<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[Graphic Omitted]
MFS(R) MUNICIPAL
INCOME FUND
ANNUAL REPORT o OCTOBER 31, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ....................................................... 9
Results of Shareholder Meeting ............................................ 11
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 23
Notes to Financial Statements ............................................. 27
Independent Auditors' Report .............................................. 31
Trustees and Officers ..................................................... 33
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
If you've been reading our fund reports for any length of time, you've probably
sensed the pride we have in our research process. More than anything else, we
think MFS Original Research(R) -- and the performance results it has yielded for
shareholders -- makes us unique among investment management companies. We think
that uniqueness stems from three factors: philosophy, process, and people.
PHILOSOPHY
In over 75 years in the investment management business, we've developed a number
of beliefs about the best ways to invest over a variety of market conditions.
First, we believe in bottom-up research, which means we use a
company-by-company, one-security-at-a-time approach to building a portfolio.
What we look for is the truth about the fundamentals of a company's business --
things such as the ability of management to execute its business plan, the
ability of that plan to be scaled up as the company grows, actual demand for the
company's products and services, cash flow, profits, and earnings.
Second, we believe that, over the long term, stock prices follow earnings. In
our view, stock prices are basically a multiple of projected earnings, with the
multiple increasing as the market perceives that a company has something
customers want and will continue to want. One of the major elements of Original
Research(SM) is doing our best to project a company's future earnings and
determine how much the market will pay for those earnings.
Third, we believe there are at least three ways to potentially achieve
competitive long-term performance: be early, uncover second chances, and avoid
mistakes. All of these are based on bottom-up research. In both domestic and
international markets, early discovery has historically been a hallmark of our
investment style. Some of the stocks with which MFS has been most successful are
those in which we've taken large positions before the market discovered or
believed in them. Similarly, some of our best fixed-income investments have been
early positions in companies or governments that our research revealed were
potential candidates for credit upgrades. (A credit upgrade causes the value of
a bond to rise because it indicates the market has increased confidence that
principal and interest on the bond will be repaid.)
"Second-chance" opportunities are companies whose stock prices have stumbled but
that we believe still have the potential to be market leaders. For example, a
quarterly earnings shortfall of a few cents may cause the market to temporarily
lose confidence in a company. If we believe the business remains fundamentally
strong, we may use the price decline as a buying opportunity.
Avoiding mistakes is another way we feel Original Research may help performance.
In fixed-income investing this means, among other things, trying to be better
than our peers at avoiding bond issuers that may default. In equity investing,
avoiding mistakes means we strive to know a company and its industry well enough
to distinguish truth from hype.
PROCESS
We acquire our information firsthand, by researching thousands of companies to
determine which firms may make good investments. Our analysis of an individual
company may include
o face-to-face contact with senior management as well as frontline workers
o analysis of the company's financial statements and balance sheets
o contact with the company's current and potential customers
o contact with the company's competitors
o our own forecasts of the company's future market share, cash flow, and
earnings
Our analysts and portfolio managers disseminate this information in the form of
daily notes e-mailed worldwide to all members of our investment team. This
ensures that our best ideas are shared throughout the company, without barriers
between equity and fixed-income, international and domestic, or value and growth
investment areas. We believe this allows each of our portfolio managers -- and
thus each of our investors -- to potentially benefit from any relevant item of
Original Research.
John Ballen, our President and Chief Investment Officer, has often said that the
thought he hopes managers will have when they read the daily notes is, "I could
never perform as well at any other investment company, because nowhere else
could the quality of the research be this good."
PEOPLE
Our team of research analysts and portfolio managers traces its roots back to
1932, when we created one of the first in-house research departments in the
industry. Today, we believe we have an investment team distinguished for its
unique blend of talent, continuity, and cohesiveness.
MFS' team culture and commitment to quality research have proven to be of
tremendous value in attracting some of the best and brightest talent from
leading business schools and from other investment management companies. Our
company culture was a key factor in our recognition by Fortune magazine in its
January 10, 2000, issue as one of the "100 Best Companies to Work For" in
America. As befits a great team, our people have tended to stick around -- the
average MFS tenure of our portfolio managers is 11 years, with over 16 years in
the investment industry. Contributing to this continuity is our policy that all
equity portfolio managers are promoted from within, after distinguishing
themselves first as research analysts. And because many of us who are now
managing funds or managing the company itself have been working together for
well over a decade, we have a cohesiveness, a shared philosophy of investing,
and a unity of purpose that we believe bodes well for the future of the company.
We also have scale. Our research analyst team is over 55 members strong and
growing. Each analyst is our in-house expert on a specific industry or group of
industries in a specific region of the globe. In pursuing their research, our
analysts and portfolio managers each year will visit more than 2,000 companies
throughout the world, meet with representatives from more than 3,000 companies
at one of our four worldwide offices, attend roughly 5,000 company presentations
sponsored by major Wall Street firms, and consult with over 1,000 analysts from
hundreds of U.S. and foreign brokerage houses.
All of this culminates in our analysts making buy and sell recommendations on a
wide range of potential investments for all of our portfolios. In the end, the
goal of Original Research is to try to give our portfolio managers an advantage
over their peers -- to enable our managers to deliver competitive performance by
finding opportunities before they are generally recognized by the market, and by
avoiding mistakes whenever possible. Original Research does, we believe, make a
difference.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
November 16, 2000
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Michael W. Roberge]
Michael W. Roberge
Dear Shareholders,
For the 12 months ended October 31, 2000, the trust provided a total return of
11.27% based on its beginning and ending stock market prices and assuming the
reinvestment of any distributions paid during the period. The trust's total
return based on its net asset value (NAV) was 5.20%. During the same period, the
trust's benchmark, the Lipper Closed End High Yield Municipal Index (the Lipper
Index), an index composed of 10 closed-end funds (including MFS Municipal Income
Trust) that invest at least 50% of their assets in lower-rated municipal debt
securities, provided a total return of 3.06%. Effective October 31, 2000, the
Lipper Index replaced the Lehman Brothers Municipal Bond Index as the trust's
benchmark because the Lipper Index is a more relevant measure of the trust's
investment universe and of its performance as compared to its peers.
In our view, three main factors drive the performance of a high-yield municipal
fund such as ours: credit risk, the quality of the fund's research as it relates
to credit risk, and interest rates. We think credit risk -- the risk that a bond
will be downgraded or will default -- is the primary risk in a high-yield
portfolio. We believe the trust's strong performance compared to its benchmark
was in large part due to the quality of our research, which helped us avoid some
of the credit problems in our market, particularly among hospitals and nursing
homes.
However, rather than cutting back on investments in health care, we viewed the
troubled sector as an opportunity. Because of some high-profile hospital and
nursing home problems and reductions in Medicare funding, many investors have
fled the health care area, so the premium we are paid to own bonds in that
sector has grown dramatically. In other words, the yield of these bonds has
climbed significantly in relation to investment-grade bonds. Although health
care is a challenging area, we think that through individual security selection
we may potentially reap some significant gains for investors.
Something investors should keep in mind is that health care issues represent a
huge portion of the municipal high-yield market, including the majority of new
issues. So in order to stay fully invested, a municipal high-yield fund, in our
view, has to own health care bonds. The key is finding the financially healthy
ones and avoiding defaults and credit problems. This is where we think the
quality of our in-house Original Research(SM) process -- which may include
meetings with hospital or nursing home managements, meetings with employees and
competitors, and intense financial and competitive analysis -- gives us an edge.
For example, our research indicated that health maintenance organizations (HMOs)
have vigorously clamped down on the rates they will pay hospitals for insured
services in urban areas where the markets were generally oversupplied with
hospital beds. So one of the things we have done is to largely avoid hospitals
in those areas where cost competition has tended to be intense. Instead, we have
invested in several hospitals in rural areas that have tended to have little or
no direct competition. Another factor we view as potentially positive for health
care investments is that Congress has already started to talk about restoring
some of the health care funding that it had previously cut.
The interest rate environment over the past year also had a positive effect on
performance. Although the Federal Reserve Board (the Fed) caused short-term
interest rates to rise in the early part of the period -- by raising the rate it
charges banks for overnight borrowing -- interest rates actually declined for
both long-term Treasuries and municipal bonds. The decline in long-term rates
helped the trust's performance by increasing the prices of bonds that we owned.
In our experience, long-term bonds have tended to be influenced more by what
investors think about long-term inflation than by short-term interest rate
changes. This helps explain why long-term rates declined in spite of the fact
that the Fed was raising short-term rates. It appeared to us that the market
felt the Fed's rate hikes were doing a good job of bringing growth down and
keeping inflationary forces at bay; we think this perception that inflation
would remain benign helped bring down long-term rates. Another factor was the
Fed's announcement that it would use some of the budget surplus to buy back
30-year Treasuries. Investors perceived that the supply of 30-year notes would
be shrinking, and that drove their prices up and yields down.
Looking ahead, we are optimistic about each of the three factors that we
mentioned earlier as driving performance: interest rates, credit risk, and the
ability of our research to make a difference. We agree with the market's
apparent perception that the Fed has done its job by raising rates in order to
cool down the economy. We expect to see a flat to declining interest rate
environment continuing through 2001, which would be positive for fixed-income
investing in general.
We also expect the economy to continue to grow at a healthy but slower pace,
with little inflation and without a recession. That bodes well for credit risk.
Gross domestic product (GDP) growth in the third quarter declined to under 3%,
which falls within the range that economists and Fed Chairman Alan Greenspan
have previously talked about as long-term, sustainable, noninflationary growth.
And although we've had oil prices spike up dramatically to their highest level
since the Gulf War, the effect has not been as inflationary as many had feared.
The prevailing view seems to be that higher gas prices have served as a tax on
consumers and made them rein in their spending, contributing to a "soft landing"
for the economy.
Finally, we believe our research will continue to uncover opportunities in the
high-yield market. In addition to health care, another sector we like is
electric utilities. We think the trend toward consolidation in the industry
offers potential for our research to find utilities with lower-grade bonds that
may enjoy an upgrade if they are acquired by a higher-grade company. (When a
bond's rating is upgraded because its issuer is perceived to have improved its
creditworthiness, the bond is considered less risky and therefore its price
rises.) An example in the portfolio is Entergy Corp. (formerly Gulf States
Utilities), an investor-owned utility with a "BB+" bond rating. Near the end of
the period, the company announced that it planned to merge with Florida Power
and Light, an "A"-rated company. If, as we expect, that merger is completed, our
position in Entergy should benefit significantly as its bonds cross over from
high-yield to investment-grade status.
Respectfully,
/s/ Michael W. Roberge
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.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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MICHAEL W. ROBERGE, CFA, IS SENIOR VICE PRESIDENT AND ASSOCIATE DIRECTOR OF
FIXED INCOME RESEARCH OF MFS INVESTMENT MANAGEMENT(R) AND PORTFOLIO MANAGER
OF THE MUNICIPAL HIGH-INCOME PORTFOLIOS OF OUR MUTUAL FUNDS AND OF MFS(R)
MUNICIPAL INCOME TRUST, A CLOSED-END FUND.
HE JOINED MFS IN 1996 AS A CREDIT ANALYST IN THE MUNICIPAL FIXED INCOME
DEPARTMENT AND WAS NAMED PORTFOLIO MANAGER IN 1997, VICE PRESIDENT IN 1998,
AND SENIOR VICE PRESIDENT IN 2000. PRIOR TO JOINING MFS, HE WORKED AS A
MUNICIPAL CREDIT ANALYST AND PORTFOLIO MANAGER WITH ANOTHER MAJOR MUTUAL FUND
FIRM. BEFORE THAT, HE WAS A CREDIT ANALYST WITH MOODY'S INVESTORS SERVICE,
INC. MICHAEL IS A 1990 GRADUATE OF BEMIDJI STATE UNIVERSITY AND EARNED AN
M.B.A. DEGREE FROM HOFSTRA UNIVERSITY IN 1992. HE IS A CHARTERED FINANCIAL
ANALYST (CFA) AS WELL AS A MEMBER OF THE BOSTON MUNICIPAL ANALYSTS FORUM AND
THE NATIONAL FEDERATION OF MUNICIPAL ANALYSTS.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY AN
INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), A GLOBAL, ISSUER-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
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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.
<PAGE>
OBJECTIVE: To provide a high level of current income through investment in
fixed-income securities.
NEW YORK STOCK EXCHANGE SYMBOL: MFM
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PERFORMANCE SUMMARY
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(For the year ended October 31, 2000)
NET ASSET VALUE PER SHARE
October 31, 1999 $7.96
October 31, 2000 $7.79
NEW YORK STOCK EXCHANGE PRICE
October 31, 1999 $7.125
September 1, 2000 (high) $8.000
December 20, 1999 (low) $6.438
October 31, 2000 $7.375
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NOTES TO PERFORMANCE SUMMARY
Government guarantees apply to the underlying securities only and not to prices
and yields of shares in a managed portfolio. See the prospectus for details.
Lower-rated securities may provide greater returns, but they are also associated
with greater-than-average risk. These risks may increase share price volatility.
See the prospectus for details.
An investment in the trust is not a complete investment program. See the
prospectus for details.
The trust is nondiversified and has more risk than one that is diversified. The
portfolio invests in a limited number of companies and may have more risk
because a change in security's value may have a more significant effect on the
portfolio's net asset value.
NUMBER OF SHAREHOLDERS
As of October 31, 2000, our records indicate that there are 4,773 registered
shareholders and approximately 16,500 shareholders owning Trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our reports,
which contain important information about the trust, please write or call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MFS offers a Dividend Reinvestment and Cash Purchase Plan that allows you to
reinvest either all of the distributions paid by the trust or only the long-
term capital gains. Purchases are made at the market price unless that price
exceeds the net asset value (the shares are trading at a premium). If the shares
are trading at a premium, purchases will be made at a discounted price of either
the net asset value or 95% of the market price, whichever is greater. Twice each
year you can also buy shares. Investments 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. The
automatic reinvestment of distributions does not relieve you of any income tax
that may be payable (or required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please have
available the name of the trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw, 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.
At the annual meeting of shareholders of MFS Municipal Income Trust, which was
held on September 14, 2000, 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
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J. Atwood Ives 33,364,110.6983 1,747,294.5386
Lawrence T. Perera 33,349,143.2946 1,762,261.9423
Arnold D. Scott 33,428,431.3406 1,682,973.8963
Jeffrey L. Shames 33,362,467.0547 1,748,938.1822
Trustees continuing in office who were not subject to re-election at this
meeting are 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, 2001.
NUMBER OF SHARES
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For 33,396,436.9652
Against 339,072.0140
Abstain 1,375,896.2577
ITEM 3. To approve or disapprove amendments to the trust's Declaration of
Trust to authorize the issuance of preferred shares of the trust.
NUMBER OF SHARES
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For 26,962,485.9309
Against 3,207,685.9877
Abstain 1,396,189.5645
Delivered Not Voted 5,387,985.0000
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- October 31, 2000
Municipal Bonds - 97.9%
<CAPTION>
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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<S> <C> <C>
General Obligation - 1.5%
Chicago, IL, FGIC, 5.125s, 2025 $ 2,000 $ 1,852,420
Markham, IL, 9s, 2012 1,215 1,233,225
New York City, NY, 6.125s, 2025 1,470 1,510,807
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$ 4,596,452
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State and Local Appropriation - 2.8%
Chicago, IL, Public Building Commission, Building Rev.,
RITES, 5.169s, 2016+(++) $ 1,300 $ 1,260,558
Chicago, IL, Public Building Commission, Building Rev.,
RITES, 5.169s, 2017+(++) 1,050 1,000,965
College Park, GA (Civic Center), AMBAC, 5.75s, 2020 1,000 1,022,810
Houston, TX, 6.3s, 2020 815 811,210
Houston, TX, Community College Systems, 7.875s, 2025+ 2,500 2,470,625
Riverside County, CA, Asset Leasing Corp., Leashold
Rev. (Riverside County Hospital), MBIA, 0s, 2026 8,595 1,980,546
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$ 8,546,714
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Refunded and Special Obligations - 15.5%
Arapahoe County, CO, Capital Improvement, Highway Rev., 0s, 2005 $ 1,000 $ 387,220
Clermont County, OH, Hospital Facilities Rev. (Mercy
Health Systems), AMBAC, 8.921s, 2001(++) 500 536,090
Colorado Health Facilities Authority, Retirement
Facilities Rev. (Liberty Heights), FHA, 0s, 2024 7,000 1,593,760
Dade County, FL, AMBAC, 0s, 2008 15,080 2,310,558
Denver, CO, City & County Airport Rev., 8.75s, 2001 400 424,608
Desert Hospital District, CA, Hospital Rev. (Desert
Hospital Corp.), 8.216s, 2002(++) 1,500 1,654,080
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2030 25,950 5,022,363
Hannibal, MO, Industrial Development Authority
(Hannibal Regional Healthcare), 9.5s, 2001+ 1,460 1,582,552
Islip, NY, Community Development Agency Rev. (New York
Institute of Technology), 7.5s, 2006 2,500 2,876,850
Jefferson County, OH, Asset Guaranty, 7.125s, 2005 1,000 1,130,470
Massachusetts Health & Education Facilities Authority
(Fairview Extended Care Facility), 10.25s, 2001 1,500 1,558,485
Massachusetts Industrial Finance Agency (Emerson
College), 8.9s, 2001 2,000 2,053,860
Mississippi Hospital Equipment & Facilities Authority
Rev. (Rush Medical Foundation), 8.75s, 2001 1,000 1,026,530
Nassau County, NY, Industrial Development Agency, Civic
Facilities Rev. (New York Institute of Technology), 6.15s, 2002 1,000 1,041,000
New Lenox, IL, Community Park Development Authority, 8.25s, 2004 1,930 2,194,950
New York City, NY, 6.125s, 2006 530 574,536
North Carolina Medical Care Commission, Hospital Rev
(Valdese General Hospital), 8.75s, 2001 1,300 1,374,867
North Central, TX, Health Facilities Development Corp.
(Presbyterian Hospital), MBIA, 8.785s, 2001(++) 1,500 1,596,810
Prince William County, VA, Industrial Development
Authority, Residential Care Facility (Westminster at
Lake Ridge), 10s, 2002 1,500 1,619,565
Telluride, CO, Gondola Transit Co., Real Estate
Transfer Assessment Rev., 11.5s, 2012 2,475 3,762,841
Telluride, CO, Gondola Transit Co., Real Estate
Transfer Assessment Rev., 11.5s, 2012 425 616,888
Texas Turnpike Authority (Houston Ship Channel Bridge),
12.625s, 2002 10,535 12,082,592
Washington Public Power Supply System Rev. (Nuclear
Project #1), 14.375s, 2001 365 386,838
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$ 47,408,313
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Airport and Port Revenue - 4.9%
Chicago, IL, O'Hare International Airport (United
Airlines), 6.75s, 2011 $ 1,000 $ 1,039,250
Dallas Fort Worth, TX, International Airport (American
Airlines), 6.15s, 2029 1,000 1,016,240
Denver, CO, City & County Airport Rev., 8.75s, 2023 1,100 1,158,707
Hillsborough County, FL, Aviation Authority Rev. (US
Air), 8.6s, 2022 650 673,400
Kenton County, KY, Airport Board Special Facilities
(Delta Airlines), 7.5s, 2020 1,000 1,038,620
New Jersey Economic Development Authority (Continental
Airlines, Inc.), 6.4s, 2023 2,000 1,880,580
State of Hawaii, Department of Transportation
(Continental Airlines, Inc.), 7s, 2020 700 698,677
Tulsa, OK, Municipal Airport Trust Rev. (American
Airlines), 7.375s, 2020 3,400 3,472,522
Tulsa, OK, Municipal Airport Trust Rev. (American
Airlines), 7.6s, 2030 3,000 3,093,630
Wayne Charter County, MI (Northwest Airlines, Inc.), 6.75s, 2015 1,000 991,820
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$ 15,063,446
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Electric and Gas Utility Revenue - 10.4%
Alaska Industrial Development & Export Authority, Power
Rev. (Upper Lynn Canal Regulatory Power), 5.8s, 2018 $ 830 $ 766,198
Brazos River Authority, TX (Reliant Energy, Inc.),
5.375s, 2019 1,000 905,910
Calcasieu Parish, LA, Industrial Development Board,
Pollution Control Rev. (Entergy Gulf States, Inc.),
5.45s, 2010 1,250 1,180,250
Clark County, NV, Industrial Development Rev. (Nevada
Power Co.), 5.6s, 2030 3,000 2,557,830
Clark County, NV, Industrial Development Rev. (Nevada
Power Co.), 5.9s, 2032 1,000 892,290
Connecticut Development Authority, Pollution Control
Rev. (Connecticut Light & Power), 5.85s, 2028 2,875 2,684,445
Farmington, NM, Pollution Control, 5.8s, 2022 3,000 2,728,800
Klamath Falls, OR, Electric Rev. (Klamath Cogeneration), 6s, 2025 2,500 2,246,925
Matagorda County, TX (Reliant Energy), 5.95s, 2030 4,000 3,658,720
North Carolina Municipal Power Agency, Catawba Electric
Rev., 6.5s, 2020 2,000 2,051,120
Ohio Water Development, Pollution Control Rev
(Cleveland Electric), 8s, 2023 2,500 2,678,025
Pima County, AZ, Industrial Development Authority
(Tuscon Electric Power Co.), 6.1s, 2025 650 600,691
Pima County, AZ, Industrial Development Authority
(Tuscon Electric Power Co.), 6s, 2029 3,000 2,775,900
Pittsylvania County, VA, Industrial Development
Authority Rev., 7.5s, 2014 2,000 2,072,500
Southern California Public Power Authority,
Transmission Project Rev., RIBS, 7.184s, 2012(++) 2,250 2,386,822
Sullivan, IN, Pollution Control Rev. (Indiana -
Michigan Power Co.), 5.95s, 2009 250 251,823
West Feliciana Parish, LA, Pollution Control Rev. (Gulf
States Utilities Co.), 5.8s, 2015 1,500 1,446,480
------------
$ 31,884,729
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Health Care Revenue - 24.6%
Alachua County, FL, Health Facilities Rev. (Beverly
Enterprises), 6.75s, 2010 $ 850 $ 809,795
Baltimore County, MD, Nursing Facility Mortgage Rev
(Eastpoint Rehabilation & Nursing Center), 6.75s, 2028 500 385,000
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 7.25s, 2001 85 83,449
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 7.75s, 2006 300 275,394
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 8.125s, 2016 1,085 928,554
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 8.5s, 2026 2,405 2,016,207
Bell County, TX, Health Facilities Development Corp.
(Kings Daughters Hospital), 9.25s, 2008 600 614,382
Booneville, MO, Health Facilities Rev. (Gericare, Inc.), 11s, 2017 1,860 1,866,659
Boston, MA, Industrial Development Finance Authority
Rev. (Stonehedge Convalescent Center), 10.75s, 2011 575 582,337
Brevard County, FL, Health Facilities Authority Rev
(Friendly Village), 9.25s, 2012 2,075 2,091,330
Cambria County, PA, Industrial Development Authority
(Beverly Enterprises), 10s, 2012 600 709,290
Chautauqua County, NY, Industrial Development Agency,
Civic Facility Rev. (Womans Christian Assn.), 6.35s, 2017 300 275,817
Chautauqua County, NY, Industrial Development Agency,
Civic Facility Rev. (Womans Christian Assn.), 6.4s, 2029 1,000 831,520
Chemung County, NY, Industrial Development Agency,
Civic Facilities Rev. (St. Joseph's Hospital-Elmira), 6s, 2013 765 675,273
Chemung County, NY, Industrial Development Agency,
Civic Facilities Rev. (St. Joseph's Hospital-Elmira), 6.35s, 2013 190 169,894
Cheneyville, LA, Westside Habilitation Center, 8.375s, 2013 2,240 2,317,011
Chester County, PA, Industrial Development Authority
(RHA/PA Nursing Home), 10.125s, 2019* 952 571,200
Connecticut Health & Educational Facilities (Johnson
Evergreen), 8.5s, 2014 650 675,155
Contra Costa County, CA, Residential Rental Facilities
Rev. (Cypress Meadows), 7s, 2028 1,840 1,456,857
Crittenden County, AK, 7s, 2020 1,030 1,051,362
Cuyahoga County, OH, Hospital Facilities (Canton, Inc.), 7.5s, 2030 850 887,706
Denver, CO, Health & Hospital Rev., 5.25s, 2013 635 554,069
Denver, CO, Health & Hospital Rev., 5.375s, 2018 1,500 1,240,260
District of Columbia, Hospital Rev. (Hospital for Sick
Children), 8.875s, 2021 460 470,295
Gadsden County, FL, Industrial Development Authority
(RHA/FL Properties), 10.45s, 2018 2,395 1,796,250
Goldsboro, NC, Housing Authority Rev. (North Carolina
Housing Foundation, Inc.), 7.25s, 2029 400 374,404
Grand Forks, ND, Health Care Systems (Altru Health
Systems Obligation Group), 7.125s, 2024 500 507,135
Greenville County, SC, 8s, 2015 2,740 1,370,000
Illinois Health Facilities Authority Rev. (Centegra
Health Systems), 5.25s, 2018 1,000 855,200
Indiana Health Facilities Financing Authority Rev
(Metro Health/Indiana, Inc.), 6.3s, 2023 1,220 980,538
Iowa Finance Authority, Health Care Facilities Rev
(Care Initiatives), 5.75s, 2018 500 403,760
Kentucky Economic Development Finance Authority (Norton
Healthcare, Inc.), 6.5s, 2020 2,000 1,949,080
Lee County, FL, Industrial Development Authority
(Beverly Enterprises), 10s, 2010 1,680 1,733,693
Louisiana Public Facilities Authority (Southwest
Medical Center), 11s, 2006 2,903 493,581
Lufkin, TX, Health Facilities Development Corp.
(Memorial Health System of East Texas), 6.875s, 2026 320 299,373
Lufkin, TX, Health Facilities Development Corp.
(Memorial Health System of East Texas), 5.7s, 2028 500 388,135
Maine Health & Higher Educational Facilities, 7.5s, 2019 825 799,763
Massachusetts Health & Education Facilities Authority
(Jordan Hospital), 5.25s, 2018 1,400 1,146,712
Massachusetts Health & Education Facilities Authority
(St. Memorial Medical Center), 6s, 2023 465 358,045
Massachusetts Industrial Finance Agency (Metropolitan
Health Foundation, Inc.), 6.75s, 2027 1,500 1,360,140
Massachusetts Industrial Finance Agency (Needham/
Hamilton House), 11s, 2010 600 615,288
Massachusetts Industrial Finance Agency (WNR, Inc.), 9s, 2023(+) 525 420,000
Millbrae, CA, Residential Facility (Magnolia Of
Millbrae), 7.375s, 2027 1,000 1,006,030
Mississippi Business Finance Corp., Health Facilities
Rev. (Medical Foundation, Inc.), 5.625s, 2023 1,445 1,124,658
Mocksville, NC (Housing Foundation, Inc.), 7.25s, 2029 400 375,704
Montgomery County, PA, Higher Education & Health
Authority Rev. (AHF/Montgomery), 10.5s, 2020 2,395 2,440,744
New Hampshire Business Finance Authority, Health Care
Facilities Rev. (Metropolitian Health Foundation, Inc.),
6.55s, 2028 790 664,588
New Hampshire Higher Educational & Health Facilities
Authority Rev., 5.8s, 2018 1,000 822,370
New Jersey Economic Development Authority (Courthouse
Convalescent Center), 8.7s, 2014 650 678,022
New Jersey Economic Development Authority (Greenwood
Health Care), 9.75s, 2011 1,230 1,286,863
New Jersey Economic Development Authority (Wanaque
Convalescent Center), 8.6s, 2011 1,000 1,044,250
New Jersey Health Care Facilities Financing Authority
(Cherry Hill), 8s, 2027 1,000 1,003,520
New York City, NY, Health & Hospital Corp. Rev., 5.25s, 2017 700 652,260
Ohio County, WV, County Commission Health System (Ohio
Valley Medical Center), 5.75s, 2013 850 742,144
Orange County, FL, Industrial Development Rev
(Friendly Village), 9.25s, 2012 1,805 1,808,574
Osceola County, FL, Industrial Development Rev
(Community Provider Pooled Loan), 7.75s, 2017 1,300 1,315,236
Reedley, CA, Certificates of Participation (Mennonite
Home), 7.5s, 2026 2,930 2,847,403
Rochester, MN, Health Care Facilities Rev. (Mayo
Medical Foundation), 7.692s, 2021 1,000 1,044,160
Royston, GA, Hospital Authority Rev. (Ty Cobb
Healthcare Systems, Inc.), 6.375s, 2014 775 726,276
Salt Lake City, UT, Hospital Rev. (Intermountain Health
Care), AMBAC, 8.907s, 2020(++) 600 632,946
San Francisco, CA, City & County (Coventry Park), 8.5s, 2026 2,000 2,033,940
Santa Fe, NM, Industrial Development Rev. (Casa Real
Nursing Home), 9.75s, 2013 1,075 1,118,978
Seminole County, FL, Industrial Development Authority
(Friendly Village), 10s, 2011 1,485 1,491,549
Southwestern Illinois Development Authority Rev
(Anderson Hospital), 5.625s, 2029 1,500 1,208,805
Springfield, TN, Health & Educational Facilities
(Northcrest Medical Center), 5.25s, 2018 1,400 1,102,556
State of Arkansas, Development Finance Authority
(Washington Regional Medical Center), 7.25s, 2020 500 499,670
Sterling, IL (Hoosier Care), 7.125s, 2034 740 666,895
Steubenville, OH, Hospital Rev. (Trinity Health), 6.5s, 2030 1,300 1,289,860
Suffolk County, NY, Industrial Development Agency
(Southampton Hospital), 7.25s, 2020 750 698,887
Suffolk County, NY, Southhampton Hospital Assn., 7.625s, 2030 750 714,795
Tallahasse, FL, Health Facilities Rev. (Tallahassee
Memorial Healthcare), 6.25s, 2020 3,085 3,045,790
Washington County, FL, Industrial Development Authority
(Washington County), 10s, 2016 1,045 1,046,954
Waterford Township, MI, Economic Development Corp. Rev
(Canterbury Health), 6s, 2039 1,570 1,195,995
West Plains, MO, Industrial Development Authority,
Hospital Rev. (Ozarks Medical Center), 6.75s, 2024 170 150,323
Wilkinsburg, PA, Municipal Authority Health
(Monroeville Christian), 8.25s, 2027 1,000 1,004,410
Wisconsin State Health & Educational Facilities
(Oakwood Village), 7.625s, 2030 300 290,793
------------
$ 75,165,861
--------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 13.2%
Bedford County, VA, Industrial Development Authority
(Nekoosa Packaging), 6.55s, 2025 $ 2,000 $ 2,020,000
Carbon County, PA, Industrial Development Authority
(Panther Creek Partners), 6.65s, 2010 500 511,110
Courtland, AL, Industrial Development Board, Solid
Waste Disposal Rev. (Champion International Corp.),
6.375s, 2029 2,000 1,990,860
Delaware County, PA, Industrial Development Authority
(Resources Recovery Facility), 6.1s, 2005 2,000 1,939,840
Gloucester County, NJ, Improvement Authority, Solid
Waste Resources Recovery Rev. (Waste Management, Inc.),
6.85s, 2029 850 880,957
Gulf Coast Industrial Development Authority (Valero
Refinery), 5.6s, 2031 2,000 1,712,660
Hardeman County, TN (Correctional Facilities Corp.),
7.75s, 2017 2,220 2,336,461
Hernando County, FL, Water & Sewer Rev. (Florida
Crushed Stone), 8.5s, 2014 3,600 3,970,188
Hodge Village, LA, Utilities Rev. (Stone Container), 9s, 2010 7,585 7,725,247
Indiana Development Finance Authority Rev. (Inland
Steel), 5.75s, 2011 1,000 851,930
Mesa County, CO (Joy Technologies, Inc.), 8.5s, 2006* 950 712,500
Mobile County, AL, Industrial Development Authority
Rev. (Ipsco, Inc.), 6.875s, 2030 650 658,547
Navajo County, AZ, Industrial Development Authority
(Stone Container Corp.), 7.2s, 2027 880 863,412
New Jersey Economic Development Authority (Holt Hauling
& Warehousing), 8.4s, 2015 1,000 1,000,000
New Jersey Economic Development Authority (Holt Hauling
& Warehousing), 8.6s, 2017 1,000 1,000,000
Ohio Solid Waste Rev. (Republic Engineered Steels), 8.25s, 2014 3,000 900,000
Ohio Solid Waste Rev. (Republic Engineered Steels), 9s, 2021 3,000 900,000
Onondaga County, NY, Industrial Development Agency,
Solid Waste Disposal Facility Rev. (Solvay Paperboard LLC),
6.8s, 2014 1,000 994,820
Philadelphia, PA, Industrial Development Authority Rev
(Host Marriott LP), 7.75s, 2017 3,255 3,442,879
Port of New Orleans, LA (Avondale Industries), 8.25s, 2004 575 612,260
Port of New Orleans, LA (Avondale Industries), 8.5s, 2014 1,605 1,746,866
Sweetwater County, WY, Solid Waste Disposal Rev., "A"
(FMC Corp.), 7s, 2024 3,000 3,055,920
Virginia Peninsula Ports Authority Rev. (Zeigler Coal),
6.9s, 2022 1,250 437,500
------------
$ 40,263,957
--------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 1.0%
Bexar County, TX, Health Facilities Development
(Baptist Health Systems), MBIA, 5.25s, 2027 $ 1,000 $ 930,550
Houston County, AL, AMBAC, 6.25s, 2030 2,000 2,066,020
------------
$ 2,996,570
--------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 5.4%
Alexandria, VA, Redevelopment and Housing Authority
(Park at Landmark), 8.75s, 2029 $ 500 $ 499,025
Austin, TX, Housing Finance Corp. (Woodland Heights
Apartments), 10s, 2027 975 944,131
Colorado Housing Finance Authority, FHA, 9s, 2025 740 741,029
Dade County, FL, Housing Finance Agency (Blackstone),
8.375s, 2002+ 5,467 5,483,829
Dade County, FL, Housing Finance Agency (Silverblue),
8.375s, 2002+ 3,208 3,217,667
Dallas, TX, Housing Finance Corp., 8.5s, 2011 1,105 1,117,995
Eaglebend, CO, Affordable Housing Corp., 6.4s, 2017 1,000 971,450
Florida Multi-Family Housing Finance Agency Rev
(Center Court Apartments), 8.5s, 2018 980 964,173
Munimae Te Bond Subsidiary LLC, 6.875s, 2009# 2,000 1,971,640
Ridgeland, MS, Urban Renewal, Multifamily Housing Rev
(Northbrook I & III Apartments), 6.15s, 2019 280 258,530
Ridgeland, MS, Urban Renewal, Multifamily Housing Rev
(Northbrook I & III Apartments), 6.25s, 2029 475 428,051
------------
$ 16,597,520
--------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 0.3%
Black Hawk, CO, Device Tax Rev., 5.625s, 2021 $ 250 $ 210,558
Territory of Virgin Islands, Public Finance Authority,
5.875s, 2018 500 472,105
Virgin Islands Public Finance Authority, 6s, 2006 250 252,767
------------
$ 935,430
--------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 4.6%
Bexar County, TX, Housing Finance Corp., 0s, 2015 $ 1,505 $ 310,301
Colorado Housing Finance Authority, 7.15s, 2014 90 97,048
Cook County, IL, Single Family Mortgage Rev., 0s, 2015 390 79,248
Corpus Christi, TX, Housing Finance Corp., MBIA, 0s, 2011 3,000 1,056,810
Dallas, TX, Housing Finance Corp., MBIA, 0s, 2016 9,810 1,919,523
Duval County, FL, Housing Finance Authority, 0s, 2015 11,070 2,100,311
Georgia Housing & Finance Authority Rev., FHA, 0s, 2031 4,515 464,955
Jackson County, MO, 0s, 2016 440 76,234
Nebraska Investment Finance Authority, 0s, 2015 19,525 4,851,572
Nebraska Investment Finance Authority, 6.25s, 2021 1,990 2,038,675
Ohio Housing Finance Agency, Single Family Mortgage
Rev., GNMA, 9.081s, 2031(++) 480 504,538
Reno County, KS, Single Family Mortgage Rev., AMBAC, 0s, 2014 550 114,108
Saline County, KS, 0s, 2014 25 5,368
Wisconsin Housing & Economic Development, Homeownership
Rev., RIBS, 9.499s, 2022(++) 455 467,704
------------
$ 14,086,395
--------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 1.6%
Gulf Coast Waste Disposal Authority (Valero Energy
Corp.), 5.7s, 2032 $ 1,000 $ 869,890
Henrico County, VA, Industrial Development Authority,
5.45s, 2014 500 426,215
Massachusetts Development Finance Agency, Resource
Recovery Rev., 6.7s, 2014 700 719,166
Massachusetts Industrial Finance Agency (Ogden
Haverhill), 5.6s, 2019 2,850 2,513,472
Southwestern Illinois Development Authority Rev., Solid
Waste Disposal Rev., 5.9s, 2014 395 373,468
------------
$ 4,902,211
--------------------------------------------------------------------------------------------------------
Special Assesment District - 1.4%
Chicago, IL, Tax Increment Rev. (Ryan Garfield), 10.125s, 2007 $ 1,295 $ 1,325,756
Denver, CO, Urban Renewal Tax (Downtown Denver), 8.5s, 2013 420 425,221
Heritage Isles, FL, Community Development District, 5.75s, 2005 515 506,121
Katy, TX, Development Authority Rev., 5.8s, 2011 945 894,206
Katy, TX, Development Authority Rev., 6s, 2018 1,325 1,233,907
------------
$ 4,385,211
--------------------------------------------------------------------------------------------------------
Student Loan Revenue - 1.0%
Access To Loans For Learning, Student Loan Corp., CA, 7.95s, 2030 $ 650 $ 660,627
Arizona Student Loan Acquisition Authority, "C", 7.625s, 2010 750 800,595
Pennsylvania Higher Education Assistance Agency, AMBAC,
7.601s, 2022(++) 1,300 1,430,767
------------
$ 2,891,989
--------------------------------------------------------------------------------------------------------
Turnpike Revenue - 2.7%
Massachusetts Turnpike Authority, Capital Appreciation,
"C", MBIA, 0s, 2022 $ 10,000 $ 3,019,300
Nevada Department of Business (Las Vegas Monorail),
7.375s, 2040 625 604,325
Niagara Falls, NY, Bridge Commission, Toll Rev., RITES,
FGIC, 5.233s, 2015+(++) 1,500 1,542,720
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2011 1,000 471,980
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2012 1,000 437,750
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2015 1,750 636,108
Telluride, CO, Gondola Transit Co., 9s, 2016 915 1,007,424
West Virginia Parkways, Economic Development & Tourism
Authority, FGIC, 7.038s, 2019(++) 600 606,432
------------
$ 8,326,039
--------------------------------------------------------------------------------------------------------
Universities - 1.1%
Louisiana State University, Agricultural & Mechanical
College Board (Health Sciences Center), MBIA, 6.375s, 2031 $ 2,500 $ 2,647,150
Savannah, GA, Economic Development Authority (College
Of Art & Design, Inc.), 6.5s, 2013 625 641,875
------------
$ 3,289,025
--------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 2.2%
Detroit, MI, Sewer Disposal Rev., FGIC, 6.756s, 2023 (++) $ 1,900 $ 2,070,392
Detroit, MI, Sewer Disposal Rev., FGIC, 6.756s, 2023 (++) 600 597,336
Harrisburg, PA, Authority Water Rev., FGIC, 7.17s, 2015 (++) 2,000 2,082,560
New York City, NY, Municipal Water Finance Authority
Rev., FSA, 5.375s, 2026 1,100 1,059,300
West Feliciana Parish, LA, Pollution Control Rev., 5.8s, 2016 1,000 959,050
------------
$ 6,768,638
--------------------------------------------------------------------------------------------------------
Other - 3.7%
Danville, VA, Industrial Development Rev. (Piedmont Mall),
8s, 2017 $ 5,795 $ 5,932,631
District of Columbia (National Public Radio), 7.7s, 2023 2,500 2,638,550
Iowa Finance Authority, Community Provider Rev. (Boys &
Girls Home), 6.25s, 2028 500 450,085
Lehigh County, PA, General Purpose Authority (Kidspeace
Obligation Group), 6s, 2023 1,000 893,420
Memphis, TN, Health, Educational & Housing Facilities
Board (Wesley Highland Terrace), 8.5s, 2024 115 117,526
Mississippi Development Bank (Diamond Lakes Utilities),
6.25s, 2017 1,000 964,880
St. Louis County, MO, Industrial Development Authority
(Kiel Center Arena), 7.875s, 2024 300 314,079
------------
$ 11,311,171
--------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $302,916,781) $299,419,671
--------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 0.9%
--------------------------------------------------------------------------------------------------------
Harris County, TX, Hospital Rev. (Methodist Hospital), due 11/01/00 $ 300 $ 300,000
Jackson County, MS, Pollution Control Rev. (Chevron
USA, Inc.), due 11/02/00 100 100,000
Sevier County, TN, Public Building Authority, due 11/02/00 2,200 2,200,000
--------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 2,600,000
--------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $305,516,781) $302,019,671
Other Assets, Less Liabilities - 1.2% 3,769,475
--------------------------------------------------------------------------------------------------------
Net assets - 100.0% $305,789,146
--------------------------------------------------------------------------------------------------------
* Non-income producing security in default.
# SEC Rule 144A restriction.
+ Restricted security.
(+) Security valued by or at the direction of the Trustees.
(++) Inverse floating rate security.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
-------------------------------------------------------------------------------
OCTOBER 31, 2000
-------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $305,516,781) $302,019,671
Cash 89,152
Receivable for investments sold 2,730,225
Interest receivable 6,302,903
Other assets 132,690
------------
Total assets $311,274,641
------------
Liabilities:
Payable to dividend disbursing agent $ 162,524
Payable for investments purchased 4,834,841
Payable to affiliates -
Management fee 7,481
Transfer and dividend disbursing agent fee 7,933
Administrative fee 147
Accrued expenses and other liabilities 472,569
------------
Total liabilities $ 5,485,495
------------
Net assets $305,789,146
============
Net assets consist of:
Paid-in capital $351,097,792
Unrealized depreciation on investments (3,497,110)
Accumulated net realized loss on investments (42,831,893)
Accumulated undistributed net investment income 1,020,357
------------
Total $305,789,146
============
Shares of beneficial interest outstanding (39,318,354
shares issued less 55,500 treasury shares) 39,262,854
==========
Net asset value per share (net assets / shares of
beneficial interest outstanding) $7.79
=====
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
-------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2000
-------------------------------------------------------------------------------
Net investment income:
Interest income $ 24,073,579
------------
Expenses -
Management fee $ 2,732,750
Trustees' compensation 110,401
Administrative fee 43,542
Transfer and dividend disbursing agent fee 94,456
Custodian fee 109,947
Printing 54,049
Postage 22,594
Auditing fees 34,929
Legal fees 88,107
Miscellaneous 120,388
------------
Total expenses $ 3,411,163
Fees paid indirectly (49,615)
------------
Net expenses $ 3,361,548
------------
Net investment income $ 20,712,031
------------
Realized and unrealized gain (loss) on investments:
Realized gain on investment transactions (identified cost
basis) $ 165,596
Change in unrealized depreciation on investments (6,726,754)
------------
Net realized and unrealized loss on investments $ (6,561,158)
------------
Increase in net assets from operations $ 14,150,873
============
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
-------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------
2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 20,712,031 $ 21,176,626
Net realized gain on investments 165,596 169,824
Net unrealized loss on investments (6,726,754) (23,752,255)
------------ ------------
Increase (decrease) in net assets from operations $ 14,150,873 $ (2,405,805)
------------ ------------
Distributions declared to shareholders from net
investment income $(20,721,312) $(20,838,296)
------------ ------------
Net increase in net assets from trust shares reinvested $ 164,756 $ 1,894,933
------------ ------------
Total decrease in net assets $ (6,405,683) $(21,349,168)
Net assets:
At beginning of period 312,194,829 333,543,997
------------ ------------
At end of period (including accumulated undistributed net
investment income of $1,020,357 and $1,023,848,
respectively) $305,789,146 $312,194,829
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 7.96 $ 8.55 $ 8.51 $ 8.58 $ 8.84
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.53 $ 0.54 $ 0.57 $ 0.61 $ 0.66
Net realized and unrealized gain (loss)
on investments (0.17) (0.60) 0.05 (0.03) (0.26)
------ ------ ------ ------ ------
Total from investment operations $ 0.36 $(0.06) $ 0.62 $ 0.58 $ 0.40
------ ------ ------ ------ ------
Less distributions declared to
shareholders from net investment income $(0.53) $(0.53) $(0.58) $(0.65) $(0.66)
------ ------ ------ ------ ------
Net asset value - end of period $ 7.79 $ 7.96 $ 8.55 $ 8.51 $ 8.58
------ ------ ------ ------ ------
Per share market value -- end of period $ 7.38 $ 7.13 $ 9.19 $ 9.06 $ 9.38
====== ====== ====== ====== ======
Total return 5.20% (0.59)% 8.37% 3.90% 4.50%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.11% 1.06% 1.10% 1.19% 1.24%
Net investment income 6.76% 6.49% 6.62% 7.26% 7.47%
Portfolio turnover 18% 15% 12% 21% 13%
Net assets at end of period (000 Omitted) $305,789 $312,195 $333,544 $329,282 $328,630
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<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.
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 in good faith,
at fair value, by the Trustees.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount 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 uses the
effective interest method for reporting interest income on payment-in-kind (PIK)
bonds. 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.
Legal fees and other related expenses incurred to preserve and protect the value
of a security owned are added to the cost of the security; other legal fees are
expensed. Capital infusions made directly to the security issuer, which are
generally non-recurring, incurred to protect or enhance the value of high-yield
debt securities, are reported as additions to the cost basis of the security.
Costs that are incurred to negotiate the terms or conditions of capital
infusions or that are expected to result in a plan of reorganization are
reported as realized losses. Ongoing costs incurred to protect or enhance an
investment, or costs incurred to pursue other claims or legal actions, are
expensed.
Fees Paid Indirectly - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. This amount is shown as a reduction of total expenses on the Statement of
Operations.
Tax Matters and Distributions - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net tax-exempt
and net taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is provided.
Distributions paid by the trust from net interest received on tax-exempt
municipal bonds are not included 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 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. During
the year ended October 31, 2000, accumulated undistributed net investment income
was increased by $5,790, accumulated net realized loss on investments was
decreased by $4,664,461 and paid in capital was decreased by $4,670,251, due to
differences between book and tax accounting. This change had no effect on the
net assets or net asset value per share.
At October 31, 2000, the trust, for federal income tax purposes, had a capital
loss carryforward of $42,804,887, 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, 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. Included in Trustees' compensation is a net periodic
pension expense of $38,047 for the year ended October 31, 2000.
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 incurs an administrative fee at
the following annual percentages of the trust's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
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 $54,360,055 and $54,860,569, 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:
Aggregate cost $305,557,426
------------
Gross unrealized depreciation $(14,932,956)
Gross unrealized appreciation 11,395,201
------------
Net unrealized depreciation $ (3,537,755)
============
(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:
YEAR ENDED OCTOBER 31,
--------------------------
2000 1999
--------- ---------
Shares issued to shareholders in reinvestment
of distributions 21,014 223,925
------ -------
(6) Line of Credit
The trust and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporarily financing needs. 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, 2000, was $2,240. The trust had no borrowings during the
period.
(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 October 31, 2000,
the trust owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 5.32% 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, in good faith, at fair value, by the Trustees.
<TABLE>
<CAPTION>
DATE OF PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chicago, IL, Public Building Commission,
Building Rev., RITES, 5.169s, 2016 3/11/99 $1,300,000 $1,397,175 $ 1,260,558
Chicago, IL, Public Building Commission,
Building Rev., RITES, 5.169s, 2017 3/11/99 1,050,000 1,119,368 1,000,965
Dade County, FL, Housing Finance Agency
(Blackstone), 8.375s, 2002 4/22/94 5,466,500 5,466,500 5,483,829
Dade County, FL, Housing Finance Agency
(Silverblue), 8.375s, 2002 4/22/94 3,207,500 3,207,500 3,217,667
Hannibal, MO, Industrial Development
Authority (Hannibal Regional
Healthcare), 9.5s, 2001 3/23/92 1,460,000 1,446,565 1,582,552
Houston, TX, Community College Systems,
7.875s, 2025 6/19/00 2,500,000 2,485,000 2,470,625
Niagara Falls, NY, Bridge Commission, Toll
Rev., RITES, FGIC, 5.233s, 2015 5/21/99 1,500,000 1,603,065 1,542,720
-----------
$16,558,916
===========
</TABLE>
(8) Subsequent Event
Effective December 7, 2000, the trust issued 2,800 shares of Auction Rate
Municipal Preferred Stock, series T and 2,800 of Auction Rate Municipal
Preferred Stock, series TH at aggregate offering price of $140,000,000. The
liquidation preference of each share is $25,000 plus accumulated but unpaid
dividends. The estimated net proceeds of the offering are $138,081,540 after
payment of offering expenses and the underwriting discount.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Municipal Income Trust (the "Trust"), including the portfolio of investments, as
of October 31, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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
securities owned as of October 31, 2000, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Municipal Income Trust as of October 31, 2000, the results of its operations,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 5, 2000
<PAGE>
-------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
-------------------------------------------------------------------------------
IN JANUARY 2001, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY OR FORM
1099-DIV, IF APPLICABLE, REPORTING THE FEDERAL TAX STATUS OF ALL
DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 2000.
FOR FEDERAL INCOME TAX PURPOSES, 100% OF THE TOTAL DIVIDENDS PAID BY THE
TRUST FROM NET INVESTMENT INCOME DURING THE YEAR ENDED OCTOBER 31, 2000,
IS DESIGNATED AS AN EXEMPT-INTEREST DIVIDEND.
-------------------------------------------------------------------------------
<PAGE>
<TABLE>
MFS(R) MUNICIPAL INCOME TRUST
<S> <C>
TRUSTEES PORTFOLIO MANAGER
J. Atwood Ives+(2) - Chairman and Chief Executive Michael W. Roberge*
Officer, Eastern Enterprises (diversified services
company) TREASURER
James O. Yost*
Lawrence T. Perera+(1) - Partner, Hemenway &
Barnes (attorneys) ASSISTANT TREASURERS
Mark E. Bradley*
William J. Poorvu+(1) - Adjunct Professor, Harvard Robert R. Flaherty*
University Graduate School of Business Laura F. Healy*
Administration Ellen Moynihan*
Charles W. Schmidt+(2) - Private Investor SECRETARY
Stephen E. Cavan*
Arnold D. Scott* - Senior Executive Vice
President, Director, and Secretary, MFS Investment ASSISTANT SECRETARY
Management James R. Bordewick, Jr.*
Jeffrey L. Shames* - Chairman and Chief Executive TRANSFER AGENT, REGISTRAR, AND
Officer, MFS Investment Management DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
Elaine R. Smith+(1) - Independent Consultant c/o MFS Service Center, Inc.
P.O. Box 9024
David B. Stone+(1)(2) - Chairman, North American Boston, MA 02205-9824
Management Corp. (investment advisers) 1-800-637-2304
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street
Boston, MA 02116-3741 AUDITORS
Deloitte & Touche LLP
+ Independent Trustee
* MFS Investment Management
(1) Member of Audit Committee
(2) Member of Portfolio Trading Committee
</TABLE>
<PAGE>
MFS(R) MUNICIPAL INCOME TRUST ------------
PRSRT STD
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management.(R)
500 Boylston Street, Boston, MA 02116.
MFMCE-2 12/00 27M
