[Front cover]
[COVER GRAPHIC OF MAN & WOMAN SITTING]
[MFS Logo]
MFS(R) Municipal Income Trust
Annual Report
for Year Ended
October 31, 1997
<PAGE>
Dear Shareholders:
During the 12 months ended October 31, 1997, the Trust provided a total return
of 6.60% at net asset value (including the reinvestment of distributions),
while the market price of its shares traded on the New York Stock Exchange
provided a total return of 3.90%. During the same period, the Lehman Brothers
Municipal Bond Index (the Lehman Index) provided a total return of 8.49%. It is
important to note that the Lehman Index represents an unmanaged index of
investment-grade municipal bonds rated "Baa" or higher by Standard & Poor's,
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
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. The rapid pace of growth seen in the first quarter slowed to an annual
rate of 3.3% in the second quarter and 3.5% in the third. We believe economic
momentum will carry well into the first quarter of 1998, as the money supply is
increasing at a rapid rate, and it still appears that Christmas sales could be
quite good. Because economic growth continues to be impressive, markets are
likely to continue to focus on the Federal Reserve Board's (the Fed's)
willingness to raise interest rates.
Bond Markets
The U.S. government bond market has benefited from the deflationary events in
Southeast Asia, while the high-yield and emerging-debt markets have come under
severe pressure. Inflation remains under control, and the Fed will most likely
take a wait-and-see attitude toward raising interest rates. As a result, our
near-term outlook for high-grade markets is neutral to moderately positive. At
the same time, high-yield markets, having gone through a substantial
correction, could offer reasonable value but require careful selection.
Overall, fixed-income markets appear to be reasonably 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 1998,
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
$0.055 per share to the current $0.050 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.
The second half of each calendar year is typically the busiest as far as
high-yield issuance is concerned. Despite this seasonal trend, spreads between
"Aaa"- and "Baa"-rated bonds remain at extremely narrow levels. This has
limited our ability to enhance the current tax-exempt yield of the portfolio at
a reasonable risk/reward return. We continue to find opportunities in the
housing bond sector, both in the single- and multi-family arenas. Addition-
1
<PAGE>
ally, the corporate-backed bonds held in the portfolio, such as those issued by
airline and manufacturing facilities, have performed very well. Whenever
possible, we have taken advantage of the high prices being paid for these
securities and used those opportunities to upgrade the portfolio's credit
quality.
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/ Keith Brodkin
- ----------------------
A. Keith Brodkin
Chairman and President
/s/ Cynthia M. Brown
- --------------------
Cynthia M. Brown
Portfolio Manager
November 14, 1997
----------------------
Note to Shareholders: Effective December 3, 1997, Michael Roberge succeeds Ms.
Brown as Portfolio Manager of the Trust. Mr. Roberge joined MFS in 1996 as a
credit analyst in the Municipal Fixed Income Department. He is a graduate of
Bemidji State University in Minnesota and received a Masters in Business
Administration degree from Hofstra University in New York. Mr. Roberge is a
Vice President of MFS and is also Portfolio Manager of MFS(R) Municipal
High Income Fund. He is a member of the Boston Municipal Analysts Forum and the
National Federation of Municipal Analysts.
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, 1997)
Net Asset Value Per Share
October 31, 1996 $8.58
October 31, 1997 $8.51
New York Stock Exchange Price
October 31, 1996 $9.375
July 16, 1997 (high)* $9.938
October 28, 1997 (low)* $9.000
October 31, 1997 $9.063
- -------------------------------------------------------------------------------
Federal Income Tax Information
on Distributions
(For the year ended October 31, 1997)
Exempt-Interest Dividend
For federal income tax purposes, approximately 99.65% of the total dividends
paid by the Trust from net investment income during the year ended October 31,
1997, is designated as an exempt-interest dividend.
Tax Form Summary
In January 1998, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1997.
- -------------------------------------------------------------------------------
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,
nondiversified, management investment company and has no employees.
2
<PAGE>
Number of Shareholders
As of October 31, 1997, our records indicate that there are 6,755 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
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MFM.
Results of Shareholder Meeting
At the annual meeting of shareholders of MFS(R) Municipal Income Trust,
which was held on October 17, 1997, the following actions were taken:
Item 1. The election of J. Atwood Ives, Lawrence T. Perera, Arnold D. Scott,
and Jeffrey L. Shames as Trustees of the Trust.
Number of Shares
Nominee For Withhold Authority
- -------------------- --------------- ------------------
J. Atwood Ives 32,044,149.7017 727,576.5181
Lawrence T. Perera 32,021,159.5372 750,566.6826
Arnold D. Scott 32,232,064.3654 539,661.8544
Jeffrey L. Shames 32,068,451.3205 703,274.8993
Trustees continuing in office who were not subject to re-election at this
meeting are A. Keith Brodkin, Richard B. Bailey, Peter G. Harwood, William J.
Poorvu, Charles W. Schmidt, Elaine R. Smith and David B. Stone.
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, 1998.
Number of Shares
-----------------
For 32,097,197.4461
Against 179,071.2771
Abstain 495,457.4966
Investment Objective and Policy
The investment objective of the 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
3
<PAGE>
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.
4
<PAGE>
Portfolio of Investments -- October 31, 1997
Municipal Bonds -- 97.3%
Principal Amount
Issuer (000 Omitted) Value
General Obligation -- 1.9%
Chicago, IL, FGIC, 5.125s,
2025 ..................... $ 2,000 $1,913,960
Jefferson County, OH,
7.125s, 2019 ............. 1,000 1,080,240
Markham, IL, 9s, 2012 ..... 1,285 1,304,275
New York City, NY, 6.125s,
2025 .................... 2,000 2,076,680
----------
$6,375,155
----------
State and Local
Appropriation -- 0.5%
Riverside County, CA,
Asset Leasing Corp.,
Leashold Rev.
(Riverside County
Hospital), MBIA 0s,
2026 ............... $ 8,595 $1,777,876
----------
Refunded and Special
Obligations -- 20.4%
Arapahoe County, CO,
Capital Improvement
(Highway Rev.), 0s,
2015 ................... $ 1,000 $ 339,340
Arapahoe County, CO, Water
Sanitation District,
9.25s, 1998 ............ 1,700 1,809,888
Arapahoe County, CO, Water
Sanitation District,
9.25s, 2013 ........... 300 319,392
Clermont County, OH,
Hospital Facilities Rev.
(Mercy Health Systems),
AMBAC, MVRICs, 9.512s,
2021[dbldag][dbldag] ... 500 603,240
Colorado Health Facilities
Authority, Retirement
Facilities Rev. (Liberty
Heights), 0s, 2024 ..... 10,000 2,300,600
Desert Hospital District,
CA, Hospital Rev. (Desert
Hospital Corp.), 8.824s,
2020[dbldag][dbldag] ... 1,500 1,816,560
Grand Junction, CO
(Lincoln Park
Osteopathic Hospital),
10.5s, 2017 ........... 1,250 1,307,612
Hannibal, MO, Industrial
Development Authority
(Hannibal Regional
Healthcare), 9.5s, 2022+ 1,500 1,844,895
Illinois Development
Finance Authority,
Retirement Housing
Rev. (Regency Park),
ETM, 0s, 2025 .......... 26,000 5,660,720
Maine Health & Higher
Education Facilities
Authority (d'Youville
Pavillion), 10s, 1997 7,490 7,746,607
Maine Health & Higher
Education Facilities
Authority (St. Mary's
General Hospital),
8.625s, 1999 .......... 1,000 1,090,320
Principal Amount
Issuer (000 Omitted) Value
Refunded and Special Obligations -- continued
Massachusetts Health &
Education Facilities
Authority (Fairview
Extended Care
Facility), 10.25s, 2021 $ 1,500 $ 1,799,925
Massachusetts Industrial
Finance Agency, Tunnel
Rev. (Mass. Turnpike),
9s, 2020 ............... 3,760 4,315,202
Mississippi Hospital
Equipment & Facilities
Authority Rev. (Rush
Medical Foundation),
8.75s, 2001 ............ 1,000 1,149,000
New Lenox, IL, Community
Park Development
Authority, 8.25s, 2004 2,000 2,454,660
Prince William County, VA,
Industrial Development
Authority, Residential
Care Facility (Westminster
at Lake Ridge), 10s, 2022 1,500 1,840,710
Russellville, AR, Industrial
Development Rev. (Charles
Meyers), 10s, 1999 ...... 4,985 5,547,507
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev.,
0s, 2006 ................ 2,300 1,574,649
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev.,
0s, 2011 ................ 6,600 3,394,314
Telluride, CO, Gondola
Transit Co.,
Real Estate Transfer,
11.5s, 2012 ............. 2,475 3,965,742
Texas Turnpike Authority
(Houston Ship Channel
Bridge), 12.625s, 2002 .. 10,565 14,358,258
Washington Public Power
Supply System Rev.
(Nuclear Project #1),
14.375s, 2001 ........... 1,460 1,776,163
-----------
$67,015,304
-----------
Airport and Port Revenue -- 5.0%
Atlanta, GA, Special
Purpose Facilities
Rev. (Delta Airlines),
7.9s, 2018 ............. $ 2,100 $ 2,256,681
Cleveland, OH, Airport
Special Facilities Rev.
(Continental Airlines),
9s, 2019 ................ 3,150 3,443,926
Denver, CO, City & County
Airport Rev., 8.75s, 2023 400 471,104
Denver, CO, City & County
Airport Rev., 8.75s,
2023 .................... 1,100 1,290,575
Hillsborough County, FL,
Aviation Authority Rev.
(USAir), 8.6s, 2022 ..... 650 739,245
5
<PAGE>
Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
Airport and Port Revenue -- continued
Kenton County, KY, Airport
Board Special Facilities
(Delta Airlines),
7.5s, 2020 ............. $ 1,000 $ 1,107,260
Tulsa, OK, Municipal
Airport Trust
Rev. (American
Airlines), 7.375s,
2020 ................... 3,400 3,705,898
Tulsa, OK, Municipal
Airport Trust
Rev. (American
Airlines), 7.6s, 2030 ... 3,000 3,312,810
-----------
$16,327,499
-----------
Electric and Gas Utility
Revenue -- 4.2%
Midland, MI, Environmental
Development Authority,
Pollution Control Rev.
(Midland Cogeneration),
9.5s, 2009 .............. $1,500 $ 1,672,620
Ohio Water Development,
Pollution Control Rev.
(Cleveland Electric),
8s, 2023 ................ 2,500 2,827,350
Pima County, AZ,
Industrial Development
Authority (Tucson
Electric Power Co.),
6s, 2029 ............... 3,000 3,026,610
Pittsylvania County, VA,
Industrial Development
Authority Rev., 7.5s,
2014 ................... 2,000 2,182,400
Southern California Public
Power Authority,
Transmission Project
Rev., RIBS, 7.812s,
2012[dbldag][dbldag] 3,650 4,085,226
-----------
$13,794,206
-----------
Health Care Revenue -- 22.5%
Arkansas Development
Finance Authority,
Economic Development Rev.
(Southwest Homes), 10.8s,
2018 ................... $1,400 $ 1,448,356
Bell County, TX, Health
Facilities Development
Corp. (Advanced Living
Technology), 7.25s, 2001 205 201,523
Bell County, TX, Health
Facilities Development
Corp. (Advanced Living
Technology), 7.75s, 2006 300 290,847
Bell County, TX, Health
Facilities Development
Corp. (Advanced Living
Technology), 8.125s, 2016 1,085 1,036,533
Bell County, TX, Health
Facilities Development
Corp. (Advanced
Living Technology),
8.5s, 2026 .......... 2,405 2,286,410
Principal Amount
Issuer (000 Omitted) Value
Health Care Revenue -- continued
Bell County, TX, Health
Facilities Development
Corp. (Kings Daughters
Hospital), 9.25s, 2008 .. $ 735 $ 796,020
Booneville, MO, Health
Facilities Rev.
(Gericare, Inc.),
11s, 2017 ............... 1,900 1,958,748
Boston, MA, Industrial
Development Finance
Authority Rev. (Stonehedge
Convalescent Center),
10.75s, 2011 ............ 735 779,541
Brevard County, FL, Health
Facilities Authority
Rev. (Friendly Village),
9.25s, 2012 ............. 2,320 2,374,566
Broward County, FL,
Industrial Development
Authority (Beverly
Enterprises, Inc.),
9.8s, 2010 .............. 2,345 2,598,049
Cambria County, PA,
Industrial Development
Authority (Beverly
Enterprises), 10s, 2012 . 720 935,798
Chester County, PA,
Industrial Development
Authority (RHA/PA
Nursing Home), 10.125s,
2019 ................... 967 937,990
Connecticut Health &
Educational Facilities
(Johnson Evergreen),
8.5s, 2014 ............. 650 708,598
Daphne, AL, Special Care
Facilities Financing
Authority (Westminster
Village), 8.25s, 2026+ .. 500 455,585
District of Columbia,
Hospital Rev. (Hospital
for Sick Children),
8.875s, 2021 .......... 480 525,730
Fairfax, Fauquier &
Loudoun Counties, VA,
Health Center
Commission, Nursing Home
Rev., 9s, 2020 ......... 1,870 2,020,329
Gadsden County, FL, Industrial
Development Authority (RHA/
FLA Properties), 10.45s,
2018 .................... 2,520 2,601,598
Greenville County, SC,
Hospital Facility Rev.
(Chestnut Hill),
10.375s, 2016 .......... 2,845 2,884,119
Hobbs County, NM, Health
Facilities Rev. (Nemecal
Associates), 9.625s, 2014 895 943,070
Lee County, FL, Industrial
Development Authority
(Beverly Enterprises),
10s, 2010 ............... 1,930 2,158,184
Louisiana Public
Facilities Authority
(Chateau Riviere Home
for the Aged), 10.25s,
2016 .................... 3,295 3,380,933
6
<PAGE>
Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
Health Care Revenue -- continued
Louisiana Public
Facilities Authority
(Southwest Medical
Center), 11s, 2006 .... $3,913 $ 1,183,186
Massachusetts Industrial
Finance Agency (Martha's
Vineyard Long-Term Care
Facility), 9.25s,
2022**[dbldag] .......... 1,700 646,000
Massachusetts Industrial
Finance Agency
(Needham/Hamilton
House), 11s, 2010 ....... 800 832,080
Millbrae, CA, Residential
Facility (Magnolia Of
Millbrae Project),
7.375s, 2027 .......... 1,000 999,400
Monongalia County, WV,
Health Facilities Rev.
Beverly Enterprises, Inc.),
10s, 2007 ............... 1,035 1,119,808
Montgomery County, PA,
Higher Education & Health
Authority Rev. (AHF/
Montgomery), 10.5s, 2020 2,460 2,622,950
New Jersey Economic
Development Authority
(Courthouse Convalescent
Center), 8.7s, 2014 .... 650 691,509
New Jersey Economic
Development Authority
(Geriatric & Medical
Services), 9.625s, 2004 . 175 195,230
New Jersey Economic
Development Authority
(Geriatric & Medical
Services), 9.625s, 2022 675 746,969
New Jersey Economic
Development Authority
(Greenwood Health Care),
9.75s, 2011 ............. 1,395 1,478,198
New Jersey Economic
Development Authority
(Wanaque Convalescent
Center), 8.6s, 2011 .... 1,000 1,053,240
New Jersey Health Care
Facilities Financing
Authority (Cherry Hill),
8s, 2027 ................ 1,000 1,040,480
North Carolina Medical
Care Commission, Hospital
Rev. (Valdese General ),
8.75s, 2016 ............. 1,400 1,588,440
Okaloosa County, FL,
Retirement Rental
Housing Rev. (Beverly
Enterprises), 10.75s, 2003 1,230 1,286,900
Principal Amount
Issuer (000 Omitted) Value
Health Care Revenue -- continued
Orange County, FL,
Industrial Development
Rev. (Friendly
Village), 9.25s, 2012 ... $1,805 $ 1,846,750
Osceola County, FL,
Industrial Development
Rev. (Community
Provider Pooled Loan),
7.75s, 2017 ............ 1,300 1,363,791
Philadelphia, PA,
Industrial Development
Authority (Care
Pavilion), 10.25s, 2018 2,340 2,342,059
Philadelphia, PA,
Industrial Development
Authority (Philadelphia),
10.25s, 2018 .......... 1,930 1,932,779
Reedley, CA,
Certificates of
Participation (Mennonite
Home), 7.5s, 2026 ..... 3,000 3,078,840
Rochester, MN, Health Care
Facilities Rev. (Mayo
Medical Foundation),
7.96s, 2021[sec] ....... 1,000 1,046,490
San Francisco, CA, City &
County (Coventry Park),
8.5s, 2026 ............. 2,000 2,141,940
Santa Fe, NM, Industrial
Development Rev. (Casa
Real Nursing Home),
9.75s, 2013 ............ 1,145 1,236,016
Seminole County, FL,
Industrial Development
Authority (Friendly
Village), 10s, 2011 ... 1,695 1,741,951
St. Charles County, MO,
Industrial Development
Authority (Garden View
Care Center),
10s, 2016 .............. 2,255 2,280,030
St. Petersburg, FL,
Health Facilities
Rev. (Swanholm Nursing),
10s, 2022 ............. 770 878,801
Suffolk County, NY,
Industrial Development
Agency (APPLE),
9.75s, 2015 ............ 1,325 1,126,250
Washington County, FL,
Industrial Development
Authority (Washington
County), 10s, 2016 ..... 1,090 1,090,447
Waterford Township, MI,
Economic Development
Rev. (Canterbury
Health Care),
8.375s, 2023 ........... 1,500 1,500,000
Westside Habilitation
Center, Cheneyville, LA,
8.375s, 2013 ........... 2,500 2,607,450
Wilkinsburg, PA,
Municipal Authority
Health (Monroeville
Christian), 8.25s, 2027 1,000 1,024,660
-----------
$74,045,171
-----------
7
<PAGE>
Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
Industrial Revenue
(Corporate Guarantee) -- 15.7%
Courtland, AL, Industrial
Development Board, Solid
Waste Disposal Rev.
(Champion International
Corp.), 6.375s, 2029 .. $2,000 $ 2,099,160
Dayton, OH, Special
Facilities Rev. (Emery
Air Freight), 12.5s, 2009 1,000 1,087,660
Eastern Band of Cherokee
Indian Community, NC
(Carolina Mirror Co.),
10.25s, 2009+ ......... 6,410 6,439,165
Eastern Band of Cherokee
Indian Community, NC
(Carolina Mirror Co.),
11s, 2012+ ............ 650 652,919
Hardeman County, TN
(Correctional Facilities
Corp.), 7.75s, 2017 .... 2,220 2,446,040
Hernando County, FL,
Water Sewer Rev.
(Florida Crushed Stone),
8.5s, 2014 ........... 3,600 4,135,140
Hodge Village, LA,
Utilities Rev. (Stone
Container), 9s, 2010 ... 7,585 8,237,007
Indiana Development
Finance Authority Rev.
(Inland Steel),
5.75s, 2011 ............ 1,000 1,009,960
Lawrenceburg, TN,
Industrial Development
Board (Tridon, Inc.),
9.875s, 2006 .......... 1,400 1,494,836
Mesa County, CO (Joy
Technologies), 8.5s,
2006 ................... 650 737,334
Navajo County, AZ,
Industrial Development
Authority (Stone
Container Corp.),
7.2s, 2027 ............. 880 961,083
New Hampshire Business
Authority, Sewer & Solid
Waste Disposal (Crown Paper),
7.875s, 2026 .......... 1,550 1,763,032
New Jersey Economic
Development Authority
(Holt Hauling & Warehousing),
8.4s, 2015 ........... 1,000 1,074,870
New Jersey Economic
Development Authority
(Holt Hauling & Warehousing),
8.6s, 2017 ......... 1,000 1,078,240
Ohio Solid Waste Rev.
(Republic Engineered Steels),
8.25s, 2014 ............ 3,000 3,048,780
Ohio Solid Waste Rev.
(Republic Engineered Steels),
9s, 2021 ............... 3,000 3,203,520
Principal Amount
Issuer (000 Omitted) Value
Industrial Revenue
(Corporate Guarantee) -- continued
Philadelphia, PA,
Industrial Development
Authority Rev.,
7.75s, 2017 .............. $3,255 $ 3,558,529
Port of New Orleans, LA,
8.25s, 2004 ............ 900 1,016,235
Port of New Orleans, LA
(Avondale Industries),
8.5s, 2014 ............... 1,650 1,894,778
Riverdale, IL,
Enviromental Improvement
Rev. (Acme Metals),
7.9s, 2024 .............. 1,000 1,118,750
St. Augustine, FL,
Airport Authority
(Grumman Repair Facility),
11s, 2004 ............... 2,575 2,660,747
Walton, GA,
Industrial Development Rev.
(Ultima Rubber Products),
10s, 2010 ................ 1,700 1,855,278
-----------
$51,573,063
-----------
Insured Health
Care Revenue -- 1.1%
Bexar County, TX, Health
Facilities Development
(Baptist Health Systems),
MBIA, 5.25s, 2027 ........ $1,000 $ 970,770
North Central, TX,
Health Facilities
Development Corp.
(Presbyterian Hospital),
MBIA, 9.345s,
2021[dbldag][dbldag] ..... 1,500 1,785,090
Salt Lake City, UT,
Hospital Rev.
(Intermountain Health Care),
AMBAC, 9.287s,
2020[dbldag][dbldag] ..... 650 765,128
-----------
$ 3,520,988
-----------
Multi-Family Housing
Revenue -- 4.6%
Austin, TX, Housing Finance
Corp., Multi-Family Housing
Rev. (Woodland Heights
Apartments), 10s, 2027 ... $1,000 $ 1,017,500
Colorado Housing Finance
Authority, FHA, 9s, 2025 . 865 874,117
Dade County, FL, Housing
Finance Agency, Multi-
Family Housing (Blackstone),
8.375s, 2002+ ............ 5,467 5,636,235
Dade County, FL, Housing
Finance Agency, Multi-
Family Housing
(Silverblue), 8.375s,
2002+ .................... 3,888 4,008,207
Dallas, TX, Housing Finance
Corp., 8.5s, 2011 ....... 1,270 1,371,702
Eaglebend, CO, Affordable
Housing Corp., Multi-Family
Rev., 6.4s, 2017[sec] .... 1,000 1,002,280
8
<PAGE>
Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
Multi-Family Housing Revenue -- continued
Florida Multi-Family
Housing Finance Agency Rev.,
8.5s, 2018 ............ $ 1,150 $ 1,184,304
Memphis, TN, Health,
Education & Housing
Facilities Board (Wesley
Highland Terrace),
12.75s, 2015** ....... 100 85,000
-----------
$15,179,345
-----------
Sales and Excise Tax
Revenue -- 0.6%
Chicago, IL,
Tax Increment Rev.
(Ryan Garfield),
10.125s, 2007 .......... $ 1,600 $ 1,648,816
Denver, CO,
Urban Renewal Authority,
Tax Increment Rev.
(Downtown Denver),
8.5s, 2013 ............. 465 473,351
-----------
$ 2,122,167
-----------
Single Family Housing
Revenue -- 8.1%
Bexar County, TX,
Housing Finance Corp.,
Single Family Housing Rev.,
0s, 2015 ............... $26,300 $ 3,930,272
Cook County, IL, Single
Family Housing Rev.,
0s, 2015 ............... 930 133,985
Corpus Christi, TX,
Housing Finance Corp.,
MBIA, 0s, 2011 ......... 3,000 787,320
Dallas, TX, Housing
Finance Corp., Single
Family Mortgage Rev.,
MBIA, 0s, 2016 ......... 13,890 1,874,178
Denver, CO, City & County
Single Family Mortgage
Rev., 0s, 2015 ......... 2,905 374,571
Duval County, FL, Housing
Finance Authority,
0s, 2015 ............... 21,890 2,993,895
Florida Housing Finance
Agency Rev. (South Lake
Apartments), 0s, 2012 .. 70 15,468
Georgia Housing & Finance
Authority Rev., FHA,
0s, 2031 ............... 17,705 1,523,515
Harris County, TX,
Housing Finance Corp.,
9.625s, 2003 ........... 870 873,549
Harris County, TX,
Housing Finance Corp.,
9.875s, 2014 ........... 555 557,259
Jackson County, MO,
0s, 2016 ............... 2,985 366,558
Nebraska Investment
Finance Authority,
Single Family Mortgage
Rev., 0s, 2015 ......... 37,275 6,704,654
Nebraska Investment
Finance Authority,
Single Family Housing
Rev., 6.25s, 2021 ...... 2,000 2,100,560
Principal Amount
Issuer (000 Omitted) Value
Single Family Housing Revenue -- continued
Nevada Housing Division,
Single Family Mortgage Rev.,
0s, 2015 ............... $ 754 $ 129,053
Ohio Housing Finance
Agency, Single Family
Mortgage Rev., GNMA,
RIBS, 9.627s,
2031[dbldag][dbldag] ... 850 961,750
Reno County, KS,
Single Family
Mortgage Rev., AMBAC,
0s, 2014 .............. 2,575 382,928
Saline County, KS, 0s, 2014 975 150,891
South Dakota Housing
Development Authority,
Homeownership Mortgage,
5.8s, 2028 ............ 1,830 1,845,281
Utah Housing Finance
Agency, Residential Mortgage
Rev., 9s, 2019 ........ 25 27,139
Wisconsin Housing &
Economic Development Authority,
Home Ownership Rev.,
RIBS, 9.855s,
2022[dbldag][dbldag] ... 855 950,127
-----------
$26,682,953
-----------
Solid Waste Revenue -- 0.7%
Charleston County, SC,
Resource Recovery Rev.
(Foster Wheeler),
9.25s, 2010 ............ $ 1,750 $ 1,815,048
Pennsylvania Economic
Development Finance
Authority, Recycling Rev.
(Ponderosa Fibres Project),
9.25s, 2022 ............ 1,000 660,000
-----------
$ 2,475,048
-----------
Student Loan Revenue -- 0.7%
Arizona Student Loan
Acquisition Authority,
"C", 7.625s, 2010 ...... $ 750 $ 840,780
Pennsylvania Higher
Education Assistance Agency,
AMBAC, 8.138s,
2022[dbldag][dbldag] ... 1,300 1,377,467
-----------
$ 2,218,247
-----------
Turnpike Revenue -- 4.2%
Foothill/Eastern
Transportation Corridor
Agency, CA,
Toll Road Rev.,
0s, 2030 ............... $25,950 $ 4,133,835
Massachusetts Turnpike
Authority, Capital
Appreciation, "C",
MBIA, 0s, 2022 ......... 10,000 2,774,200
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev.,
0s, 2019 ............... 10,000 3,226,700
9
<PAGE>
Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
Turnpike Revenue -- continued
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev.,
MBIA, 5.25s, 2030 ...... $ 1,500 $ 1,466,070
Telluride, CO, Gondola
Transit Co., 11.5s, 2012 425 512,559
Telluride, CO, Gondola
Transit Co., 9s, 2016 .. 995 1,112,400
West Virginia Parkways,
Economic Development &
Tourism Authority, FGIC,
RIBS, 7.452s,
2019[dbldag][dbldag] ... 600 634,836
------------
$ 13,860,600
------------
Universities -- 1.5%
Islip, NY,
Community Development
Agency Rev. (New York
Institute of Technology),
7.5s, 2026 ............. $ 2,500 $ 2,681,225
Massachusetts Industrial
Finance Agency
(Emerson College),
8.9s, 2018 ............. 2,000 2,213,860
------------
$ 4,895,085
------------
Water and Sewer Utility
Revenue -- 1.8%
Detroit, MI,
Sewage Disposal Rev.,
FGIC, 7.516s,
2023[dbldag][dbldag] ... $ 2,500 $ 2,573,200
Harrisburg, PA,
Authority Water Rev.,
FGIC, 7.32s,
2015[dbldag][dbldag] ... 2,000 2,203,180
New York City, NY,
Municipal Water Finance
Authority, Water & Sewer
Systems Rev., FSA,
5.375s, 2026 ........... 1,100 1,089,815
------------
$ 5,866,195
------------
Other -- 3.8%
Colorado Postsecondary
Educational Facilities
Authority Rev.
(Colorado Ocean Journey
Inc.), 8.3s, 2017 ...... $ 1,500 $ 1,662,960
Dade County, FL,
Special Obligation Rev.,
AMBAC, 0s, 2032 ....... 15,080 1,843,379
Danville, VA,
Industrial Development
Rev. (Piedmont Mall),
8s, 2017 ............... 5,795 6,029,002
District of Columbia
(National Public Radio),
7.7s, 2023 ............. 2,500 2,724,550
St. Louis County, MO,
Industrial Development
Authority (Kiel Center
Arena), 7.875s, 2024 ... 300 325,350
------------
$ 12,585,241
------------
Total Municipal Bonds (Identified
Cost, $296,397,298) ........... $320,314,143
------------
Principal Amount
Issuer (000 Omitted) Value
Floating Rate Demand Notes -- 0.9%
Burke County, GA,
Development Authority,
Pollution Control Rev.
(Georgia Power),
due 04/01/32 ........... $ 200 $ 200,000
Heard County, GA,
Development Authority,
Pollution Control Rev.
(Georgia Power Co.),
due 09/01/29 ........... 1,000 1,000,000
Jackson County, MS,
Pollution Control Rev.
(Chevron USA, Inc.),
due 06/01/23 ........... 100 100,000
Lincoln County, WY,
Pollution Control Rev.
(Exxon), due 11/01/14 100 100,000
Uinta County, WY,
Pollution Control Rev.
(Chevron), due 08/15/20 1,310 1,310,000
Uinta County, WY,
Pollution Control Rev.
(Chevron), due 12/01/22 200 200,000
Valdez, AK,
Marine Terminal Rev.
(Exxon Pipeline Co.),
due 10/01/25 ........... 100 100,000
------------
Total Floating Rate
Demand Notes, at
Amortized Cost ..................$ 3,010,000
------------
Total Investments
(Identified Cost,
$299,407,298) ...................$323,324,143
- ------------------------
Other Assets,
Less Liabilities -- 1.8% ........... 5,957,759
------------
Net assets -- 100.0% $329,281,902
============
** Non-income producing security -- in default.
+ Restricted security.
[sec] Indexed security.
[sec][sec] When-issued security. At October 31, 1997, the Trust had sufficient
cash and/or securities at least equal to the value of the when-issued security.
[dbldag] Security valued by or at the direction of the Trustees.
[dbldag][dbldag] Inverse floating rate security.
See notes to financial statements
10
<PAGE>
Statement of Assets and Liabilities -- October 31, 1997
Assets:
Investments, at value (identified cost, $299,407,298) ...... $ 323,324,143
Cash ...................................................... 46,399
Receivable for investments sold ........................... 813,597
Interest receivable ....................................... 6,725,966
Other assets ................................................ 2,893
-------------
Total assets ............................................. $ 330,912,998
-------------
Liabilities:
Distributions payable ....................................... $ 263,002
Payable for when-issued investments purchased ............... 1,000,000
Payable to affiliates --
Management fee ............................................. 8,226
Transfer and dividend disbursing agent fees ............... 9,657
Administrative fee ....................................... 136
Accrued expenses and other liabilities ..................... 350,075
-------------
Total liabilities ....................................... $ 1,631,096
-------------
Net assets ................................................... $ 329,281,902
=============
Net assets consist of:
Paid-in capital ............................................. $ 352,467,019
Unrealized appreciation on investments ..................... 23,916,845
Accumulated net realized loss on investments ............... (48,118,685)
Accumulated undistributed net investment income ............ 1,016,723
-------------
Total ................................................... $ 329,281,902
=============
Shares of beneficial interest outstanding: .................. 38,679,644
==============
Net asset value per share (net assets [divided by]
shares of beneficial interest outstanding) ................... $ 8.51
==============
Statement of Operations -- Year Ended October 31, 1997
Net investment income:
Interest income ............................................. $ 27,403,828
-------------
Expenses --
Management fee ............................................. $ 3,031,601
Trustees' compensation .................................... 132,740
Administrative fee ....................................... 32,742
Transfer and dividend disbursing agent fee ............... 114,829
Custodian fee ............................................. 141,904
Postage ................................................... 37,734
Auditing fees ............................................. 36,349
Printing ................................................... 33,045
Legal fees ................................................ 19,931
Miscellaneous ............................................. 270,871
-------------
Total expenses .......................................... $ 3,851,746
Fees paid indirectly ....................................... (41,764)
-------------
Net expenses ............................................. $ 3,809,982
-------------
Net investment income ................................. $ 23,593,846
-------------
Realized and unrealized gain (loss) on investments:
Realized loss on investment transactions
(identified cost basis) ................................. $ (15,621,735)
Change in unrealized appreciation on investments ............ 14,018,262
-------------
Net realized and unrealized loss on investments ............ $ (1,603,473)
-------------
Increase in net assets from operations .................. $ 21,990,373
=============
See notes to financial statements
11
<PAGE>
Statement of Changes in Net Assets
<TABLE>
Increase (decrease) in net assets: YearEnded October 31,
---------------------------------
From operations -- 1997 1996
------------ ------------
<S> <C> <C>
Net investment income ......................................................... $ 23,593,846 $ 24,777,694
Net realized loss on investments ............................................. (15,621,735) (7,965,614)
Net unrealized gain (loss) on investments .................................... 14,018,262 (1,546,763)
-------------- --------------
Increase in net assets from operations ....................................... $ 21,990,373 $ 15,265,317
-------------- --------------
Distributions declared to shareholders from net investment income ............ $ (24,833,070) $ (25,186,035)
-------------- --------------
Net increase in net assets from Trust share transactions ..................... $ 3,494,657 $ 3,565,996
-------------- --------------
Total increase (decrease) in net assets .................................... $ 651,960 $ (6,354,722)
Net assets:
At beginning of period ...................................................... 328,629,942 334,984,664
-------------- --------------
At end of period (including accumulated undistributed net investment income of
$1,016,723 and $1,552,918, respectively) .................................... $ 329,281,902 $ 328,629,942
============== ==============
</TABLE>
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31,
Per share data (for a share outstanding ----------------------------------------------------------------
throughout each period): 1997 1996 1995 1994 1993
---------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ......... $ 8.58 $ 8.84 $ 8.73 $ 9.04 $ 8.78
-------- -------- -------- --------- --------
Income from investment operations# --
Net investment income ........................ $ 0.61 $ 0.66 $ 0.68 $ 0.68 $ 0.75
Net realized and unrealized gain (loss)
on investments .............................. ( 0.03) ( 0.26) 0.13 ( 0.29) 0.21
-------- -------- -------- --------- --------
Total from investment operations ............ $ 0.58 $ 0.40 $ 0.81 $ 0.39 $ 0.96
-------- -------- -------- --------- --------
Less distributions declared to shareholders from
net investment income ........................ $ (0.65) $ (0.66) $ (0.70) $ (0.70) $ (0.70)
-------- -------- -------- --------- --------
Net asset value -- end of period ............... $ 8.51 $ 8.58 $ 8.84 $ 8.73 $ 9.04
======== ======== ======== ========= ========
Per share market value -- end of period ......... $ 9.06 $ 9.38 $ 9.50 $ 9.13 $ 10.00
======== ======== ======== ========= ========
Total return .................................... 3.90% 4.50% 12.57% ( 1.47)% 10.95%
Ratios (to average net assets)/Supplemental data:
Expenses## .................................... 1.19% 1.24% 1.33% 1.31% 1.33%
Net investment income ........................ 7.26% 7.47% 7.66% 7.58% 7.55%
Portfolio turnover .............................. 21% 13% 14% 22% 14%
Net assets at end of period (000 omitted) ...... $329,282 $328,630 $334,985 $ 327,193 $335,256
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
Per share data (for a share outstanding ----------------------------------------------------------------
throughout each period): 1992 1991 1990 1989 1988
---------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ......... $ 8.94 $ 9.02 $ 9.44 $ 9.22 $ 8.67
-------- -------- --------- -------- --------
Income from investment operations --
Net investment income ........................ $ 0.73 $ 0.70 $ 0.75 $ 0.76 $ 0.75
Net realized and unrealized gain (loss)
on investments .............................. ( 0.17) ( 0.05) ( 0.41) 0.22 0.54
-------- -------- --------- -------- --------
Total from investment operations ............ $ 0.56 $ 0.65 $ 0.34 $ 0.98 $ 1.29
-------- -------- --------- -------- --------
Less distributions declared to shareholders from
net investment income ........................ $ (0.72) $ (0.73) $ (0.76) $ (0.76) $ (0.74)
-------- -------- --------- -------- --------
Net asset value -- end of period ............... $ 8.78 $ 8.94 $ 9.02 $ 9.44 $ 9.22
======== ======== ========= ======== ========
Per share market value -- end of period ......... $ 9.00 $ 9.25 $ 8.38 $ 9.88 $ 9.88
======== ======== ========= ======== ========
Total return .................................... 5.34% 19.88% (7.87)% 8.32% 26.11%
Ratios (to average net assets)/Supplemental data:
Expenses ....................................... 1.34% 1.27% 1.21% 1.28% 1.25%
Net investment income ........................ 8.17% 7.79% 8.07% 8.15% 8.35%
Portfolio turnover .............................. 17% 21% 19% 16% 37%
Net assets at end of period (000 omitted) ...... $323,060 $325,077 $ 325,767 $338,461 $327,193
</TABLE>
# Per share data for the periods subsequent to October 31, 1992, are 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.
See notes to financial statements
13
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Municipal Income Trust (the 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.
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.
Indexed Securities -- The Trust may invest 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.
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 is amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Interest payments received in additional securities are recorded on the
ex-interest date in an amount equal to the value of the security on such date.
The Trust can invest at least 65% 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. 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 additions to the cost basis of the security. Costs
that are incurred to negotiate the terms or conditions of capital infusions or
that are expected to result in a plan of reorganization are reported as
realized losses. Ongoing costs incurred to protect or enhance an investment, or
costs incurred to pursue other claims or legal actions, are expensed.
Fees Paid Indirectly -- The Trust's custody fee is calculated as a percentage
of the Trust's average daily net assets. The fee is reduced according to an
arrangement which measures 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.
14
<PAGE>
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 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, 1997, $703,029 and $28,721 were
reclassified to accumulated undistributed net investment income and paid-in
capital, respectively, from accumulated net realized loss on investments. This
change had no effect on the net assets or net asset value per share.
At October 31, 1997, the Trust, for federal tax purposes, had a capital loss
carryforward of $48,084,642, 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), October 31, 2004, ($8,774,606), and October 31, 2005,
($16,518,819).
(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.
Administrator -- Effective March 1, 1997, the Trust has an administrative
services agreement with MFS to provide the Trust with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Trust pays
MFS an administrative fee at the following annual percentages of the Trust's
average daily net assets, provided that the administrative fee is not assessed
on Trust assets that exceed $3 billion:
First $1 billion ............ 0.0150%
Next $1 billion ............... 0.0125%
Next $1 billion ............... 0.0100%
In excess of $3 billion ...... 0.0000%
15
<PAGE>
Notes to Financial Statements -- continued
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 and MFS Service Center,
Inc. (MFSC). 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 $37,140 for the year ended October 31, 1997.
Transfer Agent -- MFSC acts as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee of no more than $9.00 and a dividend service fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$70,698,631 and $64,873,281, 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 ..................... $299,407,298
============
Gross unrealized appreciation ...... $ 28,430,537
Gross unrealized depreciation ...... (4,513,692)
------------
Net unrealized appreciation ...... $ 23,916,845
============
(5) Shares of Beneficial Interest
The 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,
-------------------
<S> <C> <C>
1997 1996
------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of distributions ... 390,535 397,857
======= =======
</TABLE>
(6) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase in Net
Unrealized Gain (Loss) Assets Resulting
Investment Income Net Investment Income on Investments from Operations
---------------------- ---------------------- ---------------------------- ---------------------
Per Per Per Per
Fiscal 1997 Amount Share Amount Share Amount Share Amount Share
- ------------------ ------------- -------- ------------- -------- ---------------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31 ...... $ 7,040,572 $ 0.18 $ 5,971,154 $ 0.16 $ (4,767,479) $ (0.13) $ 1,203,675 $ 0.03
April 30 ......... 6,702,080 0.18 5,740,068 0.15 (4,657,332) (0.12) 1,082,736 0.03
July 31 ......... 6,951,448 0.18 5,917,601 0.15 5,581,480 0.14 11,499,081 0.29
October 31 ...... 6,709,728 0.17 5,965,023 0.15 2,239,858 0.08 8,204,881 0.23
--------- ----- --------- ----- ---------- ------ ---------- -----
$27,403,828 $ 0.71 $23,593,846 $ 0.61 $ (1,603,473) $ (0.03) $21,990,373 $ 0.58
=========== ====== =========== ====== ============ ======== =========== ======
Fiscal 1996
- -------------------
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
=========== ====== =========== ====== ============ ======== =========== ======
</TABLE>
16
<PAGE>
(7) Line of Credit
The Trust and other affiliated funds participate in a $400 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. 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 year ended October 31, 1997, was $ 2,720.
(8) Restricted Securities
The Trust may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At October 31,
1997, the Trust owned the following restricted securities (constituting 5.75%
of total 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
Description Acquisition
- --------------------------------------------------------------------------------------------
<S> <C>
Dade County FL, Housing Finance Agency, Multi-Family Housing Rev.
(Blackstone), 8.375s, 2002 4/22/94
Dade County FL, Housing Finance Agency, Multi-Family Housing Rev.
(Silverblue), 8.375s, 2002 4/22/94
Daphne, AL, Special Care Facilities
Financing Authority (Westminster Village), 8.25s, 2026 10/28/88
Eastern Band of Cherokee Indian Community, NC (Carolina Mirror Co.),
10.25s, 2009 12/10/86
Eastern Band of Cherokee Indian Community, NC (Carolina Mirror Co.), 11s, 2012 2/05/88
Hannibal, MO, Industrial Development Authority (Hannibal Regional Healthcare),
9.5s, 2022 8/28/92
<CAPTION>
Principal
Description Amount Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dade County FL, Housing Finance Agency, Multi-Family Housing Rev.
(Blackstone), 8.375s, 2002 $5,466,500 $5,466,500 $ 5,636,235
Dade County FL, Housing Finance Agency, Multi-Family Housing Rev.
(Silverblue), 8.375s, 2002 3,887,500 3,887,500 4,008,207
Daphne, AL, Special Care Facilities
Financing Authority (Westminster Village), 8.25s, 2026 500,000 500,186 455,585
Eastern Band of Cherokee Indian Community, NC (Carolina Mirror Co.),
10.25s, 2009 6,410,000 6,281,798 6,439,165
Eastern Band of Cherokee Indian Community, NC (Carolina Mirror Co.), 11s, 2012 650,000 601,250 652,919
Hannibal, MO, Industrial Development Authority (Hannibal Regional Healthcare),
9.5s, 2022 1,500,000 1,485,667 1,844,895
-----------
$19,037,006
===========
</TABLE>
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 October 31,
1997, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended October 31, 1997 and
1996, and the financial highlights for each of the years in the ten-year period
ended October 31, 1997. 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, 1997 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, 1997, 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
December 5, 1997
18
<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(2)
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 Treasurers
Mark E. Bradley*
Ellen Moynihan*
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 12/97 34M
