[Front Cover]
[MFS LOGO(SM)]
INVESTMENT MANAGEMENT
MFS(R) Municipal Income Trust
Annual Report
for Year Ended
October 31, 1996
[Graphic - Two figures outlined against a large oval window backdrop]
<PAGE>
Dear Shareholders:
During the 12 months ended October 31, 1996, the Trust provided a total return
of 4.50%, including the reinvestment of distributions, based on a $9.38 market
price for shares traded on the New York Stock Exchange. During the same period,
the Lehman Brothers Municipal Bond Index provided a total return of 5.70%. It is
important to note that the Lehman Index represents an unmanaged index of
investment-grade municipal bonds rated "Baa" or higher, while the Trust
primarily invests in lower-quality municipal issues rated "Baa" or below, or
which are unrated.
These lower-rated securities have high coupon rates relative to the market and
generally are less price sensitive in a volatile interest rate environment;
hence, they provide less price fluctuation during these periods (although
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).
Economic Environment
As we enter the final months of 1996, the U.S. economy appears to have settled
into a pattern of moderate growth and inflation -- two factors that we think can
be important contributors to a favorable long-term investment climate. During
the first quarter of 1996, real (inflation-adjusted) economic growth was 2.3% on
an annualized basis, followed by a rate of 4.7% during the second quarter. This
unexpectedly high level was followed by a more moderate 2.2% pace in the third
quarter. Overall, real growth in gross domestic product has surpassed our
expectations this year and we now expect that growth for all of 1996 could
exceed 2.5%. Although individual consumers appear to be carrying an excessive
debt load, the consumer sector itself, which represents two-thirds of the
economy, continues to support the automobile and housing markets. Consumer
spending has also been positively impacted by widespread job growth and, more
recently, rising wages. The latest statistics appear to show slowed consumer
spending, especially in overall retail sales, which have been flat for several
months. Furthermore, the economies of Europe and Japan continue to be in the
doldrums, weakening U.S. export markets, while subduing the capital spending
plans of American corporations. While economic growth should continue, we expect
some slackening toward the end of the year.
Bond Markets
In the bond markets, persistent signs of economic weakness led to decreases in
short-term interest rates by the Federal Reserve Board in late 1995 and early
1996. Should signs of more rapid economic growth and, particularly, of higher
inflation resurface, we would expect the Fed to maintain its anti-inflationary
stance. In the beginning of the year, bond markets traded in a narrow range as
investors shifted between concern for the lack of a budget resolution in
Washington and hope that sluggish economic reports and low inflation might lead
to lower interest rates. Later, fixed-income markets began reacting to
conflicting signals regarding the economy's strength 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 equitably valued.
Portfolio Performance and Strategy
The Trust's portfolio structure is consistent with its investment objective of
providing a high level of current tax-exempt income through generally
lower-rated or unrated securities. Based on our interest rate outlook for 1997,
we believe capital appreciation of the Trust's net asset value over the next six
months is likely to be minimal and that dividend income could make up a
significant component of its total return. However, the Trust's monthly
distribution has come under pressure during the past year, decreasing from
$0.058 per share to the current $0.055 per share. This reduction was made
necessary by a restructuring of a portion of the Trust's assets, increased
seasonal bond call activity, and a falling interest rate environment, all of
which resulted in reduced tax-exempt income.
1
<PAGE>
Supply of new-issue and secondary-market higher-yielding tax-exempt issues has
increased. Many of these new issues are refunding bonds for issues that came to
market in mid-1986, just prior to that year's Tax Reform Act and in a much
higher interest rate environment. During that period, the high-yield tax-exempt
market was flooded with new issues in anticipation of this legislation, which
limited the use of tax exemption for many issuers. Now, 10 years later, these
bonds are eligible for refinancing. We expect this pick-up in supply to continue
for the next several months. As a result, yield spreads between high-quality and
lower-quality municipal issues could widen, a trend that would be held back only
by an increased demand for higher yields. We will use this opportunity to
consider new purchases for the Trust consistent with its investment objective.
Our efforts remain focused on research and preservation of high current
tax-exempt income. We continue to monitor our holdings closely and to seek out
new investment opportunities. Diversification of credit risk and of factors that
might affect liquidity remain important components of the Trust's overall
strategy.
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
November 12, 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.
Performance Summary
(For the year ended October 31, 1996)
Net Asset Value Per Share
October 31, 1995 $ 8.84
October 31, 1996 $ 8.58
New York Stock Exchange Price
October 31, 1995 $ 9.50
February 6, 1996 (high)* $10.00
May 31, 1996 (low)* $ 8.88
October 31, 1996 $ 9.38
*For the period November 1, 1995 through October 31, 1996.
Federal Income Tax Information
on Distributions
(For the year ended October 31, 1996)
Distribution Sources
Ordinary income $0.66
Exempt-Interest Dividends
For federal income tax purposes, 99.61% of the total dividends paid by the Trust
from net investment income during the year ended October 31, 1996, was
designated as an exempt-interest dividend.
Tax Form Summary
In January 1997, shareholders will be mailed a tax form summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
Number of Shareholders
As of October 31, 1996, our records indicate that there are 9,991 registered
shareholders and approximately 17,528 shareholders owning Trust shares in
"street" name, such as through brokers, banks and other financial
intermediaries.
Results of Shareholder Meeting
At the annual meeting of shareholders of MFS Municipal Income Trust, which was
held on October 17, 1996, the following actions were taken:
Item 1. The election of William J. Poorvu, Elaine R. Smith, and David B.
Stone as Trustees of the Trust.
2
<PAGE>
Number of Shares
Nominee For Withhold Authority
------------------ ---------------- --------------------
William J. Poorvu 31,689,865.3832 512,135.4254
Elaine R. Smith 31,639,107.6348 562,893.1738
David B. Stone 31,661,893.3644 540,107.4442
Trustees continuing in office who were not subject to re-election at this
meeting are A. Keith Brodkin, Richard B. Bailey, Peter G. Harwood, J. Atwood
Ives, Lawrence T. Perera, Charles W. Schmidt, Arnold D. Scott, and Jeffrey L.
Shames.
Item 2. The ratification of the election of Deloitte & Touche LLP as the
independent public accountants to be employed by the Trust for the
fiscal year ending October 31, 1997.
Number of Shares
-----------------
For 31,453,231.7844
Against 330,206.5813
Abstain 418,562.4429
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.
Investment Objective and Policy
The investment objective of MFS 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.
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 - October 31, 1996
Municipal Bonds - 95.3%
Principal Amount
Issuer (000 Omitted) Value
Airport and Port Revenue - 4.9%
Atlanta, GA, Special Purpose Facilities Rev.
(Delta Airlines ), 7.9s, 2018 $ 2,100 $ 2,234,358
Cleveland, OH, Airport Special Facilities Rev.
(Continental Airlines), 9s, 2019S.S. 3,150 3,347,914
Denver, CO, City & County Airport Rev., 8.75s,
2023 1,500 1,763,700
Hillsborough County, FL, Aviation Authority
Rev. (USAir), 8.6s, 2022 650 707,038
Kenton County, KY, Airport Board Special
Facilities (Delta Airlines), 7.5s, 2020 1,000 1,072,070
Tulsa, OK, Municipal Airport Trust Rev., 7.6s,
2030 3,000 3,221,310
Tulsa, OK, Municipal Airport Trust Rev.
(American Airlines), 7.375s, 2020 3,400 3,605,054
------------
$15,951,444
------------
Electric and Gas Utility Revenue - 4.3%
Midland, MI, Environmental Development
Authority, Pollution Control Rev. (Midland
Cogeneration), 9.5s, 2009 $ 1,500 $ 1,637,070
Montana Board of Investment Resources
(Yellowstone Energy), 7s, 2019 3,000 2,898,720
Ohio Water Development Pollution Control Board,
Pollution Control Rev., 8s, 2023 2,500 2,688,150
Pittsylvania County, VA, Industrial Development
Authority Rev., 7.5s, 2014 2,000 2,087,240
Port of Corpus Christi, TX (Valero Energy),
10.25s, 2017 4,000 4,246,120
Southern California Public Power Authority,
Transmission, RIBS, 7.569s, 2012S.S. 650 679,276
------------
$14,236,576
------------
General Obligation - 3.0%
Arapahoe County, CO, Water & Sanitation
District, 9.25s, 2013 $ 300 $ 313,032
Jefferson County, OH, 7.125s, 2019 1,000 1,055,940
Markham, IL, 9s, 2012 1,295 1,382,438
New York, NY, 5.75s, 2017 5,500 5,185,125
New York, NY, 6.125s, 2025 2,000 1,966,800
------------
$ 9,903,335
------------
Health Care Revenue - 23.1%
Arkansas Development Finance Authority,
Economic Development Rev. (Southwest Homes),
10.8s, 2018 $ 1,420 $ 1,485,746
Bell County, TX, Health Facilities Development
Corp. (Advanced Living Technology), 10.5s,
2018 3,995 3,196,000
Bell County, TX, Health Facilities Development
Corp. (Kings Daughters Hospital), 9.25s, 2008 775 842,929
Boonville, MO, Health Facilities Rev.
(Gericare, Inc.), 11s, 2017 1,900 1,976,988
Boston, MA, Industrial Development Finance
Authority Rev. (Stonehedge Convalescent
Center), 10.75s, 2011 790 849,053
Brevard County, FL, Health Facilities Authority
Rev. (Wuesthoff Memorial) (Friendly Village),
9.25s, 2012 2,320 2,393,799
Broward County, FL, Industrial Development
Authority (Beverly Enterprises, Inc.), 9.8s,
2010 2,480 2,747,096
Cambria County, PA, Industrial Development
Authority Rev. (Beverly Enterprises), 10s,
2012 760 949,818
Chester County, PA, Industrial Development
Authority Rev. (RHA/PA Nursing Home, Inc.),
10.125s, 2019 979 1,014,655
Colorado Health Retirement Facilities, Liberty
Heights, 0s, 2024 10,000 1,544,300
Connecticut Health & Educational Facilities
(Johnson Evergreen Corp.), 8.5s, 2014 650 693,810
Daphne, AL, Special Care Facilities Financing
Authority (Westminster Village), 8.25s, 2026# 500 427,530
District of Columbia (National Public Radio),
8.875s, 2021 485 516,428
Fairfax, Fauquier & Loudoun Counties, VA,
Health Center Commission, Nursing Home Rev.,
9s, 2020 1,895 1,977,944
Fulton County, GA, Residential Care Facilities,
Elderly Authority Rev. (Lenbrook Square
Foundation), 9.75s, 2017 2,780 2,861,204
Gadsden County, FL, Industrial Development
Authority (RHA/FLA Properties), 10.45s, 2018 2,555 2,627,588
Greenville County, SC, Hospital Facility Rev.
(Chestnut Hill), 10.375s, 2016 2,890 2,890,000
Hobbs, NM, Health Facilities Rev. (Nemecal
Associates), 9.625s, 2014 915 971,684
Lee County, FL, Industrial Development
Authority (Beverly Enterprises), 10s, 2010 1,995 2,236,355
4
<PAGE>
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 $ 3,447,290
Louisiana Public Facilities Authority
(Southwest Medical Center), 11s, 2006 4,199 1,684,032
Massachusetts Health & Education Facilities
Authority (Fairview Extended Care Facility),
10.25s, 2021 1,500 1,695,960
Massachusetts Industrial Finance Agency
(Martha's Vineyard Long-Term Care Facility),
9.25s, 2022*++ 1,700 1,045,500
Massachusetts Industrial Finance Agency
(Needham/Hamilton House), 11s, 2010 800 816,192
Monongalia County, WV, Health Facilities Rev.
(Beverly Enterprises, Inc.), 10s, 2007 1,035 1,131,234
Montgomery County, OH, Hospital Rev. (Kettering
Convalescent Center), 10s, 2020 1,000 1,036,380
Montgomery County, PA, Higher Education &
Health Authority Rev. (AHF/Montgomery Inc.),
10.5s, 2020 2,480 2,618,260
New Jersey Economic Development Authority
(Courthouse Convalescent Center), 8.7s, 2014 650 680,206
New Jersey Economic Development Authority
(Geriatric & Medical Services, Inc.), 9.625s,
2004 190 212,485
New Jersey Economic Development Authority
(Geriatric & Medical Services, Inc.), 9.625s,
2022 675 746,732
New Jersey Economic Development Authority
(Greenwood Health Care), 9.75s, 2011 1,440 1,463,429
New Jersey Economic Development Authority
(Wanaque Convalescent Center), 8.6s, 2011 1,000 1,023,690
North Carolina Medical Care Commission,
Hospital Rev. (Valdese General), 8.75s, 2016 1,425 1,607,685
Okaloosa County, FL, Retirement Rental Housing
Rev. (Beverly Enterprises Inc.), 10.75s, 2003 1,325 1,405,878
Orange County, FL, Industrial Development
Authority (Friendly Village), 9.25s, 1997 80 80,213
Orange County, FL, Industrial Development Rev.,
9.25s, 2012 1,805 1,862,507
Osceola County, FL, Industrial Development Rev.
(Community Provider Pooled Loan), 7.75s, 2017 1,300 1,332,760
Philadelphia, PA, Industrial Development
Authority, 10.25s, 2018 2,370 2,415,931
Philadelphia, PA, Industrial Development
Authority, 10.25s, 2018 1,950 2,012,809
Prince William County, VA, Industrial
Development Authority, Residential Care Rev.
(Westminster at Lake Ridge), 10s, 2022 1,500 1,624,215
Rochester, NY, Health Care Facilities Rev.
(Mayo Medical Foundation), FIRS, 8.06s,
2021++++ 1,000 1,023,900
Santa Fe, NM, Industrial Development Rev. (Casa
Real Nursing Home), 9.75s, 2013 1,165 1,241,051
Seminole County, FL, Industrial Development
Authority (Friendly Village), 10s, 2011 1,755 1,817,460
St. Charles County, MO, Industrial Development
Authority (Garden View Care Center), 10s, 2016 2,290 2,337,105
St. Petersburg, FL, Health Facilities Rev.
(Swanholm Nursing), 10s, 2022 790 857,103
Suffolk County, NY, Industrial Development
Agency Rev. (A Planned Program), 9.75s, 2015 1,350 1,147,500
Washington County, FL, Industrial Development
Authority (Washington County), 10s, 2016 1,130 1,129,932
Waterford Township, MI, Economic Development
Rev. (Canterbury Health), 8.375s, 2023 1,500 1,571,655
Westside Habilitation Center, Cheneyville, LA,
8.375s, 2013 2,500 2,513,575
------------
$ 75,785,596
------------
Industrial Revenue (Corporate Guarantee) - 15.0%
Courtland, AL, Industrial Development Board
Solid Waste, Disposal Rev. (Champion
International Corp.), 6.375s, 2029 $2,000 $ 1,995,400
Dayton, OH, Special Facilities Rev. (Emery Air
Freight), 12.5s, 2009 1,000 1,137,970
Eastern Band of Cherokee Indian Community, NC
(Carolina Mirror Co.), 10.25s, 2009# 6,540 6,783,550
Eastern Band of Cherokee Indian Community, NC
(Carolina Mirror Co.), 11s, 2012# 650 675,720
Hernando County, FL, Water & Sewer Rev.
(Florida Crushed Stone Co.), 8.5s, 2014 3,600 3,996,144
Hodge Village, LA, Utilities Rev. (Stone
Container Corp.), 9s, 2010 7,585 8,205,756
Hunt County, TX, Industrial Development Rev.
(Household Manufacturing), 10.236s, 2003 2,700 2,745,198
Lawrenceburg, TN, Industrial Development Board
(Tridon, Inc.), 9.875s, 2006 1,500 1,539,060
Massachusetts Industrial Financing Agency
(Solid Waste Disposal Rev.), 8.25s, 2014 3,000 3,185,970
Mesa County, CO (Joy Technologies), 8.5s, 2006 650 706,323
Ohio Solid Waste Rev. (Republic Engineered
Steels), 8.25s, 2014 3,000 3,098,730
Ohio Solid Waste Rev. (Republic Engineered
Steels), 9s, 2021 3,000 3,150,990
5
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
Principal Amount
Issuer (000 Omitted) Value
Industrial Revenue - continued
Philadelphia, PA, Industrial Development
Authority Rev., 7.75s, 2017 $ 3,255 $ 3,445,092
Port of New Orleans, LA, 8.25s, 2004 1,000 1,153,820
Port of New Orleans, LA (Avondale Industries),
8.5s, 2014 1,650 1,905,684
Riverdale, IL, Environmental Rev. (Acme
Metals), 7.9s, 2024 1,000 1,033,890
St. Augustine, FL, Airport Authority (Grumman
Repair Facility), 11s, 2004 2,575 2,690,669
Walton, GA, Industrial Development Rev. (Ultima
Rubber Products, Inc.), 10s, 2010 1,765 1,877,819
------------
$ 49,327,785
------------
Insured Health Care Revenue - 1.4%
Clermont County, OH, Hospital Facilities Rev.
(Mercy Health Systems), AMBAC, 9.651s, 2021 $ 500 $ 577,695
Desert Hospital District, CA, Insured Hospital
Rev., Certificates of Participation (Desert
Hospital Corp.), 9.064s, 2020S.S. 1,500 1,629,600
North Central Texas, Health Facilities
Development Corp. (Presbyterian Hospital),
9.545s, 2021S.S. 1,500 1,675,380
Salt Lake City, UT, Hospital Rev.
(Intermountain Health Care), 9.642s, 2020S.S. 650 744,900
------------
$ 4,627,575
------------
Multi-Family Housing Revenue - 5.8%
Colorado Housing Finance Authority, 9s, 2025 $ 865 $ 870,891
Dade County, FL, Housing Finance Agency,
Multi-Family Housing, 8.375s, 2002# 5,467 5,617,211
Dade County, FL, Housing Finance Agency,
Multi-Family Housing, 8.375s, 2002# 4,073 4,184,779
Dallas, TX, Housing Finance Corp., 8.5s, 2011 1,315 1,352,017
Florida Housing Finance Agency Rev., 8.7s, 2021 1,500 1,466,175
Kenton County, KY, Industrial Development Rev.
(Highland Terrace), 8.7s, 2026 5,330 5,601,670
Memphis, TN, Health, Education & Housing
Facilities Board (Wesley Highland Terrace),
12.75s, 2015++ 100 85,000
------------
$ 19,177,743
------------
Refunded - 16.1%
Arapahoe County, CO, Water & Sanitation
District, 9.25s, 2013 $ 1,700 $ 1,885,963
Grand Junction, CO (Lincoln Park Osteopathic
Hospital), 10.5s, 2017 1,250 1,379,875
Hannibal, MO, Industrial Development Authority
(Hannibal Regional Health Care System, Inc.),
9.5s, 2022# 1,500 1,878,450
Hopewell County, VA, Hospital Authority (John
Randolph Hospital), 8.85s, 2013 1,070 1,098,505
Illinois Development Finance Retirement Housing
Rev., 0s, 2025 26,000 3,753,360
Maine Health & Higher Education Facilities
Authority (d'Youville Pavillion), 10s, 2017 7,595 8,303,538
Maine Health & Higher Education Facilities
Authority (St. Mary's General Hospital),
8.625s, 2022 1,000 1,122,520
Massachusetts Industrial Finance Agency, Tunnel
Rev. (Mass. Turnpike), 9s, 2020 3,810 4,474,045
Mississippi Hospital Equipment & Facilities
Authority Rev. (Rush Medical Foundation),
8.75s, 2016 1,000 1,082,810
New Lenox, IL, Community Park Development
Authority, 8.25s, 2014 2,000 2,439,960
Russellville, AR, Industrial Development Rev.
(Charles Meyers), 10s, 2009 5,195 5,989,835
Telluride, CO, Gondola Transit Co., Real Estate
Transfer, 11.5s, 2012 1,320 2,060,942
Texas Turnpike Authority Rev. (Houston Ship
Channel Bridge), 0s, 12.625s, 2020 10,565 14,808,960
Washington Public Power Supply System
(Nuclear#1), 14.375s, 2001 1,825 2,274,315
------------
$ 52,553,078
------------
Sales and Excise Tax Revenue - 0.7%
Chicago, IL (Ryan Garfield Tax Increment Rev.),
10.125s, 2007 $ 1,670 $ 1,730,688
Denver, CO, Urban Renewal Tax, 8.5s, 2013 475 448,656
------------
$ 2,179,344
------------
6
<PAGE>
Principal Amount
Issuer (000 Omitted) Value
Single Family Housing Revenue - 8.2%
Austin, TX, Housing Finance Corp., 0s, 1s, 2016 $26,435 $ 2,828,809
Berkeley, Brookes, & Fayette Counties, WV,
MBIA, 0s, 2016 14,000 1,638,700
Bexar County, TX, Housing Finance Corp., 0s,
2015 26,300 3,509,472
Cook County, IL, Single Family Housing, 0s,
2015 1,325 170,448
Corpus Christi, TX, Housing Finance Corp., 0s,
2011 3,000 711,870
Dallas, TX, Housing Finance Corp., Single
Family Mortgage Rev., MBIA, 0s, 2016 14,400 1,741,104
Denver, CO, City & County Airport Rev., 0s,
2015 5,300 580,668
Duval County, FL, Housing Finance Authority,
11.875s, 2015 23,815 2,902,810
Florida Housing Finance Agency (South Lake
Apartments), 0s, 2012 1,330 264,923
Harris County, TX, Housing Finance Corp.,
9.625s, 2003 1,030 1,033,255
Harris County, TX, Housing Finance Corp.,
9.875s, 2014 645 647,025
Jackson County, MO, 0s, 2016 4,325 471,944
Nebraska Investment Finance Authority, 0s, 2015 46,625 7,434,356
Nebraska Investment Finance Authority, 0s, 2016 140 14,311
Nevada Housing Division, 0s, 2015 1,040 160,281
Ohio Housing Finance Agency, GNMA, RIBS,
9.909s, 2031S.S. 900 953,460
Reno County, KS, Mortgage Rev., 0s, 2014 3,675 487,121
Saline County, KS, 0s, 2014 1,475 203,830
Utah Housing Finance Agency, Residential
Mortgage Rev., 9s, 2019 35 36,317
West Virginia Housing Development Fund, 0s,
2015 2,360 337,740
Wisconsin Housing & Economic Development
Authority, Home Ownership Rev., RIBS, 10.27s,
2022S.S. 885 937,543
------------
$ 27,065,987
------------
Solid Waste - 5.2%
Charleston County, SC, Resource Recovery Rev.
(Foster Wheeler), 9.25s, 2010 $ 1,750 $ 1,880,847
Maryland Energy Financing Administration (Solid
Waste), 9s, 2016 9,000 7,442,100
Michigan Strategic Funding, Obligation Rev.
(Blue Water Fiber), 8s, 2012 1,000 747,950
Michigan Strategic Funding, Obligation Rev.
(Great Lakes Fibre), 10.25s, 2016 3,500 2,240,000
Pennsylvania Economic Development Finance
Authority, Recycling Rev., 9.25s, 2022 5,000 4,678,150
------------
$ 16,989,047
------------
State and Local Appropriation - 0.0%
Troy, NY, Certificates of Participation,
Recreational Facilities Rev., 9.75s,
2010*S.++# $ 1,065 $ 106,500
------------
Student Loan Revenue - 0.6%
Arizona Student Loan Acquisition Authority,
7.625s, 2010 $ 750 $ 813,330
Pennsylvania Higher Education Assistance
Agency, AMBAC, RIBS, 8.37s, 2022S.S. 1,300 1,285,921
------------
$ 2,099,251
------------
Toll Road and Transit - 2.3%
Arapahoe County, CO, 0s, 2015 $ 1,000 $ 275,350
San Joaquin Hills, CA, 0s, 2006 2,300 1,259,595
San Joaquin Hills, CA, Transportation Corridor
Agency, Toll Road Rev., 0s, 2011 6,600 2,532,024
Telluride, CO, Gondola Transit Co., 9s, 2016 1,000 969,800
Telluride, CO, Gondola Transit Co., Real Estate
Transfer, 11.5s, 2012 1,580 1,865,206
West Virginia State Parkways, Economic
Development & Tourism Authority, 7.817s,
2019S.S. 600 595,374
------------
$ 7,497,349
------------
7
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
Principal Amount
Issuer (000 Omitted) Value
Universities - 1.4%
Islip, NY, Community Development Agency Rev.
(Institute of Technology), 7.5s, 2026 $2,500 $ 2,554,650
Massachusetts Industrial Finance Agency
(Emerson College), 8.9s, 2018 2,000 2,200,800
------------
$ 4,755,450
------------
Other - 3.3%
Crystal City, TX, Lease Obligations, 10.5s,
2008#++ $4,206 $ 2,102,969
Danville, VA, Industrial Development Rev.
(Piedmont Mall), 8s, 2017 5,795 5,768,575
District of Columbia, Hospital Rev. (Hospital
for Sick Children), 7.7s, 2023 2,500 2,592,875
St. Louis County, MO, Industrial Development
Authority (Kiel Center Arena), 7.875s, 2024 300 321,687
------------
$ 10,786,106
------------
Total Municipal Bonds (Identified Cost, $303,143,583) $ 313,042,166
------------
Floating Rate Demand Notes - 0.6%
Uinta County, WY, Pollution Control Rev.
(Chevron), due 1996 at Amortized Cost $2,000 $ 2,000,000
------------
Total Investments (Identified Cost, $305,143,583) $ 315,042,166
Other Assets, Less Liabilities - 4.1% 13,587,776
------------
Net Assets - 100.0% $ 328,629,942
------------
++ Non-income producing security - in default.
++++ Indexed security.
* Security valued by or at the direction of the Trustees.
\s Non-Income producing security.
\s\s Inverse floating rate security.
# Restricted security.
See notes to financial statements
8
<PAGE>
Statement of Assets and Liabilities - October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (identified cost, $305,143,583) $315,042,166
Cash 74,269
Receivable for investments sold 13,588,327
Interest receivable 8,155,784
Other assets 3,637
---------------
Total assets $336,864,183
---------------
Liabilities:
Distributions payable $ 2,105,901
Payable for investments purchased 5,761,766
Payable to affiliates -
Management fee 8,641
Transfer and dividend disbursing agent fees 10,000
Accrued expenses and other liabilities 347,933
---------------
Total liabilities $ 8,234,241
---------------
Net assets $328,629,942
===============
Net assets consist of:
Paid-in capital $348,943,641
Unrealized appreciation on investments 9,898,583
Accumulated net realized loss on investments (31,765,200)
Accumulated undistributed net investment income 1,552,918
---------------
Total $328,629,942
===============
Shares of beneficial interest outstanding 38,289,109
===============
Net asset value per share (net assets / shares of beneficial interest outstanding) $8.58
===============
</TABLE>
Statement of Operations - Year Ended October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Net investment income:
Interest income $28,867,974
---------------
Expenses -
Management fee $ 3,139,216
Trustees' compensation 134,609
Transfer and dividend disbursing agent fee 123,418
Workout expenditures 334,092
Custodian fee 125,699
Postage 88,309
Legal fees 80,967
Auditing fees 63,175
Printing 36,450
---------------
Total expenses $ 4,125,935
Fees paid indirectly (35,655)
---------------
Net expenses $ 4,090,280
---------------
Net investment income $24,777,694
---------------
Realized and unrealized gain (loss) on investments:
Realized loss on investment transactions (identified cost basis) $(7,965,614)
Change in unrealized appreciation on investments (1,546,763)
---------------
Net realized and unrealized loss on investments $(9,512,377)
---------------
Increase in net assets from operations $15,265,317
===============
</TABLE>
See notes to financial statements
9
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (decrease) in net assets: Year Ended October 31,
---------------------------------
From operations - 1996 1995
---------------- ----------------
<S> <C> <C>
Net investment income $ 24,777,694 $ 25,411,787
Net realized loss on investments (7,965,614) (3,512,925)
Net unrealized gain (loss) on investments (1,546,763) 8,494,997
---------------- ----------------
Increase in net assets from operations $15,265,317 $ 30,393,859
---------------- ----------------
Distributions declared to shareholders from net investment income $(25,186,035) $(26,240,482)
---------------- ----------------
Trust share (principal) transactions -
Net asset value of shares issued to shareholders in reinvestment of dividends $ 3,565,996 $ 3,638,621
---------------- ----------------
Total increase (decrease) in net assets $ (6,354,722) $ 7,791,998
Net assets:
At beginning of period 334,984,664 327,192,666
---------------- ----------------
At end of period (including accumulated undistributed net investment income of
$1,552,918 and $441,570, respectively) $328,629,942 $334,984,664
================ ================
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------------------
1996 1995 1994 1993 1992
------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value - beginning of
period $ 8.84 $ 8.73 $ 9.04 $ 8.78 $ 8.94
------- -------- -------- ------ ------
Income from investment
operations# -
Net investment income $ 0.66 $ 0.68 $ 0.68 $ 0.75 $ 0.73
Net realized and unrealized gain
(loss) on investments (0.26) 0.13 (0.29) 0.21 (0.17)
------- -------- -------- ------ ------
Total from investment
operations $ 0.40 $ 0.81 $ 0.39 $ 0.96 $ 0.56
------- -------- -------- ------ ------
Less distributions declared to
shareholders from net
investment income $ (0.66) $ (0.70) $ (0.70) $ (0.70) $ (0.72)
------- -------- -------- ------ ------
Net asset value - end of period $ 8.58 $ 8.84 $ 8.73 $ 9.04 $ 8.78
======= ======== ======== ====== ======
Per share market value - end of
period $ 9.38 $ 9.50 $ 9.13 $ 10.00 $ 9.00
======= ======== ======== ====== ======
Total return 4.50% 12.57% (1.47)% 10.95% 5.34%
Ratios (to average net
assets)/Supplemental data:
Expenses## 1.24% 1.33% 1.31% 1.33% 1.34%
Net investment income 7.47% 7.66% 7.58% 7.55% 8.17%
Portfolio turnover 13% 14% 22% 14% 17%
Net assets at end of period
(000 omitted) $328,630 $334,985 $327,193 $335,256 $323,060
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------
1991 1990 1989 1988 1987*
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value - beginning of
period $ 9.02 $ 9.44 $ 9.22 $ 8.67 $ 9.40
------- ------ ------ ------ ------
Income from investment
operations# -
Net investment income $ 0.70 $ 0.75 $ 0.76 $ 0.75 $ 0.65
Net realized and unrealized gain
(loss) on investments (0.05) (0.41) 0.22 0.54 (0.79)
------- ------ ------ ------ ------
Total from investment
operations $ 0.65 $ 0.34 $ 0.98 $ 1.29 $ (0.14)
------- ------ ------ ------ ------
Less distributions declared to
shareholders from net
investment income $ (0.73) $ (0.76) $ (0.76) $ (0.74) $ (0.59)
------- ------ ------ ------ ------
Net asset value - end of period $ 8.94 $ 9.02 $ 9.44 $ 9.22 $ 8.67
======= ====== ====== ====== ======
Per share market value - end of
period $ 9.25 $ 8.38 $ 9.88 $ 9.88 $ 8.50
======= ====== ====== ====== ======
Total return 19.88% (7.87)% 8.32% 26.11% (10.10)%+
Ratios (to average net
assets)/Supplemental data:
Expenses## 1.27% 1.21% 1.28% 1.25% 1.04%+
Net investment income 7.79% 8.07% 8.15% 8.35% 7.62%+
Portfolio turnover 21% 19% 16% 37% 58%
Net assets at end of period
(000 omitted) $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.
# 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.
See notes to financial statements
10
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Municipal Income Trust (the Trust) is a non-diversified, closed-end
management company. The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended.
(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 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
11
<PAGE>
Notes to Financial Statements - continued
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-dividend 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 tax 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. During the year ended October 31, 1996, $5,734,004 and $1,519,688 were
reclassified from paid-in capital to accumulated net realized loss on
investments and undistributed net investment income, respectively, due to the
expiration of capital losses for tax purposes and differences between book and
tax accounting for defaulted bond interest and capitalized legal costs related
to defaulted bonds. This change had no effect on the net assets or net asset
value per share.
At October 31, 1996, the Trust, for federal tax purposes, had a capital loss
carryforward of $31,565,822, 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, 1999 ($1,898,227), October 31, 2000 ($4,765,334),
October 31, 2001 ($3,636,033), October 31, 2002 ($7,977,644), October 31, 2003
($4,513,979), and October 31, 2004 ($8,774,605).
(3) Transactions with Affiliates
Investment Adviser - The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.40% of
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 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
$45,676 for the year ended October 31, 1996.
Transfer Agent - MFS Service Center, Inc. (MFSC) acts as 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:
12
<PAGE>
<TABLE>
<CAPTION>
Total Number of Accounts Annual Account Fee
- -------------------------- --------------------
<S> <C>
Less than 75,000 $9.00
75,000 and over $8.00
</TABLE>
The dividend service fee is $0.75 per dividend reinvestment and $0.75 per cash
infusion.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated $42,424,300
and $53,737,152, 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:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $305,143,583
===============
Gross unrealized appreciation $ 20,499,787
Gross unrealized depreciation (10,601,204)
---------------
Net unrealized appreciation $ 9,898,583
===============
</TABLE>
(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>
Year Ended October 31,
--------------------
1996 1995
- ------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Shares issued to shareholders in reinvestment of distributions 397,857 410,850
========= =========
</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
July 31 7,265,805 0.20 6,305,036 0.17 (3,006,927) (0.08) 3,298,109 0.09
October 31 7,227,530 0.20 6,203,036 0.17 (813,289) (0.04) 5,389,747 0.13
-------------- --------------------- ------- --------------- --------- -------------- --------
$28,867,974 $0.77 $24,777,694 $0.66 $(9,512,377) $(0.26) $15,265,317 $0.40
============== ===================== ======= =============== ========= ============== ========
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
============== ===================== ======= =============== ========= ============== ========
</TABLE>
(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
13
<PAGE>
Notes to Financial Statements - continued
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 year ended October 31, 1996 was $3,534.
(8) Financial Instruments
The Trust also invests in indexed securities whose value may be linked to
foreign currencies, 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 October 31, 1996:
<TABLE>
<CAPTION>
Unrealized
Description Index Principal Value Appreciation
---------------------------------------------------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Principal-indexed securities:
Rochester, MN, HealthCare Facilities Rev. (Mayo), FIRS, 8.06s, 2021 PSA Index $1,000,000 $1,023,900 $23,900
</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 October 31, 1996,
the Trust owned the following restricted securities (constituting 6.46% of total
assets) which may not be publicly sold without registration under the Securities
Act of 1933. 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
Description Acquisition Par Amount Cost Value
- ----------------------------------------------------------------------------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Crystal City, TX, 10.5s, 2008 5/28/88 $4,205,938 $3,188,877 $ 2,102,969
Daphne, AL, Westminister, 8.25s, 2026 10/28/88 500,000 500,186 427,530
Dade County, FL, HFA, Multi-Family (Blackstone), 8.375s, 2002 4/22/94 5,466,500 5,466,500 5,617,211
Dade County, FL, HFA, Multi-Family, 8.375s, 2002 4/22/94 4,072,500 4,072,500 4,184,779
Eastern Band of Cherokee Indian Community, NC, 10.25s, 2009 12/10/86 6,540,000 6,409,197 6,783,550
Eastern Band of Cherokee Indian Community, NC
(Carolina Mirror Co.), 11s, 2012 2/05/88 650,000 601,250 675,720
Hannibal, MO, IDA, 9.5s, 2022 8/28/92 1,500,000 1,485,521 1,878,450
Troy, NY, Certificates of Participation, 9.75s, 2010 12/10/86 1,065,000 1,065,000 106,500
-----------
$21,776,709
===========
</TABLE>
(10) Litigation
MFS 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 the Trust were invalid at the time of issuance.
The Trust is the 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 Troy 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.
14
<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 October 31,
1996, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended October 31, 1996 and 1995, and the
financial highlights for each of the years in the ten-year period ended October
31, 1996. 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
October 31, 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 October 31, 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
November 29, 1996
15
<PAGE>
[Back 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(1)
Private Investor;
Former Senior Vice President
and Group Executive (until 1990),
Raytheon Company
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(1)
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
State Street Bank and
Trust Company
c/o 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 Logo] This report is printed on recycled paper
MFMCE-2 12/96 34M
