UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-09141
Eaton Vance Municipal Income Trust
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
November 30
Date of Fiscal Year End
May 31, 2020
Date of Reporting Period
| Item 1. | Reports to Stockholders |
Eaton Vance
Municipal Income Trust (EVN)
Semiannual Report
May 31, 2020
Important Note. Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (funds.eatonvance.com/closed-end-fund-and-term-trust-documents.php), and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold shares at the Fund’s transfer agent, American Stock Transfer & Trust Company, LLC (“AST”), you may elect to receive shareholder reports and other communications from the Fund electronically by contacting AST. If you own your shares through a financial intermediary (such as a broker-dealer or bank), you must contact your financial intermediary to sign up.
You may elect to receive all future Fund shareholder reports in paper free of charge. If you hold shares at AST, you can inform AST that you wish to continue receiving paper copies of your shareholder reports by calling 1-866-439-6787. If you own these shares through a financial intermediary, you must contact your financial intermediary or follow instructions included with this disclosure, if applicable, to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with AST or to all funds held through your financial intermediary, as applicable.
Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. The investment adviser has claimed an exclusion from the definition of “commodity pool operator” under the Commodity Exchange Act with respect to its management of the Fund. Accordingly, neither the Fund nor the adviser with respect to the operation of the Fund is subject to CFTC regulation. Because of its management of other strategies, the Fund’s adviser is registered with the CFTC as a commodity pool operator. The adviser is also registered as a commodity trading advisor.
Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.
Semiannual Report May 31, 2020
Eaton Vance
Municipal Income Trust
Table of Contents
| Performance |
2 | |||
| Fund Profile |
2 | |||
| Endnotes and Additional Disclosures |
3 | |||
| Financial Statements |
4 | |||
| Annual Meeting of Shareholders |
24 | |||
| Board of Trustees’ Contract Approval |
25 | |||
| Officers and Trustees |
29 | |||
| Important Notices |
30 | |||
Eaton Vance
Municipal Income Trust
May 31, 2020
Performance1,2
Portfolio Manager Cynthia J. Clemson
| % Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Ten Years | |||||||||||||||
| Fund at NAV |
01/29/1999 | 0.10 | % | 3.87 | % | 6.56 | % | 8.48 | % | |||||||||||
| Fund at Market Price |
— | –2.75 | 4.14 | 3.90 | 6.53 | |||||||||||||||
| Bloomberg Barclays Municipal Bond Index |
— | 1.55 | % | 3.98 | % | 3.74 | % | 4.13 | % | |||||||||||
| % Premium/Discount to NAV3 | ||||||||||||||||||||
| –9.26 | % | |||||||||||||||||||
| Distributions4 | ||||||||||||||||||||
| Total Distributions per share for the period |
$ | 0.275 | ||||||||||||||||||
| Distribution Rate at NAV |
3.80 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at NAV |
6.42 | % | ||||||||||||||||||
| Distribution Rate at Market Price |
4.18 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at Market Price |
7.06 | % | ||||||||||||||||||
| % Total Leverage5 | ||||||||||||||||||||
| Residual Interest Bond (RIB) Financing |
36.52 | % | ||||||||||||||||||
Fund Profile
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated net of management fees and other expenses by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested in accordance with the Fund’s Dividend Reinvestment Plan. Performance at market price will differ from performance at NAV due to variations in the Fund’s market price versus NAV, which may reflect factors such as fluctuations in supply and demand for Fund shares, changes in Fund distributions, shifting market expectations for the Fund’s future returns and distribution rates, and other considerations affecting the trading prices of closed-end funds. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance for periods less than or equal to one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 2 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Endnotes and Additional Disclosures
| 3 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited)
| 4 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 5 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 6 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 7 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 8 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 9 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 10 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 11 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Portfolio of Investments (Unaudited) — continued
| 12 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Statement of Assets and Liabilities (Unaudited)
| Assets | May 31, 2020 | |||
| Investments, at value (identified cost, $772,902,533) |
$ | 830,892,408 | ||
| Cash |
749,271 | |||
| Interest receivable |
9,642,328 | |||
| Receivable for investments sold |
11,425,238 | |||
| Total assets |
$ | 852,709,245 | ||
| Liabilities | ||||
| Payable for floating rate notes issued |
$ | 308,030,661 | ||
| Due to broker for floating rate notes redeemed |
7,600,000 | |||
| Payable to affiliates: |
||||
| Investment adviser fee |
274,383 | |||
| Administration fee |
137,192 | |||
| Trustees’ fees |
6,841 | |||
| Interest expense and fees payable |
1,170,352 | |||
| Accrued expenses |
169,268 | |||
| Total liabilities |
$ | 317,388,697 | ||
| Net assets |
$ | 535,320,548 | ||
| Sources of Net Assets |
| |||
| Common shares, $0.01 par value, unlimited number of shares authorized |
$ | 396,672 | ||
| Additional paid-in capital |
478,669,160 | |||
| Distributable earnings |
56,254,716 | |||
| Net assets |
$ | 535,320,548 | ||
| Common Shares Outstanding | 39,667,163 | |||
| Net Asset Value | ||||
| Net assets ÷ common shares issued and outstanding |
$ | 13.50 | ||
| 13 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Statement of Operations (Unaudited)
| Investment Income | Six Months Ended May 31, 2020 |
|||
| Interest |
$ | 16,430,136 | ||
| Total investment income |
$ | 16,430,136 | ||
| Expenses | ||||
| Investment adviser fee |
$ | 1,878,537 | ||
| Administration fee |
829,282 | |||
| Trustees’ fees and expenses |
20,760 | |||
| Custodian fee |
71,821 | |||
| Transfer and dividend disbursing agent fees |
9,175 | |||
| Legal and accounting services |
66,873 | |||
| Printing and postage |
25,844 | |||
| Interest expense and fees |
2,757,015 | |||
| Miscellaneous |
51,020 | |||
| Total expenses |
$ | 5,710,327 | ||
| Net investment income |
$ | 10,719,809 | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) — |
||||
| Investment transactions |
$ | (1,991,885 | ) | |
| Net realized loss |
$ | (1,991,885 | ) | |
| Change in unrealized appreciation (depreciation) — |
||||
| Investments |
$ | (9,483,610 | ) | |
| Net change in unrealized appreciation (depreciation) |
$ | (9,483,610 | ) | |
| Net realized and unrealized loss |
$ | (11,475,495 | ) | |
| Net decrease in net assets from operations |
$ | (755,686 | ) | |
| 14 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Statements of Changes in Net Assets
| Increase (Decrease) in Net Assets | Six Months Ended May 31, 2020 (Unaudited) |
Year Ended November 30, 2019 |
||||||
| From operations — |
||||||||
| Net investment income |
$ | 10,719,809 | $ | 20,134,524 | ||||
| Net realized gain (loss) |
(1,991,885 | ) | 2,975,722 | |||||
| Net change in unrealized appreciation (depreciation) |
(9,483,610 | ) | 38,422,696 | |||||
| Net increase (decrease) in net assets from operations |
$ | (755,686 | ) | $ | 61,532,942 | |||
| Distributions to common shareholders |
$ | (10,908,109 | ) | $ | (20,937,994 | ) | ||
| Capital share transactions — |
||||||||
| Issued in connection with tax-free reorganizations (see Note 7) |
$ | — | $ | 204,376,861 | ||||
| Net increase in net assets from capital share transactions |
$ | — | $ | 204,376,861 | ||||
| Net increase (decrease) in net assets |
$ | (11,663,795 | ) | $ | 244,971,809 | |||
| Net Assets |
| |||||||
| At beginning of period |
$ | 546,984,343 | $ | 302,012,534 | ||||
| At end of period |
$ | 535,320,548 | $ | 546,984,343 | ||||
| 15 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Statement of Cash Flows (Unaudited)
| Cash Flows From Operating Activities | Six Months Ended May 31, 2020 |
|||
| Net decrease in net assets from operations |
$ | (755,686 | ) | |
| Adjustments to reconcile net decrease in net assets from operations to net cash provided by operating activities: |
||||
| Investments purchased |
(77,669,162 | ) | ||
| Investments sold |
77,923,152 | |||
| Net amortization/accretion of premium (discount) |
957,821 | |||
| Decrease in interest receivable |
466,134 | |||
| Decrease in payable to affiliate for investment adviser fee |
(71,611 | ) | ||
| Increase in payable to affiliate for administration fee |
164 | |||
| Increase in payable to affiliate for Trustees’ fees |
33 | |||
| Decrease in interest expense and fees payable |
(408,808 | ) | ||
| Decrease in accrued expenses |
(87,612 | ) | ||
| Net change in unrealized (appreciation) depreciation from investments |
9,483,610 | |||
| Net realized loss from investments |
1,991,885 | |||
| Net cash provided by operating activities |
$ | 11,829,920 | ||
| Cash Flows From Financing Activities | ||||
| Cash distributions paid to common shareholders |
$ | (10,908,109 | ) | |
| Proceeds from secured borrowings |
1,700,000 | |||
| Repayment of secured borrowings |
(4,395,000 | ) | ||
| Net cash used in financing activities |
$ | (13,603,109 | ) | |
| Net decrease in cash |
$ | (1,773,189 | ) | |
| Cash at beginning of period |
$ | 2,522,460 | ||
| Cash at end of period |
$ | 749,271 | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest and fees |
$ | 3,165,823 | ||
| 16 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Financial Highlights
Selected data for a common share outstanding during the periods stated
| Six Months Ended May 31, 2020 (Unaudited) |
Year Ended November 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Net asset value — Beginning of period (Common shares) |
$ | 13.790 | $ | 12.700 | $ | 13.250 | $ | 12.910 | $ | 13.020 | $ | 12.950 | ||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||
| Net investment income(1) |
$ | 0.270 | $ | 0.542 | $ | 0.611 | $ | 0.688 | $ | 0.767 | $ | 0.886 | ||||||||||||
| Net realized and unrealized gain (loss) |
(0.285 | ) | 1.117 | (0.528 | ) | 0.330 | (0.340 | ) | 0.082 | |||||||||||||||
| Distributions to APS shareholders(1) |
||||||||||||||||||||||||
| From net investment income |
— | — | (0.004 | ) | (0.008 | ) | (0.008 | ) | (0.007 | ) | ||||||||||||||
| Discount on redemption and repurchase of APS(1) |
— | — | — | — | 0.244 | — | ||||||||||||||||||
| Total income (loss) from operations |
$ | (0.015 | ) | $ | 1.659 | $ | 0.079 | $ | 1.010 | $ | 0.663 | $ | 0.961 | |||||||||||
| Less Distributions to Common Shareholders | ||||||||||||||||||||||||
| From net investment income |
$ | (0.275 | ) | $ | (0.569 | ) | $ | (0.629 | ) | $ | (0.670 | ) | $ | (0.773 | ) | $ | (0.892 | ) | ||||||
| Total distributions to common shareholders |
$ | (0.275 | ) | $ | (0.569 | ) | $ | (0.629 | ) | $ | (0.670 | ) | $ | (0.773 | ) | $ | (0.892 | ) | ||||||
| Premium from common shares sold through shelf offering (see Note 5)(1) |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.001 | ||||||||||||
| Net asset value — End of period (Common shares) |
$ | 13.500 | $ | 13.790 | $ | 12.700 | $ | 13.250 | $ | 12.910 | $ | 13.020 | ||||||||||||
| Market value — End of period (Common shares) |
$ | 12.250 | $ | 12.880 | $ | 11.050 | $ | 12.300 | $ | 12.260 | $ | 13.390 | ||||||||||||
| Total Investment Return on Net Asset Value(2) |
0.10 | %(3) | 13.83 | % | 1.04 | % | 8.13 | % | 4.91 | %(4) | 7.60 | % | ||||||||||||
| Total Investment Return on Market Value(2) |
(2.75 | )%(3) | 22.10 | % | (5.22 | )% | 5.70 | % | (3.13 | )% | 7.42 | % | ||||||||||||
| 17 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Financial Highlights — continued
Selected data for a common share outstanding during the periods stated
| Six Months Ended May 31, 2020 (Unaudited) |
Year Ended November 30, | |||||||||||||||||||||||
| Ratios/Supplemental Data | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||
| Net assets applicable to common shares, end of period (000’s omitted) |
$ | 535,321 | $ | 546,984 | $ | 302,013 | $ | 315,080 | $ | 307,135 | $ | 309,354 | ||||||||||||
| Ratios (as a percentage of average daily net assets applicable to common shares):(5) |
||||||||||||||||||||||||
| Expenses excluding interest and fees(6) |
1.10 | %(7) | 1.19 | % | 1.29 | % | 1.33 | % | 1.30 | % | 1.43 | % | ||||||||||||
| Interest and fee expense(8) |
1.02 | %(7) | 1.27 | % | 1.61 | % | 1.25 | % | 0.83 | % | 0.33 | % | ||||||||||||
| Total expenses(6) |
2.12 | %(7) | 2.46 | % | 2.90 | % | 2.58 | % | 2.13 | % | 1.76 | % | ||||||||||||
| Net investment income |
3.97 | %(7) | 4.02 | % | 4.71 | % | 5.19 | % | 5.54 | % | 6.84 | % | ||||||||||||
| Portfolio Turnover |
9 | %(3) | 17 | % | 32 | % | 8 | % | 4 | % | 21 | % | ||||||||||||
| Senior Securities: |
||||||||||||||||||||||||
| Total preferred shares outstanding |
— | — | — | 3,311 | (9) | 3,311 | (9) | 4,806 | (9) | |||||||||||||||
| Asset coverage per preferred share |
$ | — | $ | — | $ | — | $ | 120,162 | (10) | $ | 117,762 | (10) | $ | 89,369 | (10) | |||||||||
| Involuntary liquidation preference per preferred share |
$ | — | $ | — | $ | — | $ | 25,000 | (11) | $ | 25,000 | (11) | $ | 25,000 | (11) | |||||||||
| Approximate market value per preferred share |
$ | — | $ | — | $ | — | $ | 25,000 | (11) | $ | 25,000 | (11) | $ | 25,000 | (11) | |||||||||
| (1) | Computed using average common shares outstanding. |
| (2) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Trust’s dividend reinvestment plan. |
| (3) | Not annualized. |
| (4) | The total return based on net asset value reflects the impact of the tender and repurchase by the Trust of a portion of its APS at 94.5% of the per share liquidation preference. Absent this transaction, the total return based on net asset value would have been 2.93%. |
| (5) | Ratios do not reflect the effect of dividend payments to APS shareholders, if any. |
| (6) | Excludes the effect of custody fee credits, if any, of less than 0.005%. Effective September 1, 2015, custody fee credits, which were earned on cash deposit balances, were discontinued by the custodian. |
| (7) | Annualized. |
| (8) | Interest and fee expense relates to the liability for floating rate notes issued in conjunction with residual interest bond transactions (see Note 1G) and/or iMTP Shares issued to redeem a portion of the Trust’s APS. As of November 30, 2018, the Trust had no APS and iMTP Shares outstanding. |
| (9) | Preferred shares represent iMTP Shares and APS as of November 30, 2017 and 2016 and APS as of November 30, 2015. |
| (10) | Calculated by subtracting the Trust’s total liabilities (not including the preferred shares) from the Trust’s total assets, and dividing the result by the number of preferred shares outstanding. |
| (11) | Plus accumulated and unpaid dividends. |
| APS | – | Auction Preferred Shares | ||
| iMTP Shares | – | Institutional MuniFund Term Preferred Shares | ||
| 18 | See Notes to Financial Statements. |
Eaton Vance
Municipal Income Trust
May 31, 2020
Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance Municipal Income Trust (the Trust) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Trust seeks to provide current income exempt from regular federal income tax.
The following is a summary of significant accounting policies of the Trust. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Trust is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946.
A Investment Valuation — The following methodologies are used to determine the market value or fair value of investments.
Debt Obligations. Debt obligations are generally valued on the basis of valuations provided by third party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, interest rates, anticipated prepayments, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Short-term debt obligations purchased with a remaining maturity of sixty days or less for which a valuation from a third party pricing service is not readily available may be valued at amortized cost, which approximates fair value.
Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Trust in a manner that most fairly reflects the security’s “fair value”, which is the amount that the Trust might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial statements, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B Investment Transactions and Related Income — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.
C Federal Taxes — The Trust’s policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its taxable, if any, and tax-exempt net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary. The Trust intends to satisfy conditions which will enable it to designate distributions from the interest income generated by its investments in non-taxable municipal securities, which are exempt from regular federal income tax when received by the Trust, as 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.
As of May 31, 2020, the Trust had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Trust files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.
D Legal Fees — Legal fees and other related expenses incurred as part of negotiations of the terms and requirement of capital infusions, or that are expected to result in the restructuring of, or a plan of reorganization for, an investment are recorded as realized losses. Ongoing expenditures to protect or enhance an investment are treated as operating expenses.
E Use of Estimates — The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
F Indemnifications — Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Trust. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as the Trust) could be deemed to have personal liability for the obligations of the Trust. However, the Trust’s Declaration of Trust contains an express disclaimer of liability on the part of Trust shareholders and the By-laws provide that the Trust shall assume, upon request by the shareholder, the defense on behalf of any Trust shareholders. Moreover, the By-laws also provide for indemnification out of Trust property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Trust enters into agreements with service providers that may contain indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred.
G Floating Rate Notes Issued in Conjunction with Securities Held — The Trust may invest in residual interest bonds, also referred to as inverse floating rate securities, whereby the Trust may sell a variable or fixed rate bond for cash to a Special-Purpose Vehicle (the SPV), (which is generally organized as a
| 19 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Notes to Financial Statements (Unaudited) — continued
trust), while at the same time, buying a residual interest in the assets and cash flows of the SPV. The bond is deposited into the SPV with the same CUSIP number as the bond sold to the SPV by the Trust, and which may have been, but is not required to be, the bond purchased from the Trust (the Bond). The SPV also issues floating rate notes (Floating Rate Notes) which are sold to third-parties. The residual interest bond held by the Trust gives the Trust the right (1) to cause the holders of the Floating Rate Notes to generally tender their notes at par, and (2) to have the Bond held by the SPV transferred to the Trust, thereby terminating the SPV. Should the Trust exercise such right, it would generally pay the SPV the par amount due on the Floating Rate Notes and exchange the residual interest bond for the underlying Bond. Pursuant to generally accepted accounting principles for transfers and servicing of financial assets and extinguishment of liabilities, the Trust accounts for the transaction described above as a secured borrowing by including the Bond in its Portfolio of Investments and the Floating Rate Notes (net of unamortized deferred debt issuance costs) as a liability under the caption “Payable for floating rate notes issued” in its Statement of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the SPV for redemption at par at each reset date. Accordingly, the fair value of the payable for floating rate notes issued approximates its carrying value. If measured at fair value, the payable for floating rate notes would have been considered as Level 2 in the fair value hierarchy (see Note 6) at May 31, 2020. Interest expense related to the Trust’s liability with respect to Floating Rate Notes is recorded as incurred. The SPV may be terminated by the Trust, as noted above, or by the occurrence of certain termination events as defined in the trust agreement, such as a downgrade in the credit quality of the underlying Bond, bankruptcy of or payment failure by the issuer of the underlying Bond, the inability to remarket Floating Rate Notes that have been tendered due to insufficient buyers in the market, or the failure by the SPV to obtain renewal of the liquidity agreement under which liquidity support is provided for the Floating Rate Notes up to one year. Structuring fees paid to the liquidity provider upon the creation of an SPV, if any, are recorded as debt issuance costs and are amortized as interest expense to the expected maturity of the related trust. Unamortized structuring fees related to a terminated SPV are recorded as a realized loss on extinguishment of debt. At May 31, 2020, the amounts of the Trust’s Floating Rate Notes outstanding and the related collateral were $308,030,661 and $457,432,141, respectively. The range of interest rates on the Floating Rate Notes outstanding at May 31, 2020 was 0.10% to 0.46%. For the six months ended May 31, 2020, the Trust’s average settled Floating Rate Notes outstanding and the average interest rate (annualized) including fees were $309,490,656 and 1.78%, respectively.
In certain circumstances, the Trust may enter into shortfall and forbearance agreements with brokers by which the Trust agrees to reimburse the broker for the difference between the liquidation value of the Bond held by the SPV and the liquidation value of the Floating Rate Notes, as well as any shortfalls in interest cash flows. The Trust had no shortfalls as of May 31, 2020.
The Trust may also purchase residual interest bonds in a secondary market transaction without first owning the underlying bond. Such transactions are not required to be treated as secured borrowings. Shortfall agreements, if any, related to residual interest bonds purchased in a secondary market transaction are disclosed in the Portfolio of Investments.
The Trust’s investment policies and restrictions expressly permit investments in residual interest bonds. Such bonds typically offer the potential for yields exceeding the yields available on fixed rate bonds with comparable credit quality and maturity. These securities tend to underperform the market for fixed rate bonds in a rising long-term interest rate environment, but tend to outperform the market for fixed rate bonds when long-term interest rates decline. The value and income of residual interest bonds are generally more volatile than that of a fixed rate bond. The Trust’s investment policies do not allow the Trust to borrow money except as permitted by the 1940 Act. Management believes that the Trust’s restrictions on borrowing money and issuing senior securities (other than as specifically permitted) do not apply to Floating Rate Notes issued by the SPV and included as a liability in the Trust’s Statement of Assets and Liabilities. As secured indebtedness issued by an SPV, Floating Rate Notes are distinct from the borrowings and senior securities to which the Trust’s restrictions apply. Residual interest bonds held by the Trust are securities exempt from registration under Rule 144A of the Securities Act of 1933.
H When-Issued Securities and Delayed Delivery Transactions — The Trust may purchase or sell securities on a delayed delivery or when-issued basis. Payment and delivery may take place after the customary settlement period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed. The Trust maintains cash and/or security positions for these commitments such that sufficient liquid assets will be available to make payments upon settlement. Securities purchased on a delayed delivery or when-issued basis are marked-to-market daily and begin earning interest on settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
I Interim Financial Statements — The interim financial statements relating to May 31, 2020 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Trust’s management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders and Income Tax Information
The Trust intends to make monthly distributions of net investment income to common shareholders. In addition, at least annually, the Trust intends to distribute all or substantially all of its net realized capital gains. Distributions to shareholders are recorded on the ex-dividend date.
Distributions to shareholders are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As required by U.S. GAAP, only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income.
| 20 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Notes to Financial Statements (Unaudited) — continued
At November 30, 2019, the Fund, for federal income tax purposes, had deferred capital losses of $418,458 which would reduce its taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus would reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. The deferred capital losses are treated as arising on the first day of the Fund’s next taxable year and retain the same short-term or long-term character as when originally deferred. Of the deferred capital losses at November 30, 2019, $127,204 are short-term and $291,254 are long-term.
The Trust’s use of net capital losses acquired from reorganizations, which amounted to $418,458 at November 30, 2019, may be limited under certain tax provisions.
The cost and unrealized appreciation (depreciation) of investments of the Trust at May 31, 2020, as determined on a federal income tax basis, were as follows:
| Aggregate cost |
$ | 464,401,128 | ||
| Gross unrealized appreciation |
$ | 69,475,343 | ||
| Gross unrealized depreciation |
(11,014,724 | ) | ||
| Net unrealized appreciation |
$ | 58,460,619 | ||
3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Eaton Vance Management (EVM) as compensation for investment advisory services rendered to the Trust. Pursuant to the investment advisory agreement between the Trust and EVM, the investment advisory fee payable by the Trust is 0.70% of the Trust’s average weekly gross assets and is payable monthly. Pursuant to a fee reduction agreement between the Trust and EVM that commenced on May 1, 2010, the annual investment adviser fee was reduced by 0.015% and by an additional 0.015% every May 1 thereafter for the next nineteen years. Pursuant to an amended and restated fee reduction agreement between the Trust and EVM that commenced on November 1, 2018, the annual investment adviser fee was reduced to 0.520% and by 0.015% every May 1 thereafter through 2029. This annual fee reduction was accelerated effective March 1, 2020 and the Trust is currently subject to an investment adviser fee of 0.400% of average weekly gross assets (0.505% from May 1, 2019 to March 1, 2020). The fee reduction cannot be terminated or reduced without the approval of a majority vote of the Trustees of the Trust who are not interested persons of EVM or the Trust and by the vote of a majority of shareholders. Average weekly gross assets include the principal amount of any indebtedness for money borrowed, including debt securities issued by the Trust, and the amount of any outstanding preferred shares issued by the Trust. Pursuant to a fee reduction agreement with EVM, average weekly gross assets are calculated by adding to net assets the amount payable by the Trust to floating rate note holders, such adjustment being limited to the value of the Auction Preferred Shares (APS) outstanding prior to any APS redemptions by the Trust. The administration fee is earned by EVM for administering the business affairs of the Trust and is computed at an annual rate of 0.20% of the Trust’s average weekly gross assets. For the six months ended May 31, 2020, the investment adviser fee and administration fee were $1,878,537 and $829,282, respectively.
Trustees and officers of the Trust who are members of EVM’s organization receive remuneration for their services to the Trust out of the investment adviser fee. Trustees of the Trust who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended May 31, 2020, no significant amounts have been deferred. Certain officers and Trustees of the Trust are officers of EVM.
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations, aggregated $77,669,162 and $88,108,247, respectively, for the six months ended May 31, 2020.
5 Common Shares of Beneficial Interest and Shelf Offering
The Trust may issue common shares pursuant to its dividend reinvestment plan. There were no common shares issued by the Trust for the six months ended May 31, 2020 and the year ended November 30, 2019.
Pursuant to a registration statement filed with the SEC, the Trust is authorized to issue up to an additional 2,610,553 common shares through an equity shelf offering program (the “shelf offering”). Under the shelf offering, the Trust, subject to market conditions, may raise additional capital from time to time and in varying amounts and offering methods at a net price at or above the Trust’s net asset value per common share. During the six months ended May 31, 2020 and the year ended November 30, 2019, there were no shares sold by the Trust pursuant to its shelf offering.
| 21 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Notes to Financial Statements (Unaudited) — continued
In November 2013, the Board of Trustees initially approved a share repurchase program for the Trust. Pursuant to the reauthorization of the share repurchase program by the Board of Trustees in March 2019, the Trust is authorized to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year at market prices when shares are trading at a discount to net asset value. The share repurchase program does not obligate the Trust to purchase a specific amount of shares. There were no repurchases of common shares by the Trust for the six months ended May 31, 2020 and the year ended November 30, 2019.
In addition, the Trust issued 15,884,819 shares in connection with the reorganizations described below in Note 7 during the year ended November 30, 2019.
6 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
| • | Level 1 – quoted prices in active markets for identical investments |
| • | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • | Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
At May 31, 2020, the hierarchy of inputs used in valuing the Trust’s investments, which are carried at value, were as follows:
| Asset Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Tax-Exempt Municipal Securities |
$ | — | $ | 792,857,725 | $ | — | $ | 792,857,725 | ||||||||
| Taxable Municipal Securities |
— | 24,830,461 | — | 24,830,461 | ||||||||||||
| Corporate Bonds & Notes |
— | 13,204,222 | — | 13,204,222 | ||||||||||||
| Total Investments |
$ | — | $ | 830,892,408 | $ | — | $ | 830,892,408 | ||||||||
7 Reorganizations
During the year ended November 30, 2019, the Trust acquired the net assets of Eaton Vance Michigan Municipal Income Trust (Michigan Trust), Eaton Vance Massachusetts Municipal Income Trust (Massachusetts Trust), Eaton Vance Ohio Municipal Income Trust (Ohio Trust), Eaton Vance Pennsylvania Municipal Income Trust (Pennsylvania Trust) and Eaton Vance New Jersey Municipal Income Trust (New Jersey Trust), (collectively, the “Acquired Trusts”), pursuant to Agreements and Plans of Reorganization (each, a “Plan”) approved by the respective shareholders of the Acquired Trusts. Under the terms of each Plan, the common shares of each Acquired Trust were, in effect, exchanged for new common shares of the Trust with an equal aggregate net asset value. The purpose of each reorganization was to combine two funds managed by EVM with similar investment objectives and policies. Each reorganization was structured as a tax-free reorganization under the Internal Revenue Code.
The net assets and shares outstanding of each Acquired Trust as of the close of business on the closing date of each reorganization and the number of shares issued in each reorganization by the Trust were as follows:
| Closing Date | Acquired Trust | Acquired Trust Shares Outstanding |
Acquired Trust Net Assets |
Trust Shares Issued |
||||||||||
| December 14, 2018 |
Michigan Trust | 2,012,993 | $ | 28,350,296 | 2,225,350 | |||||||||
| January 18, 2019 |
Massachusetts Trust | 2,737,021 | $ | 39,458,987 | 3,072,268 | |||||||||
| January 18, 2019 |
Ohio Trust | 2,857,157 | $ | 40,950,334 | 3,188,385 | |||||||||
| January 18, 2019 |
Pennsylvania Trust | 2,601,014 | $ | 34,007,282 | 2,647,800 | |||||||||
| February 22, 2019 |
New Jersey Trust | 4,598,158 | $ | 61,609,962 | 4,751,016 | |||||||||
| 22 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Notes to Financial Statements (Unaudited) — continued
The investment portfolios of the Acquired Trusts were the principal assets acquired by the Trust. For financial reporting purposes, assets received and shares issued by the Trust were recorded at fair value; however, the identified cost of the investments received from the Acquired Trusts were carried forward to align ongoing reporting of the Trust’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Investments and net assets immediately before each reorganization and combined net assets were as follows:
| Acquired Trust | Trust | |||||||||||||||||||
| Investments, at value |
Investments, at cost |
Net Assets | Net Assets | Combined Net Assets |
||||||||||||||||
| Michigan Trust |
$ | 44,892,357 | $ | 44,148,855 | $ | 28,350,296 | $ | 302,980,628 | $ | 331,330,924 | ||||||||||
| Massachusetts Trust |
$ | 59,742,970 | $ | 57,396,209 | $ | 39,458,987 | ||||||||||||||
| Ohio Trust |
$ | 61,325,033 | $ | 58,872,323 | $ | 40,950,334 | ||||||||||||||
| Pennsylvania Trust |
$ | 54,653,170 | $ | 53,514,276 | $ | 34,007,282 | ||||||||||||||
| $ | 175,721,173 | $ | 169,782,808 | $ | 114,416,603 | $ | 334,032,029 | $ | 448,448,632 | |||||||||||
| New Jersey Trust |
$ | 93,352,282 | $ | 89,688,645 | $ | 61,609,962 | $ | 452,778,473 | $ | 514,388,435 | ||||||||||
Included in net assets of the Acquired Trusts immediately before each reorganization were accumulated net realized gain (loss) and unrealized appreciation (depreciation) as follows:
| Accumulated Net Realized Gain (Loss) |
Unrealized Appreciation (Depreciation) |
|||||||
| Michigan Trust |
$ | 63,537 | $ | 743,502 | ||||
| Massachusetts Trust |
$ | 30,866 | $ | 2,346,761 | ||||
| Ohio Trust |
$ | 25,810 | $ | 2,452,710 | ||||
| Pennsylvania Trust |
$ | (1,151,503 | ) | $ | 1,138,894 | |||
| New Jersey Trust |
$ | (778,784 | ) | $ | 3,663,637 | |||
Assuming each reorganization had been completed on December 1, 2018, the beginning of the Trust’s annual reporting period, the Trust’s pro forma results of operations for the year ended November 30, 2019 are as follows:
| Net investment income |
$ | 21,152,288 | ||
| Net realized and unrealized gain |
$ | 52,166,934 | ||
| Net increase in net assets from operations |
$ | 73,319,222 | ||
Because the combined investment portfolios have been managed as a single integrated portfolio since the reorganizations were completed, it was not practicable to separate the amounts of revenue and earnings of each Acquired Trust since the closing date of each reorganization through November 30, 2019.
8 Risks and Uncertainties
An outbreak of respiratory disease caused by a novel coronavirus that was first detected in China in December 2019 has spread rapidly internationally. This coronavirus has resulted in closing borders, enhanced health screenings, changes to healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries and individual companies and can affect the market in general in significant and unforeseen ways. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks and disrupt normal market conditions and operations. The near-term impact of this coronavirus has resulted in substantial market volatility, which may have an adverse effect on the Trust’s investments.
| 23 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Annual Meeting of Shareholders (Unaudited)
The Trust held its Annual Meeting of Shareholders on March 19, 2020. The following action was taken by the shareholders:
Proposal 1. The election of William H. Park, Helen Frame Peters, Keith Quinton and Marcus L. Smith as Class III Trustees of the Trust for a three-year term expiring in 2023.
| Nominees for Trustee |
Number of Shares | |||||||
| For | Withheld | |||||||
| William H. Park |
34,357,355 | 1,347,841 | ||||||
| Helen Frame Peters |
34,416,338 | 1,288,858 | ||||||
| Keith Quinton |
34,773,226 | 931,970 | ||||||
| Marcus L. Smith |
34,836,890 | 868,306 | ||||||
| 24 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Board of Trustees’ Contract Approval
Overview of the Contract Review Process
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that the investment advisory agreement between a fund and its investment adviser will continue in effect from year-to-year only if its continuation is approved on an annual basis by a vote of the fund’s board of trustees, including a majority of the trustees who are not “interested persons” of the fund (“independent trustees”), cast in person at a meeting called for the purpose of considering such approval.
At a meeting held on April 22, 2020 (the “April 2020 Meeting”), the Boards of Trustees/Directors comprised of the same individuals (collectively, the “Board”) that oversees a majority of the registered investment companies advised by Eaton Vance Management or its affiliate, Boston Management and Research (the “Eaton Vance Funds”), including a majority of the independent trustees (the “Independent Trustees”), voted to approve the continuation of existing investment advisory agreements and sub-advisory agreements(1) for each of the Eaton Vance Funds for an additional one-year period. The Board relied upon the affirmative recommendation of its Contract Review Committee, which is a committee exclusively comprised of Independent Trustees. Prior to making its recommendation, the Contract Review Committee reviewed information furnished by the adviser and sub-adviser to each of the Eaton Vance Funds (including information specifically requested by the Board) for a series of formal meetings held between February and April 2020. Members of the Contract Review Committee also considered information received at prior meetings of the Board and its committees, to the extent such information was relevant to the Contract Review Committee’s annual evaluation of the investment advisory agreements and sub-advisory agreements.
In connection with its evaluation of the investment advisory agreements and sub-advisory agreements, the Board considered various information relating to the Eaton Vance Funds. This included information applicable to all or groups of Eaton Vance Funds, which is referenced immediately below, and information applicable to the particular Eaton Vance Fund covered by this report (additional fund-specific information is referenced below under “Results of the Contract Review Process”). (For funds that invest through one or more underlying portfolios, references to “each fund” in this section may include information that was considered at the portfolio-level.)
Information about Fees, Performance and Expenses
| • | A report from an independent data provider comparing advisory and other fees paid by each fund to such fees paid by comparable funds, as identified by the independent data provider (“comparable funds”); |
| • | A report from an independent data provider comparing each fund’s total expense ratio (and its components) to those of comparable funds; |
| • | A report from an independent data provider comparing the investment performance of each fund (including, as relevant, total return data, income data, Sharpe ratios and information ratios) to the investment performance of comparable funds and, as applicable, benchmark indices, over various time periods; |
| • | In certain instances, data regarding investment performance relative to customized groups of peer funds and blended indices identified by the adviser in consultation with the Portfolio Management Committee of the Board; |
| • | Comparative information concerning the fees charged and services provided by the adviser and sub-adviser to each fund in managing other accounts (which may include other mutual funds, collective investment funds and institutional accounts) using investment strategies and techniques similar to those used in managing such fund(s), if any; |
| • | Profitability analyses with respect to the adviser and sub-adviser to each of the funds; |
Information about Portfolio Management and Trading
| • | Descriptions of the investment management services provided to each fund, as well as each of the funds’ investment strategies and policies; |
| • | The procedures and processes used to determine the fair value of fund assets, when necessary, and actions taken to monitor and test the effectiveness of such procedures and processes; |
| • | Information about the policies and practices of each fund’s adviser and sub-adviser (in the context of a sub-adviser, only those with trading responsibilities) with respect to trading, including their processes for seeking best execution of portfolio transactions; |
| • | Information about the allocation of brokerage transactions and the benefits, if any, received by the adviser and sub-adviser (in the context of a sub-adviser, only those with trading responsibilities) to each fund as a result of brokerage allocation, including, as applicable, information concerning the acquisition of research through client commission arrangements and policies with respect to “soft dollars”; |
| • | Data relating to the portfolio turnover rate of each fund; |
Information about each Adviser and Sub-adviser
| • | Reports detailing the financial results and condition of the adviser and sub-adviser to each fund; |
| • | Information regarding the individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and, for portfolio managers and certain other investment professionals, information relating to their responsibilities with respect to managing other mutual funds and investment accounts, as applicable; |
| (1) | Not all Eaton Vance Funds have entered into a sub-advisory agreement with a sub-adviser. Accordingly, references to “sub-adviser” or “sub-advisory agreement” in this “Overview” section may not be applicable to the particular Eaton Vance Fund covered by this report. |
| 25 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Board of Trustees’ Contract Approval — continued
| • | The Code of Ethics of the adviser and its affiliates and the sub-adviser of each fund, together with information relating to compliance with, and the administration of, such codes; |
| • | Policies and procedures relating to proxy voting and the handling of corporate actions and class actions; |
| • | Information concerning the resources devoted to compliance efforts undertaken by the adviser and its affiliates and the sub-adviser of each fund, if any, including descriptions of their various compliance programs and their record of compliance; |
| • | Information concerning the business continuity and disaster recovery plans of the adviser and its affiliates and the sub-adviser of each fund, if any; |
| • | A description of Eaton Vance Management’s and Boston Management and Research’s oversight of sub-advisers, including with respect to regulatory and compliance issues, investment management and other matters; |
Other Relevant Information
| • | Information concerning the nature, cost and character of the administrative and other non-investment advisory services provided by Eaton Vance Management and its affiliates; |
| • | Information concerning oversight of the relationship with the custodian, subcustodians and fund accountants by the adviser and/or administrator to each of the funds; |
| • | For an Eaton Vance Fund structured as an exchange-listed closed-end fund, information concerning the benefits of the closed-end fund structure, as well as, where relevant, the closed-end fund’s market prices, trading volume data, distribution rates and other relevant matters; and |
| • | The terms of each investment advisory agreement and sub-advisory agreement. |
During the various meetings of the Board and its committees throughout the twelve months ended April 2020, the Trustees received information from portfolio managers and other investment professionals of the advisers and sub-advisers of the funds regarding investment and performance matters, and considered various investment and trading strategies used in pursuing the funds’ investment objectives. The Trustees also received information regarding risk management techniques employed in connection with the management of the funds. The Board and its committees evaluated issues pertaining to industry and regulatory developments, compliance procedures, fund governance and other issues with respect to the funds, and received and participated in reports and presentations provided by Eaton Vance Management, Boston Management and Research and fund sub-advisers, with respect to such matters. In addition to the formal meetings of the Board and its committees, the Independent Trustees held regular teleconferences to discuss, among other topics, matters relating to the continuation of investment advisory agreements and sub-advisory agreements.
The Contract Review Committee was advised throughout the contract review process by Goodwin Procter LLP, independent legal counsel for the Independent Trustees. The members of the Contract Review Committee, with the advice of such counsel, exercised their own business judgment in determining the material factors to be considered in evaluating each investment advisory agreement and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each investment advisory agreement and sub-advisory agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each member of the Contract Review Committee may have placed varying emphasis on particular factors in reaching conclusions with respect to each investment advisory agreement and sub-advisory agreement. In evaluating each investment advisory agreement and sub-advisory agreement, including the fee structures and other terms contained in such agreements, the members of the Contract Review Committee were also informed by multiple years of analysis and discussion with the adviser and sub-adviser to each of the Eaton Vance Funds.
In voting its approval of the continuation of existing investment advisory agreements and sub-advisory agreements at the April 2020 Meeting, the Board relied on an order issued by the Securities and Exchange Commission on March 25, 2020, which provided temporary relief from the in-person voting requirements under Section 15 of the 1940 Act in response to the impacts of the COVID-19 pandemic.
Results of the Contract Review Process
Based on its consideration of the foregoing, and such other information it deemed relevant, including the factors and conclusions described below, the Contract Review Committee concluded that the continuation of the investment advisory agreement between Eaton Vance Municipal Income Trust (the “Fund”) and Eaton Vance Management (the “Adviser”), including its fee structure, is in the interests of shareholders and, therefore, recommended to the Board approval of the agreement. Based on the recommendation of the Contract Review Committee, the Board, including a majority of the Independent Trustees, voted to approve continuation of the investment advisory agreement for the Fund.
Nature, Extent and Quality of Services
In considering whether to approve the investment advisory agreement for the Fund, the Board evaluated the nature, extent and quality of services provided to the Fund by the Adviser.
The Board considered the Adviser’s management capabilities and investment processes in light of the types of investments held by the Fund, including the education, experience and number of investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Fund. In particular, the Board considered the abilities and experience of the Adviser’s investment professionals in analyzing factors such as credit risk, tax efficiency, and special considerations relevant to investing in municipal bonds. The Board considered the Adviser’s municipal bond team,
| 26 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Board of Trustees’ Contract Approval — continued
which includes portfolio managers and credit specialists who provide services to the Fund. The Board also took into account the resources dedicated to portfolio management and other services, the compensation methods of the Adviser and other factors, including the reputation and resources of the Adviser to recruit and retain highly qualified research, advisory and supervisory investment professionals. In addition, the Board considered the time and attention devoted to the Eaton Vance Funds, including the Fund, by senior management, as well as the infrastructure, operational capabilities and support staff in place to assist in the portfolio management and operations of the Fund, including the provision of administrative services. The Board also considered the business-related and other risks to which the Adviser or its affiliates may be subject in managing the Fund. The Board considered the deep experience of the Adviser and its affiliates with managing and operating funds organized as exchange-listed closed-end funds, such as the Fund. In this regard, the Board considered, among other things, the Adviser’s and its affiliates’ experience with implementing leverage arrangements, monitoring and assessing trading price discounts and premiums and adhering to the requirements of securities exchanges.
The Board considered the compliance programs of the Adviser and relevant affiliates thereof. The Board considered compliance and reporting matters regarding, among other things, personal trading by investment professionals, disclosure of portfolio holdings, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also considered the responses of the Adviser and its affiliates to requests in recent years from regulatory authorities, such as the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
The Board considered other administrative services provided or overseen by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of a large fund complex offering exposure to a variety of asset classes and investment disciplines.
After consideration of the foregoing factors, among others, the Board concluded that the nature, extent and quality of services provided by the Adviser, taken as a whole, are appropriate and consistent with the terms of the investment advisory agreement.
Fund Performance
The Board compared the Fund’s investment performance to that of comparable funds identified by an independent data provider (the peer group), as well as an appropriate benchmark index, and assessed the Fund’s performance on the basis of total return and current income return. The Board’s review included comparative performance data with respect to the Fund for the one-, three-, five- and ten-year periods ended September 30, 2019. In this regard, the Board noted that the performance of the Fund was higher than the median performance of the Fund’s peer group for the three-year period. The Board also noted that the performance of the Fund was higher than its benchmark index for the three-year period. The Board considered, among other things, the Adviser’s efforts to generate competitive levels of tax-exempt current income over time through investments that focus on higher quality municipal bonds that often have longer maturities. The Board concluded that the performance of the Fund was satisfactory.
Management Fees and Expenses
The Board considered contractual fee rates payable by the Fund for advisory and administrative services (referred to collectively as “management fees”). As part of its review, the Board considered the Fund’s management fees and total expense ratio for the one-year period ended September 30, 2019, as compared to those of comparable funds, before and after giving effect to any undertaking to waive fees or reimburse expenses. The Board also considered certain Fund specific factors that had an impact on the Fund’s total expense ratio relative to comparable funds, as identified by management in response to inquiries from the Contract Review Committee. Additionally, the Board took into account the financial resources committed by the Adviser in structuring the Fund at the time of its initial public offering and the waiver of fees provided by the Adviser for the first five years of the Fund’s life. The Board also considered that, following discussions with the Contract Review Committee, the Adviser had implemented a series of permanent reductions in management fees beginning in May 2010, which had been fully implemented as of March 1, 2020.
After considering the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the management fees charged for advisory and related services are reasonable.
Profitability and “Fall-Out” Benefits
The Board considered the level of profits realized by the Adviser and relevant affiliates thereof in providing investment advisory and administrative services to the Fund and to all Eaton Vance Funds as a group. The Board considered the level of profits realized without regard to marketing support or other payments by the Adviser and its affiliates to third parties in respect of distribution or other services.
The Board concluded that, in light of the foregoing factors and the nature, extent and quality of the services rendered, the profits realized by the Adviser and its affiliates are deemed not to be excessive.
The Board also considered direct or indirect fall-out benefits received by the Adviser and its affiliates in connection with their respective relationships with the Fund, including the benefits of research services that may be available to the Adviser as a result of securities transactions effected for the Fund and other investment advisory clients.
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Eaton Vance
Municipal Income Trust
May 31, 2020
Board of Trustees’ Contract Approval — continued
Economies of Scale
In reviewing management fees and profitability, the Board also considered the extent to which the Adviser and its affiliates, on the one hand, and the Fund, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund increase. The Board acknowledged the difficulty in accurately measuring the benefits resulting from economies of scale, if any, with respect to the management of any specific fund or group of funds. The Board reviewed data summarizing the increases and decreases in the assets of the Fund and of all Eaton Vance Funds as a group over various time periods, and evaluated the extent to which the total expense ratio of the Fund and the profitability of the Adviser and its affiliates may have been affected by such increases or decreases. Based upon the foregoing, the Board concluded that the Fund currently shares in the benefits from economies of scale, if any, when they are realized by the Adviser. The Board also considered the fact that the Fund is not continuously offered in the same manner as an open-end fund and that, notwithstanding that the Fund is authorized to issue additional common shares through a shelf offering, the Fund’s assets are not expected to increase materially in the foreseeable future. Accordingly, the Board did not find that the implementation of breakpoints in the advisory fee schedule is warranted at this time.
| 28 |
Eaton Vance
Municipal Income Trust
May 31, 2020
Officers and Trustees
Officers
Payson F. Swaffield
President
Maureen A. Gemma
Vice President, Secretary and Chief Legal Officer
James F. Kirchner
Treasurer
Richard F. Froio
Chief Compliance Officer
Trustees
| * | Interested Trustee |
| 29 |
Eaton Vance Funds
IMPORTANT NOTICES
Privacy. The Eaton Vance organization is committed to ensuring your financial privacy. Each entity listed below has adopted a privacy policy and procedures (“Privacy Program”) Eaton Vance believes is reasonably designed to protect your personal information and to govern when and with whom Eaton Vance may share your personal information.
| • | At the time of opening an account, Eaton Vance generally requires you to provide us with certain information such as name, address, social security number, tax status, account numbers, and account balances. This information is necessary for us to both open an account for you and to allow us to satisfy legal requirements such as applicable anti-money laundering reviews and know-your-customer requirements. |
| • | On an ongoing basis, in the normal course of servicing your account, Eaton Vance may share your information with unaffiliated third parties that perform various services for Eaton Vance and/or your account. These third parties include transfer agents, custodians, broker/dealers and our professional advisers, including auditors, accountants, and legal counsel. Eaton Vance may additionally share your personal information with our affiliates. |
| • | We believe our Privacy Program is reasonably designed to protect the confidentiality of your personal information and to prevent unauthorized access to that information. |
| • | We reserve the right to change our Privacy Program at any time upon proper notification to you. You may want to review our Privacy Program periodically for changes by accessing the link on our homepage: www.eatonvance.com. |
Our pledge of protecting your personal information applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management (International) Limited, Eaton Vance Advisers International Limited, Eaton Vance Global Advisors Limited, Eaton Vance Management’s Real Estate Investment Group, Boston Management and Research, Calvert Research and Management, and Calvert Funds. This Privacy Notice supersedes all previously issued privacy disclosures. For more information about our Privacy Program or about how your personal information may be used, please call 1-800-262-1122.
Delivery of Shareholder Documents. The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders. American Stock Transfer & Trust Company, LLC (“AST”), the closed-end funds transfer agent, or your financial intermediary, may household the mailing of your documents indefinitely unless you instruct AST, or your financial intermediary, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact AST or your financial intermediary. Your instructions that householding not apply to delivery of your Eaton Vance documents will typically be effective within 30 days of receipt by AST or your financial intermediary.
Portfolio Holdings. Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) files a schedule of portfolio holdings on Part F to Form N-PORT with the SEC for the first and third quarters of each fiscal year. The Form N-PORT will be available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov.
Proxy Voting. From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov.
Share Repurchase Program. The Fund’s Board of Trustees has approved a share repurchase program authorizing the Fund to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. The Fund’s repurchase activity, including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Fund’s annual and semi-annual reports to shareholders.
Additional Notice to Shareholders. If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.
Closed-End Fund Information. Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.
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7695 5.31.20
| Item 2. | Code of Ethics |
Not required in this filing.
| Item 3. | Audit Committee Financial Expert |
Not required in this filing.
| Item 4. | Principal Accountant Fees and Services |
Not required in this filing.
| Item 5. | Audit Committee of Listed Registrants |
Not required in this filing.
| Item 6. | Schedule of Investments |
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
Not required in this filing.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not required in this filing.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers |
No such purchases this period.
| Item 10. | Submission of Matters to a Vote of Security Holders |
No material changes.
| Item 11. | Controls and Procedures |
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies |
No activity to report for the registrant’s most recent fiscal year end.
| Item 13. | Exhibits |
| (a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |
| (a)(2)(i) | Treasurer’s Section 302 certification. | |
| (a)(2)(ii) | President’s Section 302 certification. | |
| (b) | Combined Section 906 certification. | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Eaton Vance Municipal Income Trust
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: | July 17, 2020 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ James F. Kirchner | |
| James F. Kirchner | ||
| Treasurer | ||
| Date: | July 17, 2020 | |
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: | July 17, 2020 | |