Dear Shareholders:
Sentiment in the fixed-income markets has turned decidedly negative in recent
months. Strong employment growth indicated that the economy has made a
better-than-expected recovery from the special factors (government shutdowns,
severe weather) that had been slowing it during mid-winter. Sharp rises in
commodity and energy prices added to the sudden realization that the best
news regarding inflation may be behind us. The failure of Congress and the
administration to reach a long-term balanced-budget agreement added to the
dismal market psychology. In this environment, the net asset value of the
Trust declined to $8.68 on April 30, 1996 from $8.84 on October 31, 1995.
Over that same period, the Trust's market price on the New York Stock
Exchange declined to $9.38 from $9.50. For the six-month period above, shares
of the Trust provided a total return of 2.41%, while the Lehman Brothers
Municipal Bond Index, an unmanaged index of investment-grade, fixed-rate
municipal bonds, provided a total return of 1.11% and the Lehman Brothers
High Yield Municipal Bond Index, an unmanaged index of fixed-rate,
below-investment-grade municipal bonds which have a maturity of at least one
year, provided a total return of 1.05%. The Trust's return assumes the
reinvestment of distributions but excludes the effects of any sales charges.
Economic Environment
We believe the U.S. economy will continue to show moderate growth in 1996,
although this growth may be somewhat uneven as we move from quarter to
quarter. Thus, while one quarter may experience an annualized rate of growth
in gross domestic product of less than 1%, another quarter may see annualized
growth in excess of 3%--but, for the year, we believe growth could stay
within our expected range of 2% to 2-1/2%. While some increase in consumer
spending took place in the early months of this year, consumers, who
represent two-thirds of the economy, remain in a somewhat weakened position,
due in part to an increase in consumer installment debt in excess of 30% over
the past two years. Meanwhile, growth is also being constrained by ongoing
economic doldrums in Europe and Japan, important markets for U.S. exports.
Here again, we are seeing a few tentative signs, particularly in Japan, of
modest recoveries that could lead to improved prospects for U.S. exporters.
Also, the "lag effect" of increases in short-term interest rates by the
Federal Reserve Board in 1994 and into 1995 is helping to keep growth in
check. This lag effect can last up to two years, and although the Fed did
reduce short-term rates late last year and earlier this year, we expect it to
continue its diligent anti-inflationary policies. Finally, it appears that
inflation is likely to remain under control this year, due in part to a
continued moderation in wage pressures and the subdued level of economic
growth. At the same time, we believe the current upward pressure on energy
prices bears close scrutiny, as energy is an important component of the
inflation outlook.
Bond Markets
Persistent signs of economic weakness led to decreases in short-term interest
rates by the Federal Reserve in late 1995 and early 1996. However, should
signs of economic growth and, particularly, of higher inflation continue, we
would expect the Fed to maintain its anti-inflationary stance. This would
likely mean no further reductions in short-term interest rates and could lead
to some modest increases. In the beginning of the year, bond markets were
trading in a narrow range, as investors shifted between concern about the
lack of a budget resolution in Washington and hopes that sluggish economic
reports and low inflation might lead to lower interest rates. Later,
fixed-income markets began reacting to conflicting signals regarding the
strength of the economy with more-volatile trading patterns marked by an
upward bias in interest rates. Interest rates may move even higher over the
coming months, but we believe the current rise in bond yields is reaching a
point where fixed-income markets are becoming attractively valued.
Portfolio Performance and Strategy
Although the municipal market provided impressive returns during 1995, the
first quarter of 1996 has been disappointing. For the fiscal period beginning
November 1, 1995 and ending April 30, 1996, long-
1
<PAGE>
term Treasury bond yields climbed 60 basis points (0.60%), while comparable
municipal bond yields rose only 10 basis points (0.10%). The municipal
market's outperformance can be attributed to the decreased threat of tax
reform in the near term.
The high-yield municipal market has seen limited supply during this time
period. This dearth of issuance combined with the reach for yield has
narrowed the spread relationship between high-grade bonds and those of lower
quality, limiting our opportunity to enhance tax-exempt income for the
Trust's shareholders. Additionally, despite higher interest rates, the Trust
has lowered its monthly dividend to $0.053. This reduction was necessitated
by bond calls from issues with double-digit stated coupons as well as by a
restructuring of approximately 1% of the Trust's assets, and better reflects
its current earnings. Based on the most recent dividend annualized and the
stock market price of $9.38 in effect at the close of business on April 30,
1996, the distribution yield for the Trust was 6.78%.
Our efforts remain focused on research and preservation of high tax-exempt
income. Diversification of credit risk and of factors that might affect
liquidity remain important components of the Trust's overall strategy.
Despite the recent dividend cut, we believe the Trust's yield remains quite
competitive with other high-yield tax-exempt closed-end funds.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
/s/ Cynthia M. Brown
Cynthia M. Brown
Portfolio Manager
May 10, 1996
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.
2
<PAGE>
****************************[boxed text]************************************
Performance Summary
(For the six months ended April 30, 1996)
Net Asset Value Per Share
October 31, 1995 $ 8.84
April 30, 1996 $ 8.68
New York Stock Exchange Price
October 31, 1995 $ 9.50
February 6, 1996 (high)* $10.00
November 21, 1995 (low)* $ 9.25
April 30, 1996 $ 9.38
*For the period November 1, 1995 through April 30, 1996.
****************************************************************************
Investment Objective and Policy
The investment objective of MFS(R) Municipal Income Trust is to provide high
current income exempt from federal income taxes.
The Trust seeks to achieve its objective by investing primarily in medium-
and lower-quality municipal bonds and notes. The Trust may also enter into
futures contracts and purchase securities on a "when-issued" basis.
Number of Employees
The Trust is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as a closed-end,
non-diversified, management investment company and has no employees.
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MFM.
Number of Shareholders
As of April 30, 1996, our records indicate that there are 7,938 registered
shareholders and approximately 16,600 shareholders owning Trust shares in
"street" name, such as through brokers, banks and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our
reports, which contain important information about the Trust, please write or
call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
Dividend Reinvestment and
Cash Purchase Plan
The Trust offers a Dividend Reinvestment and Cash Purchase Plan which allows
you to reinvest either all of the distributions or only the long-term capital
gains paid by the Trust. Unless the shares are trading at a premium
(exceeding net asset value), purchases are made at the market price.
Otherwise, purchases will be made at a discounted price of either the net
asset value or 95% of the market price, whichever is greater. You can also
buy shares of the Trust. Investments from $100 to $500 can be made 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. A service fee of $0.75
is charged for each cash purchase as well as a pro rata share of the
brokerage commissions, if any. 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 to receive a brochure providing a
complete description of the Plan, please contact the Plan agent at the
address and telephone number located on the back cover of this report. 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. 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.
3
<PAGE>
Portfolio of Investments -- April 30, 1996
Municipal Bonds -- 98.3%
<TABLE>
<CAPTION>
Principal
Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Student Loan Revenue -- 0.6%
Arizona Student Loan Acquisition Authority, 7.625s, 2010 $ 750 $ 807,127
Pennsylvania Higher Education Assistance Agency, AMBAC, RIBS, 8.099s, 2022 1,300 1,259,492
-------------
$ 2,066,619
-------------
General Obligation -- 3.5%
Arapahoe County, CO, Water & Sanitation District, 9.25s, 2013 $ 300 $ 314,619
Arapahoe County, CO, Water & Sanitation District, 9.25s, 2013 1,700 1,918,382
City of Markham, Cook County, IL, 9s, 2012 1,300 1,376,895
Jefferson County, OH, 7.125s, 2019 1,000 1,028,840
New York General Obligation Bonds, 5.75s, 2017 5,500 5,032,060
New York General Obligation Bonds, 5.75s, 2020 2,000 1,817,020
-------------
$11,487,816
-------------
State and Local Appropriation
Troy, NY, Certificates of Participation, Recreational Facilities Rev., 9.75s, 2010*+ $ 1,065 $ 106,500
-------------
Refunded and Special Obligation -- 14.6%
Dayton, OH, Special Facilities Rev. (Emery Air Freight), "A", 12.5s, 2009 $ 1,000 $ 1,160,430
Grand Junction, CO (Lincoln Park Osteopathic Hospital), 10.5s, 2017 1,250 1,412,437
Maine Health & Higher Education Facilities Authority (d'Youville Pavilli), 10s, 2017 7,690 8,598,573
Maine Health & Higher Education Facilities Authority (St. Mary's Hospital), 8.625s, 2022 1,000 1,135,970
Mississippi Hospital Equipment & Facilities Authority Rev. (Rush Medical Center), 8.75s, 2016 1,000 1,082,930
New Lenox, IL, Community Park Development Authority, 8.25s, 2014 2,000 2,438,280
Russellville, AR, Industrial Development Rev. (Charles Meyers Project), 10s, 2009 5,390 6,310,612
Telluride Gondola, CO, Real Estate Transfer, 11.5s, 2012 1,155 1,792,618
Telluride Gondola, CO, Real Estate Transfer, 11.5s, 2012 1,745 2,050,288
Telluride Gondola, CO, Real Estate Transfer, 9s, 2016 1,000 961,710
Texas Turnpike Authority (Houston Ship Channel Bridge), 0s, 2002 10,565 15,045,088
Washington Public Power Supply System Project #1, 14.375s, 2001 1,825 2,318,736
Washington Public Power Supply System Project #1, 15s, 2017 3,740 3,919,071
-------------
$48,226,743
-------------
Single Family Housing Revenue -- 7.3%
Austin, TX, Housing Finance Corp., 0s, 2016 $26,435 $ 2,667,556
Berkeley, Brookes, & Fayette Counties, WV, MBIA, 0s, 2016 14,000 1,551,480
Cook County, IL, Single Family Housing, 0s, 2015 1,530 186,186
Corpus Christi, TX, Housing Finance Corp., 0s, 2011 3,000 687,240
Dallas, TX, Housing Finance Corp., Single Family Mortgage Rev., MBIA, 0s, 2016 15,820 1,812,972
Denver, CO, City & County, Single Family Mortgage Rev., 0s, 2015 6,230 643,185
Duval County, FL, Housing Finance Authority, 11.875s, 2015 23,815 2,743,250
Florida Housing Finance Agency, 0s, 2012 1,895 364,371
Harris County, TX, Housing Finance Corp., 9.625s, 2003 1,145 1,148,618
Harris County, TX, Housing Finance Corp., 9.875s, 2014 710 712,236
Jackson County, MO, 0s, 2016 5,605 577,147
Nebraska Investment Finance Authority, 0s, 2015 47,175 7,147,956
Nebraska Investment Finance Authority, 0s, 2016 1,695 163,449
Nevada Housing Division, 0s, 2015 1,429 209,352
Ohio Housing Finance Agency, GNMA, RIBS, 9.324s, 2031(sec)(sec) 950 991,059
Reno County, KS, Mortgage Rev., 0s, 2014 4,250 532,397
Saline County, KS, 0s, 2014 1,775 232,010
Utah Housing Finance Agency, Residential Mortgage Rev., 9s, 2019 45 45,845
4
<PAGE>
Principal
Amount
Issuer (000 Omitted) Value
Single Family Housing Revenue -- continued
West Virginia Housing Development Fund, 0s, 2015 $ 5,425 $ 735,467
Wisconsin Housing & Economic Development Authority, Home Ownership Rev., RIBS, 9.642s, 2022(sec)(sec) 885 926,542
-------------
$24,078,318
-------------
Multi-Family Housing Revenue -- 7.1%
Bexar County, Housing Finance Corp., 0s, 2015 $26,300 $ 3,319,849
Broward County, FL, Housing Finance Authority (Deerfield Beach Apartments), 13s, 2000*(sec)# 85 55,045
Colorado Housing Finance Authority, 9s, 2025 865 874,506
Dade County, FL, Housing Finance Agency, Multi-Family Housing, 8.25s, 2002 5,466 5,581,624
Dade County, FL, Housing Finance Agency, Multi-Family Housing, 8.25s, 2002 4,158 4,245,057
Dallas, TX, Housing Finance Corp., 8.5s, 2011 1,360 1,399,318
Escondido, CA, Community Development Authority (Las Villas del Norte), 8.875s, 2005 830 812,678
Florida Housing Finance Agency (South Lake Apartments), 8.7s, 2021 1,500 1,515,510
Kenton County, KY, Industrial Development Rev. (Highland Terrace), 8.7s, 2026 5,330 5,637,594
Memphis, TN, Health, Education & Housing Facilities Board (Wesley Highland Terrace), 12.75s, 2015+ 100 85,000
-------------
$23,526,181
-------------
Insured Health Care Revenue -- 1.4%
Clermont County, OH, Hospital Facilities Rev. (Mercy Health Systems), AMBAC, MVRIC,
9.221s, 2021(sec)(sec) $ 500 $ 562,505
Desert Hospital District, CA, Hospital Rev. (Desert Hospital), CG, COP, MVRIC, 8.684s, 2020(sec)(sec) 1,500 1,572,450
North Central Texas, Health Facilities Development Corp. (Presbyterian Hospital), 9.72s,
2021(sec)(sec) 1,500 1,641,600
Salt Lake City, UT, Hospital Rev. (Intermountain Health Care), AMBAC, INFLO, 9.287s, 2020(sec)(sec) 650 723,573
-------------
$ 4,500,128
-------------
Health Care Revenue -- 24.2%
Arkansas Development Finance Authority, Economic Development Rev. (Southwest Homes), 10.8s, 2018 $ 1,420 $ 1,493,741
Bell County, TX, Health Facilities Authority (Kings Daughters Hospital), 9.25s, 2008 810 885,136
Bell County, TX, Health Facilities Development Corp. (Advanced Living Technology), 10.5s, 2018 4,055 3,527,850
Boonville, MO, Health Facilities Rev. (Gericare, Inc.), 11s, 2017 1,900 1,981,320
Boston, MA, Industrial Development Finance Authority Rev. (Stonehedge Convalescent Center),
10.75s, 2011 845 913,217
Brevard County, FL, Health Facilities Authority Rev. (Friendly Village), 9.25s, 2012 2,320 2,395,145
Broward County, FL, Industrial Development Rev. (Beverly Enterprises, Inc.), 9.8s, 2010 2,600 2,880,436
Cambria County, PA, Industrial Development Authority (Beverly Enterprises), 10s, 2012 800 986,632
Chester County, PA, Industrial Development Authority (RHA/PA Nursing Home, Inc.), 10.125s, 2019 979 1,011,767
Connecticut Health & Educational Facilities (Johnson Evergreen Corp.), 8.5s, 2014 650 690,950
Daphne, AL, Special Care Facilities Financing Authority (Westminster Village), 8.25s, 2026*# 500 345,000
District of Columbia, Hospital Rev. (Hospital for Sick Children), 8.875s, 2021 485 515,623
Fairfax, Fauquier & Loudoun Counties, VA, Health Center Commission, Nursing Home Rev., 9s, 2020 1,920 2,014,848
Fulton County, GA, Residential Care Facilities, Elderly Authority Rev. (Lenbrook Square Foundation),
9.75s, 2017 2,780 2,827,510
Gadsden County, FL, Industrial Development Authority (RHA/FLA Properties), 10.45s, 2014 2,585 2,671,003
Greenville County, SC, Hospital Facility Rev. (Chestnut Hill), 10.375s, 2016 2,890 2,890,000
Hannibal, MO, Industrial Development Authority (Hannibal Regional Health Care System, Inc.), 9.5s,
2022# 1,500 1,719,225
Hobbs, NM, Health Facilities Rev. (Nemecal Associates), 9.625s, 2014 935 992,587
Hopewell County, VA, Hospital Authority (John Randolph Hospital), 8.85s, 1997 1,070 1,122,237
Lee County, FL, Industrial Development Authority (Beverly Enterprises), 10s, 2010 2,055 2,307,539
Lexington-Fayette Counties, KY, Health Care Facilities Rev. (Sayre Christian Village), 10s, 2012 1,540 1,625,470
5
<PAGE>
Portfolio of Investments -- continued
Municipal Bonds -- continued
Principal
Amount
Issuer (000 Omitted) Value
Health Care Revenue -- continued
Louisiana Public Facilities Authority (Chateau Riviere Home for the Aged), 10.25s, 2016 $3,345 $ 3,463,480
Louisiana Public Facilities Authority (Southwest Medical Center), 11s, 2006 4,379 1,822,801
Massachusetts Health & Education Facilities Authority (Fairview Extended Care Facility), 10.25s, 2021 1,500 1,701,000
Massachusetts Industrial Finance Agency (Martha's Vineyard Long-Term Care), 9.25s, 2022* 1,700 1,332,800
Massachusetts Industrial Finance Agency (Needham/Hamilton House), 11s, 2010 900 920,988
Monongalia County, WV, Health Facilities Rev. (Beverly Enterprises, Inc.), 10s, 2007 1,035 1,135,975
Montgomery County, OH, Hospital Rev. (Kettering Convalescent Center), 10s, 2020 1,000 1,030,390
Montgomery County, PA, Higher Education & Health Authority Rev. (AHF/Montgomery, Inc.), 10.5s, 2020 2,500 2,626,925
New Jersey Economic Development Authority (Courthouse Convalescent Center), 8.7s, 2014 650 675,720
New Jersey Economic Development Authority (Geriatric & Medical Services, Inc.), 9.625s, 2004 190 212,981
New Jersey Economic Development Authority (Geriatric & Medical Services, Inc.), 9.625s, 2022 675 747,495
New Jersey Economic Development Authority (Greenwood Health Care), 9.75s, 2011 1,480 1,491,529
New Jersey Economic Development Authority (Wanaque Convalescent Center), 8.6s, 2011 1,000 1,015,490
North Carolina Medical Care Commission, Hospital Rev. (Valdese General Hospital), 8.75s, 2016 1,450 1,542,423
Okaloosa County, FL, Retirement Rental Housing Rev. (Beverly Enterprises, Inc.), 10.75s, 2003 1,410 1,515,708
Orange County, FL, Industrial Development Authority (Friendly Village), 9.25s, 1997 80 80,645
Orange County, FL, Industrial Development Authority Rev., 9.25s, 2012 1,805 1,865,810
Osceola County, FL, Industrial Development Rev. (Community Provider Pooled Loan Project), 7.75s, 2017 1,300 1,305,837
Philadelphia, PA, Industrial Development Authority, 10.25s, 2018 2,370 2,419,912
Philadelphia, PA, Industrial Development Authority, 10.25s, 2018 1,970 2,038,753
Prince William County, VA, Industrial Development Authority, Residential Care (Westminister at Lake
Ridge), 10s, 2022 1,500 1,619,085
Rochester, MN, Health Care Facilities Rev. (Mayo Medical Foundation), FIRS, 7.93s, 2021+++ 1,000 1,014,060
Santa Fe, NM, Industrial Development Rev. (Casa Real Nursing Home), 9.75s, 2013 1,165 1,235,739
Seminole County, FL, Industrial Development Authority (Friendly Village), 10s, 2011 1,810 1,873,368
St. Charles County, MO, Industrial Development Authority (Garden View Care Center), 10s, 2016 2,290 2,348,143
St. Petersburg, FL, Health Facilities Rev. (Swanholm Nursing), 10s, 2022 790 854,424
Suffolk County, NY, Industrial Development Agency (A Planned Program), 9.75s, 2015 1,360 1,156,000
Washington County, FL, Industrial Development Authority (Washington County), 10s, 2016 1,130 1,120,079
Waterford Township, MI, Economic Development Rev. (Canterbury Health), 8.375s, 2023 1,500 1,556,670
Westside Habilitation Center, Cheneyville, LA, 8.375s, 2013 2,600 2,584,920
-------------
$80,106,386
-------------
Electric and Gas Utility Revenue -- 1.3%
Midland Michigan Environmental Development Authority, Pollution Control Rev. (Midland Cogeneration),
9.5s, 2009 $1,500 $ 1,639,980
Pittsylvania County, VA, Industrial Development Authority, 7.5s, 2014 2,000 2,096,580
Southern California Public Power Authority, Transportation Project, RIBS, 7.508s, 2012(sec)(sec) 650 669,149
-------------
$ 4,405,709
-------------
Turnpike Revenue -- 2.7%
Arapahoe County, CO, 0s, 2015 $1,000 $ 251,210
Massachusetts Industrial Finance Agency, Tunnel Rev. (Mass. Turnpike), 9s, 2020 3,855 4,570,989
San Joaquin Hills, CA, 0s, 2006 2,300 1,183,603
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road Rev., 0s, 2011 6,600 2,341,350
West Virginia State Parkways, Economic Development & Tourism Authority, 7.408s, 2019(sec)(sec) 600 565,896
-------------
$ 8,913,048
-------------
Airport and Port Revenue -- 4.9%
Cleveland, OH, Airport Special Facilities Rev. (Continental Airlines), 9s, 2019 $3,150 $ 3,278,394
6
<PAGE>
Principal
Amount
Issuer (000 Omitted) Value
Airport and Port Revenue -- continued
Denver, CO, City & County Airport Rev., 8.75s, 2023 $ 1,500 $ 1,769,100
Hillsborough County, FL, Aviation Authority Rev. (US Air), 8.6s, 2022 650 692,900
Kenton County, KY, Airport Board Special Facilities (Delta Airlines), 7.5s, 2020 1,000 1,055,580
St. Augustine, FL, Airport Authority, Airport Rev. (Grumman Repair Facility), 11s, 2004 2,575 2,718,840
Tulsa, OK, Municipal Airport Trust Rev., 7.375s, 2020 3,400 3,583,736
Tulsa, OK, Municipal Airport Trust Rev., 7.6s, 2030 3,000 3,188,460
-------------
$ 16,287,010
-------------
Sales and Excise Tax Revenue -- 0.7%
Chicago, IL (Ryan Garfield Tax Increment Rev.), 10.125s, 2007 $ 1,670 $ 1,731,439
Denver, CO, Urban Renewal Tax, 8.5s, 2013 490 456,072
-------------
$ 2,187,511
-------------
Industrial Revenue (Corporate Guarantee) -- 17.7%
Atlanta, GA, Special Purpose Facilities Rev. (Delta Airlines Project), 7.9s, 2018 $ 2,100 $ 2,225,055
Charleston County, SC, Resource Recovery Rev. (Foster Wheeler), 9.25s, 2010 1,750 1,900,272
Courtland, AL, Solid Waste Disposal Rev., 6.375s, 2029 2,000 1,955,700
East Chicago, IN, Pollution Control Rev. (Inland Steel Co.), 10s, 2011 11,000 11,505,560
Eastern Band of Cherokee Indian Community, NC (Carolina Mirror Co.), 10.25s, 2009 6,750 6,998,670
Eastern Band of Cherokee Indian Community, NC (Carolina Mirror Co.), 11s, 2012# 650 675,486
Hernando County, FL, Water & Sewer Rev. (Florida Crushed Stone, Co.), 8.5s, 2014 3,600 3,909,060
Hodge Village, LA, Utilities Rev. (Stone Container Corp.), 9s, 2010 7,585 8,209,928
Hunt County, TX, Industrial Development Rev. (Household Manufacturing), 10.236s, 2003 2,700 2,651,778
Lawrenceburg, TN, Industrial Development Board (Tridon, Inc.), 9.625s, 2006 1,500 1,530,780
Massachusetts Industrial Finance Agency (Solid Waste Disposal Rev.), 8.25s, 2014 3,000 3,107,370
Mesa County, CO (Joy Technologies), 8.5s, 2006 650 686,374
Philadelphia, PA, Authority for Industrial Development Rev., 7.75s, 2017 3,255 3,302,881
Port of Corpus Christi, TX (Valero Energy), 10.25s, 2017 4,000 4,318,280
Port of New Orleans, LA, 8.25s, 2004 1,000 1,107,370
Port of New Orleans, LA, 8.5s, 2014 1,650 1,811,898
San Diego, CA, Port Facilities Rev., 6.6s, 2002 1,000 880,220
Walton, GA, Industrial Development Rev. (Ultima Rubber Products, Inc.), 10s, 2010 1,765 1,875,754
-------------
$ 58,652,436
-------------
Universities -- 0.7%
Massachusetts Industrial Finance Agency (Emerson College), 8.9s, 2018 $ 2,000 $ 2,204,540
-------------
Other -- 11.6%
Crystal City, TX, Lease Obligations, 10.5s, 2008# $ 4,243 $ 4,094,768
Danville, VA, Industrial Development Rev. (Piedmont Mall), 8s, 2017 5,795 5,675,392
District of Columbia (National Public Radio), 7.7s, 2023 2,500 2,564,800
Islip, NY, Community Development Agency, 7.5s, 2026 2,500 2,500,000
Maryland Energy Financing Administration (Solid Waste), 9s, 2016 9,000 8,383,140
Michigan Strategic Funding, Obligation Rev. (Blue Water Fiber Project), 8s, 2012 1,000 894,950
Michigan Strategic Funding, Obligation Rev. (Great Lakes Fibre Project), 10.25s, 2016 3,500 3,246,565
Pennsylvania Economic Development Finance Authority, Recycling Rev., 9.25s, 2022 5,000 4,962,050
Port Walla Walla, WA, Solid Waste Recycling Rev. (Ponderosa Fibres Project), 9.125s, 2026 5,000 4,898,600
Retema, TX, Special Facilities Rev. (Retema Park Racetrack Project), 8.75s, 2018+ 3,182 795,623
St. Louis County, MO, Industrial Development Authority (Kiel Center Arena), 7.875s, 2024 300 313,968
-------------
$ 38,329,856
-------------
Total Municipal Bonds (Identified Cost, $313,671,643) $325,078,801
-------------
7
<PAGE>
Portfolio of Investments -- continued
Floating Rate Demand Note -- 0.2%
Principal
Amount
Issuer (000 Omitted) Value
Uinta County, WY, Pollution Control Rev. (Chevron), due 2020, at Amortized Cost $600 $ 600,000
Total Investments (Identified Cost, $314,271,643) $325,678,801
Other Assets, Less Liabilities -- 1.5% 4,843,716
-------------
Net Assets -- 100.0% $330,522,517
==========
</TABLE>
+ Non-income producing security -- in default.
+++ Indexed security.
* Security valued by or at the direction of the Trustees.
(sec) Non-income producing security.
(sec)(sec) Inverse floating rate security.
# Restricted security.
See notes to financial statements
8
<PAGE>
Statement of Assets and Liabilities -- April 30, 1996
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $314,271,643) $325,678,801
Cash 49,266
Receivable for investments sold 577,827
Interest receivable 8,444,545
Other assets 6,078
------------
Total assets $334,756,517
------------
Liabilities:
Distributions payable $283,463
Payable for investments purchased 3,431,146
Payable to affiliates --
Management fee 15,405
Transfer and dividend disbursing agent fee 21,600
Accrued expenses and other liabilities 482,386
------------
Total liabilities $4,234,000
------------
Net assets $330,522,517
============
Net assets consist of:
Paid-in capital $354,474,367
Unrealized appreciation on investments 11,407,158
Accumulated undistributed net realized loss on investments (35,187,562)
Accumulated distributions in excess of net investment income (171,446)
------------
Total $330,522,517
============
Shares of beneficial interest outstanding 38,091,565
============
Net asset value per share (net assets / shares of beneficial interest outstanding) $8.68
============
</TABLE>
See notes to financial statements
9
<PAGE>
Statement of Operations -- Six Months Ended April 30, 1996
Net investment income:
Interest income $14,374,639
------------
Expenses --
Management fee $ 1,547,876
Trustees' compensation 61,305
Transfer and dividend disbursing agent fee 65,088
Workout expenditures 180,328
Custodian fee 76,351
Legal fees 58,333
Postage 51,215
Printing 42,632
Auditing fees 24,600
Miscellaneous 10,943
------------
Total expenses 2,118,671
Fees paid indirectly (13,654)
------------
Net expenses $ 2,105,017
------------
Net investment income $12,269,622
------------
Realized and unrealized loss on investments:
Realized loss on investment transactions (identified cost basis) $(5,653,972)
Change in unrealized depreciation on investments (38,189)
------------
Net realized and unrealized loss on investments $(5,692,161)
------------
Increase in net assets from operations $ 6,577,461
============
See notes to financial statements
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (decrease) in net assets: Six Months
Ended
April 30, Year Ended
1996 October 31, 1995
------------ --------------
<S> <C> <C>
From operations --
Net investment income $ 12,269,622 $ 25,411,787
Net realized loss on investments (5,653,972) (3,512,925)
Net unrealized gain (loss) on investments (38,189) 8,494,997
------------ --------------
Increase in net assets from operations $ 6,577,461 $ 30,393,859
------------ --------------
Distributions declared to shareholders --
From net investment income $(12,711,192) $(26,240,482)
In excess of net investment income (171,446) --
------------ --------------
Total distributions declared to shareholders $(12,882,638) $(26,240,482)
------------ --------------
Trust share (principal) transactions --
Net asset value of shares issued to shareholders in reinvestment of distributions $ 1,843,030 $ 3,638,621
------------ --------------
Total increase (decrease) in net assets $ (4,462,147) $ 7,791,998
Net assets:
At beginning of period 334,984,664 327,192,666
------------ --------------
At end of period (including accumulated distributions in excess of net investment
income and accumulated undistributed net investment income of $171,446 and
$441,570, respectively) $330,522,517 $334,984,664
============ ==============
</TABLE>
See notes to financial statements
11
<PAGE>
Financial Highlights
Six Months
Ended Year Ended October 31,
April 30, -------------------------------
1996 1995 1994 1993
----------- --------- --------- ---------
Per share data (for a share
outstanding throughout
each period):
Net asset value--beginning
of period $ 8.84 $ 8.73 $ 9.04 $ 8.78
---------- -------- -------- --------
Income from investment
operations# --
Net investment income(sec) $ 0.32 $ 0.68 $ 0.68 $ 0.75
Net realized and
unrealized gain (loss)
on investments (0.14) 0.13 (0.29) 0.21
---------- -------- -------- --------
Total from investment
operations $ 0.18 $ 0.81 $ 0.39 $ 0.96
---------- -------- -------- --------
Less distributions declared
to shareholders from net
investment income $(0.34) $(0.70) $(0.70) $(0.70)
---------- -------- -------- --------
Net asset value--end of
period $ 8.68 $ 8.84 $ 8.73 $ 9.04
========== ======== ======== ========
Per share market value at
end of period $ 9.38 $ 9.50 $ 9.13 $10.00
========== ======== ======== ========
Total return 2.41%++ 12.57% (1.47)% 10.95%
Ratios (to average net
assets)/ Supplemental
data:
Expenses## 1.26%+ 1.33% 1.31% 1.33%
Net investment income 7.34%+ 7.66% 7.58% 7.55%
Portfolio turnover 4% 14% 22% 14%
Net assets at end of period
(000 omitted) $330,523 $334,985 $327,193 $335,256
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------
1992 1991 1990 1989 1988 1987*
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value--beginning
of period $ 8.94 $ 9.02 $ 9.44 $ 9.22 $ 8.67 $ 9.40
-------- -------- -------- -------- -------- ---------
Income from investment
operations# --
Net investment income(sec) $ 0.73 $ 0.70 $ 0.75 $ 0.76 $ 0.75 $ 0.65
Net realized and
unrealized gain (loss)
on investments (0.17) (0.05) (0.41) 0.22 0.54 (0.79)
-------- -------- -------- -------- -------- ---------
Total from investment
operations $ 0.56 $ 0.65 $ 0.34 $ 0.98 $ 1.29 $(0.14)
-------- -------- -------- -------- -------- ---------
Less distributions declared
to shareholders from net
investment income $(0.72) $(0.73) $(0.76) $(0.76) $(0.74) $(0.59)
-------- -------- -------- -------- -------- ---------
Net asset value--end of
period $ 8.78 $ 8.94 $ 9.02 $ 9.44 $ 9.22 $ 8.67
======== ======== ======== ======== ======== =========
Per share market value at
end of period $ 9.00 $ 9.25 $ 8.38 $ 9.88 $ 9.88 $ 8.50
======== ======== ======== ======== ======== =========
Total return 5.34% 19.88% (7.87)% 8.32% 26.11% (10.10)%+
Ratios (to average net
assets)/ Supplemental
data:
Expenses## 1.34% 1.27% 1.21% 1.28% 1.25% 1.04%+
Net investment income 8.17% 7.79% 8.07% 8.15% 8.35% 7.62%+
Portfolio turnover 17% 21% 19% 16% 37% 58%
Net assets at end of period
(000 omitted) $323,060 $325,077 $325,767 $338,461 $327,193 $305,118
</TABLE>
* For the period from the commencement of investment operations, November
25, 1986 to October 31, 1987.
(sec) Distributions in excess of net investment income were $0.004 per share
for the six months ended April 30, 1996.
# Per share data for periods subsequent to October 31, 1992 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust's expenses are
calculated without reduction for fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements
12
<PAGE>
Notes to Financial Statements
(1) Business and Organization
The MFS Municipal Income Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
(2) Significant Accounting Policies
General -- The preparation of financial statements in conformity with
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.
Investment Valuations -- Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, are valued on the
basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Short-term obligations, which mature in
60 days or less, are valued at amortized cost, which approximates market
value. Futures contracts, options and options on futures contracts listed on
commodities exchanges are valued at closing settlement prices.
Over-the-counter options are valued by brokers through the use of a pricing
model which takes into account closing bond valuations, implied volatility
and short-term repurchase rates. Securities for which there are no such
quotations or valuations are valued at fair value as determined in good faith
by or at the direction of the Trustees.
Investment Transactions and Income -- Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
The Trust can invest up to 75% 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.
The Trust uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Trust at a constant yield to maturity. 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, which are generally non-recurring, incurred to protect or
enhance the value of high-yield debt securities, are reported as an addition
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 reported as operating expenses.
Fees Paid Indirectly -- The Trust's custodian bank calculates its fee based
on the Trust's average daily net assets. The fee is reduced according to a
fee arrangement, which provides for custody fees to be reduced based on a
formula developed to measure the value of cash deposited with the custodian
by the Trust. This amount is shown as a reduction of expenses on the
Statement of Operations.
Tax Matters and Distributions -- The Trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net
13
<PAGE>
Notes to Financial Statements -- continued
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Trust files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Trust's tax return,
and consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on
Form 1099-DIV.
Distributions paid by the Trust from net interest received on tax-exempt
municipal bonds are not includable by shareholders as gross income for
federal income tax purposes because the Trust intends to meet certain
requirements of the Code applicable to regulated investment companies which
will enable the Trust to pay exempt-interest dividends. The portion of Such
interest, if any, earned on private activity bonds issued after August 7,
1986, may be considered a tax preference item to shareholders. Distributions
to shareholders are recorded on the ex-divided date.
The Trust distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains.
At October 31, 1995, the Trust, for federal income tax purposes, had a
capital loss carryforward of $30,396,585, which may be applied against any
net taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on October 31, 1996 ($7,594,152), October 31, 1999
($1,898,227), October 31, 2000 ($4,765,334), October 31, 2001 ($3,636,033),
October 31, 2002 ($7,977,644) and October 31, 2003 ($4,525,195).
(3) Transactions with Affiliates
Investment Adviser -- The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.40% of average daily net assets and 6.32% of investment income.
The Trust pays no compensation directly to its 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 of the
officers and Trustees of the Trust are officers or directors of MFS. The
Trust has an unfunded defined benefit plan for all of its independent
Trustees and Mr. Bailey. Included in Trustees' compensation is a net periodic
pension expense of $19,972 for the six months ended April 30, 1996.
Transfer Agent -- MFSC acts as a registrar and dividend disbursing agent for
the Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee and a dividend service fee and will reimburse MFSC for
reasonable out-of-pocket expenses. The account maintenance fee is computed as
follows:
Total Number of Accounts Annual Account Fee
- --------------------------- ------------------
Less than 75,000 $9.00
75,000 and over $8.00
The dividend service fee is $0.75 per dividend reinvestment and $0.75 per
cash infusion.
14
<PAGE>
(4) Portfolio Securities
Purchases and sales of investments and short-term obligations aggregated
$19,521,692 and $13,602,236, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Trust, as computed on a federal income tax basis,
are as follows:
Aggregate cost $314,271,643
============
Gross unrealized appreciation $ 21,170,293
Gross unrealized depreciation (9,763,135)
------------
Net unrealized appreciation $ 11,407,158
============
(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 (without par
value). Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Six Months
Ended April Year Ended
30, October 31,
1996 1995
- ------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Shares issued to shareholders in reinvestment of
distributions 200,312 410,850
============ ==========
</TABLE>
(6) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase (Decrease)
Unrealized Gain (Loss) in Net Assets Resulting
Quarterly Period Investment Income Net Investment Income on Investments from Operations
- ---------------- ---------------------- ---------------------- ------------------------ -----------------------
Per Per Per Per
Fiscal 1996 Amount Share Amount Share Amount Share Amount Share
- ---------------- ------------- ------- ------------- ------- -------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31 $ 7,161,282 $0.18 $ 6,101,655 $0.16 $ (4,112,032) $(0.11) $ 1,989,623 $0.05
April 30 7,213,357 0.19 6,167,967 0.16 (1,580,129) (0.03) 4,587,838 0.13
------------ ------ ------------ ------ ------------- ------- ------------ ------
$14,374,639 $0.37 $12,269,622 $0.32 $ (5,692,161) $(0.14) $ 6,577,461 $0.18
============ ====== ============ ====== ============= ======= ============ ======
Fiscal 1995
- ----------------
January 31 $ 7,475,901 $0.20 $ 6,403,027 $0.17 $ (201,711) $(0.01) $ 6,201,316 $0.16
April 30 7,483,534 0.20 6,386,559 0.17 5,392,067 0.15 11,778,626 0.32
July 31 7,503,734 0.20 6,395,755 0.17 519,974 0.01 6,915,729 0.18
October 31 7,325,091 0.19 6,226,446 0.17 (728,258) (0.02) 5,498,188 0.15
------------ ------ ------------ ------ ------------- ------- ------------ ------
$ 29,788,260 $ 0.79 $ 25,411,787 $ 0.68 $ 4,982,072 $ 0.13 $ 30,393,859 $ 0.81
============ ====== ============ ====== ============= ======= ============ ======
Fiscal 1994
- ----------------
January 31 $ 6,827,945 $0.19 $ 5,789,070 $0.16 $ (12,660) -- $ 5,776,410 $0.16
April 30 7,736,487 0.21 6,576,323 0.18 (5,346,907) (0.14) 1,229,416 0.03
July 31 7,552,625 0.20 6,495,294 0.17 (6,503,505) (0.17) (8,211) --
October 31 7,420,241 0.20 6,327,401 0.17 1,047,682 0.02 7,375,083 0.20
------------ ------ ------------ ------ ------------- ------- ------------ ------
$29,537,298 $0.80 $25,188,088 $0.68 $(10,815,390) $(0.29) $14,372,698 $0.39
============ ====== ============ ====== ============= ======= ============ ======
</TABLE>
15
<PAGE>
Notes to Financial Statements -- continued
(7) Line of Credit
The Trust entered into an agreement which enables it to participate with
other funds managed by MFS in an unsecured line of credit with a bank which
permits borrowings up to $350 million, collectively. Borrowings may be made
to temporarily finance the acquisition of Treasury shares. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. The commitment fee allocated to the Trust for the
six months ended April 30, 1996 was $1,879.
(8) Financial Instruments
The Trust also invests in indexed securities whose value may be linked to
interest rates, commodities, indices or other financial indicators. Indexed
securities are fixed income securities whose proceeds at maturity
(principal-indexed securities) or interest rates (coupon-indexed securities)
rise and fall according to the change in one or more specified underlying
instruments. Indexed securities may be more volatile than the underlying
instrument itself. The following is a summary of such securities held at
April 30,1996:
<TABLE>
<CAPTION>
Unrealized
Description Index Principal Value Appreciation
- --------------------------------------------- ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Principal Indexed Securities:
Rochester, MN, HealthCare Facilities Rev.
(Mayo Medical Foundation), FIRS, 8.06s, 2021 PSA Index $1,000,000 $ 1,014,060 $14,060
============
</TABLE>
(9) Restricted Securities
The Trust may invest not more than 10% of its total assets in securities
which are subject to legal or contractual restrictions on resale. At April
30, 1996, the Trust owned the following restricted securities (constituting
2.08% of net assets) which may not be publicly sold without registration
under the Securities Act of 1933 (the 1933 Act). The Trust does not have the
right to demand that such securities be registered. The value of these
securities is determined by valuations supplied by a pricing service or
brokers or, if not available, in good faith by or at the direction of the
Trustees.
<TABLE>
<CAPTION>
Date of Par
Description Acquisition Amount Cost Value
- ------------------------------------------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Broward County, FL, Housing Finance Authority
(Deerfield Beach Apartments), 13s, 2000 1/14/88 84,684 $ 87,185 $ 55,045
Crystal City, TX, Lease Obligations, 10.5s, 2008 5/28/88 4,243,239 3,217,157 4,094,768
Daphne, AL, Special Care Facilities Financing Authority
(Westminster Village), 8.25s, 2026 10/28/88 500,000 500,186 345,000
Eastern Band of Cherokee Indian Community, NC (Carolina
Mirror Co.), 11s, 2012 2/05/88 650,000 601,250 675,486
Hannibal, MO, Industrial Development Authority
(Hannibal Regional Health Care System, Inc.), 9.5s,
2022 8/28/92 1,500,000 1,485,000 1,719,225
----------
$6,889,524
==========
</TABLE>
16
<PAGE>
(10) Litigation
Notes to Financial Statements -- continuedMFS has been named as a defendant
in a lawsuit brought by the City of Troy, NY (the City) alleging, among other
things, that certain municipal securities issued by Troy and purchased by MFS
Municipal Income Trust (the Trust) were invalid at the time of issuance. The
Trust is actual owner of the securities. The lawsuit seeks to void the
issuance of the securities and seeks the return of all principal and interest
payments previously made by the City together with interest on such amounts.
If the matter cannot be resolved through settlement with the City and other
parties, MFS and the Trust, if named as defendant, intend vigorously to
contest the case. This lawsuit is in a preliminary state and involves
significant complexities that prevent the Trust from being able to predict
whether any liability might result. Management does not believe that any
potential liability would be material to the financial position of the Trust.
Accordingly, no amount has been accrued in the financial statements with
respect to this matter. The Trust has filed a separate lawsuit against the
City, and certain other parties, in which the Trust is seeking a
determination that the securities are valid and that the Trust is entitled to
payment and/or damages. If such securities are deemed invalid, then interest
payments received from the City are taxable. Given this uncertainty, the
Trust is currently treating such interest payments as taxable.
17
<PAGE>
Independent Auditors' Report
To the Trustees and Shareholders of MFS Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Municipal Income Trust as of
April 30, 1996, the related statement of operations for the six months then
ended, the statement of changes in net assets for the six months then ended
and the year ended October 31, 1995, and the financial highlights for the six
months ended April 30, 1996 and for each of the years in the nine-year period
ended October 31, 1995. 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 generally accepted auditing
standards. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at April 30, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. 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 at April 30, 1996, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 7, 1996
18
<PAGE>
[cover]
MFS(R) Municipal
Income Trust
Trustees
A. Keith Brodkin*
Chairman and President
Richard B. Bailey*(2)
Private Investor; Former Chairman and Director (until 1991), Massachusetts
Financial Services Company; Director, Cambridge Bancorp; Director, Cambridge
Trust Company
Peter G. Harwood(1)
Private Investor
J. Atwood Ives(1)
Chairman and Chief Executive Officer, Eastern Enterprises
Lawrence T. Perera(2)
Partner, Hemenway & Barnes
William J. Poorvu(1)
Adjunct Professor, Harvard University Graduate School of Business Administration
Charles W. Schmidt(2)
Private Investor
Arnold D. Scott*
Senior Executive Vice President, Director and Secretary, Massachusetts
Financial Services Company
Jeffrey L. Shames*
President and Director, Massachusetts Financial Services Company
Elaine R. Smith(2)
Independent Consultant
David B. Stone(1)(2)
Chairman, North American Management Corp. (investment advisers)
Portfolio Manager
Cynthia M. Brown*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Transfer Agent, Registrar and Dividend Disbursing Agent
MFS Service Center, Inc.
P.O. Box 9024
Boston, MA 02205-9824
1-800-637-2304
Custodian
State Street Bank and Trust Company
Auditors
Deloitte & Touche LLP
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
*Affiliated with the Investment Adviser
(1)Member of Audit Committee
(2)Member of Portfolio Trading Committee
[recycle symbol] This report is printed on recycled paper MFMCE-3 6/96 34.2M
[logo] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) Municipal Income Trust
Semiannual Report
April 30, 1996
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