 6.85%, 2032 130,000 137,233
Nebraska Investment Finance Authority Single Family Mortgage Rev., 0%, 2015 3,875,000 1,907,779
Nebraska Investment Finance Authority, "C", GNMA, 6.25%, 2021 145,000 147,181
New Hampshire Housing Finance Authority Rev., "B", 5.875%, 2030 75,000 77,504
Texas Affordable Housing Corp. (Single Family Mortgage), "B", GNMA, 5.25%, 2039 740,000 753,091
------------
$ 4,539,622
-------------------------------------------------------------------------------------------------------------------------------
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 $ 1,604,016
Massachusetts Development Finance Agency, Resource Recovery Rev.
(Ogden Haverhill Associates), "A", 6.7%, 2014 725,000 768,522
Massachusetts Industrial Finance Agency, Resource Recovery Rev.
(Ogden Haverhill Associates), "A", 5.6%, 2019 2,850,000 2,835,038
------------
$ 5,207,576
-------------------------------------------------------------------------------------------------------------------------------
State & Agency - Other - 0.2%
-------------------------------------------------------------------------------------------------------------------------------
Commonwealth of Puerto Rico (Mepsi Campus), "A", 6.25%, 2024 $ 200,000 $ 201,600
Commonwealth of Puerto Rico (Mepsi Campus), "A", 6.5%, 2037 400,000 405,212
------------
$ 606,812
-------------------------------------------------------------------------------------------------------------------------------
State & Local Agencies - 1.7%
-------------------------------------------------------------------------------------------------------------------------------
Chicago, IL, Public Building Commission, Building Rev., FGIC, 5.25%, 2016 (u) $ 2,600,000 $ 2,865,954
Chicago, IL, Public Building Commission, Building Rev., FGIC, 5.25%, 2017 (u) 2,100,000 2,319,471
------------
$ 5,185,425
-------------------------------------------------------------------------------------------------------------------------------
Student Loan Revenue - 0.2%
-------------------------------------------------------------------------------------------------------------------------------
Access to Loans for Learning, California Student Loan Rev., 7.95%, 2030 $ 650,000 $ 675,649
-------------------------------------------------------------------------------------------------------------------------------
Tax - Other - 2.0%
-------------------------------------------------------------------------------------------------------------------------------
Black Hawk, CO, Device Tax Rev., 5.625%, 2008 (c) $ 250,000 $ 258,133
Black Hawk, CO, Device Tax Rev., 5%, 2010 80,000 81,042
Black Hawk, CO, Device Tax Rev., 5%, 2013 55,000 55,745
Black Hawk, CO, Device Tax Rev., 5%, 2015 170,000 170,666
Dade County, FL, Special Obligations Rev., Capital Appreciation Bond, "B", AMBAC, 0%, 2008 (c) 15,080,000 3,275,074
New Jersey Economic Development Authority Rev. (Cigarette Tax), 5.75%, 2029 615,000 643,764
New Jersey Economic Development Authority Rev. (Cigarette Tax), 5.5%, 2031 270,000 278,394
New Jersey Economic Development Authority Rev. (Cigarette Tax), 5.5%, 2024 340,000 347,745
New Jersey Economic Development Authority Rev. (Cigarette Tax), 5.75%, 2034 410,000 427,298
Virgin Islands Public Finance Authority Rev., "E", 5.875%, 2018 500,000 512,520
------------
$ 6,050,381
-------------------------------------------------------------------------------------------------------------------------------
Tax Assessment - 7.7%
-------------------------------------------------------------------------------------------------------------------------------
Arborwood Community Development District, FL, Capital Improvement Rev., 5.25%, 2016 $ 475,000 $ 446,424
Arborwood Community Development District, FL, Capital Improvement Rev.
(Master Infrastructure Projects), "A", 5.35%, 2036 620,000 538,079
Arborwood Community Development District, FL, Special Assessment
(Master Infrastructure Projects), "B", 5.1%, 2014 240,000 225,946
Atlanta, GA, Tax Allocation (Eastside Project), "B", 5.6%, 2030 815,000 789,808
Atlanta, GA, Tax Allocation (Princeton Lakes Project), 5.5%, 2031 555,000 540,781
Belmont Community Development District, FL, Capital Improvement Rev., "B", 5.125%, 2014 985,000 928,816
Chicago IL, Ryan Garfield Tax Increment Allocation, 10.125%, 2007 225,000 225,659
Concord Station Community Development District, FL, Special Assessment, 5%, 2015 265,000 247,062
Concorde Estates Community Development District, FL, Special Assessment, "B", 5%, 2011 515,000 501,831
Du Page County, IL, Special Service Area No. 31 Special Tax
(Monarch Landing Project), 5.625%, 2036 305,000 302,200
Durbin Crossing Community Development District, FL, Special Assessment, "B-1", 4.875%, 2010 500,000 482,170
East Homestead Community Development District, FL, Special Assessment, "B", 5%, 2011 170,000 163,686
Enclave at Black Point Marina Community Development District, FL, "A", 5.4%, 2037 105,000 93,819
Enclave at Black Point Marina Community Development District, FL, "B", 5.2%, 2014 215,000 204,966
Fishhawk Community Development District, FL, 5.125%, 2009 345,000 338,473
Grand Bay at Doral Community Development, FL, "A", 6%, 2039 170,000 156,125
Grand Bay at Doral Community Development, FL, "B", 6%, 2017 995,000 959,488
Heritage Harbour North Community Development District, FL, Capital Improvement Rev., 6.375%, 2038 590,000 579,492
Homestead 50 Community Development District, FL, "A", 6%, 2037 690,000 672,322
Homestead 50 Community Development District, FL, "B", 5.9%, 2013 310,000 307,142
Katy, TX, Development Authority Rev., "B", 5.8%, 2011 655,000 663,594
Katy, TX, Development Authority Rev., "B", 6%, 2018 925,000 934,602
Killarney Community Development District, FL, Special Assessment, "B", 5.125%, 2009 195,000 192,196
Lakes by the Bay South Community Development District, FL, Rev., "B", 5.3%, 2009 605,000 603,203
Lancaster County, SC, Assessment Rev. (Sun City Carolina Lakes), 5.45%, 2037 110,000 103,358
Legends Bay Community Development District, FL, "A", 5.875%, 2038 380,000 358,230
Legends Bay Community Development District, FL, "B", 5.5%, 2014 420,000 407,072
Magnolia Park Community Development District, FL, Special Assessment, "A", 6.15%, 2039 1,255,000 1,232,711
Markham, IL, Tax Increment Rev., 9%, 2012 750,000 750,870
Middle Village Community Development District, FL, Special Assessment, "B", 5%, 2009 155,000 153,362
Naturewalk Community Development District, FL, Capital Improvement Rev., "B", 5.3%, 2016 650,000 604,487
New Port Tampa Bay Community Development District, FL, Special Assessment, "B", 5.3%, 2012 440,000 404,954
North Springs Improvement District, FL, Special Assessment
(Parkland Golf Country Club), "B-1", 5.125%, 2015 155,000 145,578
North Springs Improvement District, FL, Special Assessment
(Parkland Golf Country Club), "B-2", 5.125%, 2015 165,000 155,055
Ohio County, WV, Commision Tax Increment Rev., (Forst Henry Centre), "A", 5.85%, 2034 235,000 234,046
Old Palm Community Development District, FL, Special Assessment
(Palm Beach Gardens), "A", 5.9%, 2035 245,000 237,238
Old Palm Community Development District, FL, Special Assessment
(Palm Beach Gardens), "B", 5.375%, 2014 270,000 259,902
Overland Park, KS, Special Assessment (Tallgrass Creek), 4.85%, 2016 170,000 167,829
Overland Park, KS, Special Assessment (Tallgrass Creek), 5.125%, 2028 350,000 341,443
Panther Trace II, Community Development District, FL, Special Assessment, 5.125%, 2013 355,000 335,621
Panther Trace II, Community Development District, FL, Special Assessment, "B", 5%, 2010 500,000 483,590
Parker Road Community Development District, FL, "A", 5.6%, 2038 340,000 312,208
Parkway Center, Community Development District, FL, Special Assessment, "B", 5.625%, 2014 1,085,000 1,058,786
Paseo, FL, Community Development District, "B", 4.875%, 2010 455,000 441,286
Preserve at Wilderness Lake, FL, Community Development District,
Capital Improvement, "B", 5%, 2009 35,000 34,435
Prince George's County, MD, Special Obligation (National Harbor Project), 5.2%, 2034 245,000 234,105
Reunion East Community Development District, FL, Special Assessment, 5.9%, 2007 45,000 45,000
Riverwood Estates Community Development District, FL, Special Assessment, "B", 5%, 2013 870,000 824,673
Sterling Hill Community Development District, FL, Special Assessment, 5.5%, 2010 240,000 235,478
Tolomato Community Development District, FL, Special Assessment, 6.65%, 2040 560,000 562,089
Tuscany Reserve Community Development District, FL, Special Assessment, "B", 5.25%, 2016 790,000 711,995
Villa Vizcaya Community Development District, FL, "A", 5.55%, 2039 210,000 191,470
Villasol Community Development District, FL, Special Assessment Rev., "B", 5.375%, 2008 160,000 159,446
Watergrass Community Development District, FL, "A", 5.375%, 2039 420,000 372,809
Watergrass Community Development District, FL, Special Assessment, "B", 4.875%, 2010 765,000 737,720
Wentworth Estates Community Development District, FL, Special Assessment, "B", 5.125%, 2012 365,000 340,954
------------
$ 23,735,684
-------------------------------------------------------------------------------------------------------------------------------
Tobacco - 8.2%
-------------------------------------------------------------------------------------------------------------------------------
Badger, WI, Tobacco Asset Securitization Corp., 6.125%, 2027 $ 3,685,000 $ 3,805,242
Buckeye, OH, Tobacco Settlement Rev., Asset Backed, "A-2", 5.875%, 2030 1,995,000 1,966,631
Buckeye, OH, Tobacco Settlement Rev., Asset Backed, "A-2", 6.5%, 2047 1,915,000 1,991,351
California County, CA, Tobacco Securitization Agency, Capital Appreciation Asset Backed
(Gold Country), 0%, 2033 2,570,000 519,603
California County, CA, Tobacco Securitization Corp., Tobacco Settlement, L.A. County,
"A", 0% to 2010, 5.65% to 2041 485,000 373,804
California Statewide Financing Authority, Tobacco Settlement, 5.625%, 2029 1,665,000 1,668,463
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico, "A", 0%, 2050 4,000,000 252,800
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico, "B", 0%, 2055 4,000,000 140,560
District of Columbia, Tobacco Settlement, 6.25%, 2024 1,080,000 1,115,942
District of Columbia, Tobacco Settlement, Capital Appreciation, "A", 0%, 2046 5,840,000 431,868
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, "A", 5%, 2008 (c) 85,000 85,830
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, "A-4", 7.8%, 2013 (c) 1,000,000 1,209,180
Inland Empire, CA, Tobacco Securitization Corp., Tobacco Settlement Rev.,
Asset Backed, "C-1", 0%, 2036 3,270,000 505,804
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev., Asset Backed, "B", 5.3%, 2011 (c) 2,000,000 2,112,640
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev., Asset Backed,
"B", 0% to 2007, 5.6% to 2034 1,635,000 1,515,465
Louisiana Tobacco Settlement Authority Rev., 5.5%, 2030 1,435,000 1,425,845
Michigan Tobacco Settlement Finance Authority, Tobacco Settlement Rev.,
Asset Backed, "A", 6%, 2048 1,125,000 1,121,828
New Jersey Tobacco Settlement Financing Corp., 5.75%, 2008 (c) 825,000 883,088
New Jersey Tobacco Settlement Financing Corp., 7%, 2013 (c) 15,000 17,496
Northern Tobacco Securitization Corp., AK, Asset Backed, "A", 5%, 2046 430,000 367,968
Rhode Island Tobacco Settlement Financing Corp., "A", 0%, 2052 11,115,000 552,193
Rockland Tobacco Asset Securitization Corp., NY, Tobacco Asset Backed, "C", 0%, 2060 11,045,000 210,076
Silicon Valley Tobacco Securitization Authority, CA, Tobacco Settlement Rev.
(Turbo-Santa Clara), "A", 0%, 2036 2,115,000 316,467
Silicon Valley Tobacco Securitization Authority, CA, Tobacco Settlement Rev.
(Turbo-Santa Clara), "A", 0%, 2041 1,560,000 162,068
South Carolina Tobacco Settlement Authority Rev., "B", 6%, 2022 1,260,000 1,278,308
South Carolina Tobacco Settlement Authority Rev., "B", 6.375%, 2028 1,075,000 1,099,650
Virginia Tobacco Settlement Financing Corp., "B-1", 5%, 2047 70,000 59,332
Washington Tobacco Settlement Authority, 6.5%, 2026 150,000 157,214
------------
$ 25,346,716
-------------------------------------------------------------------------------------------------------------------------------
Toll Roads - 1.5%
-------------------------------------------------------------------------------------------------------------------------------
E-470 Public Highway Authority, Colorado Rev., Capital Appreciation, "B", MBIA, 0%, 2027 $ 4,115,000 $ 1,514,073
Niagara Falls, NY, Bridge Commission, Toll Rev., FGIC, 5.25%, 2015 (u) 3,000,000 3,220,320
------------
$ 4,734,393
-------------------------------------------------------------------------------------------------------------------------------
Transportation - Special Tax - 2.7%
-------------------------------------------------------------------------------------------------------------------------------
Missouri Highways & Transportation Commission, State Road Rev., "A", 5.625%, 2011 (c) $ 4,500,000 $ 4,791,555
Telluride, CO, Real Estate Transfer Assessment Rev. (Gondola Transit Co.), ETM, 11.5%, 2012 (c) 2,900,000 3,705,794
------------
$ 8,497,349
-------------------------------------------------------------------------------------------------------------------------------
Universities - Colleges - 3.0%
-------------------------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Rev. (L.A. College of Chiropractic), 5.6%, 2017 $ 750,000 $ 750,555
California Statewide Communities Development Authority Rev.
(California Baptist University), "A", 5.5%, 2038 420,000 415,191
Chabot Las Positas, CA, Community College, Capital Appreciation, Election of 2004,
"B", AMBAC, 0%, 2027 950,000 357,713
Foothill-DE Anza Community College District, CA, Capital Appreciation, "B", AMBAC, 0%, 2034 785,000 210,145
Harrisburg, PA, University of Science, "A", 5.4%, 2016 235,000 235,635
Houston, TX, Community College Systems, MBIA, 7.875%, 2025 2,500,000 2,935,125
Illinois Educational Facilities Authority Rev. (Augustana College), "A", 5.625%, 2022 400,000 416,380
Illinois Finance Authority Rev. (Illinois Institute of Technology), "A", 5%, 2036 190,000 185,208
Louisiana State University (Health Sciences Center Project), MBIA, 6.375%, 2031 2,500,000 2,689,725
Private Colleges & Universities Authority, GA, Rev. (Mercer University Project), "A", 5.375%, 2029 240,000 243,230
Savannah, GA, Economic Development Authority Rev. (College of Art & Design, Inc.), 6.5%, 2009 (c) 625,000 669,988
University of Arkansas, University Construction Rev. (UAMS Campus), "B", MBIA, 5%, 2034 300,000 309,453
------------
$ 9,418,348
-------------------------------------------------------------------------------------------------------------------------------
Universities - Dormitories - 0.2%
-------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev.
(California Baptist University), "A", 5.4%, 2027 $ 370,000 $ 368,206
California Statewide Communities Development Authority Rev.
(Lancer Educational Student Housing Project), 5.625%, 2033 380,000 375,163
------------
$ 743,369
-------------------------------------------------------------------------------------------------------------------------------
Universities - Secondary Schools - 2.5%
-------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev.
(Escondido Charter High School), 7.5%, 2011 (c) $ 545,000 $ 615,022
California Statewide Communities Development Authority Rev.
(Escondido Charter High School), 7.5%, 2011 (c) 1,000,000 1,158,070
Colorado Housing Finance Development Rev. (Evergreen Country Day School), 5.875%, 2037 770,000 763,024
Deerfield, IL, Educational Facilities Authority Rev.
(Chicagoland Jewish High School Project), 6%, 2041 815,000 813,126
Lee County, FL, Industrial Development Authority Rev. (Lee Charter Foundation), "A", 5.25%, 2027 430,000 403,921
Lee County, FL, Industrial Development Authority Rev. (Lee Charter Foundation), "A", 5.375%, 2037 945,000 870,931
Maryland Health & Higher Educational Facilities Authority Rev.
(Washington Christian Academy), 5.5%, 2038 140,000 134,196
Maryland Industrial Development Financing Authority, Economic Development Authority Rev.
(Our Lady of Good Council), "A", 6%, 2035 150,000 152,000
Michigan Municipal Bond Authority Rev. (YMCA Service Learning Academy), 7.625%, 2021 1,000,000 1,046,270
Pima County, AZ, Industrial Development Authority Education Rev.
(Arizona Charter Schools), "C", 6.75%, 2031 495,000 513,038
Utah County, UT, Charter School Rev. (Lakeview Academy), "A", 5.625%, 2037 215,000 207,322
Utah County, UT, Charter School Rev. (Renaissance Academy), "A", 5.625%, 2037 285,000 274,823
Utah County, UT, Charter School Rev. (Ronald Wilson Reagan Academy), "A", 6%, 2038 795,000 787,241
------------
$ 7,738,984
-------------------------------------------------------------------------------------------------------------------------------
Utilities - Cogeneration - 1.3%
-------------------------------------------------------------------------------------------------------------------------------
Alaska Industrial Development Export Authority, Power Rev.,
Upper Lynn Canal Regional Power, 5.8%, 2018 $ 830,000 $ 830,257
Carbon County, PA, Industrial Development Authority Rev. (Panther Creek Partners), 6.65%, 2010 1,710,000 1,742,045
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Colver), "G", 5.125%, 2015 350,000 349,780
Pennsylvania Economic Development Financing Authority Rev., Resources Recovery Rev.
(Northampton Generating), 6.4%, 2009 250,000 250,303
Pennsylvania Economic Development Financing Authority Rev., Resources Recovery Rev.
(Northampton Generating), "A", 6.5%, 2013 1,000,000 1,001,100
------------
$ 4,173,485
-------------------------------------------------------------------------------------------------------------------------------
Utilities - Investor Owned - 8.0%
-------------------------------------------------------------------------------------------------------------------------------
Brazos River Authority, TX (TXU Energy Co.), "D", 5.4%, 2029 $ 85,000 $ 82,146
Brazos River Authority, TX, Authority Texas Rev. (Reliant Energy, Inc.), "A", 5.375%, 2019 (a) 500,000 509,270
Brazos River Authority, TX, Pollution Control Rev. (TXU Electric Co. LLC), "C", 5.75%, 2036 (a) 1,800,000 1,780,470
Calcasieu Parish, LA, Industrial Development Board, Pollution Control Rev.
(Entergy Gulf States, Inc.), 5.45%, 2010 1,250,000 1,250,238
Connecticut Development Authority, Pollution Control Rev.
(Connecticut Light & Power Co.), 5.85%, 2028 2,000,000 2,060,040
Connecticut Development Authority, Pollution Control Rev.
(Connecticut Light & Power Co.), 5.95%, 2028 2,270,000 2,337,056
Farmington, NM, Pollution Control Rev. (New Mexico Public Service), "A", 6.3%, 2016 2,195,000 2,219,957
Farmington, NM, Pollution Control Rev. (New Mexico Public Service), "C", 5.8%, 2022 2,105,000 2,114,767
Matagorda County, TX (Centerpoint Energy), 5.6%, 2027 1,500,000 1,556,370
Matagorda County, TX, Pollution Control Rev. (Reliant Energy), 5.95%, 2030 1,655,000 1,688,117
Mecklenburg County, VA, Industrial Development Authority Rev. (UAE Mecklenburg LP), 6.5%, 2017 800,000 863,944
New Hampshire Business Finance Authority, Pollution Control Rev.
(Public Service of New Hampshire), 6%, 2021 1,000,000 1,028,360
Ohio Air Quality Development Authority, Pollution Control Rev.
(Cleveland Electric), "B", 6%, 2020 3,000,000 3,060,000
Pima County, AZ, Industrial Development Authority Rev.
(Tucson Electric Power Co.), "A", 6.1%, 2025 650,000 652,639
Port Morrow, OR, Pollution Control Rev. (Portland General), 5.2%, 2033 550,000 558,888
Sabine River Authority, TX, Pollution (TXU Electric Co.), 5.2%, 2028 340,000 304,113
Sabine River Authority, TX, Pollution (TXU Electric Co.), 5.75%, 2030 (a) 290,000 286,854
West Feliciana Parish, LA, Pollution Control Rev. (Gulf States Utilities Co.), 5.8%, 2015 1,500,000 1,501,335
West Feliciana Parish, LA, Pollution Control Rev. (Gulf States Utilities Co.), 5.8%, 2016 1,000,000 1,005,760
------------
$ 24,860,324
-------------------------------------------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 2.9%
-------------------------------------------------------------------------------------------------------------------------------
North Carolina Eastern Municipal Power Agency, Power Systems Rev., "B", 5.55%, 2014 $ 2,150,000 $ 2,225,487
North Carolina Municipal Power Agency (Catawba Electric Rev.), "B", 6.5%, 2020 2,000,000 2,112,000
Salt Verde Financial Corp., AZ, Senior Gas Rev., 5%, 2037 1,555,000 1,498,756
Seattle, WA, Municipal Light & Power Rev., 5.625%, 2017 3,000,000 3,174,210
------------
$ 9,010,453
-------------------------------------------------------------------------------------------------------------------------------
Water & Sewer Utility Revenue - 0.3%
-------------------------------------------------------------------------------------------------------------------------------
Magnolia, TX, Water & Sewer System Rev., 5.15%, 2031 $ 205,000 $ 200,851
Mississippi Development Bank Special Obligations, Grenada, MS,
Water & Sewer Systems Project, "N", FSA, 5%, 2030 710,000 736,462
------------
$ 937,313
-------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (IDENTIFIED COST, $434,186,068) $449,960,889
-------------------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 0.9%
-------------------------------------------------------------------------------------------------------------------------------
Bay Area Toll Authority, California Toll Bridge Rev., "A", 3.23%, due 11/01/07 $ 1,100,000 $ 1,100,000
Mt. Vernon Industrial Pollution Control Rev. (General Electric Co.), 3.6%, due 11/01/07 1,300,000 1,300,000
Sublette County, WY, Pollution Control Rev. (Exxon Mobil Corp.), 3.52%, due 11/01/07 400,000 400,000
-------------------------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE DEMAND NOTES, AT IDENTIFIED COST $ 2,800,000
-------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $436,986,068) (k) $452,760,889
-------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.0)% (3,070,392)
-------------------------------------------------------------------------------------------------------------------------------
Preferred shares (issued by the fund) - (45.2)% (140,000,000)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100.0% $309,690,497
-------------------------------------------------------------------------------------------------------------------------------
(a) Mandatory tender date is earlier than stated maturity date.
(c) Refunded bond.
(d) Non-income producing security - in default.
(k) As of October 31, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of
Trustees, aggregating $449,960,889 and 99.38% of market value. All of these security values were provided by an independent
pricing service using an evaluated bid.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the
ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period
end, the aggregate value of these securities was $11,252,395, representing 3.6% of net assets applicable to common shares.
(p) Primary inverse floater.
(u) Underlying security deposited into special purpose trust ("the trust") by investment banker upon creation of self-deposited
inverse floaters.
SWAP AGREEMENTS AT 10/31/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
5/14/18 USD 45,000,000 Merrill Lynch Capital Services 7-Day BMA 3.865% (fixed rate) $(510,932)
At October 31, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under these derivative
contracts.
The following abbreviations are used in this report and are defined:
BMA Bond Market Assn.
COP Certificate of Participation
ETM Escrowed to Maturity
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
Insurers
-------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FNMA Federal National Mortgage Assn.
FSA Financial Security Assurance Inc.
GNMA Government National Mortgage Assn.
MBIA MBIA Insurance Corp.
PSF Permanent School Fund
XLCA XL Capital Insurance Co.
Inverse Floaters
-------------------------------------------------------------------------------
INFLOS Inverse Floating Security
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/07
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
--------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $436,986,068) $452,760,889
Cash 110,707
Receivable for investments sold 2,590,961
Interest receivable 8,023,948
Other assets 5,979
--------------------------------------------------------------------------------------------------------
Total assets $463,492,484
--------------------------------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------------------------------
Distributions payable on common shares $141,465
Distributions payable on preferred shares 49,672
Payable for investments purchased 7,354,900
Payable to the holder of the floating rate certificate from trust assets 5,367,581
Unrealized depreciation on interest rate swap agreements 510,932
Payable to affiliates
Management fee 14,662
Transfer agent and dividend disbursing costs 10,850
Administrative services fee 436
Payable for independent trustees' compensation 109,731
Payable for interest expense and fees 65,197
Accrued expenses and other liabilities 176,561
--------------------------------------------------------------------------------------------------------
Total liabilities $13,801,987
--------------------------------------------------------------------------------------------------------
PREFERRED SHARES
--------------------------------------------------------------------------------------------------------
Series T and Series TH auction preferred shares (5,600 shares issued
and outstanding at $25,000 per share) at liquidation value $140,000,000
--------------------------------------------------------------------------------------------------------
Net assets applicable to common shares $309,690,497
--------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
NET ASSETS CONSIST OF:
--------------------------------------------------------------------------------------------------------
Paid-in capital - common shares $315,668,672
Unrealized appreciation (depreciation) on investments 15,263,889
Accumulated net realized gain (loss) on investments (24,608,878)
Undistributed net investment income 3,366,814
--------------------------------------------------------------------------------------------------------
Net assets applicable to common shares $309,690,497
--------------------------------------------------------------------------------------------------------
Preferred shares, at value (5,600 shares issued and outstanding
at $25,000 per share) 140,000,000
--------------------------------------------------------------------------------------------------------
Net assets including preferred shares $449,690,497
--------------------------------------------------------------------------------------------------------
Common shares of beneficial interest outstanding (40,315,359 issued,
less 55,500 treasury shares) 40,259,859
--------------------------------------------------------------------------------------------------------
Net asset value per common share (net assets of $309,690,497/40,259,859
shares of beneficial interest outstanding) $7.69
--------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 10/31/07
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
--------------------------------------------------------------------------------------------------------
Interest income $27,640,973
--------------------------------------------------------------------------------------------------------
Expenses
Management fee $3,516,973
Transfer agent and dividend disbursing costs 85,030
Administrative services fee 86,830
Independent trustees' compensation 48,835
Stock exchange fee 36,208
Preferred shares remarketing agent fee 350,372
Custodian fee 131,929
Auditing fees 37,443
Legal fees 13,340
Interest expense and fees 238,877
Miscellaneous 127,534
--------------------------------------------------------------------------------------------------------
Total expenses $4,673,371
--------------------------------------------------------------------------------------------------------
Fees paid indirectly (1,967)
Reduction of expenses by investment adviser (1,567)
--------------------------------------------------------------------------------------------------------
Net expenses $4,669,837
--------------------------------------------------------------------------------------------------------
Net investment income $22,971,136
--------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
--------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $2,589,302
Swap transactions (1,605,000)
--------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $984,302
--------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(16,347,760)
Swap transactions 1,323,714
--------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(15,024,046)
--------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $(14,039,744)
--------------------------------------------------------------------------------------------------------
Distributions declared to preferred shareholders $(5,165,360)
--------------------------------------------------------------------------------------------------------
Change in net assets from operations $3,766,032
--------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from
operations, any distributions, and any shareholder transactions.
YEARS ENDED 10/31
-----------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
-------------------------------------------------------------------------------------------
Net investment income $22,971,136 $23,219,256
Net realized gain (loss) on investments 984,302 2,614,344
Net unrealized gain (loss) on investments (15,024,046) 3,992,547
Distributions declared to preferred shareholders (5,165,360) (4,638,004)
-------------------------------------------------------------------------------------------
Change in net assets from operations $3,766,032 $25,188,143
-------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
-------------------------------------------------------------------------------------------
From net investment income $(18,606,311) $(19,714,328)
-------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $1,432,077 $1,428,897
-------------------------------------------------------------------------------------------
Total change in net assets $(13,408,202) $6,902,712
-------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES
-------------------------------------------------------------------------------------------
At beginning of period 323,098,699 316,195,987
At end of period (including undistributed net investment
income of $3,366,814 and $4,688,202, respectively) $309,690,497 $323,098,699
--------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the past 5
years. Certain information reflects financial results for a single fund share. The total returns in the table
represent the rate by which an investor would have earned (or lost) on an investment in the fund share class
(assuming reinvestment of all distributions) held for the entire period.
YEARS ENDED 10/31
-------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $8.06 $7.92 $7.86 $7.69 $7.61
-------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.57(z) $0.58 $0.59 $0.60 $0.61
Net realized and unrealized gain (loss)
on investments (0.35)(z) 0.17 0.10 0.16 0.04
Distributions declared to preferred shareholders (0.13) (0.12) (0.08) (0.04) (0.04)
-------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.09 $0.63 $0.61 $0.72 $0.61
-------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
-------------------------------------------------------------------------------------------------------------------
From net investment income, common shares $(0.46) $(0.49) $(0.55) $(0.55) $(0.53)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.69 $8.06 $7.92 $7.86 $7.69
-------------------------------------------------------------------------------------------------------------------
Common share market value, end of period $7.31 $8.20 $8.27 $7.83 $7.49
-------------------------------------------------------------------------------------------------------------------
Total return at market value (%) (p) (5.48) 5.41 13.18 12.22 12.51
-------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHARES) AND
SUPPLEMENTAL DATA:
Expenses before expense reductions (f)(p) 1.47 1.45 1.44 1.46 1.51
Expenses after expense reductions (f)(p) 1.47 1.45 1.44 1.46 N/A
Expenses after expense reductions and
excluding interest expense and fees (f)(l)(p) 1.40 1.45 1.44 1.46 1.51
Net investment income (p) 7.23(z) 7.30 7.45 7.70 7.98
Portfolio turnover 24 17 14 9 11
Net assets at end of period (000 omitted) $309,690 $323,099 $316,196 $312,825 $305,383
-------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 10/31
-------------------------------------------------------------
2007 2006 2005 2004 2003
SUPPLEMENTAL RATIOS (%):
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
including preferred shares excluding
interest expense and fees (f)(p) 0.97 1.00 0.99 1.00 1.03
-------------------------------------------------------------------------------------------------------------------
Preferred shares dividends (y) 1.63 1.46 0.95 0.49 0.48
Net investment income available to common shares 5.60 5.84 6.49 7.22 7.50
-------------------------------------------------------------------------------------------------------------------
SENIOR SECURITIES
-------------------------------------------------------------------------------------------------------------------
Total preferred shares outstanding 5,600 5,600 5,600 5,600 5,600
Asset coverage per preferred share (k) $80,302 $82,696 $81,464 $80,862 $79,533
Involuntary liquidation preference per
preferred share (m) $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
-------------------------------------------------------------------------------------------------------------------
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) Calculated by subtracting the fund's total liabilities from the fund's total assets and dividing this number
by the number of preferred shares outstanding.
(l) Interest expense and fees relate to payments made to the holder of the floating rate certificate from trust
assets.
(m) Amount excludes accrued unpaid distributions to Auction Preferred Shareholders.
(p) Ratio excludes dividend payment on auction preferred shares.
(y) Ratio is based on average net assets applicable to common shares.
(z) The fund applied a change in estimate for amortization of premium on certain debt securities in the current
year that resulted in an increase of $0.04 per share to net investment income, a decrease of $0.04 per share
to net realized and unrealized gain (loss) on investments, and an increase of 0.49% to the net investment
income ratio for the year ended October 31, 2007. The change in estimate had no impact on net assets, net
asset value per share or total return.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Municipal Income Trust (the fund) 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 fund
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 - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. Swaps are generally valued at
an evaluated bid as reported by an independent pricing service. Securities and
other assets generally valued on the basis of information from an independent
pricing service may also be valued at a broker-dealer bid quotation. Values
obtained from pricing services can utilize both dealer-supplied valuations and
electronic data processing techniques, which take into account 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. The Board of Trustees has delegated primary responsibility for
determining or causing to be determined the value of the fund's investments
(including any fair valuation) to the adviser pursuant to valuation policies
and procedures approved by the Board. If the adviser determines that reliable
market quotations are not readily available, investments are valued at fair
value as determined in good faith by the adviser in accordance with such
procedures under the oversight of the Board of Trustees. Under the fund's
valuation policies and procedures, market quotations are not considered to be
readily available for many types of debt instruments and certain types of
derivatives. These investments are generally valued at fair value based on
information from independent pricing services. In addition, investments may be
valued at fair value if the adviser determines that an investment's value has
been materially affected by events occurring after the close of the exchange or
market on which the investment is principally traded (such as foreign exchange
or market) and prior to the determination of the fund's net asset value, or
after the halting of trading of a specific security where trading does not
resume prior to the close of the exchange or market on which the security is
principally traded. The adviser may rely on independent pricing services or
other information (such as the correlation with price movements of similar
securities in the same or other markets; the type, cost and investment
characteristics of the security; the business and financial condition of the
issuer; and trading and other market data) to assist in determining whether to
fair value and at what value to fair value an investment. The value of an
investment for purposes of calculating the fund's net asset value can differ
depending on the source and method used to determine value. When fair valuation
is used, the value of investments used to determine the fund's net asset value
may differ from quoted or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
DERIVATIVE RISK - The fund 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 fund 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 and inverse floaters.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, including accruals of periodic amounts of interest to
be paid or received, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to
be held in segregated accounts with the fund's custodian in connection with
these agreements. Risk of loss may exceed amounts recognized on the Statement
of Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed.
The fund holds interest rate swap agreements which involve the periodic
exchange of cash flows, such as the exchange of fixed rate interest payments
for floating rate interest payments based on a notional principal amount. The
interest rates may be based on a specific financial index or the exchange of
two distinct floating rate payments. The fund may enter into an interest rate
swap in order to manage its exposure to interest rate fluctuations.
INVERSE FLOATERS - The fund invests in municipal inverse floating rate
securities which are structured by the issuer (known as primary market inverse
floating rate securities) or by an investment banker utilizing municipal bonds
which have already been issued (known as secondary market inverse floating rate
securities) to have variable rates of interest which typically move in the
opposite direction of short term interest rates. A secondary market inverse
floating rate security is created when an investment banker transfers a fixed
rate municipal bond to a special purpose trust (the "trust"), and causes the
trust to (a) issue floating rate certificates to third parties, in an amount
equal to a fraction of the par amount of the deposited bonds (these
certificates usually pay tax-exempt interest at short-term interest rates that
typically reset weekly; and the certificate holders typically, on seven days
notice, have the option to tender their certificates to the investment banker
or another party for redemption at par plus accrued interest), and (b) issue
inverse floating rate certificates (sometimes referred to as "inverse
floaters"). If the holder of the inverse floater transfers the municipal bonds
to an investment banker for the purpose of depositing the municipal bonds into
the special purpose trust, the inverse floating rate certificates that are
issued by the trust are referred to as "self-deposited inverse floaters." If
the bonds held by the trust are purchased by the investment banker for deposit
into the trust from someone other than the purchasers of the inverse floaters,
the inverse floating rate certificates that are issued by the trust are
referred to as "externally deposited inverse floaters." Such self-deposited
inverse floaters held by the fund are accounted for as secured borrowings, with
the municipal bonds reflected in the investments of the fund and amounts owed
to the holder of the floating rate certificate under the provisions of the
trust, which amounts are paid solely from the assets of the trust, reflected as
liabilities of the fund in the Statement of Assets and Liabilities under the
caption, "Payable to the holder of the floating rate certificate from trust
assets". At October 31, 2007, the fund's payable to the holder of the floating
rate certificate from trust assets was $5,367,581. The weighted average
interest rate on the floating rate certificates issued by the trust was 4.12%.
Interest expense and fees relate to payments made to the holder of the floating
rate certificate from trust assets in connection with self-deposited inverse
floater transactions. Interest expense and fees are recorded as incurred. For
the year ended October 31, 2007, interest expense and fees in connection with
self-deposited inverse floaters was $238,877. Primary and externally deposited
inverse floaters held by the fund are not accounted for as secured borrowings.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
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 fund may receive proceeds from
litigation settlements. Any proceeds received from litigation involving
portfolio holdings are reflected in the Statement of Operations in realized
gain/loss if the security has been disposed of by the fund or in unrealized
gain/loss if the security is still held by the fund. Any other proceeds from
litigation not related to portfolio holdings are reflected as other income in
the Statement of Operations. 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.
As a result of the change in estimate for the amortization of premium and
accretion of discount on certain debt securities, interest income has been
increased by $1,543,389, with a corresponding reduction to net unrealized
appreciation (depreciation).
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended October 31, 2007, is shown as a reduction
of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable and tax-exempt income, including realized
capital gains. Accordingly, no provision for federal income tax is required in
the financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from U.S. generally accepted accounting
principles. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These adjustments have no impact on net assets or net asset value
per share. Temporary differences which arise from recognizing certain items of
income, expense, gain or loss in different periods for financial statement and
tax purposes will reverse at some time in the future. Distributions in excess
of net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to amortization and accretion of debt
securities and secured borrowings.
The tax character of distributions declared to shareholders is as follows:
10/31/07 10/31/06
Ordinary income (including any
short-term capital gains) $113,468 $181,879
Tax-exempt income 23,658,203 24,170,453
----------------------------------------------------------------------
$23,771,671 $24,352,332
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 10/31/07
Cost of investments $429,954,016
------------------------------------------------------------
Gross appreciation $21,985,159
Gross depreciation (4,545,867)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $17,439,292
Undistributed ordinary income $162,969
Undistributed tax-exempt income 3,449,678
Capital loss carryforwards (26,266,311)
Other temporary differences (763,803)
As of October 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/09 $(899,441)
10/31/10 (2,883,947)
10/31/11 (10,944,821)
10/31/12 (1,858,513)
10/31/13 (9,679,589)
------------------------------------------------------------
$(26,266,311)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the fund's financial statements.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
management and related administrative services and facilities to the fund. The
management fee is computed daily and paid monthly at an annual rate of 0.40% of
the fund's average weekly net assets (including the value of the auction
preferred shares) and 6.32% of gross income. Gross income is calculated based
on tax rules that generally include the amortization of premium and exclude the
accretion of market discount, which may differ from investment income reported
in the Statement of Operations. The management fee, from net assets and gross
income, incurred for the year ended October 31, 2007 was equivalent to an
annual effective rate of 0.77% of the fund's average daily net assets including
preferred shares.
TRANSFER AGENT - Prior to December 18, 2006, MFS Service Center, Inc. (MFSC), a
wholly-owned subsidiary of MFS, received a fee from the fund for its services
as registrar and dividend-disbursing agent. Pursuant to a written agreement,
the fund paid MFSC an account maintenance fee of no more than $9.00 and a
dividend services fee of $0.75 per reinvestment. Effective December 18, 2006,
the fund has engaged Computershare Trust Company, N.A. ("Computershare") as the
sole transfer agent for the fund. MFSC will continue to monitor and supervise
the activities of Computershare for an agreed upon fee approved by the Board of
Trustees. For the year ended October 31, 2007, these fees paid to MFSC amounted
to $30,863. MFSC also receives payment from the fund for out-of-pocket
expenses paid by MFSC on behalf of the fund. For the year ended October 31,
2007, these costs amounted to $4,745.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on average daily net assets. The fund's annual fixed
amount is $17,500. The administrative services fee incurred for the year ended
October 31, 2007 was equivalent to an annual effective rate of 0.0190% of the
fund's average daily net assets including preferred shares.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or to officers of the fund who are also
officers of the investment adviser, all of whom receive remuneration for their
services to the fund from MFS. Certain officers and trustees of the fund are
officers or directors of MFS and MFSC. The fund has an unfunded, defined
benefit plan for certain retired independent trustees which resulted in a
pension expense of $7,083. This amount is included in independent trustees'
compensation for the year ended October 31, 2007. The liability for deferred
retirement benefits payable to certain retired independent trustees amounted to
$104,371 at October 31, 2007, and is included in payable for independent
trustees' compensation.
OTHER - This fund 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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended October 31, 2007, the fee paid to Tarantino LLC
was $2,021. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $1,567, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$109,387,169 and $108,440,677, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund'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 fund of up to 10% annually of its own shares
of beneficial interest. During the year ended October 31, 2007, the fund did
not repurchase any shares. Transactions in fund shares were as follows:
YEAR ENDED YEAR ENDED
10/31/07 10/31/06
SHARES AMOUNT SHARES AMOUNT
Shares issued to shareholders
in reinvestment of distributions 179,155 $1,432,077 179,319 $1,428,897
-------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other funds managed by MFS participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other funds managed by MFS have
established uncommitted borrowing arrangements with certain banks. Borrowings
may be made for temporary financing needs. Interest is charged to each fund,
based on its borrowings, generally at a rate equal to the Federal Reserve funds
rate plus 0.30%. In addition, a commitment fee, based on the average daily,
unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the year ended
October 31, 2007, the fund's commitment fee and interest expense on the line of
credit were $1,625 and $921, respectively, and are included in miscellaneous
expense and interest expense and fees, respectively, on the Statement of
Operations.
(7) AUCTION PREFERRED SHARES
The fund issued 2,800 shares of Auction Preferred Shares ("APS"), series T and
2,800 of APS, 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, 2007, the dividend rates ranged from 2.89% to 4.35%. The fund 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 fund 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 fund is required to
maintain certain asset coverage with respect to the APS as defined in the
fund's By-Laws and the Investment Company Act of 1940.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees and 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 "Fund") as of
October 31, 2007, 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 Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Fund 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 Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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, 2007, 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Municipal
Income Trust as of October 31, 2007, 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 its 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 17, 2007
RESULTS OF SHAREHOLDER MEETING
10/31/07 (unaudited)
At the annual meeting of shareholders of MFS Municipal Income Trust, which was
held on October 4, 2007, the following action was taken:
ITEM 1. To elect the following individuals as Trustees:
NUMBER OF COMMON SHARES
-----------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
------- ----------- ------------------
Robert J. Manning 35,052,144 1,006,348
Lawrence Cohn, M.D. 34,966,243 1,092,249
Lawrence Perera 35,031,451 1,027,042
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Fund, as of December 1, 2007, 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(h) OTHER DIRECTORSHIPS(j)
------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 February 1992 Private investor; Eastern
(born 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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 9/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (acquisition 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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
Travelers Companies (commercial
property liability insurance),
Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004) Chief
Compliance Officer (since December
2006); Fidelity Management &
Research Company, Vice President
(prior to March 2004); Fidelity
Group of Funds, President and
Treasurer (prior to March 2004)
Tracy Atkinson(k) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, 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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance 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 (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "Interested person" of the Fund 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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters.
The terms of that settlement required that compensation and expenses related to the independent
compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services
he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of
$351,119.29.
The Fund 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 and officer will serve
until next elected or his or her earlier death, resignation, retirement or removal.
Messrs. Butler, Gutow, Sherratt and Uek and Ms. Thomsen are members of the Trust's Audit Committee.
Each of the Fund'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 January 1, 2007, the Trustees served as board members of 97 funds within the MFS
Family of Funds.
The Statement of Additional Information for the Fund and further information about the Trustees are available
without charge upon request by calling 1-800-225-2606.
On October 22, 2007, Maria F. Dwyer, as Chief Executive Officer of the Fund, certified to the New York Stock
Exchange that as of the date of her certification she was not aware of any violation by the Fund of the
corporate governance listing standards of the New York Stock Exchange.
The Fund 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 Fund'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
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 02116-3741 200 Berkeley Street, Boston, MA 02116
PORTFOLIO MANAGERS
Gary Lasman
Geoffrey Schechter
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 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, 2007 ("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 that 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, 2006 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 ("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 MFS peer funds, (iii) information
provided by MFS on the advisory fees of comparable portfolios of other clients
of MFS, including institutional separate accounts 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's common shares ranked 4th out of a total of 9 funds in
the Lipper performance universe for this three-year period (a ranking of first
place out of the total number of funds in the performance universe indicating
the best performer and a ranking of last place out of the total number of funds
in the performance universe indicating the worst performer). The total return
performance of the Fund's common shares ranked 6th out of a total of 9 funds
for the one-year period and 2nd out of a total of 6 funds for the five-year
period ended December 31, 2006. Given the size of the Lipper performance
universe and information previously provided by MFS regarding differences
between the Fund and other funds in its Lipper performance universe, the
Trustees also reviewed the Fund's performance in comparison to a custom
benchmark developed by MFS. The Fund out-performed a performance index
designated by MFS for each of the one-year, three-year and five-year periods
ended December 31, 2006 (one-year: 7.29% total return for the Fund versus 4.85%
total return for the performance index; three-year: 7.99% total return for the
Fund versus 4.28% total return for the performance index; five-year: 7.89%
total return for the Fund versus 5.53% total return for the performance index).
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 daily 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
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 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 that 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, which may include 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, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly) 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, 2007.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement is available by clicking on the fund's name under
"Select a fund" on 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
100 F Street, NE, Room 1580
Washington, D.C. 20549
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)
The fund will notify shareholders of amounts for use in preparing 2007 income
tax forms in January 2008.
Of the dividends paid from net investment income during the fiscal year, 99.52%
is designated as exempt interest dividends for federal income tax purposes. If
the fund has earned income on private activity bonds, a portion of the
dividends paid may be considered a tax preference item for purposes of
computing a shareholder's alternative minimum tax.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information.
We maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards to help protect the
personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time
Write to: Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Effective December 18, 2006, Computershare Trust Company, N.A. became the
Transfer Agent and Registrar and Computershare Shareholder Services, Inc.
became the Dividend Disbursing Agent, succeeding MFS Service Center, Inc.
NUMBER OF SHAREHOLDERS
As of October 31, 2007, our records indicate that there are 2,714 registered
shareholders and approximately 12,583 shareholders owning fund 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 fund, please write or
call:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
1-800-637-2304
M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street, Boston, MA 02116
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 not amended any provision in its Code of Ethics
(the "Code") that relates to an element of the Code's definitions enumerated in
paragraph (b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Robert E. Butler and Robert W. Uek and Ms. 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, Messrs.
Butler, and Uek and Ms. Thomsen are "independent" members of the Audit
Committee (as such term has been defined by the Securities and Exchange
Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of
2002). The Securities and Exchange Commission has stated that the designation
of a person as an audit committee financial expert pursuant to this Item 3 on
the Form N-CSR does not impose on such a person any duties, obligations or
liability that are greater than the duties, obligations or liability imposed on
such person as a member of the Audit Committee and the Board of Trustees in the
absence of such designation or identification.
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, 2007 and 2006, audit fees billed to the
Fund by Deloitte were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2007 2006
---- ----
MFS Municipal Income Trust 46,634 42,117
For the fiscal years ended October 31, 2007 and 2006, fees billed by Deloitte
for audit-related, tax and other services provided to the Fund 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: 2007 2006 2007 2006 2007 2006
---- ---- ---- ---- ---- ----
To MFS Municipal 10,000 38,000 6,796 7,050 0 0
Income Trust
To MFS and MFS Related 1,177,035 1,047,925 0 0 582,753 277,076
Entities of MFS
Municipal Income
Trust*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2007 2006
---- ----
To MFS Municipal Income 1,953,959 1,498,236
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.
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 Fund 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. Robert E. Butler, William R. Gutow, J. Dale Sherratt and
Robert W. Uek and Ms. 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
MARCH 1, 2007
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 ("MFS Proxy
Voting Policies and Procedures"), 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 the MFS Proxy Voting
Policies and Procedures.
The MFS Proxy Voting 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 periodically reviews matters that are 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 will 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
governed by the guidelines. 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. 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 material conflicts of interest do arise, MFS will
analyze, document and report on such potential material conflicts of interest
(see Sections B.2 and E below), and shall ultimately vote the relevant proxies
in what MFS believes to be the best long-term economic interests of its
clients. The MFS Proxy Voting Committee is responsible for monitoring and
reporting with respect to such potential material conflicts of interest.
2. MFS' POLICY ON SPECIFIC ISSUES
ELECTION OF DIRECTORS
MFS believes that good governance should be based on a board with at
least a simple 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, or
vote against, as applicable, a nominee to 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, or vote against, as applicable, a
nominee to a board if we can determine that he or she failed to attend at least
75% of the board and/or relevant committee meetings in the previous year
without a valid reason stated in the proxy materials. In addition, MFS will
withhold its vote for, or vote against, as applicable, all nominees standing
for re-election to a board if we can determine: (1) since the last annual
meeting of shareholders and without shareholder approval, the board or its
compensation committee has re-priced underwater stock options; or (2) since the
last annual meeting, the board has either implemented a poison pill without
shareholder approval or has not taken responsive action to a majority
shareholder approved resolution recommending that the "poison pill" be
rescinded. 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 assurance in the proxy materials that the terms
of the "poison pill" would be put to a binding shareholder vote within the next
five to seven years.
MFS will also withhold its vote for, or vote against, as
applicable, a nominee (other than a nominee who serves as the issuer's Chief
Executive Officer) standing for re-election if such nominee participated (as a
director or committee member) in the approval of a senior executive
compensation package MFS deems to be "excessive." In the event that MFS
determines that an issuer has adopted an "excessive" executive compensation
package, MFS will withhold its vote for, or vote against, as applicable, the
re-election of the issuer's Chief Executive Officer as director regardless of
whether the Chief Executive Officer participated in the approval of the
package. MFS will determine whether a senior executive compensation package is
excessive on a case by case basis. Examples of "excessive" executive
compensation packages include packages that contain egregious employment
contract terms or pension payouts, backdated stock options, overly generous
hiring bonuses for chief executive officers or packages which include excessive
perks.
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.
MFS votes for reasonably crafted proposals calling for directors to be
elected with an affirmative majority of votes cast and/or the elimination of
the plurality standard for electing directors (including binding resolutions
requesting that the board amend the company's bylaws), provided the proposal
includes a carve-out for a plurality voting standard when there are more
director nominees than board seats (e.g., contested elections) ("Majority Vote
Proposals").
MFS considers voting against Majority Vote Proposals if the company
has adopted, or has proposed to adopt in the proxy statement, formal corporate
governance principles that present a meaningful alternative to the majority
voting standard and provide an adequate response to both new nominees as well
as incumbent nominees who fail to receive a majority of votes cast.
MFS believes that a company's election policy should address the
specific circumstances at that company. MFS considers whether a company's
election policy articulates the following elements to address each director
nominee who fails to receive an affirmative majority of votes cast in an
election:
o Establish guidelines for the process by which the company determines the
status of nominees who fail to receive an affirmative majority of votes cast
and disclose the guidelines in the annual proxy statement;
o Guidelines should include a reasonable timetable for resolution of the
nominee's status and a requirement that the resolution be disclosed together
with the reasons for the resolution;
o Vest management of the process in the company's independent directors, other
than the nominee in question; and
o Outline the range of remedies that the independent directors may consider
concerning the nominee.
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
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 also 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 programs 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 restricted stock plans, stock option, non-employee
director, omnibus stock plans and any other stock plan 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.
EXPENSING OF 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, except as provided in
paragraph 2 above with respect to "excessive compensation" and the election of
directors, MFS opposes shareholder proposals that seek to set restrictions on
executive compensation. 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
performance, MFS opposes shareholder proposals that mandate a link of
performance-based options to a specific industry or peer group stock 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 supports reasonably crafted shareholder proposals that (i) require
the issuer to adopt a policy to recover the portion of performance-based
bonuses and awards paid to senior executives that were not earned based upon a
significant negative restatement of earnings unless the company already has
adopted a clearly satisfactory policy on the matter, or (ii) expressly prohibit
any future backdating of stock options.
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
we can determine that 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 the 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.
MFS may also vote against the authorization or issuance of common or preferred
stock if MFS determines that the requested authorization is not warranted.
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 (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 for U.S. issuers 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. Some
shareholder groups have submitted proposals to limit the non-audit activities
of a company's audit firm or prohibit 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.
OTHER CORPORATE GOVERNANCE, CORPORATE RESPONSIBILITY AND SOCIAL ISSUES
There are many groups advocating social change or changes to corporate
governance or corporate responsibility standards, and many have chosen the
publicly-held corporation as a vehicle for advancing their agenda. Generally,
MFS votes with management on such proposals unless MFS can determine that the
benefit to shareholders will outweigh any costs or disruptions to the business
if the proposal were adopted. Common among the shareholder proposals that MFS
generally votes against are proposals requiring the company to use corporate
resources to further a particular social objective outside the business of the
company, to refrain from investing or conducting business in certain countries,
to adhere to some list of goals or principles (e.g., environmental standards),
to disclose political contributions made by the issuer, to separate the
Chairman and Chief Executive Officer positions, or to promulgate special
reports on various activities or proposals for which 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.
FOREIGN ISSUERS
Many of the 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 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; and (v) approval of share repurchase
programs.
MFS generally supports the election of a director nominee standing for
re-election in uncontested elections unless it can be determined that (1) he or
she failed to attend at least 75% of the board and/or relevant committee
meetings in the previous year without a valid reason given in the proxy
materials; (2) since the last annual meeting of shareholders and without
shareholder approval, the board or its compensation committee has re-priced
underwater stock options; or (3) since the last annual meeting, the board has
either implemented a poison pill without shareholder approval or has not taken
responsive action to a majority shareholder approved resolution recommending
that the "poison pill" be rescinded. MFS will also withhold its vote for, or
vote against, as applicable, a director nominee standing for re-election of an
issuer that has adopted an excessive compensation package for its senior
executives as described above in the section entitled "Voting Guidelines-MFS'
Policy on Specific Issues-Election of Directors."
MFS generally supports the election of auditors, but may determine to
vote against the election of a statutory auditor in certain markets if MFS
reasonably believes that the statutory auditor is not truly independent. MFS
will evaluate all other items on proxies for foreign companies in the context
of the guidelines described above, but will generally vote against an item if
there is not sufficient information disclosed in order to make an informed
voting decision.
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 share blocking 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 will
not vote those proxies in the absence of an unusual, significant vote.
B. ADMINISTRATIVE PROCEDURES
1. MFS PROXY VOTING COMMITTEE
The administration of these MFS Proxy Voting Policies and Procedures
is overseen by the MFS Proxy Voting Committee, which includes senior personnel
from the MFS Legal and Global Investment Support Departments. The MFS Proxy
Voting Committee:
a. Reviews these MFS Proxy Voting Policies and Procedures at least
annually and recommends any amendments considered to be necessary
or advisable;
b. Determines whether any potential material conflicts of interest
exist with respect to instances in which (i) MFS seeks to override
these MFS Proxy Voting Policies and Procedures and (ii) votes on
ballot items not clearly governed by these MFS Proxy Voting
Policies and Procedures; and
c. Considers special proxy issues as they may arise from time to time.
2. POTENTIAL CONFLICTS OF INTEREST
The MFS Proxy Voting Committee 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 Voting Committee.
In cases where proxies are voted in accordance with these MFS Proxy
Voting Policies and Procedures, no material conflict of interest will be deemed
to exist. In cases where (i) MFS is considering overriding these MFS Proxy
Voting Policies and Procedures, or (ii) matters presented for vote are not
governed by these MFS Proxy Voting Policies and Procedures, the MFS Proxy
Voting Committee, or delegees, 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 or its affiliate
MFS Retirement Services, Inc. ("RSI"), 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 Voting Committee;
c. If the name of the issuer appears on the MFS Significant Client
List, then the MFS Proxy Voting Committee will be apprised of that
fact and each member of the MFS Proxy Voting Committee will
carefully evaluate the proposed vote 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 Voting Committee will document: the
name of the issuer, the issuer's relationship to MFS, the analysis
of the matters submitted for proxy vote, the votes as to be cast
and the reasons why the MFS Proxy Voting Committee determined that
the votes were cast in 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 MFS' Conflicts Officer.
The members of the MFS Proxy Voting Committee are responsible for
creating and maintaining the MFS Significant Client List, in consultation with
MFS' distribution, institutional business units and RSI. 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 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 related administrative services, such
as vote processing and recordkeeping functions for MFS' Funds and institutional
client accounts. 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 all upcoming shareholders' meetings are
available on-line to certain MFS employees and the MFS Proxy Voting Committee.
4. ANALYZING PROXIES
Proxies are voted in accordance with these MFS Proxy Voting Policies
and Procedures. The Proxy Administrator at the prior direction of MFS
automatically votes all proxy matters that do not require the particular
exercise of discretion or judgment with respect to these MFS Proxy Voting
Policies and Procedures as determined by the MFS Proxy Voting Committee. With
respect to proxy matters that require the particular exercise of discretion or
judgment, MFS considers and votes on those proxy matters. MFS receives research
from ISS which it may take into account in deciding how to vote. In addition,
MFS expects to rely on ISS to identify circumstances in which a board may have
approved excessive executive compensation. Representatives of the MFS Proxy
Voting Committee review, as appropriate, votes cast to ensure conformity with
these MFS Proxy Voting Policies and Procedures.
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., corporate
actions, such as mergers and acquisitions), a representative of MFS Proxy
Voting Committee may consult with or seek recommendations from portfolio
managers or analysts.(1) However, the MFS Proxy Voting Committee would
ultimately determine the manner in which all proxies are voted.
-----------
(1) 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 prior to the cut-off date of the
shareholder meeting, certain members of the MFS Proxy Voting Committee may
determine to abstain from voting.
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
In accordance with its contract with MFS, the Proxy Administrator also
generates a variety of reports for the MFS Proxy Voting Committee, and makes
available on-line various other types of information so that the MFS Proxy
Voting Committee may review and 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
Voting Committee to monitor the proxy voting process. When proxy materials for
clients are received, they are forwarded to the Proxy Administrator and are
input into the Proxy Administrator's system. 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 voting
cut-off 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 forwarded 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 MFS Proxy Voting Policies and
Procedures in effect from time to time and will retain all proxy voting reports
submitted to the Board of Trustees, Board of Directors 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
representatives of the MFS Proxy Voting Committee, 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 Voting
Committee. All proxy voting materials and supporting documentation, including
records generated by the Proxy Administrator's system as to proxies processed,
including the dates when proxy ballots were received and submitted, and the
votes on each company's proxy issues, are retained as required by applicable
law.
E. REPORTS
MFS FUNDS
MFS will report the results of its voting to the Board of Trustees,
Board of Directors 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
therefore; (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, Directors 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.
PORTFOLIO MANAGER PRIMARY ROLE SINCE TITLE AND FIVE YEAR HISTORY
----------------- ------------ ----- ---------------------------
Gary A. Lasman Portfolio Manager April 2006 Vice President of MFS;
employed in the
investment management
area of MFS since 2002;
Senior Municipal Analyst
for Liberty Funds Group
prior to 2002.
Geoffrey L. Schecter 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 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. 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 investor relations and the
investment process (distinct from fund and other account
performance).
Portfolio managers also typically benefit from the opportunity to participate
in the MFS Equity Plan. Equity interests and/or options to acquire 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 such benefits represent of any portfolio manager's compensation
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, 2007. 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
------------------------- -----------------------------------------
Gary A. Lasman N
Geoffrey L. Schecter 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, 2007 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
Gary A. Lasman 4 $2.6 billion 0 N/A 0 N/A
Geoffrey L. Schecter 13 $7.0 billion 1 $234.5 million 0 N/A
-----------------
* 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 seeks 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.
The management of multiple funds and accounts (including proprietary accounts)
may give rise to potential conflicts of interest if the funds and accounts have
different objectives and strategies, benchmarks, time horizons and fees as a
portfolio manager must allocate his or her time and investment ideas across
multiple funds and accounts. In certain instances there may be securities which
are suitable for the Fund's portfolio as well as for accounts of MFS or its
subsidiaries with similar investment objectives. A Fund's trade allocation
policies may give rise to conflicts of interest if the Fund's orders do not get
fully executed or are delayed in getting executed due to being aggregated with
those of other accounts of MFS or its subsidiaries. A portfolio manager may
execute transactions for another fund or account that may adversely impact the
value of the Fund's investments. Investments selected for funds or accounts
other than the Fund may outperform investments selected for the Fund.
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. As a
result, MFS and/or a portfolio manager may have a financial 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)
(C) MAXIMUM NUMBER
TOTAL NUMBER OF (OR APPROXIMATE
(B) SHARES PURCHASED AS DOLLAR VALUE) OF
(A) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS OR BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE PROGRAMS THE PLANS OR PROGRAMS
============================================================================================================
11/1/06-11/30/06 0 N/A 0 3,994,370
------------------------------------------------------------------------------------------------------------
12/1/06-12/31/06 0 N/A 0 3,994,370
------------------------------------------------------------------------------------------------------------
1/1/07-1/31/07 0 N/A 0 3,994,370
------------------------------------------------------------------------------------------------------------
2/1/07-2/28/07 0 N/A 0 3,994,370
------------------------------------------------------------------------------------------------------------
3/1/07-3/31/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
4/1/07-4/30/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
5/1/07-5/31/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
6/1/07-6/30/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
7/1/07-7/31/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
8/1/07-8/31/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
9/1/07-9/30/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
10/1/07-10/31/07 0 N/A 0 4,016,342
------------------------------------------------------------------------------------------------------------
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, 2007 plan year is 4,016,342.
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.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of the Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
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 17, 2007
-----------------
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 17, 2007
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 17, 2007
-----------------
* Print name and title of each signing officer under his or her signature.