[front cover]
[MFS 75 Years logo]
MFS[RegTM] Municipal
Income Trust
Semiannual Report o April 30, 1999
<PAGE>
Dear Shareholders,
It has been almost two years since financial turmoil began to rock Asian and
other financial markets, including markets in Russia and Latin America. Even
developed markets such as Europe and the United States were not immune.
Investors in U.S. bond markets, for example, became increasingly risk
conscious, shifting money into U.S. Treasury securities and away from corporate
and municipal bonds and mortgage-backed securities.
Today, the bond market environment in the United States has become much more
favorable. In fact, we think it is approaching the level of relative stability
it enjoyed before the Asian turmoil began.
This May, the Federal Reserve Board (the Fed) indicated a bias toward raising
short-term interest rates. Despite six months of strong economic growth and a
surprisingly high 0.7% increase in the Consumer Price Index in April, the Fed
did not actually raise rates. This is not the first time the Fed has used such
a strategy. Since 1995, the Fed has indicated a bias toward higher interest
rates more than 15 times but has raised rates only twice.
We believe the Fed's bias statement will be good for the bond markets for two
reasons. First, it reassures investors that the Fed will act if economic growth
results in higher inflation and reduced purchasing power. Second, the Fed's
signal, combined with several months of strong growth, has already resulted in
higher interest rates, which could slow the economy enough to dampen inflation
without a need for further Fed action. Although the Fed has not changed
short-term interest rates since October 1998, bond market investors have pushed
up the rate on the 30-year Treasury bond close to 6%, almost a full percentage
point higher than it was a year ago. The effect of this increase can be seen in
the mortgage market, in which interest rates have risen slightly since the
summer of 1998.
April's increase in the Consumer Price Index was higher than analysts had
forecast, but we do not believe it is cause for concern. Most of April's
increase seems to have resulted from a decision by oil-exporting countries to
limit production following more than a year of declining oil prices. If the
increase in oil prices is nothing more than a small reversal of the earlier
decline, April's inflation report may be an aberration rather than the
beginning of a trend toward higher prices. Also, thanks in part to global
competition and the growing use of technology to increase global production,
companies followed by our portfolio managers and analysts report very little
margin to raise prices. As a result, we expect 1999's inflation rate to be
around 2%, which is slightly higher than 1998's but still moderate.
One of the most positive results of the moderate growth and inflation
environment has been a rebound in the major non-Treasury bond markets:
corporate, municipal, and mortgage. Once people saw that the overseas turmoil
had little, if any, effect on the financial strength of most domestic bond
issuers, these markets began to rebound and to present our portfolio managers
with opportunities to find attractive yields.
We will, of course, closely follow domestic and overseas economic growth,
inflation, Fed policy, and government spending in an effort to monitor their
impact on the bond markets. On a more fundamental level, we will continue to
use extensive research and credit analysis to find attractive investment
opportunities. For example, we believe the strong U.S. economy and low
inflation have helped select corporate bond issuers maintain strong balance
sheets and meet their debt payments. And, despite their recent increases,
mortgage rates have not risen enough to slow the housing market significantly,
which has benefited issuers of mortgage-backed securities. We believe the
well-defined strategies and active portfolio management of our fixed-income
funds position them to benefit from opportunities in these and other bond
markets.
1
<PAGE>
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
[graphic of Jeffrey Shames signature]
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management[RegTM]
May 21, 1999
Management Review and Outlook
Dear Shareholders,
For the six months ended April 30, 1999, shares of the Trust provided a total
return of -5.22% based on its New York Stock Exchange price and assuming the
reinvestment of distributions paid during the period. The net asset value of
the Trust fell from $8.55 to $8.42 over the period, providing a total return of
1.64%. Over the same period, the Lehman Brothers Municipal Bond Index (the
Lehman Index), an unmanaged index of fixed-rate, below-investment- grade
municipal bonds, provided a total return of 1.75%.
The Trust primarily invests in lower-quality municipal issues rated "Baa" or
below or those that 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. (Investments in high-yield securities
involve greater degrees of credit and market risk than investments in
higher-rated securities and tend to be more sensitive to economic conditions.)
Municipal bonds continue to be attractive relative to U.S. Treasuries on a
historical basis. (Principal value and interest on Treasury securities are
guaranteed by the U.S. government if held to maturity.) As of April 30, 1999,
the average yield on 30-year, general obligation bonds rated "AAA" by Moody's
Investors Service, Inc., or Standard & Poor's Corporation was 90% that of
comparable-maturity Treasuries, well above the historical range of 83% to 84%.
However, the current municipal-to-Treasury yield ratio has improved
dramatically compared to six months ago, when it was 95%. This improvement is
due to a decline in the amount of bond issuance in the municipal market. At the
end of April, the supply of new issues was 25% lower than it was a year ago. We
believe this condition will persist for the rest of the year, creating an
attractive opportunity for municipals to trade closer to the 83%-to-85% norm.
The environment for high-yield municipal bonds has been relatively favorable
over the period. The U.S. economy has continued to grow and inflation has
remained modest. As a result, the portfolio's corporate-backed bonds and bonds
backed by new projects, such as multi-family housing, have performed well.
Late last year, we became cautious about states that trade with Asia and Latin
America, given the general economic and financial turmoil affecting those
regions. However, now that some of these overseas economies are showing signs
of recovery, we are cautiously re-entering some of those markets. For example,
we are now less concerned about Florida, which exports a variety of products to
Brazil.
The prices of health care bonds have fallen recently because of reductions in
Medicare payments. Therefore, we have reduced the Trust's holdings in this
sector.
Because the Trust invests in high-yield bonds, which carry more risk than
investment-grade or U.S. government bonds, MFS[RegTM] Original ResearchSM has
been a key contributor to its performance. We make extensive use of our
fixed-income and equity research capabilities to select issues that we believe
can help the Trust meet its investment objective of high current income without
undue credit risk.
Looking ahead, we believe the U.S. economy should continue to grow at a solid
pace, although we expect a slowdown in the second half of 1999.
2
<PAGE>
We also expect inflation to remain somewhat subdued and interest rates to
remain fairly steady. We see this as a good environment for the companies and
municipalities in the Trust's portfolio.
Respectfully,
[graphic of Michael Roberge signature]
Michael W. Roberge
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
- --------------------------------------------------------------------------------
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 six months ended April 30, 1999)
<TABLE>
<S> <C>
Net Asset Value Per Share
October 31, 1998 $ 8.55
April 30, 1999 $ 8.42
New York Stock Exchange Price
October 31, 1998 $ 9.188
November 17, 1998 (high)* $ 9.375
April 29, 1999 (low)* $ 8.375
April 30, 1999 $ 8.438
</TABLE>
*For the period November 1, 1998, through April 30, 1999.
- --------------------------------------------------------------------------------
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.
Number of Shareholders
As of April 30, 1999, our records indicate that there are 5,762 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.
Investment Objective and Policies
The investment objective of MFS[RegTM] Municipal Income Trust is to provide a
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
MFS offers a Dividend Reinvestment and Cash Purchase Plan which allows you to
reinvest either all of the distributions paid by the Trust or only the
long-term capital gains. Purchases are made at the market price unless that
price exceeds the net asset value (the shares are trading at a premium). If the
shares are trading at a premium, purchases will be made at a discounted price
of either the net asset value or 95% of the market price, whichever is greater.
Twice each year you can also buy shares. Investments from $100 to $500 can be
made in January and July on the 15th of the month or shortly thereafter.
3
<PAGE>
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. 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, call 1-800-637-2304 any business day
from 8 a.m. to 8 p.m. Eastern time. Please have available the name of the Trust
and your account and Social Security numbers. For certain types of
registrations, such as corporate accounts, instructions must be submitted in
writing. Please call for additional details. When you withdraw, 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.
If you have any questions or would like a brochure providing a complete
description of the plan, please call 1-800-637-2304 any business day from 8
a.m. to 8 p.m. Eastern time.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
4
<PAGE>
Portfolio of Investments (Unaudited) -- April 30, 1999
Municipal Bonds -- 97.9%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
General Obligation -- 1.5%
Chicago, IL, FGIC, 5.125s,
2025 ............................... $ 2,000 $1,970,660
Markham, IL, 9s, 2012 ................ 1,265 1,283,975
New York City, NY, 6.125s,
2025 ............................... 1,470 1,591,525
----------
$4,846,160
----------
State and Local
Appropriation -- 1.4%
Chicago, IL, Public Building
Commission, Building Rev.,
6.721s, 2016++++ ................... $ 1,300 $1,413,581
Chicago, IL, Public Building
Commission, Building Rev.,
6.721s, 2017++++ ................... 1,050 1,136,478
Riverside County, CA, Asset
Leasing Corp., Leashold
Rev. (Riverside County
Hospital), MBIA, 0s, 2026 .......... 8,595 2,063,831
----------
$4,613,890
----------
Refunded and Special
Obligations -- 21.5%
Arapahoe County, CO, Capital
Improvement, Highway Rev.,
0s, 2005 ........................... $ 1,000 $ 374,290
Clermont County, OH, Hospital
Facilities Rev. (Mercy Health
Systems), AMBAC, 9.941s,
2001++++ ........................... 500 588,150
Colorado Health Facilities
Authority, Retirement
Facilities Rev. (Liberty
Heights), 0s, 2024 ................. 10,000 2,574,000
Dade County, FL, AMBAC, 0s,
2008 ............................... 15,080 2,237,269
Denver, CO, City & County
Airport Rev., 8.75s, 2001 .......... 400 455,292
Desert Hospital District, CA,
Hospital Rev. (Desert
Hospital Corp.), 9.254s,
2002++++ ........................... 1,500 1,803,345
Fairfax, Fauquier & Loudoun
Counties, VA, Health Center
Commission, Nursing Home
Rev., 9s, 2000 ..................... 1,840 2,000,963
Hannibal, MO, Industrial
Development Authority
(Hannibal Regional
Healthcare), 9.5s, 2001+ ........... 1,500 1,735,110
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Refunded and Special
Obligations -- continued
Illinois Development Finance
Authority, Retirement
Housing Rev. (Regency
Park), 0s, 2025 .................... $26,000 $5,827,120
Jefferson County, OH, Asset
Guaranty, 7.125s, 2005 ............. 1,000 1,189,290
Maine Health & Higher
Education Facilities Authority
(St. Mary's General
Hospital), 8.625s, 1999 ............ 1,000 1,028,070
Massachusetts Health &
Education Facilities Authority
(Fairview Extended Care
Facility), 10.25s, 2001 ............ 1,500 1,701,210
Massachusetts Industrial
Finance Agency (Emerson
College), 8.9s, 2001 ............... 2,000 2,206,420
Massachusetts Industrial
Finance Agency, Tunnel Rev.
(Mass. Turnpike), 9s, 2000 ......... 3,710 4,053,101
Mississippi Hospital Equipment
& Facilities Authority Rev.
(Rush Medical Foundation),
8.75s, 2001 ........................ 1,000 1,099,970
New Jersey Economic
Development Authority
(Geriatric & Medical
Services), 9.625s, 2004 ............ 135 145,927
New Lenox, IL, Community
Park Development Authority,
8.25s, 2004 ........................ 2,000 2,427,300
New York City, NY, 6.125s,
2006 ............................... 530 596,642
North Carolina Medical Care
Commission, Hospital Rev.
(Valdese General), 8.75s,
2001 ............................... 1,370 1,553,525
Prince William County, VA,
Industrial Development
Authority, Residential Care
Facility (Westminster at Lake
Ridge), 10s, 2002 .................. 1,500 1,759,395
Russellville, AR, Industrial
Development Rev. (Charles
Meyers), 10s, 1999 ................. 4,750 4,924,563
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev., 0s,
2006 ............................... 2,300 1,752,140
</TABLE>
5
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Refunded and Special
Obligations -- continued
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev., 0s,
2011 ................................. $6,600 $ 3,854,136
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev., 0s,
2019 ................................. 10,000 3,703,800
Telluride, CO, Gondola Transit
Co., Real Estate Transfer
Assessment Rev., 11.5s,
2012 ................................. 2,475 3,944,754
Telluride, CO, Gondola Transit
Co., Real Estate Transfer
Assessment Rev., 11.5s,
2012 ................................. 425 669,354
Texas Turnpike Authority
(Houston Ship Channel
Bridge), 12.625s, 2002 ............... 10,565 13,514,008
Walton, GA, Industrial
Development Rev. (Ultima
Rubber Products), 10s,
2000 ................................. 1,630 1,771,875
Washington Public Power
Supply System Rev.
(Nuclear Project #1),
14.375s, 2001 ........................ 1,090 1,225,705
-----------
$70,716,724
-----------
Airport and Port
Revenue -- 5.5%
Atlanta, GA, Special Purpose
Facilities Rev. (Delta Airlines),
7.9s, 2018 ........................... $2,100 $ 2,179,254
Cleveland, OH, Airport Special
Facilities Rev. (Continental
Airlines), 9s, 2019 .................. 3,150 3,308,917
Denver, CO, City & County
Airport Rev., 8.75s, 2023 ............ 1,100 1,223,717
Hillsborough County, FL,
Aviation Authority Rev.
(US Air), 8.6s, 2022 ................. 650 720,129
Kenton County, KY, Airport
Board Special Facilities
(Delta Airlines), 7.5s, 2020 ......... 1,000 1,084,900
Tulsa, OK, Municipal Airport
Trust Rev. (American
Airlines), 7.375s, 2020 .............. 3,400 3,608,964
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Airport and Port
Revenue -- continued
Tulsa, OK, Municipal Airport
Trust Rev. (American
Airlines), 7.6s, 2030 ................ $3,000 $ 3,226,680
Wayne County, MI, Charter
Airport Rev. (Detroit
Metropolitan Wayne
County), MBIA, 5s, 2022 .............. 3,000 2,891,460
-----------
$18,244,021
-----------
Electric and Gas Utility
Revenue -- 8.2%
Alaska Industrial Development
& Export Authority, Power
Rev. (Upper Lynn Canal
Regulatory Power), 5.8s,
2018 ................................. $ 830 $ 828,888
Calcasieu Parish, LA, Industrial
Development Board,
Pollution Control Rev.
(Energy Gulf States, Inc.),
5.45s, 2010 .......................... 1,000 994,540
Clark County, NV, Industrial
Development Rev. (Nevada
Power Co.), 5.6s, 2030 ............... 3,000 2,974,140
Clark County, NV, Industrial
Development Rev. (Nevada
Power Co.), 5.9s, 2032 ............... 1,000 1,017,470
Connecticut Development
Authority, Pollution Control
Rev. (Connecticut Light &
Power), 5.85s, 2028 .................. 825 832,829
Klamath Falls, OR, Electric
Rev. (Klamath
Cogeneration), 6s, 2025 .............. 2,500 2,512,275
Midland, MI, Environmental
Development Authority,
Pollution Control Rev.
(Midland Cogeneration),
9.5s, 2009 ........................... 1,500 1,600,470
New York City, NY, Industrial
Development Rev. (Brooklyn
Navy Yard Cogeneration
Partners), 5.75s, 2036 ............... 2,500 2,564,100
Ohio Water Development,
Pollution Control Rev.
(Cleveland Electric), 8s,
2023 ................................. 2,500 2,848,725
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Electric and Gas Utility
Revenue -- continued
Pima County, AZ, Industrial
Development Authority
(Tucson Electric Power Co.),
6s, 2029 ........................... $3,000 $ 2,994,900
Pittsylvania County, VA,
Industrial Development
Authority Rev., 7.5s, 2014 ......... 2,000 2,186,700
Southern California Public
Power Authority,
Transmission Project Rev.,
7.964s, 2012++++ ................... 3,650 4,188,521
West Feliciana Parish, LA,
Pollution Control Rev. (Gulf
States Utilities Co.), 5.8s,
2015 ............................... 1,500 1,517,160
-----------
$27,060,718
-----------
Health Care Revenue -- 22.0%
Baltimore County, MD, Nursing
Facility Mortgage Rev.
(Eastpoint Rehabilitation &
Nursing Center), 6.75s,
2028 ............................... $ 500 $ 491,210
Bell County, TX, Health
Facilities Development Corp.
(Advanced Living
Technology), 7.25s, 2001 ........... 125 123,620
Bell County, TX, Health
Facilities Development Corp.
(Advanced Living
Technology), 7.75s, 2006 ........... 300 291,348
Bell County, TX, Health
Facilities Development Corp.
(Advanced Living
Technology), 8.125s, 2016 .......... 1,085 1,032,974
Bell County, TX, Health
Facilities Development Corp.
(Advanced Living
Technology), 8.5s, 2026 ............ 2,405 2,281,407
Bell County, TX, Health
Facilities Development Corp.
(Kings Daughters Hospital),
9.25s, 2008 ........................ 695 720,180
Booneville, MO, Health
Facilities Rev. (Gericare,
Inc.), 11s, 2017 ................... 1,900 1,946,018
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Health Care Revenue -- continued
Boston, MA, Industrial
Development Finance
Authority Rev. (Stonehedge
Convalescent Center),
10.75s, 2011 ....................... $ 680 $ 702,746
Brevard County, FL, Health
Facilities Authority Rev.
(Friendly Village), 9.25s,
2012 ............................... 2,165 2,207,239
Broward County, FL, Industrial
Development Authority
(Beverly Enterprises, Inc.),
9.8s, 2010 ......................... 2,200 2,381,434
Cambria County, PA, Industrial
Development Authority
(Beverly Enterprises), 10s,
2012 ............................... 680 885,442
Chautauqua County, NY,
Industrial Development
Agency, Civic Facility Rev.
(Womans Christian Assn.),
6.35s, 2017 ........................ 300 300,012
Chautauqua County, NY,
Industrial Development
Agency, Civic Facility Rev.
(Womans Christian Assn.),
6.4s, 2029 ......................... 1,000 1,000,040
Cheneyville, LA, Westside
Habilitation Center, 8.375s,
2013 ............................... 2,500 2,723,925
Chester County, PA, Industrial
Development Authority
(RHA/PA Nursing Home),
10.125s, 2019* ..................... 952 818,720
Connecticut Health &
Educational Facilities
(Johnson Evergreen), 8.5s,
2014 ............................... 650 701,961
Contra Costa County, CA,
Residential Rental Facilities
Rev. (Cypress Meadows),
7s, 2028 ........................... 1,840 1,823,808
Denver, CO, Health & Hospital
Rev., 5.25s, 2013 .................. 635 630,345
Denver, CO, Health & Hospital
Rev., 5.375s, 2018 ................. 1,500 1,473,990
</TABLE>
7
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Health Care Revenue -- continued
District of Columbia, Hospital
Rev. (Hospital for Sick
Children), 8.875s, 2021 ....... $470 $ 502,148
Gadsden County, FL, Industrial
Development Authority
(RHA/FL Properties), 10.45s,
2018 .......................... 2,485 2,509,626
Greenville County, SC,
Hospital Facility Rev.
(Chestnut Hill), 10.375s,
2016* ......................... 2,740 1,370,000
Illinois Health Facilities
Authority Rev. (Centegra
Health Systems), 5.25s,
2018 .......................... 1,000 964,530
Indiana Health Facilities
Financing Authority Rev.
(Metro Health/Indiana, Inc.),
6.3s, 2023 .................... 1,250 1,249,850
Iowa Finance Authority, Health
Care Facilities Rev. (Care
Initiatives), 5.75s, 2018 ..... 500 498,130
Lee County, FL, Industrial
Development Authority
(Beverly Enterprises), 10s,
2010 .......................... 1,855 2,018,537
Louisiana Public Facilities
Authority (Chateau Riviere
Home for the Aged), 10.25s,
2016 .......................... 3,180 3,249,896
Louisiana Public Facilities
Authority (Southwest
Medical Center), 11s, 2006..... 3,507 596,201
Lufkin, TX, Health Facilities
Development Corp.
(Memorial Health System of
East Texas), 5.7s, 2028 ....... 500 498,625
Massachusetts Health &
Education Facilities Authority
(St. Memorial Medical
Center), 6s, 2023 ............. 465 465,274
Massachusetts Industrial
Finance Agency (Metropolitan
Health Foundation, Inc.),
6.75s, 2027 ................... 1,500 1,554,780
Massachusetts Industrial
Finance Agency (Needham/
Hamilton House), 11s, 2010..... 800 829,672
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Health Care Revenue -- continued
Massachusetts Industrial
Finance Agency (WNR, Inc.),
9s, 2023++ .................... $ 525 $ 449,610
Michigan Hospital Finance
Authority Rev. (Genesys
Regional Medical), 5.5s,
2018 .......................... 2,000 1,928,040
Michigan Hospital Finance
Authority Rev. (Genesys
Regional Medical), 5.5s,
2027 .......................... 1,000 950,490
Millbrae, CA, Residential
Facility (Magnolia Of
Millbrae), 7.375s, 2027 ....... 1,000 1,073,390
Mississippi Business Finance
Corp., Health Facilities Rev.
(Medical Foundation, Inc.),
5.625s, 2023 .................. 1,445 1,421,548
Monongalia County, WV,
Health Facilities Rev.
(Beverly Enterprises, Inc.),
10s, 2007 ..................... 925 961,241
Montgomery County, PA,
Higher Education & Health
Authority Rev. (AHF/
Montgomery), 10.5s, 2020 ...... 2,440 2,562,293
New Hampshire Business
Finance Authority, Health
Care Facilities Rev.
(Metropolitian Health
Foundation, Inc.), 6.55s,
2028 .......................... 800 800,552
New Hampshire Higher
Educational & Health
Facilities Authority Rev.,
5.8s, 2018 .................... 1,000 994,070
New Jersey Economic
Development Authority
(Courthouse Convalescent
Center), 8.7s, 2014 ........... 650 686,992
New Jersey Economic
Development Authority
(Geriatric & Medical
Services), 9.625s, 2022 ....... 675 727,859
New Jersey Economic
Development Authority
(Greenwood Health Care),
9.75s, 2011 ................... 1,345 1,427,126
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Health Care Revenue -- continued
New Jersey Economic
Development Authority
(Wanaque Convalescent
Center), 8.6s, 2011 .............. $1,000 $ 1,097,730
New Jersey Health Care
Facilities Financing Authority
(Cherry Hill), 8s, 2027 .......... 1,000 1,089,720
Ohio County, WV, County
Commission Health System
(Ohio Valley Medical Center),
5.75s, 2013 ...................... 850 845,419
Orange County, FL, Industrial
Development Rev. (Friendly
Village), 9.25s, 2012 ............ 1,805 1,829,115
Osceola County, FL, Industrial
Development Rev.
(Community Provider Pooled
Loan), 7.75s, 2017 ............... 1,300 1,389,596
Reedley, CA, Certificates of
Participation (Mennonite
Home), 7.5s, 2026 ................ 3,000 3,142,830
Rochester, MN, Health Care
Facilities Rev. (Mayo Medical
Foundation), 8.068s,
2021[sec] ........................ 1,000 1,072,810
San Francisco, CA, City &
County (Coventry Park),
8.5s, 2026 ....................... 2,000 2,291,500
Santa Fe, NM, Industrial
Development Rev. (Casa
Real Nursing Home), 9.75s,
2013 ............................. 1,100 1,195,909
Seminole County, FL, Industrial
Development Authority
(Friendly Village), 10s, 2011..... 1,630 1,645,192
Suffolk County, NY, Industrial
Development Agency
(APPLE), 9.75s, 2015* ............ 1,350 675,000
Washington County, FL,
Industrial Development
Authority (Washington
County), 10s, 2016 ............... 1,065 1,067,865
Waterford Township, MI,
Economic Development
Corp. Rev. (Canterbury
Health), 6s, 2039 ................ 1,570 1,460,100
Wilkinsburg, PA, Municipal
Authority Health (Monroeville
Christian), 8.25s, 2027 .......... 1,000 1,018,090
-----------
$72,647,775
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Industrial Revenue
(Corporate Guarantee) -- 13.9%
Brazos River Authority, TX
(Reliant Energy Inc.), 5.375s,
2019 ............................. $1,000 $ 993,290
Courtland, AL, Industrial
Development Board, Solid
Waste Disposal Rev.
(Champion International
Corp.), 6.375s, 2029 ............. 2,000 2,100,760
Eastern Band of Cherokee
Indian Community, NC
(Carolina Mirror Co.),
10.25s, 2009+ .................... 6,125 6,151,337
Eastern Band of Cherokee
Indian Community, NC
(Carolina Mirror Co.), 11s,
2012+ ............................ 650 652,756
Hardeman County, TN
(Correctional Facilities
Corp.), 7.75s, 2017 .............. 2,220 2,461,891
Hernando County, FL, Water &
Sewer Rev. (Florida Crushed
Stone), 8.5s, 2014 ............... 3,600 4,133,592
Hodge Village, LA, Utilities
Rev. (Stone Container), 9s,
2010 ............................. 7,585 7,945,287
Indiana Development Finance
Authority Rev. (Inland Steel),
5.75s, 2011 ...................... 1,000 946,450
Lawrenceburg, TN, Industrial
Development Board (Tridon,
Inc.), 9.875s, 2006 .............. 1,300 1,342,276
Mesa County, CO (Joy
Technologies), 8.5s, 2006 ........ 650 705,185
Navajo County, AZ, Industrial
Development Authority
(Stone Container Corp.),
7.2s, 2027 ....................... 880 969,162
New Jersey Economic
Development Authority (Holt
Hauling & Warehousing),
8.4s, 2015 ....................... 1,000 1,071,110
New Jersey Economic
Development Authority (Holt
Hauling & Warehousing),
8.6s, 2017 ....................... 1,000 1,075,980
Ohio Solid Waste Rev.
(Republic Engineered
Steels), 8.25s, 2014 ............. 3,000 3,202,710
</TABLE>
9
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Industrial Revenue
(Corporate Guarantee) -- continued
Ohio Solid Waste Rev.
(Republic Engineered
Steels), 9s, 2021 .................. $3,000 $ 3,318,510
Onondaga County, NY,
Industrial Development
Agency, Solid Waste
Disposal Facility Rev. (Solvay
Paperboard LLC), 6.8s,
2014 ............................... 1,000 1,039,600
Philadelphia, PA, Industrial
Development Authority Rev.
(Host Marriott LP), 7.75s,
2017 ............................... 3,255 3,597,459
Port of New Orleans, LA
(Avondale Industries), 8.25s,
2004 ............................... 700 773,927
Port of New Orleans, LA
(Avondale Industries), 8.5s,
2014 ............................... 1,625 1,830,823
St. Charles Parish, LA,
Pollution Control Rev. (Union
Carbide Corp.), 5.1s, 2012 ......... 300 296,301
Virginia Peninsula Ports
Authority Rev. (Zeigler Coal),
6.9s, 2022 ......................... 1,250 1,253,425
-----------
$45,861,831
-----------
Insured Health Care
Revenue -- 1.0%
Bexar County, TX, Health
Facilities Development
(Baptist Health Systems),
MBIA, 5.25s, 2027 .................. $1,000 $ 1,000,340
North Central, TX, Health
Facilities Development Corp.
(Presbyterian Hospital),
MBIA, 9.695s, 2021++++ ............. 1,500 1,735,455
Salt Lake City, UT, Hospital
Rev. (Intermountain Health
Care), AMBAC, 9.971s,
2020++++ ........................... 600 690,276
-----------
$ 3,426,071
-----------
Multi-Family Housing
Revenue -- 4.7%
Austin, TX, Housing Finance
Corp. (Woodland Heights
Apartments), 10s, 2027 ............. $ 990 $ 1,019,729
Colorado Housing Finance
Authority, FHA, 9s, 2025 ........... 740 741,088
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Multi-Family Housing
Revenue -- continued
Dade County, FL, Housing
Finance Agency
(Blackstone), 8.375s,
2002+ .............................. $5,467 $ 5,615,462
Dade County, FL, Housing
Finance Agency (Silverblue),
8.375s, 2002+ ...................... 3,573 3,669,851
Dallas, TX, Housing Finance
Corp., 8.5s, 2011 .................. 1,220 1,275,437
Eaglebend, CO, Affordable
Housing Corp., 6.4s, 2017 .......... 1,000 1,057,140
Florida Multi-Family Housing
Finance Agency Rev.
(Center Court Apartments),
8.5s, 2018 ......................... 1,025 1,067,230
Memphis, TN, Health,
Educational & Housing
Facilities Board (Wesley
Highland Terrace), 8.5s,
2024 ............................... 115 117,300
Ridgeland, MS, Urban
Renewal, Multifamily
Housing Rev. (Northbrook I
& III Apartments), 6.15s,
2019 ............................... 280 278,323
Ridgeland, MS, Urban
Renewal, Multifamily
Housing Rev. (Northbrook I
& III Apartments), 6.25s,
2029 ............................... 475 471,855
-----------
$15,313,415
-----------
Sales and Excise Tax
Revenue -- 0.9%
Black Hawk, CO, Device Tax
Rev., 5.625s, 2021 ................. $ 250 $ 246,062
Chicago, IL, Tax Increment
Rev. (Ryan Garfield),
10.125s, 2007 ...................... 1,400 1,436,050
Denver, CO, Urban Renewal
Tax (Downtown Denver),
8.5s, 2013 ......................... 450 466,452
Virgin Islands Public Finance
Authority, 6s, 2006 ................ 250 263,250
Virgin Islands Public Finance
Authority, 5.875s, 2018 ............ 500 518,080
-----------
$ 2,929,894
-----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Single Family Housing
Revenue -- 6.1%
Bexar County, TX, Housing
Finance Corp., 0s, 2015 ........ $ 8,225 $ 1,442,583
Cook County, IL, Single Family
Mortgage Rev., 0s, 2015 ........ 600 103,482
Corpus Christi, TX, Housing
Finance Corp., MBIA, 0s,
2011 ........................... 3,000 914,070
Dallas, TX, Housing Finance
Corp., Single Family
Mortgage Rev., MBIA, 0s,
2016 ........................... 13,890 2,286,016
Duval County, FL, Housing
Finance Authority, 0s, 2015..... 15,800 2,543,168
Georgia Housing & Finance
Authority Rev., FHA, 0s,
2031 ........................... 14,120 1,315,843
Jackson County, MO, 0s,
2016 ........................... 1,230 179,051
Nebraska Investment Finance
Authority, 0s, 2015 ............ 26,075 5,604,300
Nebraska Investment Finance
Authority, 6.25s, 2021 ......... 1,990 2,089,161
Nevada Housing Division,
Single Family Mortgage
Rev., 0s, 2015 ................. 104 20,725
Ohio Housing Finance Agency,
Single Family Mortgage
Rev., GNMA, 10.176s,
2031++++ ....................... 750 832,575
Reno County, KS, Single
Family Mortgage Rev.,
AMBAC, 0s, 2014 ................ 1,225 215,380
Saline County, KS, 0s, 2014 ...... 300 54,903
South Dakota Housing
Development Authority,
Homeownership Mortgage,
FHLMC, 5.8s, 2028 .............. 1,830 1,888,505
Wisconsin Housing &
Economic Development
Authority, Homeownership
Rev., RIBS, 10.371s,
2022++++ ....................... 455 503,348
-----------
$19,993,110
-----------
Solid Waste Revenue -- 0.1%
Southwestern Illinois
Development Authority, Solid
Waste Disposal Rev., 5.9s,
2014 ........................... $ 395 $ 395,857
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Special Assesment District -- 0.2%
Heritage Isles, FL, Community
Development District, 5.75s,
2005 ........................... $ 650 $ 652,620
-----------
Student Loan Revenue -- 0.7%
Arizona Student Loan
Acquisition Authority, "C",
7.625s, 2010 ................... $ 750 $ 828,525
Pennsylvania Higher Education
Assistance Agency, AMBAC,
8.797s, 2022++++ ............... 1,300 1,538,485
-----------
$ 2,367,010
-----------
Turnpike Revenue -- 4.0%
Foothill/Eastern Transportation
Corridor Agency, CA, Toll
Road Rev., 0s, 2030 ............ $25,950 $ 5,004,198
Massachusetts Turnpike
Authority, Capital Appreciation,
"C", MBIA, 0s, 2022 ............ 10,000 3,078,600
Pocahontas Parkway Assn.,
VA, Toll Road Rev., 0s,
2011 ........................... 1,000 495,540
Pocahontas Parkway Assn.,
VA, Toll Road Rev., 0s,
2012 ........................... 1,000 465,000
Pocahontas Parkway Assn.,
VA, Toll Road Rev., 0s,
2015 ........................... 1,750 701,908
San Joaquin Hills, CA,
Transportation Corridor
Agency, Toll Road Rev.,
MBIA, 5.25s, 2030 .............. 1,500 1,516,200
Telluride, CO, Gondola Transit
Co., 9s, 2016 .................. 940 1,091,443
West Virginia Parkways,
Economic Development &
Tourism Authority, FGIC,
RIBS, 8.022s, 2019++++ ......... 600 674,700
-----------
$13,027,589
-----------
Universities -- 1.1%
Islip, NY, Community
Development Agency Rev.
(New York Institute of
Technology), 7.5s, 2026 ........ $ 2,500 $ 2,731,325
Nassau County, NY, Industrial
Development Agency, Civic
Facilities Rev. (New York
Institute of Technology),
6.15s, 2029 .................... 1,000 997,390
-----------
$ 3,728,715
-----------
</TABLE>
11
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Water and Sewer Utility
Revenue -- 1.9%
Detroit, MI, Sewer Disposal
Rev., FGIC, 7.922s, 2023++++...................................... $1,900 $ 2,243,786
Detroit, MI, Sewer Disposal
Rev., FGIC, 7.922s, 2023++++...................................... 600 659,436
Harrisburg, PA, Authority
Water Rev., FGIC, 8.22s,
2015++++ ......................................................... 2,000 2,297,960
New York City, NY, Municipal
Water Finance Authority,
FSA, 5.375s, 2026 ................................................ 1,100 1,117,721
------------
$ 6,318,903
------------
Other -- 3.2%
Danville, VA, Industrial
Development Rev.
(Piedmont Mall), 8s, 2017 ........................................ $5,795 $ 5,918,144
District of Columbia (National
Public Radio), 7.7s, 2023 ........................................ 2,500 2,709,375
Iowa Finance Authority
Community Provider Rev.
(Boys & Girls Home), 6.25s,
2028 ............................................................. 500 494,060
Mississippi Development Bank
(Diamond Lakes Utilities),
6.25s, 2017 ...................................................... 1,000 1,016,020
St. Louis County, MO,
Industrial Development
Authority (Kiel Center Arena),
7.875s, 2024 ..................................................... 300 326,421
------------
$ 10,464,020
------------
Total Municipal Bonds
(Identified Cost, $300,907,642)..................................................... $322,608,323
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Floating Rate Demand Notes -- 0.2%
Allegheny County, PA, Hospital
Development Rev. (Aces
Presbyterian University
Hospital), due 05/06/99 .......................................... $ 395 $ 395,000
New Castle, PA, Area Hospital
Authority (Jameson
Memorial Hospital), due
05/05/99 ......................................................... 400 400,000
------------
Total Floating Rate Demand Notes,
at Identified Cost ................................................................... $ 795,000
------------
Total Investments
(Identified Cost, $301,702,642)....................................................... $323,403,323
------------
Other Assets,
Less Liabilities -- 1.9% 6,317,808
------------
Net assets--100.0% ..................................................................... $329,721,131
------------
</TABLE>
* Non-income producing security -- in default.
+ Restricted security.
[sec] Indexed security.
++ Security valued by or at the direction of the Trustees.
++++ Inverse floating rate security.
See notes to financial statements
12
<PAGE>
Statement of Assets and Liabilities (Unaudited) -- April 30, 1999
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $301,702,642).................................... $ 323,403,323
Cash .................................................................................... 111,903
Receivable for investments sold ......................................................... 567,888
Interest receivable ..................................................................... 6,221,794
Other assets ............................................................................ 4,322
-------------
Total assets .......................................................................... $ 330,309,230
-------------
Liabilities:
Payable to dividend disbursing agent .................................................... $ 202,638
Payable to affiliates -
Management fee ......................................................................... 7,921
Transfer and dividend disbursing agent fee ............................................. 8,807
Administrative fee ..................................................................... 136
Accrued expenses and other liabilities .................................................. 368,597
-------------
Total liabilities ..................................................................... $ 588,099
-------------
Net assets ............................................................................... $ 329,721,131
=============
Net assets consist of:
Paid-in capital ......................................................................... $ 356,680,400
Unrealized appreciation on investments .................................................. 21,700,681
Accumulated net realized loss on investments ............................................ (49,464,170)
Accumulated undistributed net investment income ......................................... 804,220
-------------
Total ................................................................................. $ 329,721,131
=============
Shares of beneficial interest outstanding (39,225,253 shares authorized less 55,500
treasury shares) ....................................................................... 39,169,753
=============
Net asset value per share (net assets [divided by] shares of beneficial interest
outstanding) ........................................................................... $8.42
=====
</TABLE>
See notes to financial statements
13
<PAGE>
Statement of Operations (Unaudited) -- Six Months Ended April 30, 1999
<TABLE>
<S> <C>
Net investment income:
Interest income ......................................................... $ 12,327,758
------------
Expenses --
Management fee ......................................................... $ 1,433,293
Trustees' compensation ................................................. 94,034
Administrative fee ..................................................... 16,509
Transfer and dividend disbursing agent fee ............................. 52,365
Custodian fee .......................................................... 71,137
Printing ............................................................... 12,367
Postage ................................................................ 10,847
Auditing fees .......................................................... 20,164
Miscellaneous .......................................................... 42,031
------------
Total expenses ........................................................ $ 1,752,747
Fees paid indirectly ................................................... (31,238)
------------
Net expenses .......................................................... $ 1,721,509
------------
Net investment income ................................................ $ 10,606,249
------------
Realized and unrealized gain (loss) on investments:
Realized gain on investment transactions (identified cost basis) ....... $ 39,806
Change in unrealized depreciation on investments ....................... (5,281,218)
------------
Net realized and unrealized loss on investments ....................... $ (5,241,412)
------------
Increase in net assets from operations ............................... $ 5,364,837
============
</TABLE>
See notes to financial statements
14
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1999 Year Ended
(Unaudited) October 31, 1998
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations--
Net investment income ........................................................ $ 10,606,249 $ 21,995,528
Net realized gain (loss) on investments ...................................... 39,806 (1,258,751)
Net unrealized gain (loss) on investments .................................... (5,281,218) 3,065,054
------------- -------------
Increase in net assets from operations ...................................... $ 5,364,837 $ 23,801,831
------------- -------------
Distributions declared to shareholders
from net investment income ................................................... $ (10,481,897) $ (22,462,751)
------------- -------------
Net increase in net assets from Trust share transactions ...................... $ 1,294,194 $ 2,923,015
------------- -------------
Total increase (decrease) in net assets ..................................... $ (3,822,866) $ 4,262,095
Net assets:
At beginning of period ....................................................... 333,543,997 329,281,902
------------- -------------
At end of period (including accumulated undistributed net investment income of
$804,220 and $679,868 respectively).......................................... $ 329,721,131 $ 333,543,997
============= =============
</TABLE>
See notes to financial statements
15
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six Months
Ended
April 30,
1999
Per share data (for a share outstanding throughout (Unaudited)
each period): ----------------
<S> <C>
Net asset value--beginning of period .................... $ 8.55
---------
Income from investment operations#--
Net investment income .................................. $ 0.27
Net realized and unrealized gain (loss) on investments (0.13)
---------
Total from investment operations ..................... $ 0.14
---------
Less distributions declared to shareholders from net
investment income ...................................... $ (0.27)
---------
Net asset value--end of period .......................... $ 8.42
=========
Per share market value--end of period ................... $ 8.44
=========
Total return ............................................ (5.22)%++
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................ 1.07%+
Net investment income ................................. 6.46%+
Portfolio turnover ...................................... 8%
Net assets at end of period (000 omitted) ............... $ 329,721
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------
Per share data (for a share outstanding throughout 1998 1997 1996 1995 1994
each period): ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value--beginning of period .................... $ 8.51 $ 8.58 $ 8.84 $ 8.73 $ 9.04
------- ------- ------- ------- -------
Income from investment operations#--
Net investment income .................................. $ 0.57 $ 0.61 $ 0.66 $ 0.68 $ 0.68
Net realized and unrealized gain (loss) on investments 0.05 (0.03) (0.26) 0.13 (0.29)
------- -------- -------- ------- -------
Total from investment operations ..................... $ 0.62 $ 0.58 $ 0.40 $ 0.81 $ 0.39
------- -------- -------- ------- -------
Less distributions declared to shareholders from net
investment income ...................................... $ (0.58) $ (0.65) $ (0.66) $ (0.70) $ (0.70)
-------- -------- -------- -------- -------
Net asset value--end of period .......................... $ 8.55 $ 8.51 $ 8.58 $ 8.84 $ 8.73
======== ======== ======== ======== =======
Per share market value--end of period ................... $ 9.19 $ 9.06 $ 9.38 $ 9.50 $ 9.13
======== ======== ======== ======== =======
Total return ............................................ 8.37% 3.90% 4.50% 12.57% (1.47)%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................ 1.10% 1.19% 1.24% 1.33% 1.31%
Net investment income ................................. 6.62% 7.26% 7.47% 7.66% 7.58%
Portfolio turnover ...................................... 12% 21% 13% 14% 22%
Net assets at end of period (000 omitted) ............... $333,544 $329,282 $328,630 $334,985 $327,193
</TABLE>
+Annualized.
++Not annualized.
# Per share data are based on average shares outstanding.
## The Trust has an expense offset arrangement which reduces the Trust's
custodian fee based upon the amount of cash maintained by the Trust with its
custodian and dividend disbursing agent. For fiscal years ending after
September 1, 1995, the Trust's expenses are calculated without reduction for
this expense offset arrangement.
See notes to financial statements
16
<PAGE>
Notes to Financial Statements (Unaudited)
(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.
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.
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 ex-interest
date in an amount equal to the value of the security on such date. Some
securities may be purchased on a "when-issued" or "forward delivery" basis,
which means that the securities will be delivered to the Trust at a future
date, usually beyond customary settlement time.
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 month end net assets. The fee is reduced according to an
arrangement that 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.
17
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
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 distributions from paid-in
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 net realized gains.
At October 31, 1998, the Trust, for federal income tax purposes, had a capital
loss carryforward of $49,468,448, 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), October 31, 2005,
($16,518,819), and October 31, 2006, ($1,383,806).
(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
the Trust's 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 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 $25,329 for the six months ended April 30,
1999.
18
<PAGE>
Administrator -- 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:
<TABLE>
<S> <C>
First $1 billion.................. 0.0150%
Next $1 billion................... 0.0125%
Next $1 billion................... 0.0100%
In excess of $3 billion........... 0.0000%
</TABLE>
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 services 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 short-term obligations,
aggregated $24,908,783 and $25,801,260, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Trust, as computed on a federal income tax basis, are
as follows:
<TABLE>
<S> <C>
Aggregate cost ........................ $301,702,642
============
Gross unrealized appreciation ......... $ 26,894,606
Gross unrealized depreciation ......... (5,193,925)
------------
Net unrealized appreciation .......... $ 21,700,681
============
</TABLE>
(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. Transactions in Trust shares
were as follows:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended April 30, October 31,
1999 1998
----------------- ------------
<S> <C> <C>
Shares issued to shareholders in reinvestment of distributions .. 151,838 338,271
======= =======
</TABLE>
(6) Line of Credit
The Trust and other affiliated funds participate in a $720 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 repurchase of
Trust shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Trust for the six months ended April 30, 1999, was $1,206.
19
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(7) 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 April 30, 1999,
the Trust owned the following restricted securities (constituting 5.40% 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 furnished by dealers or by a pricing service, or if not available,
are valued at fair value as determined in good faith by or at the direction of
the Trustees.
<TABLE>
<CAPTION>
Date of Par
Description Acquisition Amount Cost Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dade County, FL, Housing Finance Agency
(Blackstone), 8.375s, 2002 ......................... 4/22/94 $5,466,500 $5,466,500 $ 5,615,462
Dade County, FL, Housing Finance Agency
(Silverblue), 8.375s, 2002 ......................... 4/22/94 3,572,500 3,572,500 3,669,851
Eastern Band of Cherokee Indian Community, NC
(Carolina Mirror Co.), 10.25s, 2009 ................ 12/10/86 6,125,000 6,002,498 6,151,337
Eastern Band of Cherokee Indian Community, NC
(Carolina Mirror Co.), 11s, 2012 ................... 2/05/88 650,000 601,250 652,756
Hannibal, MO, Industrial Development Authority
(Hannibal Regional Healthcare), 9.5s, 2001 ......... 8/28/92 1,500,000 1,485,913 1,735,110
-----------
$17,824,516
===========
</TABLE>
20
<PAGE>
MFS[RegTM] Municipal Income Trust
Trustees
Richard B. Bailey* (2)
Private Investor; Former Chairman and
Director (until 1991), MFS Investment Management
Peter G. Harwood(1)
Private Investor
J. Atwood Ives(2)
Chairman and Chief Executive Officer,
Eastern Enterprises
(diversified services company)
Lawrence T. Perera(2)
Partner, Hemenway & Barnes
(attorneys)
William J. Poorvu(1)
Adjunct Professor, Harvard University
Graduate School of Business
Administration
Charles W. Schmidt(1)
Private Investor
Arnold D. Scott *
Senior Executive Vice President,
Director, and Secretary,
MFS Investment Management
Jeffrey L. Shames*
Chairman, Chief Executive
Officer, and Director, MFS Investment Management
Elaine R. Smith(1)
Independent Consultant
David B. Stone(1)(2)
Chairman and Director,
North American
Management Corp.
(investment advisers)
Portfolio Manager
Michael W. Roberge*
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
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.
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