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
-------------------------------------------------------------------------------
MFS MUNICIPAL INCOME TRUST
-------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
-------------------------------------------------------------------------------
(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
-------------------------------------------------------------------------------
Date of fiscal year end: October 31
-------------------------------------------------------------------------------
Date of reporting period: October 31, 2006
-------------------------------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) MUNICIPAL INCOME TRUST
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
10/31/06
MFM-ANN
MFS(R) MUNICIPAL
INCOME TRUST
LETTER FROM THE CEO 1
----------------------------------------------------------------
PORTFOLIO COMPOSITION 2
----------------------------------------------------------------
MANAGEMENT REVIEW 3
----------------------------------------------------------------
PORTFOLIO MANAGERS' PROFILES 5
----------------------------------------------------------------
PERFORMANCE SUMMARY 6
----------------------------------------------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 8
----------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 9
----------------------------------------------------------------
FINANCIAL STATEMENTS 33
----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 38
----------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 46
----------------------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 47
----------------------------------------------------------------
TRUSTEES AND OFFICERS 48
----------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 54
----------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 58
----------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 58
----------------------------------------------------------------
FEDERAL TAX INFORMATION 58
----------------------------------------------------------------
MFS(R) PRIVACY NOTICE 59
----------------------------------------------------------------
CONTACT INFORMATION BACK COVER
----------------------------------------------------------------
TRUST OBJECTIVE: The Trust seeks to provide high current income
exempt from Federal income taxes.
New York Stock Exchange Symbol: MFM
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
What a difference a year can make. By the end of 2005, the Dow Jones
Industrial Average had lost value over the course of the year, as stocks were
beaten back by a myriad of investor worries, including a spike in oil prices,
a rise in interest rates, and political uncertainty in the Middle East.
Fast forward to 2006, and we have seen a dramatically different picture.
While there were some fluctuations in the global markets in the first half of
the year, the second half of 2006 has, so far, been good to many investors.
Oil prices retreated, boosting consumer confidence, and interest rates have
held steady. U.S. stock markets responded favorably to this news, as the Dow
reached a record high in October, passing the 12,000 mark.
What does all of this mean for you? If you're focused on a long-term
investment strategy, the high points in the road -- and the bumps -- should
not necessarily dictate portfolio action on your part. Markets are inherently
cyclical, and we firmly believe that investors who remain committed to a long-
term investment strategy are more likely to achieve their goals than those who
consistently chase short-term performance.
At MFS(R), our unique teamwork approach to managing money and our global
research platform support an unwavering focus on helping you realize your
long-term financial goals. We believe in a three-pronged investment strategy
of allocating your holdings across major asset classes, diversifying within
each class, and rebalancing regularly. 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 are essential to
capitalizing on the many opportunities the financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 15, 2006
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)
Municipal Bonds 100.2%
Cash & Other Net Assets -0.2%
TOP FIVE INDUSTRIES (i)
Healthcare Revenue - Hospitals 28.9%
------------------------------------------------
Healthcare Revenue - Long Term
Care 8.2%
------------------------------------------------
Utilities - Investor Owned 6.8%
------------------------------------------------
Industrial Revenue - Airlines 5.5%
------------------------------------------------
Tobacco 4.7%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 15.6%
------------------------------------------------
AA 2.7%
------------------------------------------------
A 10.5%
------------------------------------------------
BBB 32.1%
------------------------------------------------
BB 6.9%
------------------------------------------------
B 7.3%
------------------------------------------------
CCC 4.1%
------------------------------------------------
Not Rated 20.8%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 5.9
------------------------------------------------
Average Life (m) 15.9 yrs.
------------------------------------------------
Average Maturity (m) 18.1 yrs.
------------------------------------------------
Average Credit Quality of
Rated Securities (long-term) (a) BBB+
------------------------------------------------
Average Credit Quality of
Rated Securities (short-term) (a) A-1
------------------------------------------------
(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 graphical 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.
(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 10/31/06.
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
10/31/06, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
MFS Municipal Income Trust 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, 2006, shares of the MFS Municipal
Income Trust provided a total return of 8.24%, at net asset value. This
compares with a return of 5.76% for the trust's benchmark, the Lehman Brothers
Municipal Bond Index.
CONTRIBUTORS TO PERFORMANCE
The trust's overweighted position in the strong-performing health care sector
boosted relative performance. Security selection in the health care,
industrials, transportation, and utilities sectors also helped.
Relative results were positively impacted by credit quality. The trust
benefited from its exposure to "BBB" rated(s) bonds which outperformed higher-
quality issues over the period. Our positions in non-investment-grade debt,
which is not held by the benchmark, also aided relative returns.
DETRACTORS FROM PERFORMANCE
The trust's positioning along the yield curve(y) detracted from relative
performance. Compared with our benchmark, the trust was underweighted in bonds
on the long end of the curve (represented by bonds with durations(d) of 8-
to-25 years). On a relative basis, our underweighting in longer-maturity bonds
hurt returns as long-term municipal bond rates declined during the period, most
notably on the lower-quality securities.
Respectfully,
Gary A. Lasman Geoffrey L. Schechter
Portfolio Manager Portfolio Manager
Note to Shareholders: Effective April 2006, Gary A. Lasman became a
co-manager of the fund.
(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 and
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.
PORTFOLIO MANAGERS' PROFILES
Geoffrey L. Schechter, CFA, CPA, is a Senior Vice President of MFS Investment
Management (MFS) and a Municipal Fixed Income Portfolio Manager. He also
manages several other government bond portfolios for MFS. He joined MFS as a
portfolio manager, and named Senior Vice President in 2002. Geoffrey is a
graduate of the University of Texas and has an M.B.A. degree from Boston
University. He holds the Chartered Financial Analyst (CFA) and Certified
Public Accountant (CPA) designations.
Gary A. Lasman, CFA, is Vice President of MFS Investment Management(R)
(MFS(R)) and is a Municipal Fixed Income Portfolio Manager. Prior to joining
the firm in 2002, Gary served as an Assistant Portfolio Manager and Senior
Municipal Analyst for Liberty Funds Group. Prior to that he served as a Vice
President for Thomson Financial Services and a Senior Account Manager for The
Industrial Indemnity Financial Corporation. Gary is a graduate of the
University of California and has an M.B.A. from the University of Chicago. He
is a member of the Boston Security Analysts Society, Inc. and National
Federation of Municipal Analysts.
Note to Shareholders: Effective April 2006, Gary Lasman became co-manager of
the fund.
PERFORMANCE SUMMARY THROUGH 10/31/06
All results are historical. Investment return and principal value will
fluctuate, and shares, when sold, may be worth more or less than their
original cost. More recent returns may be more or less than those shown. Past
performance is no guarantee of future results.
PRICE SUMMARY
Year ended 10/31/06
Date Price
------------------------------------------------------------------------------
Net Asset Value 10/31/06 $8.06
------------------------------------------------------------------------------
10/31/05 $7.92
------------------------------------------------------------------------------
New York Stock Exchange Price 10/31/06 $8.20
------------------------------------------------------------------------------
3/09/06 (high) (t) $8.39
------------------------------------------------------------------------------
11/14/05 (low) (t) $7.54
------------------------------------------------------------------------------
10/31/05 $8.27
------------------------------------------------------------------------------
TOTAL RETURNS VS BENCHMARK
Year ended 10/31/06
------------------------------------------------------------------------------
New York Stock Exchange Price (r) 5.41%
------------------------------------------------------------------------------
Net Asset Value (r) 8.24%
------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index (f) 5.76%
------------------------------------------------------------------------------
(f) Source: FactSet Research Systems Inc.
(r) Includes reinvestment of dividends and capital gain distributions.
(t) For the period November 1, 2005 through October 31, 2006.
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 trust's shares may trade at a discount to net asset value. Shareholders do
not have the right to cause the trust to repurchase their shares at net asset
value. The trust's shares also may trade at a premium to their net asset value.
When trust shares trade at a premium, buyers pay more than the asset value
underlying trust shares, and shares purchased at a premium would receive less
than the amount paid for them in the event of the trust's liquidation. As a
result, the total return that is calculated based on the net asset value and
New York Stock Exchange price can be different.
The trust's monthly distributions may include a return of capital to
shareholders. Distributions that are treated for federal income tax purposes as
a return of capital will reduce each shareholder's basis in his or her shares
and, to the extent the return of capital exceeds such basis, will be treated as
gain to the shareholder from a sale of shares. Returns of shareholder capital
have the effect of reducing the trust's assets and increasing the trust's
expense ratio.
From time to time the trust may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio'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 be subject
to greater price fluctuations than those with shorter maturities. Municipal
instruments can be volatile and significantly affected by adverse tax,
legislative or political changes and the financial condition of the issuers
and/or insurers of municipal instruments. Derivatives involve risks different
from, and greater than, those of the underlying indicator's in whose value the
derivative is based. The value of the derivative can move in unexpected ways
and result in unanticipated losses and increased volatility if the value of the
underlying indicator(s) does not move in the direction or the extent
anticipated. Each portfolio's performance will be closely tied to the economic
and political conditions in its state and will be more volatile than the
performance of a more geographically diversified portfolio. These conditions
may include constitutional or statutory limits on an issuer's ability to raise
revenues or increase taxes, anticipated or actual budget deficits or other
financial difficulties, or changes in the credit quality of municipal issuers
in the state. Because MFS may invest a relatively large percentage of the
portfolio's assets in issuers located in a single country or a small number of
countries, the portfolio's performance could be closely tied to the market,
economic, political or regulatory conditions and developments in those
countries and could be more volatile than the performance of more
geographically diversified portfolios. Lower quality debt securities involve
substantially greater risk of default and their value can decline significantly
over time. 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 risks considerations.
These risks may increase share price volatility.
In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of
the trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
The trust offers a Dividend Reinvestment and Cash Purchase Plan that allows you
to reinvest either all of the distributions paid by the trust or only the
long-term capital gains. Purchases are made at the market price unless that
price exceeds the net asset value (the shares are trading at a premium). If the
shares are trading at a premium, purchases will be made at a discounted price
of either the net asset value or 95% of the market price, whichever is greater.
Twice each year you can also buy shares. Investments may be made in any amount
over $100 in January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the plan on your behalf. If the
nominee does not offer the plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the commissions. The automatic
reinvestment of distributions does not relieve you of any income tax that may
be payable (or required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please have
available the name of the trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw from the plan, you can receive the value of the reinvested shares in
one of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
The trust has amended the plan to appoint Computershare Trust Company, N.A.
(the Transfer Agent for the trust as of December 18, 2006) as agent for the
plan. The effective date for the amendment is May 1, 2007. Under the terms of
the plan, if you do not withdraw from the plan prior to May 1, 2007, you will
be deemed to accept the appointment of Computershare Trust Company, N.A. as
your agent under the plan.
PORTFOLIO OF INVESTMENTS
10/31/06
The Portfolio of Investments is a complete list of all securities owned by your trust. It is categorized by
broad-based asset classes.
Municipal Bonds - 141.0%
-------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
-------------------------------------------------------------------------------------------------------------------------
Airport & Port Revenue - 4.4%
-------------------------------------------------------------------------------------------------------------------------
Chicago, IL, O'Hare International Airport Rev., RITES, XLCA, 7.024%, 2022 (v)(z) $ 1,500,000 $ 1,812,150
New York, NY, City Industrial Development Agency, Special Facilities Rev.
(Terminal One Group), 5.5%, 2024 275,000 298,235
Oklahoma City, OK, Airport Trust Rev., FSA, 5.75%, 2016 3,125,000 3,324,688
Port Authority, NY, Special Obligations Rev. (JFK
International), MBIA, 5.75%, 2022 7,000,000 7,273,210
Seattle, WA, Airport Trust Rev., FGIC, 5.625%, 2018 1,500,000 1,603,515
-------------
$ 14,311,798
-------------------------------------------------------------------------------------------------------------------------
General Obligations - General Purpose - 2.1%
-------------------------------------------------------------------------------------------------------------------------
Kane Kendall County, IL, Capital Appreciation, "E", FGIC, 0%, 2023 $ 1,945,000 $ 860,682
Kane Kendall County, IL, Capital Appreciation, "E", FGIC, 0%, 2025 1,915,000 757,612
Lake County, IL, Land Acquisition & Development, 5.75%, 2017 1,000,000 1,077,570
New York, NY, "M", 5%, 2035 3,800,000 3,988,670
-------------
$ 6,684,534
-------------------------------------------------------------------------------------------------------------------------
General Obligations - Schools - 1.1%
-------------------------------------------------------------------------------------------------------------------------
Aledo, TX, Independent School District, School Building, "A", PSF, 5.125%, 2033 $ 955,000 $ 1,012,768
De Soto, TX, Independent School District, School Building, PSF, 0%, 2031 555,000 161,017
De Soto, TX, Independent School District, School Building, PSF, 0%, 2034 415,000 102,061
De Soto, TX, Independent School District, School Building, PSF, 0%, 2036 555,000 122,494
Ennis, TX, Independent School District, Capital Appreciation, "N", PSF, 0%, 2028 290,000 99,160
Ennis, TX, Independent School District, Capital Appreciation, "N", PSF, 0%, 2029 560,000 186,693
Ennis, TX, Independent School District, Capital Appreciation, "N", PSF, 0%, 2031 555,000 161,505
Leander, TX, Independent School District, Capital Appreciation, Refunding,
School Building, FGIC, 0%, 2026 1,285,000 478,149
Leander, TX, Independent School District, Capital Appreciation, Refunding,
School Building, FGIC, 0%, 2031 1,295,000 358,832
Royse City, TX, Independent School District, School Building, PSF, 0%, 2027 955,000 347,334
Royse City, TX, Independent School District, School Building, PSF, 0%, 2028 960,000 330,269
Royse City, TX, Independent School District, School Building, PSF, 0%, 2029 965,000 314,127
-------------
$ 3,674,409
-------------------------------------------------------------------------------------------------------------------------
Healthcare Revenue - Hospitals - 40.7%
-------------------------------------------------------------------------------------------------------------------------
Alexander City, AL, Special Care Facilities Financing Authority
Medical Facilities Rev. (Russell Hospital Corp.), "A", 5.75%, 2036 $ 600,000 $ 631,812
Allegheny County, PA, Hospital Development Authority Rev.
(South Hills Health Systems), "B", 6.75%, 2025 500,000 540,195
Allegheny County, PA, Hospital Development Authority Rev. (West
Penn Allegheny Health), 9.25%, 2030 2,000,000 2,387,620
Allegheny County, PA, Hospital Development Authority Rev. (West
Penn Allegheny Health), "B", 9.25%, 2022 1,000,000 1,193,810
Arkansas Development Finance Authority Rev. (Washington
Regional Medical Center), 7.25%, 2010 (c) 500,000 554,890
Athens County, OH, Hospital Facilities Rev. (O'Bleness Memorial
Hospital), "A", 7.125%, 2033 1,500,000 1,634,970
Baldwin County, AL, Eastern Shore Health Care Authority Rev.
(Thomas Hospital), 5.75%, 2008 (c) 700,000 733,817
Birmingham, AL, Baptist Medical Center, Special Care Facilities
Rev. (Baptist Health Systems, Inc.), "A", 5%, 2030 535,000 550,264
Brookhaven, NY, Civic Facilities Rev. (Memorial Hospital
Medical Center, Inc.), 7.75%, 2010 575,000 608,551
California Valley Health Systems, COP, 6.875%, 2023 720,000 725,868
Chautauqua County, NY, Industrial Development Agency, Civic
Facilities Rev. (Women's Christian Assn.), "A", 6.35%, 2017 215,000 220,971
Chautauqua County, NY, Industrial Development Agency, Civic
Facilities Rev. (Women's Christian Assn.), "A", 6.4%, 2029 960,000 979,891
Chemung County, NY, Civic Facilities Rev. (St. Joseph's
Hospital-Elmira), "A", 6%, 2013 490,000 494,312
Chemung County, NY, Civic Facilities Rev. (St. Joseph's
Hospital-Elmira), "B", 6.35%, 2013 120,000 124,183
Chester County, PA, Health & Educational Facilities Rev.
(Chester County Hospital), 6.75%, 2021 1,625,000 1,779,521
Citrus County, FL, Hospital Development Authority Rev. (Citrus
Memorial Hospital), 6.25%, 2023 925,000 1,002,996
Coffee County, GA, Hospital Authority Rev. (Coffee Regional
Medical Center, Inc.), 5%, 2026 40,000 40,824
Colorado Health Facilities Authority Rev. (Parkview Medical
Center, Inc.), 6.6%, 2025 1,000,000 1,098,780
Colorado Health Facilities Authority Rev. (Parkview Medical
Center, Inc.), 6.5%, 2020 1,230,000 1,351,807
Colorado Health Facilities Authority Rev. (Portercare Adventist
Health Systems), 6.625%, 2011 (c) 675,000 774,536
Crittenden County, AR, Hospital Rev., 7%, 2020 1,030,000 1,043,225
Cuyahoga County, OH, Hospital Facilities Rev. (Canton, Inc.), 7.5%, 2030 1,330,000 1,491,715
Delaware Health Facilities Authority Rev. (Nanticoke Memorial Hospital),
5.625%, 2032 1,250,000 1,335,963
Denver, CO, Health & Hospital Authority Rev., 5.25%, 2013 635,000 648,157
Denver, CO, Health & Hospital Authority Rev., 5.375%, 2018 1,500,000 1,535,970
Denver, CO, Health & Hospital Authority Rev., 5.375%, 2028 860,000 872,487
Denver, CO, Health & Hospital Authority Rev., "A", 6%, 2023 250,000 267,545
District of Columbia, Health & Hospital Authority Rev. (Medstar
University Hospital), "D", 6.875%, 2007 (c) 1,200,000 1,211,472
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial
Hospital), 6.2%, 2025 250,000 259,903
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial
Hospital), 6.5%, 2031 295,000 310,370
Grand Forks, ND, Health Care Authority Rev. (Altru Health
Systems Obligated Group), 7.125%, 2024 755,000 837,891
Gulfport, MS, Hospital Facilities Rev. (Memorial Hospital), 5.75%, 2031 1,000,000 1,039,610
Highlands County, FL, Health Facilities Authority Rev.
(Adventist Health Systems), "C", 5.25%, 2036 1,180,000 1,258,659
Highlands County, FL, Health Facilities Authority Rev.
(Adventist/Sunbelt Hospital), 6%, 2011 (c) 900,000 1,007,019
Houston County, AL, Health Care Authority Rev., AMBAC, 6.25%, 2009 (c) 2,000,000 2,167,820
Huntsville, AL, Health Care Authority Rev., 5.625%, 2026 875,000 922,416
Illinois Development Finance Authority, Hospital Authority Rev.
(Adventist/Sunbelt Hospital), 5.65%, 2009 (c) 1,750,000 1,864,258
Illinois Finance Authority Rev. (Kewanee Hospital), 5.1%, 2031 410,000 418,139
Illinois Health Facilities Authority Rev. (Centegra Heath Systems), 5.25%, 2018 1,000,000 1,020,230
Indiana Health Facilities Financing Authority, Hospital Rev.
(Clarian Health), "A", 5%, 2039 375,000 389,363
Indiana Health Facilities Financing Authority, Hospital Rev.
(Community Hospital), "A", AMBAC, 5%, 2035 1,780,000 1,860,153
Indiana Health Facilities Financing Authority, Hospital Rev.
(Munster Medical Research Foundation, Inc.), 6.375%, 2031 3,990,000 4,277,081
Indiana Health Facilities Financing Authority, Hospital Rev.
(Riverview Hospital), 6.125%, 2031 1,000,000 1,074,930
Johnson City, TN, Health & Educational Facilities, Hospital
Rev. (Mountain States Health), "A", 5.5%, 2036 355,000 381,678
Joplin, MO, Industrial Development Authority Health Facilities
Rev. (Freeman Health Systems), 5.5%, 2029 440,000 469,150
Joplin, MO, Industrial Development Authority Health Facilities
Rev. (Freeman Health Systems), 5.75%, 2035 475,000 519,788
Kentucky Economic Development Finance Authority (Norton
Healthcare), "A", 6.5%, 2010 (c) 1,965,000 2,193,510
Kentucky Economic Development Finance Authority, Unrefunded
(Norton Healthcare), "A", 6.5%, 2020 3,035,000 3,304,296
Knox County, TN, Health Educational Housing Facilities Board,
Hospital Facilities Rev. (Baptist Health Systems), 6.5%, 2031 1,725,000 1,860,206
Lauderdale County & Florence, AL, Health Care Authority Rev.
(Coffee Health Group), MBIA, 5.625%, 2021 3,000,000 3,226,890
Lufkin, TX, Health Facilities Rev. (Memorial Health System of
East Texas), 5.7%, 2008 (c) 995,000 1,039,536
Macomb County, MI, Hospital Finance Authority Rev. (Mount
Clemens General Hospital), 5.75%, 2025 1,000,000 1,048,750
Macomb County, MI, Hospital Finance Authority Rev. (Mount
Clemens General Hospital), 5.875%, 2034 905,000 950,286
Madison County, ID, Hospital Rev., COP, 5.25%, 2030 240,000 250,639
Madison County, ID, Hospital Rev., COP, 5.25%, 2037 310,000 322,251
Maryland Health & Higher Educational Facilities Authority Rev.
(Medstar Health), 5.5%, 2033 380,000 404,692
Maryland Health & Higher Educational Facilities Authority Rev.
(North Arundel Hospital), 6.5%, 2010 (c) 1,500,000 1,663,770
Massachusetts Health & Educational Facilities Authority Rev.
(Berkshire Health Systems), "E", 6.25%, 2031 1,900,000 2,042,842
Massachusetts Health & Educational Facilities Authority Rev.
(Caritas Christi), 5.7%, 2015 500,000 521,675
Massachusetts Health & Educational Facilities Authority Rev.
(Caritas Christi), "B", 6.5%, 2012 600,000 653,226
Massachusetts Health & Educational Facilities Authority Rev.
(Jordan Hospital), "D", 5.25%, 2018 1,400,000 1,418,928
Massachusetts Health & Educational Facilities Authority Rev.
(Northern Berkshire Health), "B", 6.375%, 2034 640,000 674,522
Massachusetts Health & Educational Facilities Authority Rev.
(Saints Memorial Medical Center), 6%, 2023 465,000 468,320
Miami Beach, FL, Health Facilities Authority Rev. (Mount Sinai
Medical Center), "A", 6.7%, 2019 995,000 1,094,281
Miami Beach, FL, Health Facilities Authority Rev. (Mount Sinai
Medical Center), 6.75%, 2029 810,000 913,372
Mississippi Business Finance Corp., Health Facilities Rev.
(Rush Medical Foundation, Inc.), 5.625%, 2023 845,000 850,526
Mississippi Hospital Equipment, Health Facilities Rev. (Rush
Medical Foundation, Inc.), 5.4%, 2007 105,000 105,187
Monongalia County, WV, Building Commission Hospital Rev.
(Monongalia General Hospital), "A", 5%, 2030 425,000 436,394
Monroe County, MI, Hospital Finance Authority, Hospital Rev.
(Mercy Memorial Hospital Corp.), 5.5%, 2035 1,020,000 1,074,121
Monroe County, NY, Industrial Development Agency, Civic
Facilities Rev. (Highland Hospital of Rochester), 5%, 2025 65,000 67,181
Montgomery, AL, Special Care Facilities, Financing Authority
Rev. (Baptist Health), "A-2", MBIA, 0% to 2007, 5% to 2014 (c) 1,725,000 1,773,162
Montgomery, AL, Special Care Facilities, Financing Authority
Rev. (Baptist Health), "C", 5.25%, 2014 (c) 760,000 838,987
Mount Lebanon, PA, Hospital Authority Rev. (St. Clair Memorial
Hospital), 5.625%, 2032 435,000 460,970
Nassau County, NY, Industrial Development Agency, Civic
Facilities Rev. (North Shore Health System), 5.625%, 2010 510,000 524,581
Nassau County, NY, Industrial Development Agency, Civic
Facilities Rev. (North Shore Health System), 5.875%, 2011 415,000 434,733
Neosho County, KS, Hospital Authority Rev., "A", 5.05%, 2026 325,000 327,681
Neosho County, KS, Hospital Authority Rev., "A", 5.15%, 2031 230,000 231,902
New Hampshire Health & Educational Facilities Authority Rev.
(Catholic Medical Center), "A", 6.125%, 2012 (c) 880,000 997,128
New Hampshire Health & Educational Facilities Authority Rev.
(Catholic Medical Center), "A", 6.125%, 2032 120,000 132,026
New Hampshire Health & Educational Facilities Authority Rev.
(Covenant Health), 6.5%, 2017 820,000 920,557
New Jersey Health Care Facilities, Financing Authority Rev.
(Children's Specialized Hospital), "A", 5.5%, 2030 245,000 257,828
New Jersey Health Care Facilities, Financing Authority Rev.
(St. Peter's University Hospital), 6.875%, 2030 3,000,000 3,335,100
New York Dormitory Authority Rev., Non State Supported Debt
(Mt. Sinai NYU Health), 5.5%, 2026 635,000 645,827
New York Dormitory Authority Rev., Non State Supported Debt
(Mt. Sinai NYU Health), "C", 5.5%, 2026 500,000 508,525
New York Dormitory Authority Rev., Non State Supported Debt
(NYU Hospitals Center), "A", 5%, 2026 1,750,000 1,785,910
New York, NY, Health & Hospital Corp. Rev., "A", 5.25%, 2017 700,000 728,539
New York, NY, Industrial Development Agency, Civic Facilities
Rev. (Staten Island University Hospital), "A", 6.375%, 2031 495,000 517,973
Norman, OK, Regional Hospital Authority Rev., 5.375%, 2036 1,395,000 1,453,674
North Texas Health Facilities Development Corp. Rev. (United
Regional Health Care System, Inc.), 6%, 2023 1,000,000 1,088,490
Ohio County, WV, County Commission Health System Rev. (Ohio
Valley Medical Center), 5.75%, 2013 850,000 824,645
Oklahoma Development Finance Authority Rev. (Comanche County
Hospital), 6.6%, 2031 1,665,000 1,830,568
Rhode Island Health & Education Building Corp. Rev., Hospital
Financing (Lifespan Obligated Group), 6.5%, 2012 (c) 505,000 580,528
Rhode Island Health & Educational Building Corp. Rev., Hospital
Financing (Lifespan Obligated Group), 6.375%, 2012 (c) 1,560,000 1,783,220
Rhode Island Health & Educational Building Corp. Rev., Hospital
Financing (Lifespan Obligated Group), 6.375%, 2021 245,000 273,690
Royston, GA, Hospital Authority Rev. (Ty Cobb Healthcare
Systems, Inc.), 6.375%, 2014 955,000 990,450
Salida, CO, Hospital District Rev., 5.25%, 2036 1,155,000 1,155,601
Salt Lake City, UT, Hospital Authority Rev. INFLOS, AMBAC, ETM
(Intermountain Health Care), 9.718%, 2020 (v) 600,000 601,464
Shelby County, TN, Educational & Hospital Facilities Board
Hospital Rev. (Methodist Healthcare), 6.375%, 2012 (c) 625,000 715,056
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.25%, 2012 (c) 185,000 210,450
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.25%, 2012 (c) 315,000 358,335
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.375%, 2012 (c) 375,000 429,034
South Carolina Jobs & Economic Development Authority Rev. (Bon
Secours Health Systems, Inc.), "A", 5.625%, 2030 710,000 756,022
South Carolina Jobs & Economic Development Authority, Hospital
Facilities Rev. (Palmetto Health Alliance), 6.25%, 2031 835,000 917,089
South Dakota Health & Education Facilities Authority Rev.
(Prairie Lakes Health Care System), 5.625%, 2032 670,000 703,554
Southwestern Illinois Development Authority Rev. (Anderson Hospital), 5.5%, 2020 60,000 62,495
Southwestern Illinois Development Authority Rev. (Anderson Hospital), 5.625%, 2029 870,000 899,493
Springfield, TN, Health & Educational Facilities Rev.
(Northcrest Medical Center), 5.25%, 2018 1,400,000 1,414,084
Steubenville, OH, Hospital Authority Rev. (Trinity Health Center), 6.5%, 2030 1,300,000 1,424,423
Stillwater, OK, Medical Center Authority, 5.625%, 2023 1,000,000 1,074,380
Tallahassee, FL, Health Facilities Rev. (Tallahassee Memorial
Healthcare), 6.25%, 2020 3,085,000 3,279,232
Texas Metro Health Facilities Development Corp., Metro Health
Facilities Development Rev. (Wilson N. Jones Memorial
Hospital), 7.2%, 2021 700,000 731,052
Texas Metro Health Facilities Development Corp., Metro Health
Facilities Development Rev. (Wilson N. Jones Memorial
Hospital), 7.25%, 2031 1,000,000 1,043,560
Tom Green County, TX, Health Facilities Rev. (Shannon Health
System), 6.75%, 2021 1,250,000 1,353,313
University of Colorado, Hospital Authority Rev., "A", 5.25%, 2039 245,000 258,529
Upper Illinois River Valley Development, Health Facilities Rev.
(Morris Hospital), 6.625%, 2031 600,000 659,196
Valley, AL, Special Care Facilities, Financing Authority Rev.
(Lanier Memorial Hospital), 5.6%, 2016 600,000 609,564
Wapello County, IA, Hospital Authority Rev. (Ottumwa Regional
Health Center), 6.375%, 2031 1,500,000 1,621,065
Washington County, AR, Hospital Rev. (Regional Medical Center), "A", 5%, 2035 250,000 256,608
Washington County, AR, Hospital Rev. (Regional Medical Center), "B", 5%, 2025 1,000,000 1,034,750
Weirton, WV, Municipal Hospital Building, Commission Rev.
(Weirton Hospital Medical Center), 6.375%, 2031 1,115,000 1,179,135
Weslaco, TX, Health Facilities Rev. (Knapp Medical Center), 6.25%, 2032 1,000,000 1,073,710
West Plains, MO, Industrial Development Authority Rev. (Ozarks
Medical Center), 6.75%, 2024 170,000 176,385
West Shore Pennsylvania, Hospital Authority Rev. (Holy Spirit Hospital), 6.2%, 2026 1,250,000 1,341,463
Wichita, KS, Hospital Authority Rev. (Via Christi Health System), 6.25%, 2020 1,500,000 1,666,200
Wisconsin Health & Educational Facilities Authority Rev.
(Aurora Health Care, Inc.), 6.875%, 2030 1,000,000 1,155,850
Wisconsin Health & Educational Facilities Authority Rev.
(Aurora Health Care, Inc.), MBIA, 5.25%, 2017 5,000,000 5,155,800
Wisconsin Health & Educational Facilities Authority Rev.
(Marshfield Clinic), "A", 5.375%, 2034 490,000 519,537
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. John's Riverside Hospital), 6.8%, 2016 665,000 712,055
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. John's Riverside Hospital), "A", 7.125%, 2031 490,000 528,044
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. Joseph's Hospital), "C", 6.2%, 2020 750,000 754,883
-------------
$ 131,578,116
-------------------------------------------------------------------------------------------------------------------------
Healthcare Revenue - Long Term Care - 11.5%
-------------------------------------------------------------------------------------------------------------------------
Abilene, TX, Health Facilities Development Co., Retirement
Facilities Rev. (Sears Methodist Retirement), "A", 7%, 2033 $ 345,000 $ 377,157
Arizona Health Facilities Authority Rev. (The Terraces Project), 7.75%, 2033 750,000 854,325
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 7.75%, 2006 65,000 64,973
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 8.125%, 2016 1,085,000 1,056,096
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 8.5%, 2026 2,405,000 2,310,123
Bucks County, PA, Industrial Development Authority Rev. (Ann's
Choice, Inc.), 6.125%, 2025 430,000 457,443
Cambria County, PA, Industrial Development Authority Rev.
(Beverly Enterprises, Inc.), ETM, 10%, 2012 (c) 360,000 429,793
Chartiers Valley, PA, Industrial & Commercial Development
Authority (Asbury Health Center Project), 5.75%, 2022 150,000 155,679
Chester County, PA, Industrial Development Authority Rev. (RHA
Nursing Home), 8.5%, 2032 585,000 610,693
Clarion, PA, Industrial Development Authority Rev. (Beverly
Enterprises, Inc.), 7.5%, 2012 1,000,000 1,022,920
Colorado Health Facilities Authority Rev. (Covenant Retirement
Communities, Inc.), "B", 6.125%, 2033 1,000,000 1,080,130
Colorado Health Facilities Authority Rev. (Evangelical
Lutheran), 6.9%, 2025 3,000,000 3,388,620
Cumberland County, PA, Municipal Authority Rev. (Wesley), "A", 7.25%, 2013 (c) 720,000 865,361
Cumberland County, PA, Municipal Authority Rev. (Wesley), "A", 7.25%, 2013 (c) 280,000 336,529
Franklin County, OH, Healthcare Facilities Rev. (Ohio
Presbyterian), 7.125%, 2011 (c) 1,000,000 1,157,020
Fulton County, GA, Residential Care Facilities (Canterbury
Court), "A", 6.125%, 2034 330,000 348,338
Greenville County, SC, Hospital Rev. (Chestnut Hill), "A", 8%, 2015 2,055,000 2,019,675
Hawaii Department of Budget & Finance, Special Purpose Rev.
(Kahala Nui Senior Living Community), 8%, 2033 500,000 580,530
Illinois Finance Authority Rev. (Clare at Water Tower), "A", 6%, 2025 490,000 514,627
Illinois Finance Authority Rev. (Landing at Plymouth Place), "A", 6%, 2037 490,000 515,676
Illinois Finance Authority Rev. (Three Crowns Park Plaza), 5.875%, 2038 355,000 367,578
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), 9.25%, 2011 (c) 1,155,000 1,439,246
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), 5.75%, 2018 895,000 922,870
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), "A", 5.5%, 2025 800,000 833,912
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village, Inc.), 6.875%, 2032 500,000 541,195
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village,
Inc.), "B", 6.25%, 2026 500,000 510,875
Louisiana Local Government, Environmental Facilities &
Community Development Authority Rev. (CDF Healthcare LA, LLC), "A", 7%, 2036 500,000 512,010
Louisiana Local Government, Environmental Facilities & Community
Development Authority Rev. (CDF Healthcare), "C", 7%, 2036 375,000 376,110
Maine Health & Higher Educational Facilities Rev. (Piper Shores), 7.5%, 2009 (c) 800,000 855,184
Millbrae, CA, Residential Facilities Rev. (Magnolia of
Millbrae), "A", 7.375%, 2027 1,855,000 1,929,608
Montana Facility Finance Authority Rev. (Senior Living St.
Johns Lutheran), "A", 6.125%, 2036 470,000 492,621
Montgomery County, PA, Higher Education & Health Authority Rev.
(AHF/Montgomery), 6.875%, 2036 1,195,000 1,264,238
Montgomery County, PA, Industrial Development Authority Rev.
(Whitemarsh Continuing Care), 6.125%, 2028 250,000 266,078
Montgomery County, PA, Industrial Development Authority Rev.
(Whitemarsh Continuing Care), 6.25%, 2035 510,000 542,099
New Jersey Economic Development Authority Rev. (Courthouse
Convalescent Center), "A", 8.7%, 2014 650,000 651,307
New Jersey Economic Development Authority Rev. (Lions Gate), "A", 5.875%, 2037 310,000 322,490
New Jersey Health Care Facilities Financing Authority Rev. (Cherry Hill), 8%, 2027 1,000,000 1,028,190
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort
Norfolk Retirement Community), "A", 6%, 2025 125,000 129,641
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort
Norfolk Retirement Community), "A", 6.125%, 2035 90,000 93,294
North Carolina Medical Care Commission, Health Care Facilities
Rev. (First Mortgage-Presbyterian Homes), 5.4%, 2027 485,000 503,784
North Carolina Medical Care Commission, Health Care Facilities
Rev. (First Mortgage-Presbyterian Homes), 5.5%, 2031 295,000 307,543
Shelby County, TN, Health Educational Rev. (Germantown
Village), 7.25%, 2034 820,000 884,641
Sterling, IL (Hoosier Care), 7.125%, 2034 705,000 728,836
Suffolk County, NY, Industrial Development Agency (Medford
Hamlet Assisted Living), 6.375%, 2039 500,000 506,475
Travis County, TX, Health Facilities Development Corp.,
Retirement Facilities Rev. (Querencia Barton Creek), 5.5%, 2025 460,000 464,586
Travis County, TX, Health Facilities Development Corp.,
Retirement Facilities Rev. (Querencia Barton Creek), 5.65%, 2035 695,000 702,068
Washington County, FL, Industrial Development Authority Rev.
(Washington County), 10%, 2016 860,000 864,025
Wilkinsburg, PA, Municipal Authority Health Rev. (Monroeville
Christian/Judea), 8.25%, 2007 (c) 980,000 1,023,492
-------------
$ 37,209,704
-------------------------------------------------------------------------------------------------------------------------
Human Services - 2.8%
-------------------------------------------------------------------------------------------------------------------------
Colorado Educational & Cultural Facilities Authority (Cerebral
Palsy Project), "A", 6.25%, 2036 $ 500,000 $ 518,700
Iowa Finance Authority, Community Provider (Boys & Girls Home), 6.25%, 2028 500,000 503,345
Lehigh County, PA, General Purpose Authority (Kidspeace Corp.), 6%, 2023 3,000,000 2,939,250
Louisiana Local Government Environmental Facilities & Community
Development (Westside Rehab Center Project), "A", 6.85%, 2036 1,100,000 1,143,857
Louisiana Local Government Environmental Facilities & Community
Development (Westside Rehab Center Project), "B", 6.5%, 2013 115,000 116,377
New York, NY, Industrial Development Agency, Civic Facility
Rev. (Special Needs Facilities), 6.5%, 2017 1,030,000 1,075,227
New York, NY, Industrial Development Agency, Civic Facility
Rev. (A Very Special Place), "A", 5.75%, 2029 1,000,000 970,560
Orange County, FL, Health Facilities Authority Rev. (GF/Orlando
Healthcare Facilities), 8.75%, 2011 440,000 463,492
Orange County, FL, Health Facilities Authority Rev. (GF/Orlando
Healthcare Facilities), 9%, 2031 1,000,000 1,104,320
Osceola County, FL, Industrial Development Authority Rev.
(Community Provider), 7.75%, 2017 292,000 292,765
-------------
$ 9,127,893
-------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Airlines - 7.7%
-------------------------------------------------------------------------------------------------------------------------
Alliance Airport Authority, Inc., TX, Special Facilities Rev.
(AMR Corp.), 7.5%, 2029 $ 3,360,000 $ 3,426,998
Dallas Fort Worth, TX, International Airport Facility
Improvement Corp. (American Airlines, Inc.), 7.25%, 2030 2,530,000 2,573,896
Houston, TX, Airport Systems Rev., Special Facilities
(Continental, Inc.), "E", 6.75%, 2029 1,810,000 1,935,143
Los Angeles, CA, Regional Airport Lease Rev. (AMR Corp.), 7.5%, 2024 850,000 957,704
New Jersey Economic Development Authority (Continental
Airlines, Inc.), 7.2%, 2030 1,595,000 1,708,436
New Jersey Economic Development Authority, Special Facilities
Rev. (Continental Airlines, Inc.), 6.25%, 2029 580,000 600,677
New York, NY, Industrial Development Agencies Rev. (American
Airlines, Inc./JFK International Airport), 7.125%, 2011 1,355,000 1,447,912
New York, NY, Industrial Development Agencies Rev. (Continental
Airlines, Inc.), 7.25%, 2008 110,000 111,585
New York, NY, Industrial Development Agencies Rev. (Continental
Airlines, Inc.), 8%, 2012 300,000 325,197
New York, NY, Industrial Development Agency Rev. (American
Airlines, Inc.), 7.625%, 2025 7,725,000 9,315,037
Tulsa, OK, Municipal Airport Trust Rev. (American Airlines,
Inc.), "B", 5.65%, 2035 40,000 40,545
Tulsa, OK, Municipal Airport Trust Rev. (AMR Corp.), "B", 6%, 2035 2,500,000 2,551,100
-------------
$ 24,994,230
-------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Chemicals - 1.0%
-------------------------------------------------------------------------------------------------------------------------
Red River Authority, TX, Pollution Control Rev. (Celanese Project), "B", 6.7%, 2030 $ 1,920,000 $ 2,103,379
Sweetwater County, WY, Solid Waste Disposal Rev. (FMC Corp.), 5.6%, 2035 985,000 1,051,901
-------------
$ 3,155,280
-------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 3.7%
-------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, Solid Waste
Disposal Rev. (Browning Ferris, Inc.), "A", 5.8%, 2016 $ 1,000,000 $ 1,002,270
California Statewide Community Development Authority, Solid Waste Facilities
Rev. (Republic Services, Inc.), "A", 4.95%, 2012 1,000,000 1,039,830
Gloucester County, NJ, Solid Waste Resource Recovery Rev.
(Waste Management, Inc.), 6.85%, 2029 850,000 918,952
Gulf Coast Waste Disposal Authority, TX (Waste Mangement of Texas), "A", 5.2%, 2028 445,000 467,188
Henrico County, VA, Industrial Development Authority Rev.
(Browning Ferris, Inc.), 5.45%, 2014 1,750,000 1,731,380
Illinois Development Finance Authority, Solid Waste Disposal
Rev. (Waste Management, Inc.), 5.85%, 2007 4,500,000 4,514,625
Nevada Department of Business & Industry Rev. (Republic
Services, Inc.), 5.625%, 2026 750,000 824,753
New Hampshire State Business Finance Authority, Solid Waste
Disposal Rev. (Waste Management, Inc. Project), 5.2%, 2027 445,000 464,989
New Morgan, PA, Industrial Development Authority, Solid Waste
Disposal Rev. (New Morgan Landfill Co., Inc./Browning Ferris,
Inc.), 6.5%, 2019 1,000,000 1,004,700
-------------
$ 11,968,687
-------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Metals - 0.2%
-------------------------------------------------------------------------------------------------------------------------
Mobile County, AL, Industrial Development Authority Rev. (Ipsco, Inc.), 6.875%, 2030 $ 650,000 $ 691,197
-------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Other - 4.6%
-------------------------------------------------------------------------------------------------------------------------
Gulf Coast, TX, Industrial Development Authority (Valero Energy Corp.), 5.6%, 2031 $ 1,750,000 $ 1,812,108
Gulf Coast, TX, Waste Disposal Rev. (Valero Energy Corp.), 6.65%, 2032 1,000,000 1,090,400
Hardeman County, TN, Correctional Facilities Rev., 7.75%, 2017 2,100,000 2,163,147
Madison County, FL, Rev. (Twin Oaks Project), "A", 6%, 2025 550,000 572,946
New Jersey Economic Development Authority (Gloucester Marine), "C", 6.5%, 2015 700,000 705,271
Park Creek Metropolitan District, CO, Rev., Custodial Receipts,
CR-1, 7.875%, 2032 (n) 1,270,000 1,417,244
Park Creek Metropolitan District, CO (Custodial Receipts),
"CR-2", 7.875%, 2032 (n) 580,000 647,245
Pennsylvania Economic Development Financing Authority, Finance
Authority Facilities Rev. (Amtrak), "A", 6.25%, 2031 2,000,000 2,174,360
Philadelphia, PA, Industrial Development Authority Rev. (Host
Marriott LP), 7.75%, 2017 3,255,000 3,258,288
Port Corpus Christi, TX, Industrial Development Authority Rev.
(Citgo Petroleum Corp.), 8.25%, 2031 700,000 725,298
Tooele County, UT, Hazardous Waste Treatment Rev. (Union
Pacific Corp.), 5.7%, 2026 385,000 402,521
-------------
$ 14,968,828
-------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 6.4%
-------------------------------------------------------------------------------------------------------------------------
Bedford County, VA, Industrial Development Authority Rev.
(Nekoosa Packaging), "A", 6.55%, 2025 $ 1,000,000 $ 1,045,270
Butler, AL, Industrial Development Board, Solid Waste Disposal
Rev. (Georgia Pacific Corp.), 5.75%, 2028 155,000 158,722
Columbus County, NC, Industrial Facilities & Pollution Control
Financing Authority (International Paper, Co.), "A", 6.15%, 2021 5,000,000 5,129,100
Delta County, MI, Economic Development Corp., Environmental
Improvements Rev. (Mead Westvaco Escanaba), "A", 6.25%, 2012 (c) 1,000,000 1,132,170
Delta County, MI, Economic Development Corp., Environmental
Improvements Rev. (Mead Westvaco Escanaba), "B", 6.45%, 2012 (c) 500,000 567,030
Effingham County, GA, Development Authority, Solid Waste
Disposal Rev. (Fort James), 5.625%, 2018 850,000 859,580
Hodge, LA, Utilities Rev. (Stone Container Corp.), 7.45%, 2024 3,335,000 4,162,814
Lowndes County, MS, Solid Waste Disposal & Pollution Control
Rev. (Weyerhaeuser Co.), 6.8%, 2022 2,000,000 2,456,760
Navajo County, AZ, Industrial Development Authority Rev. (Stone
Container Corp.), 7.2%, 2027 880,000 906,946
Onondaga County, NY, Industrial Development Authority Rev.,
Solid Waste Disposal Rev. (Solvay Paperboard LLC), 6.8%, 2014 900,000 943,542
West Point, VA, Industrial Development Authority, Solid Waste
Disposal Rev. (Chesapeake Corp.), 6.25%, 2019 1,870,000 1,876,302
West Point, VA, Industrial Development Authority, Solid Waste
Disposal Rev. (Chesapeake Corp.), "A", 6.375%, 2019 700,000 701,085
York County, SC, Pollution Control Rev. (Bowater, Inc.), "A", 7.4%, 2010 830,000 832,158
-------------
$ 20,771,479
-------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 1.1%
-------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev.,
East Valley Tourist (Cabazon Casino), "A", 9.25%, 2020 (n) $ 1,155,000 $ 1,293,161
Mississippi Development Bank, Special Obligation (Diamond Lakes
Utilities), 6.25%, 2017 1,000,000 1,027,170
New York Liberty Development Corp. Rev. (National Sports Museum), 6.125%, 2019 420,000 436,031
New York, NY, City Industrial Development Agency Rev., Liberty
Bonds (IAC/InterActiveCorp), 5%, 2035 620,000 638,507
-------------
$ 3,394,869
-------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 2.4%
-------------------------------------------------------------------------------------------------------------------------
Austin, TX, Convention Center (Convention Enterprises, Inc.), "A", 6.6%, 2021 $ 400,000 $ 431,364
Austin, TX, Convention Center (Convention Enterprises, Inc.), "A", 6.7%, 2028 600,000 647,886
Baltimore, MD, Convention Center Hotel Rev., "B", 5.875%, 2039 295,000 314,942
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Cleveland
City), "B", 4.5%, 2030 1,220,000 1,226,564
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Fairmount),
"B", 5.125%, 2025 190,000 197,444
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Myers
University), "E", 5.6%, 2025 135,000 143,142
Dayton Montgomery County, OH, Port Authority Rev. (Parking
Garage), 6.125%, 2024 1,130,000 1,244,684
Gallery Certificate Trust, PA, Parking Rev., 4.5%, 2013 (n) 785,000 785,016
Maryland Economic Development Corp. (Chesapeake Bay Conference
Center), "A", 5%, 2031 405,000 405,883
San Antonio, TX, Convention Center, Hotel Financial Corp.,
Contract Rev. (Empowerment Zone), "A", AMBAC, 5%, 2034 695,000 722,786
Southwestern Illinois Development Authority Rev., Solid Waste
Disposal Rev., 5.9%, 2014 310,000 314,008
Summit County, OH, Port Authority Building (Twinsburg
Township), "D", 5.125%, 2025 160,000 166,269
Summit County, OH, Port Authority Building (Workforce Policy
Board), "F", 4.875%, 2025 915,000 938,488
Summit County, OH, Port Authority Building Rev. (Seville
Project), "A", 5.1%, 2025 200,000 207,132
Toledo Lucas County, OH, Port Authority Development Rev.
(Northwest Ohio Bond Fund), "C", 5.125%, 2025 90,000 91,858
-------------
$ 7,837,466
-------------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 4.7%
-------------------------------------------------------------------------------------------------------------------------
Bay County, FL, Housing Finance Authority, Multi-Family Rev.
(Andrews Place II Apartments), FSA, 5%, 2035 $ 210,000 $ 215,891
Bay County, FL, Housing Finance Authority, Multi-Family Rev.
(Andrews Place II Apartments), FSA, 5.1%, 2046 390,000 400,624
Bexar County TX, Multi-Family Housing Rev. (American
Opportunity Housing), "A", MBIA, 5.7%, 2021 1,250,000 1,320,188
Charter Mac Equity Issuer Trust, 7.1%, 2009 (n) 1,000,000 1,070,070
Charter Mac Equity Issuer Trust, 6%, 2019 (n) 2,000,000 2,227,500
Eaglebend, CO, Affordable Housing Corp., Multi-Family Rev.
(Housing Project), "A", 6.4%, 2007 (c) 1,000,000 1,037,940
GMAC Municipal Mortgage Trust, "B-1", 5.6%, 2039 (n) 1,000,000 1,062,740
GMAC Municipal Mortgage Trust, "C-1", 5.7%, 2040 (n) 500,000 510,450
Indianapolis, IN, Multi-Family Rev. (Cambridge Station
Apartments II), FNMA, 5.25%, 2039 465,000 482,079
Metropolitan Government of Nashville & Davidson County, TN,
Health, Educational & Housing Facilities Board Rev. (Berkshire
Place), GNMA, 6%, 2023 500,000 527,165
Munimae, TE, Bond Subsidiary LLC, 5.4%, 2049 (n) 1,000,000 1,023,850
Munimae, TE, Bond Subsidiary LLC, 6.875%, 2009 (n) 2,000,000 2,128,960
North Charleston, SC, Housing Authority Rev. (Horizon Village),
"A", FHA, 5.15%, 2048 445,000 451,203
San Bernardino County, CA (Equity Residential/Redlands), "A",
5.2%, 2029 2,000,000 2,043,500
Seattle, WA, Housing Authority Rev., Capped Fund Program (High
Rise Rehab), "I", FSA, 5%, 2025 670,000 686,087
-------------
$ 15,188,247
-------------------------------------------------------------------------------------------------------------------------
Sales & Excise Tax Revenue - 0.2%
-------------------------------------------------------------------------------------------------------------------------
Desloge, MO, Tax Increment Rev. (U.S. Highway 67 Street Redevelopment), 5.2%, 2020 $ 485,000 $ 493,745
-------------------------------------------------------------------------------------------------------------------------
Single Family Housing - Local - 2.5%
-------------------------------------------------------------------------------------------------------------------------
Cook County, IL, Single Family Mortgage Rev., "A", 0%, 2015 $ 40,000 $ 9,132
Corpus Christi, TX, Housing Finance Authority Rev., "B",MBIA, 0%, 2011 2,145,000 866,323
Dallas, TX, Housing Finance Corp., Single Family Mortgage Rev., MBIA, 0%, 2016 2,405,000 868,109
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA, 6.625%, 2023 240,000 256,526
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA, 6.75%, 2030 390,000 398,650
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA, 6.3%, 2032 680,000 702,222
Nortex Housing Finance Corp., TX, Single Family Mortgage Rev., "B", 5.5%, 2038 140,000 142,670
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", FNMA, 5.55%, 2037 990,000 1,082,783
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 6.45%, 2029 395,000 400,277
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 5.9%, 2035 340,000 369,036
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 6.25%, 2035 170,000 182,825
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 5.65%, 2037 780,000 850,114
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-1", GNMA, 5.75%, 2037 275,000 301,780
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-2", GNMA, 5.6%, 2029 710,000 757,982
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-2",GNMA, 5.75%, 2037 545,000 592,115
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-5", GNMA, 5.9%, 2037 200,000 221,124
-------------
$ 8,001,668
-------------------------------------------------------------------------------------------------------------------------
Single Family Housing - State - 2.5%
-------------------------------------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., "A-2", 7.15%, 2014 $ 8,000 $ 8,171
Colorado Housing & Finance Authority Rev., "A-2", AMBAC, 6.6%, 2028 330,000 347,493
Colorado Housing & Finance Authority Rev., "C-2", 5.9%, 2023 185,000 192,256
Colorado Housing & Finance Authority Rev., "C-2", FHA, 6.6%, 2032 185,000 189,521
Colorado Housing & Finance Authority Rev., "C-3", FHA, 6.375%, 2033 85,000 86,612
Colorado Housing & Finance Authority Rev., "D-2", 6.9%, 2029 400,000 410,700
Georgia Housing & Finance Authority Rev., 5.65%, 2021 2,490,000 2,597,394
Louisiana Housing Finance Agency, Single Family Mortgage Rev., GNMA, 6.4%, 2032 130,000 130,835
Minnesota Housing Finance Agency Rev., Residential Housing Finance, "B", 4.8%, 2023 190,000 190,114
Missouri Housing Development Commission, Single Family Mortgage
Rev. (Home Loan Program), GNMA, 6.35%, 2032 305,000 310,426
Missouri Housing Development Commission, Single Family Mortgage
Rev. (Home Loan Program), GNMA, 6.85%, 2032 155,000 159,238
Nebraska Investment Finance Authority Single Family Mortgage Rev., 0%, 2015 5,175,000 2,310,431
Nebraska Investment Finance Authority, "C", GNMA, 6.25%, 2021 380,000 388,603
New Hampshire Housing Finance Authority Rev., "B", 5.875%, 2030 95,000 95,321
Texas Affordable Housing Corp., Single Family Mortgage Rev.,
"B", GNMA, 5.25%, 2039 745,000 792,844
-------------
$ 8,209,959
-------------------------------------------------------------------------------------------------------------------------
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 $ 1,646,112
Massachusetts Development Finance Agency Resource Recovery Rev.
(Ogden Haverhill Associates), "A", 6.7%, 2014 725,000 791,091
Massachusetts Industrial Finance Agency, Resource Recovery Rev.
(Ogden Haverhill Associates), "A", 5.6%, 2019 2,850,000 2,970,897
-------------
$ 5,408,100
-------------------------------------------------------------------------------------------------------------------------
State & Local Agencies - 1.9%
-------------------------------------------------------------------------------------------------------------------------
Chicago, IL, Public Building Commission, Building Rev., RITES,
FGIC, 9.016%, 2016 (v)(z) $ 1,300,000 $ 1,620,086
Chicago, IL, Public Building Commission, Building Rev., RITES,
FGIC, 9.016%, 2017 (v)(z) 1,050,000 1,319,115
College Park, GA, Industrial Development Authority Rev. (Civic
Center), AMBAC, 5.75%, 2010 (c) 1,000,000 1,097,410
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement Rev., Enhanced, "B", 5.375%, 2010 (c) 2,000,000 2,122,940
-------------
$ 6,159,551
-------------------------------------------------------------------------------------------------------------------------
Student Loan Revenue - 0.2%
-------------------------------------------------------------------------------------------------------------------------
Access to Loans for Learning, California Student Loan Rev., 7.95%, 2030 $ 650,000 $ 690,690
-------------------------------------------------------------------------------------------------------------------------
Tax - Other - 1.9%
-------------------------------------------------------------------------------------------------------------------------
Black Hawk, CO, Device Tax Rev., 5.625%, 2008 (c) $ 250,000 $ 262,363
Black Hawk, CO, Device Tax Rev., 5%, 2010 80,000 82,052
Black Hawk, CO, Device Tax Rev., 5%, 2013 55,000 56,984
Black Hawk, CO, Device Tax Rev., 5%, 2015 170,000 175,462
Black Hawk, CO, Device Tax Rev., 5%, 2021 130,000 131,660
Dade County, FL, Special Obligations Rev., Capital Appreciation
Bond, "B", AMBAC, 0%, 2008 (c) 15,080,000 3,155,641
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.5%, 2024 340,000 357,989
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.75%, 2029 615,000 662,896
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.5%, 2031 270,000 285,468
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.75%, 2034 410,000 439,746
Virgin Islands Public Finance Authority Rev., "E", 5.875%, 2018 500,000 524,055
-------------
$ 6,134,316
-------------------------------------------------------------------------------------------------------------------------
Tax Assessment - 6.0%
-------------------------------------------------------------------------------------------------------------------------
Allegheny County, PA, Redevelopment Authority Rev. (Pittsburgh Mills), 5.1%, 2014 $ 235,000 $ 242,292
Allegheny County, PA, Redevelopment Authority Rev. (Pittsburgh Mills), 5.6%, 2023 150,000 159,521
Amelia Walk Community Development District, FL, Special Assessment, "B", 5.2%, 2014 685,000 702,098
Arborwood Community Development District, FL Capital
Improvement Rev. (Master Infrastructure Projects), "A", 5.35%, 2036 630,000 637,743
Arborwood Community Development District, FL, Capital Improvement Rev., 5.25%, 2016 500,000 513,590
Arborwood Community Development District, FL, Special
Assessment (Master Infrastructure Projects), "B", 5.1%, 2014 250,000 255,455
Atlanta, GA, Tax Allocation (Eastside Project), "B", 5.6%, 2030 815,000 850,436
Atlanta, GA, Tax Allocation (Princeton Lakes Project), 5.5%, 2031 555,000 569,658
Belmont Community Development District, FL, Capital Improvement
Rev., "B", 5.125%, 2014 985,000 1,006,601
Chicago IL, Ryan Garfield Tax Increment Allocation, 10.125%, 2007 225,000 224,996
Concord Station Community Development District, FL, Special Assessment, 5%, 2015 290,000 293,564
Concorde Estates Community Development District, FL, Special
Assessment, "B", 5%, 2011 540,000 544,466
Du Page County, IL, Special Service Area No. 31 Special Tax
(Monarch Landing Project), 5.625%, 2036 305,000 319,911
East Homestead Community Development District, Special Assessment, FL, "B", 5%, 2011 240,000 243,120
Fishhawk Community Development District, FL, 5.125%, 2009 490,000 491,049
Katy, TX, Development Authority Rev., 5.8%, 2011 745,000 768,296
Katy, TX, Development Authority Rev., "B", 6%, 2018 925,000 958,152
Killarney, FL, Community Development District, Special
Assessment, "B", 5.125%, 2009 315,000 315,444
Lakes by the Bay South Community Development District, FL, Rev., "B", 5.3%, 2009 875,000 877,021
Lancaster County, SC, Assessment Rev. (Sun City Carolina Lakes), 5.45%, 2037 110,000 112,410
Markham, IL, Tax Increment Rev., 9%, 2012 935,000 936,384
Middle Village Community Development District, FL, Special Assessment, "B", 5%, 2009 255,000 255,752
New Port Tampa Bay Community Development District, FL, Special
Assessment, "B", 5.3%, 2012 440,000 446,142
North Springs Improvement District, FL, Special Assessment
(Parkland Golf Country Club), "B-2", 5.125%, 2015 165,000 167,589
North Springs Improvement District, FL, Special Assessment Rev.
(Parkland Golf Country Club), "B-1", 5.125%, 2015 350,000 355,271
Old Palm Community Development District, FL, Special Assessment
(Palm Beach Gardens), "A", 5.9%, 2035 250,000 262,740
Old Palm Community Development District, FL, Special Assessment
(Palm Beach Gardens), "B", 5.375%, 2014 330,000 338,950
Panther Trace II, Community Development District, FL, Special
Assessment, "B", 5%, 2010 960,000 962,477
Panther Trace II, FL, Community Development District Rev.,
Special Assessment, 5.125%, 2013 355,000 363,016
Parkway Center, Community Development District, FL, Special
Assessment, "B", 5.625%, 2014 1,260,000 1,292,017
Paseo, FL, Community Development District, "B", 4.875%, 2010 505,000 502,359
Preserve at Wilderness Lake, FL, Community Development
District, Capital Improvement, "B", 5%, 2009 85,000 85,239
Prince George's County, MD, Special Obligations (National
Harbor Project), 5.2%, 2034 245,000 251,424
Reunion East Community Development District, FL, Special Assessment, 5.9%, 2007 100,000 100,267
Sterling Hill Community Development District, FL, Special Assessment, 5.5%, 2010 485,000 491,320
Tuscany Reserve Community Development District, FL, Special
Assessment, "B", 5.25%, 2016 510,000 525,116
Villasol Community Development District, FL, Special Assessment
Rev., "B", 5.375%, 2008 205,000 205,894
Watergrass Community Development District, FL, Special Assessment, "B", 4.875%, 2010 935,000 942,246
Wentworth Estates Community Development District, FL, Special
Assessment, "B", 5.125%, 2012 430,000 436,712
-------------
$ 19,006,738
-------------------------------------------------------------------------------------------------------------------------
Tobacco - 6.6%
-------------------------------------------------------------------------------------------------------------------------
Badger, WI, Tobacco Asset Securitization Corp., 6.125%, 2027 $ 3,915,000 $ 4,202,713
California County, CA, Tobacco Securitization Agency, Capital
Appreciation Asset Backed (Gold Country), 0%, 2033 2,620,000 576,479
California County, CA, Tobacco Securitization Corp., Tobacco
Settlement, L.A. County, "A", 0%, 2041 485,000 407,812
California Statewide Financing Authority, Tobacco Settlement, 5.625%, 2029 1,745,000 1,832,250
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico, "A", 0%, 2050 4,000,000 271,120
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico, "B", 0%, 2055 4,000,000 143,040
District of Columbia, Tobacco Settlement, 6.25%, 2024 1,150,000 1,231,823
District of Columbia, Tobacco Settlement, Capital Appreciation, "A", 0%, 2046 5,840,000 526,418
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, 7.8%, 2042 1,000,000 1,225,660
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, "A", 5%, 2021 600,000 602,592
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement,
"A-1", 6.25%, 2033 785,000 875,165
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement, "A-1", 6.625%, 2040 125,000 142,026
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev.,
Asset Backed, "B", 5.3%, 2011 (c) 2,000,000 2,131,720
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev.,
Asset Backed, "B", 0% to 2007, 5.6% to 2034 1,635,000 1,606,355
Louisiana Tobacco Settlement Authority, 5.5%, 2030 1,435,000 1,504,928
New Jersey Tobacco Settlement Authority, 5.75%, 2032 930,000 994,570
New Jersey Tobacco Settlement Financing Corp., 7%, 2041 15,000 17,363
Rockland Tobacco Asset Securitization Corp., NY, Tobacco Asset Backed, "C", 0%, 2060 11,045,000 204,995
South Carolina Tobacco Settlement Authority, 6.375%, 2028 1,075,000 1,159,205
South Carolina Tobacco Settlement Authority, "B", 6%, 2022 1,260,000 1,339,569
Tobacco Settlement Financing Corp., VA, 5.625%, 2037 50,000 53,243
Washington Tobacco Settlement Authority, 6.5%, 2026 155,000 171,816
-------------
$ 21,220,862
-------------------------------------------------------------------------------------------------------------------------
Toll Roads - 1.0%
-------------------------------------------------------------------------------------------------------------------------
E-470 Public Highway Authority, Colorado Rev., Capital Appreciation,
"B", MBIA, 0%, 2027 $ 4,115,000 $ 1,490,535
Niagara Falls, NY, Bridge Commission, Toll Rev., RITES, FGIC, 6.07%, 2015 (v)(z) 1,500,000 1,756,800
-------------
$ 3,247,335
-------------------------------------------------------------------------------------------------------------------------
Transportation - Special Tax - 2.7%
-------------------------------------------------------------------------------------------------------------------------
Missouri Highways & Transportation Commission, State Road Rev., "A", 5.625%, 2018 $ 4,500,000 $ 4,872,015
Telluride, CO, Real Estate Transfer Assessment Rev. (Gondola Transit Co.),
ETM, 11.5%, 2012 (c) 2,900,000 3,910,940
-------------
$ 8,782,955
-------------------------------------------------------------------------------------------------------------------------
Universities - Colleges - 2.7%
-------------------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Rev. (L.A. College
of Chiropractic), 5.6%, 2017 $ 750,000 $ 742,358
Houston, TX, Community College Systems, MBIA, 7.875%, 2025 2,500,000 2,998,150
Illinois Educational Facilities Authority Rev. (Augustana College),
"A", 5.625%, 2022 400,000 427,604
Illinois Finance Authority Rev. (Illinois Institute of Technology), "A", 5%, 2036 480,000 496,368
Louisiana State University (Health Sciences Center Project), MBIA, 6.375%, 2031 2,500,000 2,739,325
Private Colleges & Universities Authority, GA, Rev. (Mercer
University Project), "A", 5.375%, 2029 240,000 247,171
Savannah, GA, Economic Development Authority Rev. (College of
Art & Design, Inc.), 6.5%, 2009 (c) 625,000 683,356
University of Arkansas, University Construction Rev. (UAMS Campus), "B",
MBIA, 5%, 2034 300,000 316,362
-------------
$ 8,650,694
-------------------------------------------------------------------------------------------------------------------------
Universities - Secondary Schools - 1.4%
-------------------------------------------------------------------------------------------------------------------------
California Statewide Communities, Development Authority Rev.
(Escondido Charter High School), 7.5%, 2011 (c) $ 555,000 $ 638,822
California Statewide Communities, Development Authority Rev.
(Escondido Charter High School), 7.5%, 2011 (c) 1,000,000 1,188,890
Deerfield, IL, Educational Facilities Authority Rev.
(Chicagoland Jewish High School Project), 6%, 2041 815,000 837,559
Maryland Industrial Development Financing Authority, Economic
Development Authority Rev. (Our Lady of Good Council), "A", 6%, 2035 150,000 160,977
Michigan Municipal Bond Authority Rev. (YMCA Service Learning Academy), 7.625%, 2021 1,000,000 1,064,270
Pima County, AZ, Industrial Development Authority Education
Rev. (Arizona Charter Schools), "C", 6.75%, 2031 500,000 523,675
-------------
$ 4,414,193
-------------------------------------------------------------------------------------------------------------------------
Utilities - Cogeneration - 1.5%
-------------------------------------------------------------------------------------------------------------------------
Alaska Industrial Development Export Authority, Power Rev.,
Upper Lynn Canal Regional Power, 5.8%, 2018 $ 830,000 $ 831,585
Carbon County, PA, Industrial Development Authority Rev.
(Panther Creek Partners), 6.65%, 2010 2,055,000 2,144,721
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Colver), "G", 5.125%, 2015 350,000 349,993
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Northampton Generating), 6.4%, 2009 350,000 350,014
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Northampton Generating), 6.5%, 2013 1,000,000 1,000,170
-------------
$ 4,676,483
-------------------------------------------------------------------------------------------------------------------------
Utilities - Investor Owned - 9.5%
-------------------------------------------------------------------------------------------------------------------------
Brazos River Authority, TX, Authority Texas Rev. (Reliant
Energy, Inc.), "A", 5.375%, 2019 $ 500,000 $ 514,475
Brazos River Authority, TX, Authority Texas Rev. (Reliant
Energy, Inc.), "B", AMBAC, 5.125%, 2020 2,000,000 2,087,940
Brazos River Authority, TX, Pollution Control Rev. (Texas
Utility Co.), "B", 6.3%, 2032 315,000 343,715
Brazos River Authority, TX, Pollution Control Rev. (Texas
Utility Co.), "C", 6.75%, 2038 715,000 799,956
Calcasieu Parish, LA, Industrial Development Board, Pollution
Control Rev. (Entergy Gulf States, Inc.), 5.45%, 2010 1,250,000 1,254,700
Clark County, NV, Industrial Development Rev. (Southwest Gas
Corp.), "A", AMBAC, 4.85%, 2035 1,055,000 1,078,706
Connecticut Development Authority, Pollution Control Rev.
(Connecticut Light & Power Co.), 5.85%, 2028 2,000,000 2,105,940
Connecticut Development Authority, Pollution Control Rev.
(Connecticut Light & Power Co.), 5.95%, 2028 2,270,000 2,387,927
Farmington, NM, Pollution Control Rev. (New Mexico Public Service), 5.8%, 2022 2,105,000 2,127,818
Farmington, NM, Pollution Control Rev. (New Mexico Public Service), "A", 6.3%, 2016 2,195,000 2,243,136
Forsyth, MT, Pollution Control Rev. (Portland General), 5.2%, 2033 230,000 235,727
Matagorda County, TX (Centerpoint Energy), 5.6%, 2027 1,500,000 1,592,550
Matagorda County, TX, Pollution Control Rev. (Reliant Energy), 5.95%, 2030 1,655,000 1,715,523
Mecklenburg County, VA, Industrial Development Authority Rev.
(UAE Mecklenburg LP), 6.5%, 2017 800,000 885,320
New Hampshire Business Finance Authority, Pollution Control
Rev. (Public Service of New Hampshire), 6%, 2021 1,000,000 1,043,420
Ohio Air Quality Development Authority, Pollution Control Rev.
(Cleveland Electric), "B", 6%, 2020 3,000,000 3,104,100
Pima County, AZ, Industrial Development Authority Rev. (Tucson
Electric Power Co.), "A", 6.1%, 2025 650,000 653,432
Pittsylvania County, VA, Industrial Development Authority Rev., 7.5%, 2014 3,000,000 3,017,850
Port Morrow, OR, Pollution Control Rev. (Portland General
Electric), 5.2%, 2033 550,000 566,181
Trinity River Authority, TX, Pollution Control Rev. (TXU
Electric Co.), 6.25%, 2028 500,000 544,805
West Feliciana Parish, LA, Pollution Control Rev. (Gulf States
Utilities Co.), 5.8%, 2015 1,500,000 1,501,678
West Feliciana Parish, LA, Pollution Control Rev. (Gulf States
Utilities Co.), 5.8%, 2016 1,000,000 1,006,618
-------------
$ 30,811,517
-------------------------------------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 2.4%
-------------------------------------------------------------------------------------------------------------------------
North Carolina Eastern Municipal Power Agency, Power Systems Rev., "B", 5.55%, 2014 $ 2,150,000 $ 2,272,419
North Carolina Municipal Power Agency (Catawba Electric Rev.), "B", 6.5%, 2020 2,000,000 2,180,798
Seattle, WA, Municipal Light & Power Rev., 5.625%, 2017 3,000,000 3,204,928
Southern California Public Power Authority (Transmission
Project Rev.), RIBS, 7.559%, 2012 (v) 100,000 100,188
-------------
$ 7,758,333
-------------------------------------------------------------------------------------------------------------------------
Water & Sewer Utility Revenue - 2.0%
-------------------------------------------------------------------------------------------------------------------------
Magnolia, TX, Water & Sewer System Rev., 5.15%, 2031 $ 205,000 $ 211,224
Mississippi Development Bank Special Obligations, Grenada, MS,
Water & Sewer Systems Project, "N", FSA, 5%, 2030 710,000 752,570
New York, NY, Municipal Water & Sewer Finance Authority Rev., 5.5%, 2010 (c) 5,000,000 5,384,398
-------------
$ 6,348,192
-------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (IDENTIFIED COST, $423,449,487) $ 455,572,068
-------------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 0.0%
-------------------------------------------------------------------------------------------------------------------------
New Castle, PA, Area Hospital Authority (Jameson Memorial
Hospital), 3.59%, due 11/01/06, at Identified Cost $ 125,000 $ 125,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $423,574,487) (k) $ 455,697,068
-------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 2.3% 7,483,807
-------------------------------------------------------------------------------------------------------------------------
PREFERRED SHARES (ISSUED BY THE TRUST) - (43.3)% $(140,082,176)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100.0% $ 323,098,699
-------------------------------------------------------------------------------------------------------------------------
SWAP AGREEMENTS AT 10/31/06
INTEREST RATE SWAPS
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
----------------------------------------------------------------------------------------------------------------------
8/29/19 USD 35,000,000 Merill Lynch 7-day BMA 4.012% (fixed rate) $ (806,126)
2/15/17 USD 25,000,000 Merill Lynch 7-day BMA 4.1842% (fixed rate) (1,028,520)
-----------
$(1,834,646)
-----------
At October 31, 2006, the trust had sufficient cash and/or securities to cover any commitments under these
derivative contracts.
(c) Refunded bond.
(k) As of October 31, 2006, the trust held securities fair valued in accordance with the policies adopted by the
Board of Trustees, aggregating $455,572,068 and 99.97% of market value. All of these security values were
provided by an independent pricing service using an evaluated bid.
(n) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in
transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate
value of these securities was $12,166,236 representing 3.8% of net assets applicable to common shares.
(v) Inverse floating rate security.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions
on resale. These securities generally may be resold in transactions exempt from registration or to the public if
the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations
and prompt sale at an acceptable price may be difficult. The trust holds the following restricted securities:
TOTAL % OF
CURRENT NET ASSETS
ACQUISITION ACQUISITION MARKET APPLICABLE TO
RESTRICTED SECURITIES DATE COST VALUE COMMON SHARES
--------------------------------------------------------------------------------------------------------------------
Chicago, IL, O'Hare International Airport
Rev., RITES, XLCA, 7.024%, 2022 8/21/03 $1,599,510 $1,812,150
Chicago, IL, Public Building Commission,
Building Rev., RITES, FGIC, 9.016%, 2016 3/11/99 1,403,610 1,620,086
Chicago, IL, Public Building Commission,
Building Rev., RITES, FGIC, 9.016%, 2017 3/11/99 1,123,542 1,319,115
Niagara Falls, NY, Bridge Commission, Toll
Rev., RITES, FGIC, 6.07%, 2015 5/21/99 1,609,680 1,756,800
----------------------------------------------------------------------------------------------------------------------
Total Restricted Securities $6,508,151 2.0%
The following abbreviations are used in this report and are defined:
BMA Bond Market Assn.
COP Certificate of Participation
ETM Escrowed to Maturity
Insurers Inverse Floaters
----------------------------------------------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corp. INFLOS Inverse Floating Security
FGIC Financial Guaranty Insurance Co. RIBS Residual Interest Bonds
FHA Federal Housing Administration RITES Residual Interest Tax-Exempt Security
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.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/06
This statement represents your trust's balance sheet, which details the assets and liabilities
comprising the total value of the trust.
ASSETS
------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $423,574,487) $455,697,068
Cash 51,730
Receivable for investments sold 1,901,826
Interest receivable 8,394,108
Other assets 5,978
------------------------------------------------------------------------------------------------------
Total assets $466,050,710
------------------------------------------------------------------------------------------------------
LIABILITIES
------------------------------------------------------------------------------------------------------
Distributions payable on common shares $150,879
Payable for investments purchased 508,199
Unrealized depreciation on interest rate swap agreements 1,834,646
Payable to affiliates
Management fee 29,118
Transfer agent and dividend disbursing costs 17,213
Administrative services fee 492
Payable for independent trustees" compensation 123,225
Accrued expenses and other liabilities 206,063
------------------------------------------------------------------------------------------------------
Total liabilities $2,869,835
------------------------------------------------------------------------------------------------------
PREFERRED SHARES
------------------------------------------------------------------------------------------------------
Series T and Series TH auction preferred shares (5,600 shares
issued and oustanding at $25,000 per share) at liquidation
value plus cumulative unpaid dividends $140,082,176
------------------------------------------------------------------------------------------------------
Net assets applicable to common shares $323,098,699
------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
------------------------------------------------------------------------------------------------------
Paid-in capital - common shares $314,229,557
Unrealized appreciation (depreciation) on investments 30,287,935
Accumulated net realized gain (loss) on investments (26,106,995)
Undistributed net investment income 4,688,202
------------------------------------------------------------------------------------------------------
Net assets applicable to common shares $323,098,699
------------------------------------------------------------------------------------------------------
Preferred shares, at value (5,600 shares issued and outstanding
at $25,000 per share) 140,000,000
------------------------------------------------------------------------------------------------------
Net assets including preferred shares $463,098,699
------------------------------------------------------------------------------------------------------
Common shares of beneficial interest outstanding (40,136,204
shares issued less 55,500 treasury shares) 40,080,704
Net asset value per common share (net assets of $323,098,699/
40,080,704 common shares of beneficial interest outstanding) $8.06
------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 10/31/06
This statement describes how much your trust earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by trust operations.
NET INVESTMENT INCOME
------------------------------------------------------------------------------------------------------
Interest income $27,782,804
------------------------------------------------------------------------------------------------------
Expenses
Management fee $3,573,666
Transfer agent and dividend disbursing costs 90,420
Administrative services fee 74,961
Independent trustees" compensation 48,146
Stock exchange fee 35,724
Preferred shares remarketing agent fee 350,344
Custodian fee 117,825
Shareholder communications 112,106
Auditing fees 80,467
Legal fees 10,827
Miscellaneous 108,871
------------------------------------------------------------------------------------------------------
Total expenses $4,603,357
------------------------------------------------------------------------------------------------------
Fees paid indirectly (38,044)
Reduction of expenses by investment adviser (1,765)
------------------------------------------------------------------------------------------------------
Net expenses $4,563,548
------------------------------------------------------------------------------------------------------
Net investment income $23,219,256
------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
--------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $661,713
Swap transactions 1,952,631
------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $2,614,344
------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $8,102,510
Swap transactions (4,109,963)
------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $3,992,547
------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $6,606,891
------------------------------------------------------------------------------------------------------
Distributions declared from preferred shares $(4,638,004)
------------------------------------------------------------------------------------------------------
Change in net assets from operations $25,188,143
------------------------------------------------------------------------------------------------------
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
------------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
------------------------------------------------------------------------------------------------------
Net investment income $23,219,256 $23,600,281
Net realized gain (loss) on investments 2,614,344 (9,378,554)
Net unrealized gain (loss) on investments 3,992,547 12,923,488
Distributions declared from preferred shares (4,638,004) (3,025,056)
------------------------------------------------------------------------------------------------------
Change in net assets from operations $25,188,143 $24,120,159
------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
From net investment income $(19,714,328) $(21,742,129)
------------------------------------------------------------------------------------------------------
Net asset value of shares issued to common shareholders in
reinvestment of distributions $1,428,897 $993,010
------------------------------------------------------------------------------------------------------
Total change in net assets $6,902,712 $3,371,040
------------------------------------------------------------------------------------------------------
NET ASSETS
------------------------------------------------------------------------------------------------------
At beginning of period 316,195,987 312,824,947
At end of period (including undistributed net investment
income of $4,688,202 and $5,919,972, respectively) $323,098,699 $316,195,987
------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the trust's financial performance for the past 5 years.
Certain information reflects financial results for a single trust share. The total returns in the table represent the rate
by which an investor would have earned (or lost) on an investment in the trust share class (assuming reinvestment of all
distributions) held for the entire period. This information has been audited by the trust's independent registered public
accounting firm, whose report, together with the trust's financial statements, are included in this report.
YEARS ENDED 10/31
----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $7.92 $7.86 $7.69 $7.61 $7.93
-----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.58 $0.59 $0.60 $0.61 $0.64
Net realized and unrealized gain (loss)
on investments 0.17 0.10 0.16 0.04 (0.38)
Distributions declared to shareholders on
preferred shares (0.12) (0.08) (0.04) (0.04) (0.05)
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.63 $0.61 $0.72 $0.61 $0.21
-----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------------------
From net investment income,
common shares $(0.49) $(0.55) $(0.55) $(0.53) $(0.53)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.06 $7.92 $7.86 $7.69 $7.61
-----------------------------------------------------------------------------------------------------------------------------
Common share market value, end of period $8.20 $8.27 $7.83 $7.49 $7.15
-----------------------------------------------------------------------------------------------------------------------------
Total return at market value (%) (p)(r)(s) 5.41 13.18 12.22 12.51 (2.23)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHARES)
AND SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f)(p) 1.45 1.44 1.46 1.51 1.56
Expenses after expense reductions (f)(p) 1.45 1.44 1.46 N/A N/A
Net investment income (p) 7.30 7.45 7.70 7.98 8.26
Portfolio turnover 17 14 9 11 16
Net assets at end of period (000 Omitted) $323,099 $316,196 $312,825 $305,383 $302,010
-----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 10/31
----------------------------------------------------------------------------
2006 2005 2004 2003 2002
SUPPLEMENTAL RATIOS (%)
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
including preferred shares (f)(p) 1.00 0.99 1.00 1.03 1.07
Preferred shares dividends 1.46 0.95 0.49 0.48 0.68
Net investment income available to
common shares 5.84 6.49 7.22 7.50 7.58
-----------------------------------------------------------------------------------------------------------------------------
SENIOR SECURITIES
-----------------------------------------------------------------------------------------------------------------------------
Total preferred shares outstanding 5,600 5,600 5,600 5,600 5,600
Asset coverage per preferred share (k) $82,696 $81,464 $80,862 $79,533 $79,090
Involuntary liquidation preference per
preferred share $25,000 $25,000 $25,000 $25,000 $25,000
Approximate market value per
preferred share $25,000 $25,000 $25,000 $25,000 $25,000
-----------------------------------------------------------------------------------------------------------------------------
(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 trust's total liabilities (not including preferred shares) from the trust's total assets
and dividing this number by the number of preferred shares outstanding.
(p) Ratio excludes dividend payment on auction preferred shares.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the trust may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Municipal Income Trust (the trust) is a trust that is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a closed-end diversified management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The trust
can invest up to 100% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions. Municipal securities backed by
current or anticipated revenues from a specific project or specific assets can
be negatively affected by the discontinuance of the taxation supporting the
projects or assets or the inability to collect revenues for the project or from
the assets. If the Internal Revenue Service determines an issuer of a municipal
security has not complied with applicable tax requirements, the security could
decline in value, interest from the security could become taxable and the trust
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. Values of debt
instruments 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. 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 a broker-dealer bid quotation. 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. The Board
of Trustees has delegated primary responsibility for determining or causing to
be determined the value of the trust'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 trust's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments. These investments are generally
valued at fair value based on information from independent pricing services.
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 trust'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 trust'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 trust, and believes the impact will be
limited to expanded disclosures resulting from the adoption of this Statement
in the trust's financial statements.
DERIVATIVE RISK - The trust may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the trust uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include swap agreements.
SWAP AGREEMENTS - The trust may enter into swap agreements. A swap is an
exchange of cash payments between the trust and another party. Net cash
payments are exchanged at specified intervals and 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 trust'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 trust 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.
INTEREST RATE SWAP AGREEMENTS - Interest rate swap agreements 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 trust may enter into an
interest rate swap in order to manage its exposure to interest and foreign
exchange fluctuations.
INDEMNIFICATIONS - Under the trust'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 trust. Additionally, in the
normal course of business, the trust enters into agreements with service
providers that may contain indemnification clauses. The trust's maximum
exposure under these agreements is unknown as this would involve future claims
that may be made against the trust 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 trust may receive proceeds from
litigation settlements involving its portfolio holdings. Any proceeds received
are reflected in realized gain/loss in the Statement of Operations, or in
unrealized gain/loss if the security is still held by the trust.
Legal fees and other related expenses incurred to preserve and protect the
value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions made directly to the security issuer,
which are generally non-recurring, incurred to protect or enhance the value of
high-yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. This amount, for the year ended October 31, 2006, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTION - The trust 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 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.
The tax character of distributions declared to shareholders is as follows:
10/31/06 10/31/05
Ordinary income (including any short-term
capital gains) $181,879 $60,086
Tax-exempt income 24,170,453 24,707,099
-------------------------------------------------------------------------------
Total distributions $24,352,332 $24,767,185
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 10/31/06
Cost of investments $422,570,064
-------------------------------------------------------------
Gross appreciation $34,048,123
Gross depreciation (921,119)
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $33,127,004
Undistributed ordinary income 113,468
Undistributed tax-exempt income 4,844,106
Capital loss carryforwards (27,111,418)
Other temporary differences (2,104,018)
As of October 31, 2006, the trust had available capital loss carryforwards to
offset future realized gains. Such losses expire as follows:
10/31/09 $(1,744,548)
10/31/10 (2,883,947)
10/31/11 (10,944,821)
10/31/12 (1,858,513)
10/31/13 (9,679,589)
---------------------------------------------
$(27,111,418)
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. 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 is evaluating the application of the Interpretation to
the trust, and has not at this time determined the impact, if any, resulting
from the adoption of this Interpretation on the trust's financial statements.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
management and related administrative services and facilities to the trust. The
management fee is computed daily and paid monthly at an annual rate of 0.40% of
the trust'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, 2006 was equivalent to an
annual effective rate of 0.78% of the trust's average daily net assets,
including preferred shares.
TRANSFER AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of
MFS, receives a fee from the trust for its services as registrar and dividend-
disbursing agent. Pursuant to a written agreement, the trust pays MFSC an
account maintenance fee of no more than $9.00 and a dividend services fee of
$0.75 per reinvestment. For the year ended October 31, 2006, these fees
amounted to $53,691. MFSC also receives payment from the trust for out-of-
pocket expenses paid by MFSC on behalf of the trust. For the year ended October
31, 2006, these costs amounted to $24,606.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the trust.
Under an administrative services agreement, the trust partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the trust's annual fixed amount was $10,000. Effective
April 1, 2006, the trust's annual fixed amount is $17,500. The administrative
services fee incurred for the year ended October 31, 2006 was equivalent to an
annual effective rate of 0.0164% of the trust's average daily net assets
including preferred shares.
TRUSTEES' AND OFFICERS' COMPENSATION - The trust pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The trust does not pay
compensation directly to trustees who are officers of the investment adviser,
or to officers of the trust, all of whom receive remuneration for their
services to the trust from MFS. Certain officers and trustees of the trust are
officers or directors of MFS and MFSC. The trust has an unfunded, defined
benefit plan for certain retired independent trustees which resulted in a
pension expense of $6,760. This amount is included in independent trustees"
compensation for the year ended October 31, 2006. The deferred liability for
retirement benefits payable to certain retired independent trustees amounted to
$118,514 at October 31, 2006, and is included in payable for independent
trustees" compensation.
OTHER - This trust and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended October 31, 2006, the fee paid to Tarantino LLC
was $1,988. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $1,765, 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
$148,487,893 and $75,473,672, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. During the year ended October 31, 2006, the trust did
not repurchase any shares. Transactions in trust shares were as follows:
YEAR ENDED YEAR ENDED
10/31/06 10/31/05
SHARES AMOUNT SHARES AMOUNT
Shares issued to shareholders in
reinvestment of distributions 179,319 $1,428,897 124,307 $993,010
(6) LINE OF CREDIT
The trust and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the trust and other affiliated funds 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
0.35%. 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, 2006,
the trust's commitment fee and interest expense were $1,741 and $0,
respectively, and are included in miscellaneous expense on the Statement of
Operations.
(7) AUCTION PREFERRED SHARES
The trust issued 2,800 shares of Auction Preferred Shares ("APS"), series T and
2,800 of Auction Preferred Shares, series TH. Dividends are cumulative at a
rate that is reset every seven days for both series through an auction process.
During the year ended October 31, 2006, the dividend rates ranged from 2.50% to
4.01%. The trust pays an annual fee equivalent to 0.25% of the preferred share
liquidation value for remarketing efforts associated with the preferred
auction. The APS are redeemable at the option of the trust in whole or in part
at the redemption price equal to $25,000 per share, plus accumulated and unpaid
dividends. The APS are also subject to mandatory redemption if certain
requirements relating to their asset maintenance coverage are not satisfied.
The trust is required to maintain certain asset coverage with respect to the
APS as defined in the trust's By-Laws and the Investment Company Act of 1940.
(8) CONCENTRATION OF CREDIT RISK
At October 31, 2006, 15.3% of securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments
insured by or supported (backed) by a letter of credit from any one institution
or agency did not exceed 6.2% of total investments.
(9) LOSS CONTINGENCY
The issuers of certain bonds held in the fund's portfolio have made public that
the Internal Revenue Service (IRS), in connection with an audit of their bonds,
has made either a Preliminary Adverse Determination or a Proposed Adverse
Determination that interest paid on the bonds is not excludable from gross
income for federal tax purposes. While the final resolution is uncertain at
this time, the bond issuers may enter into closing agreements with the IRS in
satisfaction of all taxes owed. However, if a bond issuer does not settle with
the IRS and the IRS issues a final determination of taxability, the fund may be
required to amend Form 1099-DIVs issued to shareholders or may enter into a
closing agreement with the IRS and pay an agreed upon amount in lieu of
reissuing 1099s. Depending on the final disposition of the various audits, an
estimate of the cumulative tax liability, including interest, could range from
$0 to $487,100, or a maximum share impact of $.012 per share.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To The Trustees and the Shareholders of MFS Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Municipal Income Trust (the
"Trust") as of October 31, 2006, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Trust is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2006,
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, 2006, 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 21, 2006
RESULTS OF SHAREHOLDER MEETING
10/31/06 (unaudited)
At an annual meeting of shareholders of MFS Municipal Income Trust, which was
held on October 6, 2006, the following actions were taken:
ITEM 1. To elect the following individuals as Trustees:
NUMBER OF COMMON SHARES
-----------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
------- ----------- ------------------
Robert E. Butler 35,328,065.34 635,357.49
David H. Gunning 35,309,600.21 653,822.62
Robert C. Pozen 35,271,199.73 692,223.10
J. Dale Sherratt 35,281,671.29 681,751.54
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2006, 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); 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 (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians" Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 9/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
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 Private investor; Prism Venture
(born 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul 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); 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 Trust within the meaning of the Investment Company Act of 1940 (referred to as
the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result
of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
(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 Trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for
fixed terms. The Board of Trustees is currently divided into three classes, each having a term of three years.
Each year the term of one class expires. Each Trustee's term of office expires on the date of the third annual
meeting following the election to office of the Trustee's class. Each Trustee and officer will serve until next
elected or his or her earlier death, resignation, retirement or removal.
Messrs. Butler, Sherratt and Uek and Ms. Thomsen are members of the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or a
subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain affiliates
of MFS. As of January 1, 2006, the Trustees served as board members of 98 funds within the MFS Family of Funds.
The Statement of Additional Information for the Trust and further information about the Trustees are available
without charge upon request by calling 1-800-225-2606.
On October 9, 2006, Maria F. Dwyer, as Chief Executive Officer of the Trust, certified to the New York Stock
Exchange that as of the date of her certification she was not aware of any violation by the Trust of the
corporate governance listing standards of the New York Stock Exchange.
The Trust filed with the Securities and Exchange Commission the certifications of its principal executive
officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 2003 as an exhibit to
the Trust's Form N-CSR for the period covered by this report.
--------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
PORTFOLIO MANAGERS INDEPENDENT REGISTERED PUBLIC
Gary A. Lasman ACCOUNTING FIRM
Geoffrey L. Schechter Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of 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, 2006 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds" Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to
the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance (based on net asset
value) of the Fund for various time periods ended December 31, 2005 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 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, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund ranked
1st out of a total of 6 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 3rd out of a total of 8 funds for the one-year period and 2nd out of a
total of 6 funds for the five-year period ended December 31, 2005. 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 under-performed its
custom benchmark for the one-year period ended December 31, 2005 and
out-performed its custom benchmark for each of the three- and five-year periods
ended December 31, 2005. Because of the passage of time, these performance
results are likely to differ from the performance results for more recent
periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings, as
well as during investment review meetings conducted with portfolio management
personnel during the course of the year regarding the Fund's performance. After
reviewing these and related factors, the Trustees concluded, within the context
of their overall conclusions regarding the investment advisory agreement, that
they were satisfied with MFS' responses and efforts relating to investment
performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's common shares as a percentage of average net assets
and the advisory fee and total expense ratios of peer groups of funds based on
information provided by Lipper Inc. and MFS. The Trustees considered 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 which also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative services provided to the Fund by MFS under agreements other than
the investment advisory agreement. The Trustees also considered the nature,
extent and quality of certain other services MFS performs or arranges for on
the Fund's behalf, 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, 2006.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement is available by visiting the Closed-End section
of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The trust 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 trust'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 1-202-551-5850. The trust'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 trust will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007. The following information is provided pursuant to
provisions of the Internal Revenue Code.
Of the dividends paid from net investment income during the fiscal year, 99.25%
is designated as exempt interest dividends for federal income tax purposes. If
the trust 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, 2006, our records indicate that there are 2,955 registered
shareholders and approximately 13,228 shareholders owning trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our
reports, which contain important information about the trust, please write or
call:
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, 2006 and 2005, audit fees billed to the
Fund by Deloitte were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2006 2005
---- ----
MFS Municipal Income Trust 42,117 40,017
For the fiscal years ended October 31, 2006 and 2005, 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: 2006 2005 2006 2005 2006 2005
---- ---- ---- ---- ---- ----
To MFS Municipal 38,000 38,900 7,050 10,850 0 0
Income Trust
To MFS and MFS Related 1,047,925 959,191 0 62,000 276,806 830,675
Entities of MFS
Municipal Income
Trust*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2006 2005
---- ----
To MFS Municipal Income 1,497,966 1,949,512
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, 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
SEPTEMBER 17, 2003, AS REVISED ON SEPTEMBER 20, 2004,
MARCH 15, 2005 AND MARCH 1, 2006
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 has carefully reviewed matters that in recent years have been
presented for shareholder vote by either management or shareholders of public
companies. Based on the overall principle that all votes cast by MFS on behalf
of its clients must be in what MFS believes to be the best long-term economic
interests of such clients, MFS has adopted proxy voting guidelines, set forth
below, that govern how MFS generally 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
clearly governed by the guidelines, such as proposed mergers and acquisitions.
Some items that otherwise would be acceptable will be voted against the
proponent when it is seeking extremely broad flexibility without offering a
valid explanation. MFS reserves the right to override the guidelines with
respect to a particular shareholder vote when such an override is, in MFS' best
judgment, consistent with the overall principle of voting proxies in the best
long-term economic interests of MFS' clients.
From time to time, MFS receives comments on these guidelines as well
as regarding particular voting issues from its clients and corporate issuers.
These comments are carefully considered by MFS, when it reviews these
guidelines each year and revises them as appropriate.
These policies and procedures are intended to address any potential
material conflicts of interest on the part of MFS or its affiliates that are
likely to arise in connection with the voting of proxies on behalf of MFS'
clients. If such potential 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 Review Group 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 a
majority of directors who are "independent" of management, and whose key
committees (e.g., compensation, nominating, and audit committees) are comprised
entirely of "independent" directors. While MFS generally supports the board's
nominees in uncontested elections, we will withhold our vote for a nominee for
a board of a U.S. issuer if, as a result of such nominee being elected to the
board, the board would be comprised of a majority of members who are not
"independent" or, alternatively, the compensation, nominating or audit
committees would include members who are not "independent." MFS will also
withhold its vote for a nominee to the board if 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. In addition, MFS will withhold its
vote for all nominees standing for election to a board of a U.S. issuer if we
can determine: (1) if, since the last annual meeting of shareholders and
without shareholder approval, the board or its compensation committee has
repriced underwater options; or (2) if, within the last year, shareholders
approved by majority vote a resolution recommending that the board rescind a
"poison pill" and the board has failed to take responsive action to that
resolution. Responsive action would include the rescission of the "poison
pill"(without a broad reservation to reinstate the "poison pill" in the event
of a hostile tender offer), or public assurances that the terms of the "poison
pill" would be put to a binding shareholder vote within the next five to seven
years.
MFS evaluates a contested election of directors on a case-by-case
basis considering the long-term financial performance of the company relative
to its industry, management's track record, the qualifications of the nominees
for both slates and an evaluation of what each side is offering shareholders.
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
Restricted stock plans should reward results rather than tenure. In
some cases, restricted stock is granted to the recipient at deep discounts to
fair market value, sometimes at par value. The holder cannot sell for a period
of years, but in the meantime the holder is able to vote and receive dividends.
Eventually the restrictions lapse and the stock can be sold by the holder.
MFS votes against stock option programs for officers, employees or
non-employee directors that do not require an investment by the optionee, that
give "free rides" on the stock price, or that permit grants of stock options
with an exercise price below fair market value on the date the options are
granted.
MFS opposes stock option programs that allow the board or the
compensation committee, without shareholder approval, to reprice underwater
options or to automatically replenish shares (i.e., evergreen plans). MFS will
consider on a case-by-case basis proposals to exchange existing options for
newly issued options (taking into account such factors as whether there is a
reasonable value-for-value exchange).
MFS opposes stock option and restricted stock plans that provide
unduly generous compensation for officers, directors or employees, or could
result in excessive dilution to other shareholders. As a general guideline, MFS
votes against stock option and restricted stock plans if all such plans for a
particular company involve potential dilution, in the aggregate, of more than
15%. However, MFS may accept a higher percentage (up to 20%) in the case of
startup or small companies which cannot afford to pay large salaries to
executives, or in the case where MFS, based upon the issuer's public
disclosures, believes that the issuer has been responsible with respect to its
recent compensation practices, including the mix of the issuance of restricted
stock and options.
MFS votes in favor of stock option or restricted stock plans for
non-employee directors as long as they satisfy the requirements set forth above
with respect to stock option and restricted stock plans for company executives.
EXPENSING OF STOCK OPTIONS
While we acknowledge that there is no agreement on a uniform
methodology for expensing stock options, MFS supports shareholder proposals to
expense stock options because we believe that the expensing of options presents
a more accurate picture of the company's financial results to investors. We
also believe that companies are likely to be more disciplined when granting
options if the value of stock options were treated as an expense item on the
company's income statements.
EXECUTIVE COMPENSATION
MFS believes that competitive compensation packages are necessary to
attract, motivate and retain executives. Therefore, MFS opposes shareholder
proposals that seek to set limits on executive compensation. Shareholder
proposals seeking to set limits on executive compensation tend to specify
arbitrary compensation criteria. MFS also opposes shareholder requests for
disclosure on executive compensation beyond regulatory requirements because we
believe that current regulatory requirements for disclosure of executive
compensation are appropriate and that additional disclosure is often
unwarranted and costly. Although we support linking executive stock option
grants to a company's stock performance, MFS opposes shareholder proposals that
mandate a link of performance-based options to a specific industry or peer
group index. MFS believes that compensation committees should retain the
flexibility to propose the appropriate index or other criteria by which
performance-based options should be measured. MFS evaluates other executive
compensation restrictions (e.g., terminating the company's stock option or
restricted stock programs, freezing executive pay during periods of large
layoffs, and establishing a maximum ratio between the highest paid executive
and lowest paid employee) based on whether such proposals are in the best
long-term economic interests of our clients.
EMPLOYEE STOCK PURCHASE PLANS
MFS supports the use of a broad-based employee stock purchase plans to
increase company stock ownership by employees, provided that shares purchased
under the plan are acquired for no less than 85% of their market value and do
not result in excessive dilution.
"GOLDEN PARACHUTES"
From time to time, shareholders of companies have submitted proxy
proposals that would require shareholder approval of severance packages for
executive officers that exceed certain predetermined thresholds. MFS votes in
favor of such shareholder proposals when they would require shareholder
approval of any severance package for an executive officer that exceeds a
certain multiple of such officer's annual compensation that is not determined
in MFS' judgment to be excessive.
ANTI-TAKEOVER MEASURES
In general, MFS votes against any measure that inhibits capital
appreciation in a stock, including proposals that protect management from
action by shareholders. These types of proposals take many forms, ranging from
"poison pills" and "shark repellents" to super-majority requirements.
MFS will vote for proposals to rescind existing "poison pills" and
proposals that would require shareholder approval to adopt prospective "poison
pills." Nevertheless, MFS will consider supporting the adoption of a
prospective "poison pill" or the continuation of an existing "poison pill" if
the following two conditions are met: (1) the "poison pill" allows MFS clients
to hold an aggregate position of up to 15% of a company's total voting
securities (and of any class of voting securities); and (2) either (a) the
"poison pill" has a term of not longer than five years, provided that MFS will
consider voting in favor of the "poison pill" if the term does not exceed seven
years and the "poison pill" is linked to a business strategy or purpose that
MFS believes is likely to result in greater value for shareholders; or (b) the
terms of the "poison pill" allow MFS clients the opportunity to accept a fairly
structured and attractively priced tender offer (e.g., a "chewable poison pill"
that automatically dissolves in the event of an all cash, all shares tender
offer at a premium price).
MFS will consider on a case-by-case basis proposals designed to
prevent tenders which are disadvantageous to shareholders such as tenders at
below market prices and tenders for substantially less than all shares of an
issuer.
REINCORPORATION AND REORGANIZATION PROPOSALS
When presented with a proposal to reincorporate a company under the
laws of a different state, or to effect some other type of corporate
reorganization, MFS considers the underlying purpose and ultimate effect of
such a proposal in determining whether or not to support such a measure. While
MFS generally votes in favor of management proposals that it believes are in
the best long-term economic interests of its clients, MFS may oppose such a
measure if, for example, the intent or effect would be to create additional
inappropriate impediments to possible acquisitions or takeovers.
ISSUANCE OF STOCK
There are many legitimate reasons for issuance of stock. Nevertheless,
as noted above under "Non-Salary Compensation Programs", when a stock option
plan (either individually or when aggregated with other plans of the same
company) would substantially dilute the existing equity (e.g., by approximately
15% or more), MFS generally votes against the plan. In addition, MFS votes
against proposals where management is asking for authorization to issue common
or preferred stock with no reason stated (a "blank check") because the
unexplained authorization could work as a potential anti-takeover device.
REPURCHASE PROGRAMS
MFS supports proposals to institute share repurchase plans in which
all shareholders have the opportunity to participate on an equal basis. Such
plans may include a company acquiring its own shares on the open market, or a
company making a tender offer to its own shareholders.
CONFIDENTIAL VOTING
MFS votes in favor of proposals to ensure that shareholder voting
results are kept confidential. For example, MFS supports proposals that would
prevent management from having access to shareholder voting information that is
compiled by an independent proxy tabulation firm.
CUMULATIVE VOTING
MFS opposes proposals that seek to introduce cumulative voting and for
proposals that seek to eliminate cumulative voting. In either case, MFS will
consider whether cumulative voting is likely to enhance the interests of MFS'
clients as minority shareholders. In our view, shareholders should provide
names of qualified candidates to a company's nominating committee, which now
for the first time (for U.S. listed companies) must be comprised solely of
"independent" directors.
WRITTEN CONSENT AND SPECIAL MEETINGS
Because the shareholder right to act by written consent (without
calling a formal meeting of shareholders) can be a powerful tool for
shareholders, MFS generally opposes proposals that would prevent shareholders
from taking action without a formal meeting or would take away a shareholder's
right to call a special meeting of company shareholders.
INDEPENDENT AUDITORS
MFS believes that the appointment of auditors is best left to the
board of directors of the company and therefore supports the ratification of
the board's selection of an auditor for the company. Recently, some shareholder
groups have submitted proposals to limit the non-audit activities of a
company's audit firm. Some proposals would prohibit the provision of any
non-audit services by a company's auditors to that company. MFS opposes
proposals recommending the prohibition or limitation of the performance of
non-audit services by an auditor, and proposals recommending the removal of a
company's auditor due to the performance of non-audit work for the company by
its auditor. MFS believes that the board, or its audit committee, should have
the discretion to hire the company's auditor for specific pieces of non-audit
work in the limited situations permitted under current law.
BEST PRACTICES STANDARDS
Best practices standards are rapidly developing in the corporate
governance areas as a result of recent corporate scandals, the Sarbanes-Oxley
Act of 2002 and revised listing standards on major stock exchanges. MFS
generally support these developments. However, many issuers are not publicly
registered, are not subject to these enhanced listing standards, or are not
operating in an environment that is comparable to that in the United States. In
reviewing proxy proposals under these circumstances, MFS votes for proposals
that enhance standards of corporate governance so long as we believe that -
given the circumstances or the environment within which the issuers operate -
the proposal is consistent with the best long-term economic interests of our
clients.
SOCIAL ISSUES
There are many groups advocating social change, and many have chosen
the publicly-held corporation as a vehicle for advancing their agenda. Common
among these are resolutions requiring the corporation to refrain from investing
or conducting business in certain countries, to adhere to some list of goals or
principles (e.g., environmental standards) or to promulgate special reports on
various activities. MFS votes against such proposals unless their
shareholder-oriented benefits will outweigh any costs or disruptions to the
business, including those that use corporate resources to further a particular
social objective outside the business of the company or when no discernible
shareholder economic advantage is evident.
The laws of various states may regulate how the interests of certain
clients subject to those laws (e.g., state pension plans) are voted with
respect to social issues. Thus, it may be necessary to cast ballots differently
for certain clients than MFS might normally do for other clients.
FOREIGN ISSUERS
MFS will evaluate items on proxies for foreign companies in the
context of the guidelines described above, as well as local market standards
and best practices. Proxies for foreign companies often contain significantly
more voting items than those of U.S. companies. Many of these items on foreign
proxies involve repetitive, non-controversial matters that are mandated by
local law. Accordingly, the items that are generally deemed routine and which
do not require the exercise of judgment under these guidelines (and therefore
voted in favor) for foreign issuers include the following: (i) receiving
financial statements or other reports from the board; (ii) approval of
declarations of dividends; (iii) appointment of shareholders to sign board
meeting minutes; (iv) discharge of management and supervisory boards; (v)
approval of share repurchase programs; (vi) election of directors in
uncontested elections and (vii) appointment of auditors.
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 REVIEW GROUP
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
clearly 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, 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 at least one 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, and the basis for the
determination that the votes ultimately were cast in what MFS
believes to be the best long-term economic interests of MFS'
clients, and not in MFS' corporate interests. A copy of the
foregoing documentation will be provided to the MFS' Conflicts
Officer.
The members of the MFS Proxy Voting Committee are responsible for
creating and maintaining the MFS Significant Client List, in consultation with
MFS' distribution, retirement plan administration and institutional business
units. The MFS Significant Client List will be reviewed and updated
periodically, as appropriate.
3. GATHERING PROXIES
Most proxies received by MFS and its clients originate at Automatic
Data Processing Corp. ("ADP") although a few proxies are transmitted to
investors by corporate issuers through their custodians or depositories. ADP
and issuers send proxies and related material directly to the record holders of
the shares beneficially owned by MFS' clients, usually to the client's
custodian or, less commonly, to the client itself. This material will include
proxy cards, reflecting the proper shareholdings of Funds and of clients on the
record dates for such shareholder meetings, as well as proxy statements with
the issuer's explanation of the items to be voted upon.
MFS, on behalf of itself and the Funds, has entered into an agreement
with an independent proxy administration firm, Institutional Shareholder
Services, Inc. (the "Proxy Administrator"), pursuant to which the Proxy
Administrator performs various proxy vote related 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 the upcoming shareholders' meetings of over
10,000 corporations 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. 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 within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group may determine to vote the
proxy in what it believes to be the best long-term economic interests of
MFS' clients.
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
therefor; (iii) a review of the procedures used by MFS to identify material
conflicts of interest; and (iv) a review of these policies and the guidelines
and, as necessary or appropriate, any proposed modifications thereto to reflect
new developments in corporate governance and other issues. Based on these
reviews, the Trustees, 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, 2006. 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, 2006 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 2 $2.0 billion 0 N/A 0 N/A
Geoffrey L. Schecter 10 $6.1 billion 1 $218.5 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) MAXIMUM NUMBER
(C) TOTAL NUMBER OF (OR APPROXIMATE
SHARES PURCHASED AS DOLLAR VALUE) OF
(B) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
(A) TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS OR BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE PROGRAMS THE PLANS OR PROGRAMS
=============================================================================================================
11/1/05-11/30/05 0 n/a 0 3,979,505
-------------------------------------------------------------------------------------------------------------
12/1/05-12/31/05 0 n/a 0 3,979,505
-------------------------------------------------------------------------------------------------------------
1/1/06-1/31/06 0 n/a 0 3,979,505
-------------------------------------------------------------------------------------------------------------
2/1/06-2/28/06 0 n/a 0 3,979,505
-------------------------------------------------------------------------------------------------------------
3/1/06-3/31/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
4/1/06-4/30/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
5/1/06-5/31/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
6/1/06-6/30/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
7/1/06-7/31/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
8/1/06-8/31/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
9/1/06-9/30/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
10/1/06-10/31/06 0 n/a 0 3,994,370
-------------------------------------------------------------------------------------------------------------
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, 2006 plan year is 3,994,370.
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 22, 2006
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: December 22, 2006
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 22, 2006
-----------------
* Print name and title of each signing officer under his or her signature.