[EATON VANCE LOGO]
[PHOTO OF BRICK WALL: EDUCATION]
ANNUAL REPORT NOVEMBER 30, 2002
EATON VANCE MUNICIPAL INCOME TRUST
[PHOTO OF HIGHWAY]
[PHOTO OF BRIDGE]
IMPORTANT NOTICE REGARDING DELIVERY
OF SHAREHOLDER DOCUMENTS
The Securities and Exchange Commission (SEC) permits mutual 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.
EATON VANCE, OR YOUR FINANCIAL ADVISER, MAY HOUSEHOLD THE MAILING OF YOUR
DOCUMENTS INDEFINITELY UNLESS YOU INSTRUCT EATON VANCE, OR YOUR FINANCIAL
ADVISER, OTHERWISE.
If you would prefer that your Eaton Vance documents not be householded, please
contact Eaton Vance at 1-800-262-1122, or contact your financial adviser.
Your instructions that householding not apply to delivery of your Eaton Vance
documents will be effective within 30 days of receipt by Eaton Vance or your
financial adviser.
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
LETTER TO SHAREHOLDERS
[PHOTO OF THOMAS J. FETTER]
Thomas J. Fetter
President
Amid the dramatic interest rate decline of recent years, many bonds issued at
relatively high interest rates from 1993-1998 have been pre-refunded by their
issuers. As a result, escrowed bonds have played an increasingly prominent role
in municipal bond portfolios. However, while these bonds are valued by
professional investors, analysts and portfolio managers, many individual
investors have little knowledge of why bonds are escrowed. As part of our
continuing educational series, we thought it might be helpful to discuss the
mechanics of escrowed bonds and the role of these bonds in the municipal market.
THE PROCESS OF ESCROWING MUNICIPAL BONDS TO MATURITY...
In the escrowing process, an issuing jurisdiction essentially refinances
original-issue debt with newer, usually lower-interest debt. The jurisdiction
issues a "refunding bond," the proceeds of which are used to purchase
specially-issued U.S. Treasury bonds - State and Local Government Series bonds,
which are held in an irrevocable escrow account by a trustee bank. The principal
and interest payments of these Treasury bonds exactly match the future principal
and interest payments of the issuer's original bonds.
The principal and interest from these U.S. Treasuries are directed solely to pay
the interest and principal on the tax-exempt bonds for which the escrow account
was established. Thus, the original bonds are now backed by U.S. Treasuries and
are, therefore, deemed among the highest quality of all tax-exempt issues.
BENEFITS FOR ISSUERS: LOWER INTEREST RATES AND ADDED FLEXIBILITY...
When municipal bonds are escrowed, they are said to be "defeased." That means
that the bonds are no longer governed by the original covenants and are no
longer a direct obligation of the original issuer. The most common defeasance -
"high-to-low" defeasance - is based on an economic rationale, in which an issuer
seeks to take advantage of a significant decline in interest rates - much the
same way homeowners finance their mortgages. By refunding high-coupon bonds with
lower-coupon debt, issuers are able to reduce their interest expenses and save
taxpayers and ratepayers money.
A second, less common procedure is "low-to-high" defeasance - in which
relatively low-coupon bonds are refunded with higher-coupon bonds. This
refunding is generally based on a pressing political or structural need, done
primarily to effect a change in bond covenants. This change may provide more
flexibility for issuers by broadening a project's mandate or redefining revenue
sources.
BENEFITS FOR INVESTORS: HIGHER QUALITY, SHORTER MATURITIES, ATTRACTIVE
COUPONS...
For investors, owning a bond that has been escrowed provides an immediate
upgrade in quality - and often in price - because the bond is now backed by U.S.
Treasuries. In addition, because the bond is likely to be called at its earliest
call date, it will have a shorter effective maturity and, therefore, less
volatility. Finally, in most cases, the bond continues to pay an above-average
coupon. These characteristics can represent distinct advantages for investors.
However compelling these benefits are, a portfolio manager still faces a key
decision: whether to hold the bond with its attractive coupon and no credit risk
- or - to sell the bond at its increased market value and redeploy the increased
purchasing power at current interest rates. The investor must factor in market
conditions, the interest rate outlook, the availability of bonds in the
marketplace and call provisions. If the escrowed bond's original call provisions
have been waived, that will dramatically improve the bond's trading
characteristics.
These decisions can have a profound effect upon performance. Moreover, the
treatment of escrowed bonds is yet another area that demonstrates the value of
professional management. We believe that familiarity with bond covenants,
trading patterns and in-depth analysis can provide investors a major advantage
in municipal bond investing.
Sincerely,
/s/ Thomas J. Fetter
--------------------
Thomas J. Fetter
President
January 9, 2003
SHARES OF THE TRUST 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.
YIELDS WILL VARY.
2
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
MANAGEMENT UPDATE
[PHOTO OF THOMAS M. METZOLD]
Thomas M. Metzold
Portfolio Manager
MANAGEMENT DISCUSSION
- The U.S. economic recovery remained sluggish, while weak demand and the
prospect of future military conflict in Iraq weighed heavily on the
financial markets. For much of the year, low interest rates gave a boost to
consumer spending. However, by year-end, amid high personal debt level,
there were signs that U.S. consumers were beginning to tighten their belts.
- With investors becoming increasingly risk-averse, municipal bonds were
among the leading asset classes in 2002. With the stock market declining
sharply for the third consecutive year, investors found a measure of
comfort in the fixed-income market.
- Hospital bonds represented the Trust's largest sector weighting at November
30, 2002. In a competitive national hospital market, the Trust focused on
well-regarded institutions, such as Loyola University Health System,
believed to have sound financial structures, good management and a
favorable demographic base.
- Because quality is a prime strategic consideration for the Trust, insured*
transportation bonds were the second largest sector weighting at November
30, 2002. The Dallas-Fort Worth, TX, International Airport was one of the
major holdings in this category.
- As interest rates declined sharply, management continued to adjust the
Trust's average coupon, while maintaining its efforts to upgrade call
protection. With low interest rates prompting refundings, call protection
has become increasingly important for municipal investors.
THE TRUST
PERFORMANCE FOR THE PAST YEAR
- Based on share price (traded on the New York Stock Exchange), the Trust had
a total return of 12.32% for the year ended November 30, 2002. That return
was the result of an increase in share price from $13.50 on November 30,
2001 to $14.05 on November 30, 2002, and the reinvestment of $1.030 in
regular monthly dividends.(1)
- Based on net asset value, the Trust had a total return of 8.68% for the
year ended November 30, 2002. That return was the result of an increase in
net asset value from $12.93 on November 30, 2001 to $13.02 on November 30,
2002, and the reinvestment of all distributions.
- Based on the most recent dividend and a share price of $14.05, the Trust
had a market yield of 7.90% at November 30, 2002.(2) The Trust's market
yield is equivalent to a taxable yield of 12.87%.(3)
[CHART]
FIVE LARGEST CATEGORIES(4)
By net assets applicable to common shares
Hospital 25.0%
Insured Transportation 20.4%*
Insured General Obligations 13.7%*
Housing 12.8%
Industrial Development Revenue 10.7%
* Private insurance does not reduce the interest rate risks or the risk of
loss of principal associated with these investments.
TRUST OVERVIEW(4)
- Number of Issues: 108
- Average Maturity: 25.0 years
- Average Rating: A
- Average Call: 10.1 years
- Average Dollar Price: $90.81
TRUST INFORMATION
AS OF NOVEMBER 30, 2002
PERFORMANCE(5)
Average Annual Total Returns (by market value, New York Stock Exchange)
One Year 12.32%
Life of Trust (1/29/99) 4.89%
Average Annual Total Returns (at net asset value)
One Year 8.68%
Life of Trust (1/29/99) 2.83%
For federal income tax purposes, 100% of the total dividends paid by the Trust
from net investment income during the year ended November 30, 2002, was
designated as an exempt interest dividend.
[CHART]
RATING DISTRIBUTION(4)
By total investments
AAA 40.3%
AA 5.3%
A 6.4%
BBB 19.3%
CCC 0.3%
Non-Rated 28.4%
(1) A portion of the Trust's income may be subject to federal income tax
and/or federal alternative minimum tax; income may be subject to state tax.
(2)The Trust's market yield is calculated by dividing the most recent
dividend per share by the share price at the end of the period and
annualizing the result. (3)Taxable-equivalent yield assumes maximum 38.6%
federal income tax rate. A lower rate would result in a lower tax-equivalent
figure. (4)Trust Overview, Rating Distribution, and Five Largest Categories
are subject to change. Trust Overview, Rating Distribution and Five Largest
Categories are determined by dividing the total market value of the holdings
by the total investments of the Trust. (5)Returns are historical and are
calculated by determining the percentage change in share price or net asset
value with all distributions reinvested. Past performance is no guarantee of
future results. Investment return and market price will fluctuate so that
shares, when sold, may be worth more or less than their original cost. Yields
will vary.
[SIDENOTE]
THE VIEWS 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.
THESE VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND EATON VANCE DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS.
THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE INVESTMENT
DECISIONS FOR AN EATON VANCE FUND ARE BASED ON MANY FACTORS, MAY NOT BE RELIED
ON AS AN INDICATION OF TRADING INTENT ON BEHALF OF ANY EATON VANCE FUND.
3
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
PORTFOLIO OF INVESTMENTS
TAX-EXEMPT INVESTMENTS -- 157.6%
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
-----------------------------------------------------------------------------
Cogeneration -- 1.4%
-----------------------------------------------------------------------------
$ 2,950 Maryland Energy Cogeneration, (AES
Warrior Run), (AMT), 7.40%, 9/1/19 $ 2,966,933
-----------------------------------------------------------------------------
$ 2,966,933
-----------------------------------------------------------------------------
Education -- 4.2%
-----------------------------------------------------------------------------
$ 2,250 California Educational Facilities
Authority, Residual Certificates,
Variable Rate, 12/1/32(1)(2) $ 2,483,640
6,875 Massachusetts Development Finance
Agency, (Boston University),
5.45%, 5/15/59 6,593,675
-----------------------------------------------------------------------------
$ 9,077,315
-----------------------------------------------------------------------------
Electric Utilities -- 10.4%
-----------------------------------------------------------------------------
$ 6,500 Brazos River Authority, TX, (Reliant
Energy, Inc.), (AMT), 5.375%, 4/1/19(3) $ 5,308,420
5,000 Brazos River Authority, TX, Pollution
Control, (Utility Electric Co.), (AMT),
4.80%, 4/1/33 4,944,250
3,550 Mississippi Business Finance Corp.,
(System Energy Resources, Inc.),
5.90%, 5/1/22 3,283,572
7,250 North Carolina Municipal Power Agency,
(Catawba), 6.50%, 1/1/20 7,705,662
1,250 San Antonio, TX, Electric and Natural
Gas, 4.50%, 2/1/21 1,172,325
-----------------------------------------------------------------------------
$ 22,414,229
-----------------------------------------------------------------------------
Escrowed / Prerefunded -- 8.5%
-----------------------------------------------------------------------------
$35,000 Dawson Ridge, CO, Metropolitan District
#1, Escrowed to Maturity, 0.00%, 10/1/22 $ 12,127,850
1,725 Maricopa County, AZ, IDA, (Place Five
and The Greenery), Escrowed to Maturity,
8.625%, 1/1/27 2,173,120
4,250 Metropolitan Transportation Authority of
New York Commuter Revenue, Escrowed to
Maturity, (FGIC), 4.75%, 7/1/26 4,154,460
-----------------------------------------------------------------------------
$ 18,455,430
-----------------------------------------------------------------------------
General Obligations -- 4.4%
-----------------------------------------------------------------------------
$ 2,000 Kershaw County, SC, School District,
5.00%, 2/1/18 $ 2,050,120
8,225 North East Independent School District,
TX, 4.50%, 10/1/28 7,485,079
-----------------------------------------------------------------------------
$ 9,535,199
-----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
-----------------------------------------------------------------------------
Health Care-Miscellaneous -- 1.4%
-----------------------------------------------------------------------------
$ 640 Tax Exempt Securities Trust, Community
Health Provider, Pooled Loan Program,
6.00%, 12/1/36 $ 645,139
1,689 Tax Exempt Securities Trust, Community
Health Provider, Pooled Loan Program,
6.25%, 12/1/36 1,760,974
641 Tax Exempt Securities Trust, Community
Health Provider, Pooled Loan Program,
7.75%, 12/1/36 644,227
-----------------------------------------------------------------------------
$ 3,050,340
-----------------------------------------------------------------------------
Hospital -- 25.0%
-----------------------------------------------------------------------------
$ 2,500 California Health Facilities Authority,
(Cedars Sinai Medical Center), Variable
Rate, 12/1/34(1)(4) $ 2,779,925
965 Chautauqua County, NY, IDA, (Women's
Christian Association), 6.35%, 11/15/17 900,596
1,000 Chautauqua County, NY, IDA, (Women's
Christian Association), 6.40%, 11/15/29 897,740
1,410 Colorado Health Facilities Authority,
(Rocky Mountain Adventist),
6.625%, 2/1/22 1,439,610
1,000 Halifax, FL, Medical Center,
7.25%, 10/1/24 1,049,540
2,805 Highland County, OH, (Joint Township
Hospital District), 6.75%, 12/1/29 2,596,280
5,000 Illinois Health Facility Authority,
(Loyola University Health System),
6.00%, 7/1/21 5,053,100
3,000 John Tolfree Health System Corp., MI,
6.00%, 9/15/23 2,932,830
3,500 Loris, SC, Community Hospital District,
5.625%, 1/1/29 3,290,595
5,250 Louisiana Public Facilities Authority,
(Tuoro Infirmary), 5.625%, 8/15/29 5,135,918
2,000 Martin County, MN, (Fairmont Community
Hospital Association), 6.625%, 9/1/22 1,947,180
1,530 Mecosta County, MI, General Hospital,
5.75%, 5/15/09 1,525,150
2,500 Mecosta County, MI, General Hospital,
6.00%, 5/15/18 2,322,100
4,260 New Jersey Health Care Facilities
Financing Authority, (Capital Health
System), 5.25%, 7/1/27 3,549,134
1,500 New Jersey Health Care Facilities
Financing Authority, (Trinitas
Hospital), 7.50%, 7/1/30 1,612,755
5,000 North Central, TX, Health Facility
Development Corp., (Baylor Healthcare
System), 5.125%, 5/15/29 4,845,050
1,550 Oneonta, AL, Eastern Health Care
Facility Financing Authority, (Eastern
Health Systems, Inc.), 7.75%, 7/1/21 1,677,410
7,000 Rhode Island HEFA, (St. Joseph Health
Services), 5.50%, 10/1/29 5,857,950
SEE NOTES TO FINANCIAL STATEMENTS
4
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
PORTFOLIO OF INVESTMENTS CONT'D
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
-----------------------------------------------------------------------------
Hospital (continued)
-----------------------------------------------------------------------------
$ 2,425 Southwestern Illinois, Development
Authority, (Anderson Hospital),
5.625%, 8/15/29 $ 2,230,564
2,500 Sullivan County, TN, Health Educational
and Housing Facility Board, (Wellmont
Health System), 6.25%, 9/1/32 2,500,675
-----------------------------------------------------------------------------
$ 54,144,102
-----------------------------------------------------------------------------
Housing -- 12.8%
-----------------------------------------------------------------------------
$ 990 California Statewide Communities
Development Authority, Variable Rate,
6/1/09(1)(4) $ 991,089
4,000 Charter Mac Equity Trust, TN, (AMT),
6.625%, 6/30/09 4,188,400
3,185 Florida Capital Projects Finance
Authority, Student Housing Revenue,
(Florida University), 7.75%, 8/15/20 3,271,855
925 Lake Creek, CO, Affordable Housing
Corp., Multifamily, 7.00%, 12/1/23 869,047
4,555 Louisiana Public Facilities Authority,
(Eden Point), 6.25%, 3/1/34 4,014,139
4,000 Muni Mae Tax-Exempt Bond, LLC, (AMT),
Variable Rate, 6/30/09 4,242,920
3,265 North Little Rock, AR, Residential
Housing Facilities, (Parkstone Place),
6.50%, 8/1/21 3,079,711
3,630 Oregon Health Authority, (Trillium
Affordable Housing), (AMT),
6.75%, 2/15/29 3,376,626
970 Raleigh, NC, Housing Authority,
Multifamily, (Cedar Point),
7.00%, 11/1/30(5) 388,000
3,300 Texas Student Housing Corp., (University
of Northern Texas), 6.75%, 7/1/16 3,303,531
-----------------------------------------------------------------------------
$ 27,725,318
-----------------------------------------------------------------------------
Industrial Development Revenue -- 10.7%
-----------------------------------------------------------------------------
$ 1,945 Abia Development Corp., TX, (Austin
Cargoport Development), (AMT),
6.50%, 10/1/24 $ 1,709,776
1,890 Broward County, FL, IDR, (Lynxs
Cargoport), (AMT), 6.75%, 6/1/19 1,716,460
2,500 Denver, CO, City and County, (United
Airlines), Variable Rate,
10/1/32(1)(4)(6) 0
1,000 Gloucester County, NJ, Improvements
Authority, (Waste Management, Inc.),
(AMT), 7.00%, 12/1/29 1,094,130
2,500 Gulf Coast, TX, Waste Disposal
Authority, (Valero Energy Corp.) (AMT),
5.70%, 4/1/32 2,242,150
2,250 Gulf Coast, TX, Waste Disposal,
(Champion International), (AMT),
6.875%, 12/1/28 2,317,455
2,500 Los Angeles, CA, Regional Airports
Improvements Corp., (Terminal Four),
(AMT), 7.50%, 12/1/24 1,925,225
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
-----------------------------------------------------------------------------
Industrial Development Revenue (continued)
-----------------------------------------------------------------------------
$ 3,000 Minneapolis and St. Paul, MN,
Metropolitan Airport Commission,
(Northwest Airlines), (AMT),
7.00%, 4/1/25 $ 2,207,670
3,000 Missouri Development Finance Authority,
Solid Waste Disposal, (Proctor and
Gamble Paper Products), (AMT),
5.20%, 3/15/29 3,001,890
6,000 New Jersey EDA, (Continental Airlines),
(AMT), 6.25%, 9/15/29 3,777,120
3,500 New York City, NY, Industrial
Development Agency, (American Airlines,
Inc.), (AMT), 8.50%, 8/1/28 2,047,500
2,950 Phoenix, AZ, IDA, (America West
Airlines, Inc.), (AMT), 6.25%, 6/1/19 1,065,894
-----------------------------------------------------------------------------
$ 23,105,270
-----------------------------------------------------------------------------
Insured-Education -- 3.9%
-----------------------------------------------------------------------------
$13,000 Illinois Development Finance Authority,
(Local Government Program-Elgin School
District-U46), (FSA), 0.00%, 1/1/20 $ 5,256,030
3,000 Massachusetts HEFA, (Berklee College of
Music), (MBIA), Variable Rate,
10/1/27(1)(4) 3,067,920
-----------------------------------------------------------------------------
$ 8,323,950
-----------------------------------------------------------------------------
Insured-Electric Utilities -- 0.5%
-----------------------------------------------------------------------------
$ 100 Los Angeles, CA, Department of Water and
Power, (MBIA), Variable Rate,
12/15/24(1)(4) $ 961,200
-----------------------------------------------------------------------------
$ 961,200
-----------------------------------------------------------------------------
Insured-General Obligations -- 13.7%
-----------------------------------------------------------------------------
$ 3,500 California General Obligation, (FGIC),
Variable Rate, 9/1/30(1)(2) $ 3,683,050
500 California, (FGIC), Variable Rate,
12/1/29(1)(4) 1,243,000
6,000 Chicago, IL, (MBIA), 5.00%, 1/1/41 5,845,260
30,160 Chicago, IL, Board Education, (FGIC),
0.00%, 12/1/22 10,087,917
4,000 Puerto Rico Infrastructure Financing
Authority, (FSA), Variable Rate,
7/1/27(1)(2) 4,341,880
10,000 Washington State General Obligation,
(FGIC), 0.00%, 1/1/19 4,330,500
-----------------------------------------------------------------------------
$ 29,531,607
-----------------------------------------------------------------------------
Insured-Hospital -- 8.6%
-----------------------------------------------------------------------------
$21,305 Kentucky EDA, (Norton Healthcare, Inc.),
(MBIA), 0.00%, 10/1/25 $ 6,048,276
SEE NOTES TO FINANCIAL STATEMENTS
5
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
PORTFOLIO OF INVESTMENTS CONT'D
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
-----------------------------------------------------------------------------
Insured-Hospital (continued)
-----------------------------------------------------------------------------
$23,470 Kentucky EDA, (Norton Healthcare, Inc.),
(MBIA), 0.00%, 10/1/26 $ 6,290,899
10,000 Kentucky EDA, (Norton Healthcare, Inc.),
(MBIA), 0.00%, 10/1/27 2,529,600
4,000 New Jersey Health Care Facilities
Financing Authority, (St. Barnabas
Medical Center), (MBIA), Variable Rate,
7/1/28(1)(2) 3,623,960
-----------------------------------------------------------------------------
$ 18,492,735
-----------------------------------------------------------------------------
Insured-Special Tax Revenue -- 2.5%
-----------------------------------------------------------------------------
$15,905 Metropolitan Pier and Exposition
Authority, IL, (MBIA), 0.00%, 6/15/23 $ 5,124,114
60 South Orange County, CA, Public
Financing Authority, (FGIC), DRIVERS,
Variable Rate, 8/15/15(1)(4) 320,490
-----------------------------------------------------------------------------
$ 5,444,604
-----------------------------------------------------------------------------
Insured-Transportation -- 20.4%
-----------------------------------------------------------------------------
$ 9,000 Central Texas Turnpike Authority,
(AMBAC), 0.00%, 8/15/21 $ 3,314,790
3,500 Chicago, IL, O'Hare International
Airport, (AMBAC), (AMT), 5.375%, 1/1/32 3,534,650
2,500 Dallas-Fort Worth, TX, International
Airport, (FGIC), (AMT), 5.50%, 11/1/20 2,564,550
4,930 Dallas-Fort Worth, TX, International
Airport, (FGIC), (AMT), 5.75%, 11/1/30 5,192,473
4,500 Dallas-Fort Worth, TX, International
Airport, (FGIC), (AMT), 6.125%, 11/1/35 5,019,795
2,400 Massachusetts Turnpike Authority,
Metropolitan Highway System, (MBIA),
Variable Rate, 1/1/27(1)(2) 2,244,000
7,500 Minneapolis and St. Paul, MN,
Metropolitan Airport Commission, (FGIC),
5.25%, 1/1/32 7,610,700
5,500 Nevada Department of Business and
Industry, (Las Vegas Monorail -1st
Tier), (AMBAC), 5.375%, 1/1/40 5,610,055
2,000 Puerto Rico Highway and Transportation
Authority, (FSA), Variable Rate,
7/1/32(1)(2) 2,029,260
7,000 San Antonio, TX, Airport System,
(Improvements), (FGIC), 5.25%, 7/1/21 7,028,420
-----------------------------------------------------------------------------
$ 44,148,693
-----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
-----------------------------------------------------------------------------
Miscellaneous -- 2.4%
-----------------------------------------------------------------------------
$ 3,900 Puerto Rico Infrastructure Financing
Authority, Variable Rate, 10/1/32(1)(2) $ 5,241,873
-----------------------------------------------------------------------------
$ 5,241,873
-----------------------------------------------------------------------------
Nursing Home -- 4.2%
-----------------------------------------------------------------------------
$ 3,700 Ohio HFA, Retirement Rental Housing,
(Encore Retirement Partners),
6.75%, 3/1/19 $ 3,192,619
750 Okaloosa County, FL, Retirement Rental
Housing, (Encore Retirement Partners),
6.125%, 2/1/14 667,088
2,000 Orange County, FL, Health Facilities
Authority, (Westminster Community Care),
6.75%, 4/1/34 1,500,400
773 Tarrant County, TX, Health Facilities
Authority, 8.00%, 9/1/25 762,086
1,221 Tarrant County, TX, Health Facilities
Authority, (3927 Foundation),
10.25%, 9/1/19(5) 51,876
3,000 Wisconsin HEFA, (Wisconsin Illinois
Senior Housing), 7.00%, 8/1/29 2,837,490
-----------------------------------------------------------------------------
$ 9,011,559
-----------------------------------------------------------------------------
Other Revenue -- 7.1%
-----------------------------------------------------------------------------
$ 2,000 Badger Tob Asset Securitization Corp.,
WI, 6.375%, 6/1/32 $ 1,930,540
4,000 Capital Trust Agency, FL, (Seminole
Tribe Convention), 10.00%, 10/1/33 4,078,720
1,500 Mohegan Tribe Indians, CT, Gaming
Authority, (Public Improvements),
6.25%, 1/1/21 1,549,200
3,300 Santa Fe, NM, (Crow Hobbs),
8.50%, 9/1/16 3,409,131
5,000 Tobacco Settlement Financing Corp., LA,
5.875%, 5/15/39 4,467,650
-----------------------------------------------------------------------------
$ 15,435,241
-----------------------------------------------------------------------------
Senior Living / Life Care -- 3.9%
-----------------------------------------------------------------------------
$ 1,960 Cliff House Trust, PA, (AMT),
6.625%, 6/1/27 $ 1,723,487
280 Delaware County, PA, IDA, (Glen Riddle),
(AMT), 8.125%, 9/1/05 287,969
2,000 Delaware County, PA, IDA, (Glen Riddle),
(AMT), 8.625%, 9/1/25 2,120,640
3,240 Logan County, CO, Industrial Development
Revenue, (TLC Care Choices, Inc.),
6.875%, 12/1/23 2,938,939
1,400 Mesquite, TX, Health Facilities
Authority, (Christian Retirement
Facility), 7.625%, 2/15/28 1,450,288
-----------------------------------------------------------------------------
$ 8,521,323
-----------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
6
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
PORTFOLIO OF INVESTMENTS CONT'D
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
-----------------------------------------------------------------------------
Special Tax Revenue -- 4.5%
-----------------------------------------------------------------------------
$ 3,280 Bell Mountain Ranch, CO, Metropolitan
District, 6.625%, 11/15/25 $ 3,350,586
3,600 Black Hawk, CO, Business Improvement
District, 6.50%, 12/1/11 3,548,304
1,195 Longleaf, FL, Community Development
District, 6.20%, 5/1/09 1,109,689
1,855 Longleaf, FL, Community Development
District, 6.65%, 5/1/20 1,657,498
-----------------------------------------------------------------------------
$ 9,666,077
-----------------------------------------------------------------------------
Transportation -- 1.6%
-----------------------------------------------------------------------------
$ 3,750 Kent County, MI, Airport Facility,
(AMT), Variable Rate, 1/1/25(1)(4) $ 3,549,225
-----------------------------------------------------------------------------
$ 3,549,225
-----------------------------------------------------------------------------
Water and Sewer -- 5.5%
-----------------------------------------------------------------------------
$
3,400 California Department Water Resource
Power Supply, 5.125%, 5/1/18 $ 3,418,972
1,500 Metropolitan Water District, CA,
(Southern California Waterworks),
Variable Rate, 1/1/18(1)(4) 1,447,200
6,500 Sacramento County, CA, Sanitation
District Financing Authority Revenue,
5.875%, 12/1/27 7,123,220
-----------------------------------------------------------------------------
$ 11,989,392
-----------------------------------------------------------------------------
Total Tax-Exempt Investments -- 157.6%
(identified cost $344,539,619) $ 340,791,615
-----------------------------------------------------------------------------
Other Assets, Less Liabilities -- 3.0% $ 6,572,921
-----------------------------------------------------------------------------
Auction Preferred Shares Plus Cumulative Unpaid Dividends --
(60.6)% (131,089,685)
-----------------------------------------------------------------------------
Net Assets Applicable to Common Shares-- 100.0%
$ 216,274,851
-----------------------------------------------------------------------------
AMT - Interest earned from these securities may be considered a tax
preference item for purposes of the federal alternative minimum tax.
At November 30, 2002, the concentration of the Trust's investments in the
various states, determined as a percentage of net assets, is as follows:
California 12.2%
Colorado 11.2%
Illinois 17.2%
Texas 27.1%
Others, representing less than 10% individually 89.9%
The Trust invests primarily in debt securities issued by municipalities. The
ability of the issuers of the debt securities to meet their obligations may
be affected by economic developments in a specific industry or municipality.
In order to reduce the risk associated with such economic developments, at
November 30, 2002, 32.6% of the securities in the portfolio of investments
are backed by bond insurance of various financial institutions and financial
guaranty assurance agencies. The aggregate percentage insured by financial
institutions ranged from 3.4% to 15.0% of total investments.
(1) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(2) Security has been issued as a leveraged inverse floater bond.
(3) Security (or a portion thereof) has been segregated as collateral in
connection with the shortfall and forebearance agreement.
(4) Security has been issued as an inverse floater bond.
(5) Non-income producing security.
(6) Security is subject to a shortfall and forebearance agreement (Note 9).
SEE NOTES TO FINANCIAL STATEMENTS
7
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 2002
Assets
------------------------------------------------------
Investments, at value
(identified cost, $344,539,619) $340,791,615
Cash 484,075
Receivable for investments sold 50,000
Interest receivable 6,533,821
Prepaid expenses 99,212
------------------------------------------------------
TOTAL ASSETS $347,958,723
------------------------------------------------------
Liabilities
------------------------------------------------------
Shortfall and forebearance agreement $ 500,050
Payable to affiliate for Trustees' fees 1,253
Accrued expenses 92,884
------------------------------------------------------
TOTAL LIABILITIES $ 594,187
------------------------------------------------------
AUCTION PREFERRED SHARES (5,240 SHARES
OUTSTANDING) AT LIQUIDATION VALUE
PLUS CUMULATIVE UNPAID DIVIDENDS $131,089,685
------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES $216,274,851
------------------------------------------------------
Sources of Net Assets
------------------------------------------------------
Common Shares, $0.01 par value;
unlimited number of shares
authorized, 16,612,984 shares issued
and outstanding $ 166,130
Additional paid-in capital 245,993,004
Accumulated net realized loss (computed
on the basis of identified cost) (29,141,182)
Accumulated undistributed net investment
income 3,504,953
Net unrealized depreciation (computed on
the basis of identified cost) (4,248,054)
------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES $216,274,851
------------------------------------------------------
Net Asset Value Per Common Share
------------------------------------------------------
($216,274,851 DIVIDED BY 16,612,984
COMMON SHARES ISSUED AND OUTSTANDING) $ 13.02
------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 2002
Investment Income
-----------------------------------------------------
Interest $24,746,076
-----------------------------------------------------
TOTAL INVESTMENT INCOME $24,746,076
-----------------------------------------------------
Expenses
-----------------------------------------------------
Investment adviser fee $ 2,413,636
Administration fee 689,724
Trustees' fees and expenses 15,901
Transfer and dividend disbursing
agent fees 207,519
Preferred shares remarketing agent fee 334,678
Custodian fee 138,153
Legal and accounting services 81,161
Printing and postage 74,443
Miscellaneous 79,008
-----------------------------------------------------
TOTAL EXPENSES $ 4,034,223
-----------------------------------------------------
Deduct --
Reduction of custodian fee $ 11,689
-----------------------------------------------------
TOTAL EXPENSE REDUCTIONS $ 11,689
-----------------------------------------------------
NET EXPENSES $ 4,022,534
-----------------------------------------------------
NET INVESTMENT INCOME $20,723,542
-----------------------------------------------------
Realized and Unrealized Gain (Loss)
-----------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 1,542,077
Interest rate swap contracts (51,063)
-----------------------------------------------------
NET REALIZED GAIN $ 1,491,014
-----------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(1,520,186)
Interest rate swap contracts 90,770
-----------------------------------------------------
NET CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) $(1,429,416)
-----------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 61,598
-----------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
FROM NET INVESTMENT INCOME $(2,445,875)
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $18,339,265
-----------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
8
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
INCREASE (DECREASE) YEAR ENDED YEAR ENDED
IN NET ASSETS NOVEMBER 30, 2002 NOVEMBER 30, 2001
------------------------------------------------------------------------------
From operations --
Net investment income $ 20,723,542 $ 18,368,683
Net realized gain (loss) 1,491,014 (5,499,488)
Net change in unrealized
appreciation (depreciation) (1,429,416) 19,844,258
Distributions to preferred
shareholders from net investment
income (2,445,875) (4,064,981)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 18,339,265 $ 28,648,472
------------------------------------------------------------------------------
Distributions to common shareholders --
From net investment income $ (17,028,398) $ (12,687,380)
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO COMMON
SHAREHOLDERS $ (17,028,398) $ (12,687,380)
------------------------------------------------------------------------------
Capital share transactions --
Reinvestment of distributions
to common shareholders $ 2,648,507 $ 1,678,324
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS $ 2,648,507 $ 1,678,324
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 3,959,374 $ 17,639,416
------------------------------------------------------------------------------
Total Net Assets
------------------------------------------------------------------------------
At beginning of year $ 212,315,477 $ 194,676,061
------------------------------------------------------------------------------
AT END OF YEAR $ 216,274,851 $ 212,315,477
------------------------------------------------------------------------------
Accumulated undistributed
net investment income
included in net assets
applicable to common
shares
------------------------------------------------------------------------------
AT END OF YEAR $ 3,504,953 $ 2,434,569
------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
9
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A COMMON SHARE OUTSTANDING DURING PERIODS STATED
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
2002(1)(2) 2001(2) 2000(2) 1999(2)(3)
--------------------------------------------------------------------------------------------------------
Net asset value -- Beginning
of year (Common shares) $ 12.930 $ 11.950 $ 11.720 $ 15.000
--------------------------------------------------------------------------------------------------------
Income (loss) from operations
--------------------------------------------------------------------------------------------------------
Net investment income $ 1.255 $ 1.124 $ 1.083 $ 0.837
Net realized and unrealized
gain (loss) 0.013 0.873 0.260 (3.246)
Distributions to preferred
shareholders (0.148) (0.240) (0.328) (0.197)
--------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
OPERATIONS $ 1.120 $ 1.757 $ 1.015 $ (2.606)
--------------------------------------------------------------------------------------------------------
Less distributions to common shareholders
--------------------------------------------------------------------------------------------------------
From net investment income $ (1.030) $ (0.777) $ (0.785) $ (0.550)
--------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (1.030) $ (0.777) $ (0.785) $ (0.550)
--------------------------------------------------------------------------------------------------------
PREFERRED AND COMMON SHARES
OFFERING COSTS CHARGED TO
PAID-IN CAPITAL $ -- $ -- $ -- $ (0.042)
--------------------------------------------------------------------------------------------------------
PREFERRED SHARES UNDERWRITING
DISCOUNTS $ -- $ -- $ -- $ (0.082)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR
(COMMON SHARES) $ 13.020 $ 12.930 $ 11.950 $ 11.720
--------------------------------------------------------------------------------------------------------
MARKET VALUE -- END OF YEAR
(COMMON SHARES) $ 14.050 $ 13.500 $ 11.125 $ 11.688
--------------------------------------------------------------------------------------------------------
TOTAL RETURN(4) 12.32% 28.95% 2.05% (18.74)%
--------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
10
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A COMMON SHARE OUTSTANDING DURING PERIODS STATED
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
2002(1)(2) 2001(2) 2000(2) 1999(2)(3)
--------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data+ ++
--------------------------------------------------------------------------------------------------------
Net assets applicable to
common shares, end of year
(000's omitted) $216,275 $212,315 $194,676 $190,209
Ratios (As a percentage of
average net assets
applicable to common
shares):
Net expenses(5) 1.89% 1.88% 1.95% 1.76%(6)
Net expenses after
custodian fee
reduction(5) 1.88% 1.88% 1.91% 1.70%(6)
Net investment income(5) 9.69% 8.79% 9.47% 7.38%(6)
Portfolio Turnover 14% 60% 66% 151%
+ The expenses of the Trust may reflect a reduction of the investment adviser fee. Had such action not
been taken, the ratios and the net investment income would have been as follows:
Ratios (As a percentage of
average net assets
applicable to common
shares):
Expenses(5) 1.76%(6)
Expenses after custodian
fee reduction(5) 1.70%(6)
Net investment income(5) 7.38%(6)
Net investment income per
share $ 0.837
++ The ratios reported above are based on net assets applicable solely to common shares. The ratios
based on net assets, including amounts related to preferred shares, are as follows:
Ratios (As a percentage of
average total net assets):
Net expenses(5) 1.17% 1.15% 1.15% 1.14%(6)
Net expenses after
custodian fee
reduction(5) 1.17% 1.15% 1.12% 1.10%(6)
Net investment income 6.01% 5.40% 5.56% 4.77%(6)
+ The expenses of the Trust may reflect a reduction of the investment adviser fee. Had such action not
been taken, the ratios would have been as follows:
Ratios (As a percentage of
average total net assets):
Expenses 1.14%(6)
Expenses after custodian
fee reduction 1.10%(6)
Net investment income 4.77%(6)
--------------------------------------------------------------------------------------------------------
Senior Securities:
Total preferred shares
outstanding 5,240 5,240 5,240 5,240
Asset coverage per
preferred share(7) $ 66,291 $ 65,548 $ 62,155 $ 61,308
Involuntary liquidation
preference per preferred
share(8) $ 25,000 $ 25,000 $ 25,000 $ 25,000
Approximate market value
per preferred share(8) $ 25,000 $ 25,000 $ 25,000 $ 25,000
--------------------------------------------------------------------------------------------------------
(1) The Trust has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies and began using the interest
method to amortize premiums on fixed-income securities. The effect of
this change for the year ended November 30, 2002 was to increase net
investment income per share by $0.011, decrease net realized and
unrealized gains per share by $0.011, increase the ratio of net
investment income to average net assets applicable to common shares from
9.61% to 9.69% and increase the ratio of net investment income to
average total net assets from 5.96% to 6.01%. Per share data and ratios
for the periods prior to December 1, 2001 have not been restated to
reflect this change in presentation.
(2) Computed using average common shares outstanding.
(3) For the period from the start of business, January 29, 1999, to November
30, 1999.
(4) Returns are historical and are calculated by determining the percentage
change in market value with all distributions reinvested. Total return
is not computed on an annualized basis.
(5) Ratios do not reflect the effect of dividend payments to preferred
shareholders. Ratios to average net assets applicable to common shares
reflect the Trust's leveraged capital structure.
(6) Annualized.
(7) Calculated by subtracting the Trust's total liabilities (not including
the preferred shares) from the Trust's total assets, and dividing this
by the number of preferred shares outstanding.
(8) Plus accumulated and unpaid dividends.
SEE NOTES TO FINANCIAL STATEMENTS
11
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-------------------------------------------
Eaton Vance Municipal Income Trust (the Trust) is an entity commonly known as
a Massachusetts business trust and is registered under the Investment Company
Act of 1940 as a non-diversified, closed-end management investment company.
The Trust was organized under the laws of the Commonwealth of Massachusetts
by an Agreement and Declaration of Trust dated December 10, 1998. The Trust's
investment objective is to achieve current income exempt from regular federal
income tax by investing primarily in investment grade municipal obligations.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in
the United States of America.
A Investment Valuation -- Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on the
commodity exchanges are valued at closing settlement prices. Short-term
obligations, maturing in sixty days or less, are valued at amortized cost,
which approximates value. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods determined
in good faith by or at the direction of the Trustees.
B Investment Transactions -- Investment transactions are recorded on a trade
date basis. Realized gains and losses from such transactions are determined
using the specific identification method. Securities purchased or sold on a
when-issued or delayed delivery basis may be settled a month or more after
the transaction date. The securities so purchased are subject to market
fluctuations during this period. To the extent that when-issued or delayed
delivery purchases are outstanding, the Trust instructs the custodian to
segregate assets in a separate account, with a current value at least equal
to the amount of its purchase commitments.
C Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount. Effective December 1, 2001,
the Trust adopted the provisions of the revised AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premiums on fixed-income
securities using the interest method of amortization. Prior to December 1,
2001, the Trust amortized market premiums on fixed-income securities using
the proportional method of amortization. The cumulative effect of this
accounting change had no impact on the Trust's net assets, but resulted in a
$182,235 increase in cost of securities and a corresponding $182,235 decrease
in net unrealized appreciation, based on securities held on November 30,
2001.
The effect of this change for the year ended November 30, 2002 was to
increase net investment income by $178,886, decrease net realized gain by
$31,695, and increase net unrealized depreciation by $147,191.
The statement of changes in net assets and financial highlights for prior
periods have not been restated to reflect these changes.
D Federal Income 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 all of its taxable income, if any,
and tax-exempt income, including any net realized gain on investments.
Therefore, no provision for federal income or excise tax is necessary. At
November 30, 2002, the Trust, for federal income tax purposes, had a capital
loss carryover of $29,387,222 which will reduce the taxable income arising
from future net realized gain on investments, if any, to the extent permitted
by the Internal Revenue Code and thus will reduce the amount of distributions
to shareholders which would otherwise be necessary to relieve the Trust of
any liability for federal income or excise tax. Such capital loss carryover
will expire on November 30, 2007 ($9,497,591), November 30, 2008
($14,623,294), and November 30, 2009 ($5,266,337). In addition, the Trust
intends to satisfy conditions which will enable it to designate distributions
from the interest income generated by its investments in municipal
obligations, which are exempt from regular federal income taxes 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 for investors.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Trust is required to deposit (initial margin) either in cash or
securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Trust (margin maintenance) each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Trust. The Trust's
investment in financial
12
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
NOTES TO FINANCIAL STATEMENTS CONT'D
futures contracts is designed for both hedging against anticipated future
changes in interest rates and investment purposes. Should interest rates move
unexpectedly, the Trust may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F Options on Financial Futures Contracts -- Upon the purchase of a put option
on a financial futures contract by the Trust, the premium paid is recorded as
an investment, the value of which is marked-to-market daily. When a purchased
option expires, the Trust will realize a loss in the amount of the cost of
the option. When the Trust enters into a closing sale transaction, the Trust
will realize a gain or loss depending on whether the sales proceeds from the
closing sale transaction are greater or less than the cost of the option.
When the Trust exercises a put option, settlement is made in cash. The risk
associated with purchasing put options is limited to the premium originally
paid.
G Interest Rate Swaps -- The Trust has entered into interest rate swap
agreements to enhance return, to hedge against fluctuations in securities
prices or interest rates or as substitution for the purchase or sale of
securities. Pursuant to these agreements, the Trust makes semi-annual
payments at a fixed interest rate. In exchange, the Trust receives payments
based on the interest rate of a benchmark industry index. During the term of
the outstanding swap agreement, changes in the underlying value of the swap
are recorded as unrealized gains and losses. Payments received or made at the
end of a measurement period are recorded as realized gains and losses. The
value of the swap is determined by changes in the relationship between two
rates of interest. The Trust is exposed to credit loss in the event of
non-performance by the swap counterparty. However, the Trust does not
anticipate non-performance by the counterparty. Risk may also arise from the
unanticipated movements in value of interest rates.
H Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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.
I Expense Reduction -- Investors Bank & Trust Company (IBT) serves as custodian
of the Trust. Pursuant to the custodian agreement, IBT receives a fee reduced
by credits which are determined based on the average daily cash balance the
Trust maintains with IBT. All significant credit balances used to reduce the
Trust's custodian fees are reported as a reduction of total expenses in the
Statement of Operations.
2 Auction Preferred Shares (APS)
-------------------------------------------
The Trust issued 2,620 shares of Auction Preferred Shares Series A and 2,620
shares of Auction Preferred Shares Series B on March 1, 1999 in a public
offering. The underwriting discount and other offering costs were recorded as
a reduction of the capital of the common shares. Dividends on the APS, which
accrue daily, are cumulative at a rate which was established at the offering
of the APS and have been reset every 7 days thereafter by an auction. Special
dividend periods of 364 days each were set on the Series A shares. The rates
are as follows: a rate of 2.80% was effective July 10, 2001 and matured July
9, 2002, and a rate of 1.62% was effective July 9, 2002, maturing on July 8,
2003 Dividend rates ranged from 1.00% to 1.85% for Series B Shares, during
the year ended November 30, 2002. Series A and Series B are identical in all
respects except for the dates of reset for the dividend rates.
The APS are redeemable at the option of the Trust, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The APS are also subject to mandatory redemption at a
redemption price equal to $25,000 per share, plus accumulated and unpaid
dividends, if the Trust is in default on its asset maintenance requirements
with respect to the APS. If the dividends on the APS shall remain unpaid in
an amount equal to two full years' dividends, the holders of the APS as a
class have the right to elect a majority of the Board of Trustees. In
general, the holders of the APS and the common shares have equal voting
rights of one vote per share, except that the holders of the APS, as a
separate class, have the right to elect at least two members of the Board of
Trustees. The APS have a liquidation preference of $25,000 per share, plus
accumulated and unpaid dividends. The Trust is required to maintain certain
asset coverage with respect to the APS as defined in the Trust's By-Laws. The
Trust pays annual fees equivalent to 0.25% of the preferred shares'
liquidation value for the remarketing efforts associated with the preferred
auctions.
In accordance with the provisions of EITF D-98, "Classification and
Measurement of Redeemable Securities", effective for the current period, the
Trust has reclassified its APS Shares outside of permanent equity in the net
assets section of the statement of assets and
13
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
NOTES TO FINANCIAL STATEMENTS CONT'D
liabilities. In addition, distributions to APS shareholders are now
classified as a component of the "Net increase in net assets from operations"
on the statements of operations and statement of changes in net assets, and
as a component of the "Total income (loss) from operations" in the financial
highlights. Prior year amounts presented have been restated to conform to
this period's presentation. This change has no impact on the net assets
applicable to common shares of the Trust.
3 Distributions to Shareholders
-------------------------------------------
The Trust intends to make monthly distributions of net investment income,
after payment of any dividends on any outstanding preferred shares.
Distributions are recorded on the ex-dividend date. Distributions to
preferred shareholders are recorded daily and are payable at the end of each
dividend period. Each dividend payment period for the Auction Preferred
Shares is generally seven days. Effective July 10, 2001, the Series A shares
set a special dividend period of 364 days. The applicable dividend rate for
the Auction Preferred Shares on November 30, 2002 was 1.62% and 1.15%, for
Series A and Series B Shares, respectively. For the year ended November 30,
2002, the Trust paid dividends to Auction Preferred shareholders amounting to
$1,546,938 and $898,937 for Series A and Series B Shares, respectively,
representing an average APS dividend rate for such period of 2.21% and 1.39%,
respectively.
The Fund distinguishes between distribution on a tax basis and a financial
reporting basis. Accounting principles generally accepted in the United
States of America require that only distributions in excess of tax basis
earnings and profits be 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. These differences relate
primarily to the method for amortizing premiums.
4 Investment Adviser Fee and Other Transactions with Affiliates
-------------------------------------------
The investment adviser fee, computed at an annual rate of 0.70% of the
Trust's average weekly gross assets, was earned by Eaton Vance Management
(EVM) as compensation for management and investment advisory services
rendered to the Trust. Except for Trustees of the Trust who are not members
of EVM's organization, officers and Trustees receive remuneration for their
services to the Trust out of such investment adviser fee. For the year ended
November 30, 2002, the fee was equivalent to 0.70% of the Trust's average
weekly gross assets and amounted to $2,413,636. EVM also serves as the
administrator of the Trust. An administration fee, computed at the annual
rate of 0.20% of the average weekly gross assets of the Trust, is paid to EVM
for managing and administering business affairs of the Trust. For the year
ended November 30, 2002, the administrative fee amounted to $689,724.
Trustees of the Trust that are not affiliated with the Investment Adviser 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
year ended November 30, 2002, no significant amounts have been deferred.
Certain officers and Trustees of the Trust are officers of EVM.
5 Investments
-------------------------------------------
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $48,907,471 and $47,886,104, respectively,
for the year ended November 30, 2002.
6 Federal Income Tax Basis of Unrealized Appreciation (Depreciation)
-------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investment owned by the Trust at November 30, 2002, as computed for Federal
income tax purposes, are as follows:
AGGREGATE COST $344,293,579
------------------------------------------------------
Gross unrealized appreciation $ 15,236,997
Gross unrealized depreciation (18,738,961)
------------------------------------------------------
NET UNREALIZED DEPRECIATION $ (3,501,964)
------------------------------------------------------
14
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
NOTES TO FINANCIAL STATEMENTS CONT'D
7 Shares of Beneficial Interest
-------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional $0.01 par value common shares. Transactions in common
shares were as follows:
YEAR ENDED NOVEMBER 30,
------------------------
2002 2001
------------------------------------------------------------------
Shares issued pursuant to the Trust's
dividend reinvestment plan 197,404 130,619
------------------------------------------------------------------
NET INCREASE 197,404 130,619
------------------------------------------------------------------
8 Financial Instruments
-------------------------------------------
The Trust regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include futures
contracts and interest rate swaps and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. The notional or contractual amounts of these instruments represent
the investment the Trust has in particular classes of financial instruments
and does not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is meaningful
only when all related and offsetting transactions are considered.
9 Shortfall and Forebearance Agreement
-------------------------------------------
The Trust regularly trades in securities commonly known as inverse floater
bonds. Inverse floaters are bonds with a coupon rate of interest that varies
inversely with changes in specified general interest rate levels or indexes
(for example, LIBOR). The inverse floater bonds are issued by a trust through
a securitization process. In addition to the inverse floater or residual
interest bond (RIBS), the securitization trust also issues floating rate
securities whose interest rate is established periodically through an auction
market process. The sponsor of the securitization trust provides a liquidity
feature for the floating rate bonds that guarantees the principal of the
floating rate bond issued.
Under certain circumstances, the Trust may enter into a so-called shortfall
and forebearance agreement with the sponsor of an inverse floater
securitization trust. During the year, the Trust entered into such a
shortfall and forebearance agreement with the sponsor of a trust issuing one
of the inverse floater bonds held by the Trust. The agreement commits the
Trust to reimburse the sponsor, upon the termination of the securitization
trust, for an amount equal to the difference between the liquidation value of
the underlying bond held by the securitization trust and the principal amount
due to the floating rate holders. Under the standard terms of a typical
inverse floater, the Trust would not be required to make such reimbursement.
The value of the agreement above-described at November 30, 2002 of $500,050
represents the potential amount due to the sponsor based on the value of the
underlying bond as of that date.
15
EATON VANCE MUNICIPAL INCOME TRUST AS OF NOVEMBER 30, 2002
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Eaton Vance Municipal Income Trust:
--------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Municipal Income Trust (the Trust), including the portfolio of
investments, as of November 30, 2002, 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
years in the three year period ended November 30, 2002 and for the period from
the start of business, January 29, 1999, to November 30, 1999. 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. Our
procedures included confirmation of securities held as of November 30, 2002 by
correspondence with the custodian. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 Eaton
Vance Municipal Income Trust as of November 30, 2002, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
respective stated periods, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 3, 2003
16
EATON VANCE MUNICIPAL INCOME TRUST
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the Plan) pursuant to which
shareholders automatically have dividends and capital gains distributions
reinvested in common shares (the Shares) of the Trust unless they elect
otherwise through their investment dealer. On the distribution payment date, if
the net asset value per Share is equal to or less than the market price per
Share plus estimated brokerage commissions then new Shares will be issued. The
number of Shares shall be determined by the greater of the net asset value per
Share or 95% of the market price. Otherwise, Shares generally will be purchased
on the open market by the Plan Agent. Distributions subject to income tax (if
any) are taxable whether or not shares are reinvested.
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 will need to request that your shares be
re-registered in your name with the Trust's transfer agent, PFPC Inc. or you
will not be able to participate.
The Plan Agent's service fee for handling distributions will be paid by the
Trust. Each participant will be charged their pro rata share of brokerage
commissions on all open-market purchases.
Plan participants may withdraw from the Plan at any time by writing to the Plan
Agent at the address noted on the following page. If you withdraw, you will
receive shares in your name for all Shares credited to your account under the
Plan. If a participant elects by written notice to the Plan Agent to have the
Plan Agent sell part or all of his or her Shares and remit the proceeds, the
Plan Agent is authorized to deduct a $5.00 fee plus brokerage commissions from
the proceeds.
If you wish to participate in the Plan and your shares are held in your own
name, you may complete the form on the following page and deliver it to the Plan
Agent.
Any inquires regarding the Plan can be directed to the Plan Agent, PFPC Inc., at
1-800-331-1710.
17
EATON VANCE MUNICIPAL INCOME TRUST
APPLICATION FOR PARTICIPATION IN DIVIDEND REINVESTMENT PLAN
This form is for shareholders who hold their common shares in their own names.
If your common shares are held in the name of a brokerage firm, bank, or other
nominee, you should contact your nominee to see if it will participate in the
Plan on your behalf. If you wish to participate in the Plan, but your brokerage
firm, bank, or nominee is unable to participate on your behalf, you should
request that your common shares be re-registered in your own name which will
enable your participation in the Plan.
The following authorization and appointment is given with the understanding that
I may terminate it at any time by terminating my participation in the Plan as
provided in the terms and conditions of the Plan.
------------------------------------------------------
Please print exact name on account:
------------------------------------------------------
Shareholder signature Date
------------------------------------------------------
Shareholder signature Date
Please sign exactly as your common shares are registered.
All persons whose names appear on the share certificate
must sign.
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DIVIDENDS AND
DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.
THIS AUTHORIZATION FORM, WHEN SIGNED, SHOULD BE MAILED TO THE FOLLOWING ADDRESS:
Eaton Vance Municipal Income Trust
c/o PFPC, Inc.
P.O. Box 43027
Providence, RI 02940-3027
800-331-1710
--------------------------------------------------------------------------------
NUMBER OF EMPLOYEES
The Trust is organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as a closed-end,
non-diversified, management investment company and has no employees.
NUMBER OF SHAREHOLDERS
As of November 30, 2002, our records indicate that there are 300 registered
shareholders and approximately 8,000 shareholders owning the Trust shares in
street name, such as through brokers, banks, and financial intermediaries.
If you are a street name shareholder and wish to receive our reports directly,
which contain important information about the Trust, please write or call:
Eaton Vance Distributors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
NEW YORK STOCK EXCHANGE SYMBOL
The New York Stock Exchange symbol is EVN
18
EATON VANCE MUNICIPAL INCOME TRUST NOVEMBER 30, 2002
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of Eaton Vance Municipal Income Trust (the Trust)
are responsible for the overall management and supervision of the Trust's
affairs. The Trustees and officers of the Trust are listed below. Except
as indicated, each individual has held the office shown or other offices in the
same company for the last five years. The business address of each Trustee and
officer is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109.
INTERESTED TRUSTEE(S)
TERM OF NUMBER OF PORTFOLIOS
POSITION(S) OFFICE AND IN FUND COMPLEX
NAME AND WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH TRUST SERVICE DURING PAST FIVE YEARS TRUSTEE(1)
-------------------------------------------------------------------------------------------------------------
Jessica M. Bibliowicz Trustee (2) 3 years Since President and Chief 185
11/28/59 1998 Executive Officer of
National Financial Partners
(financial services company)
(since April 1999).
President and Chief
Operating Officer of John A.
Levin & Co. (registered
investment adviser) (July
1997 to April 1999) and a
Director of Baker,
Fentress & Company, which
owns John A. Levin & Co.
(July 1997 to April 1999).
Ms. Bibliowicz is an
interested person because of
her affiliation with a
brokerage firm.
James B. Hawkes 11/9/41 Vice President 3 years Since Chairman, President and 190
and 1998 Chief Executive Officer of
Trustee (3) BMR, EVM and their corporate
parent and trustee, Eaton
Vance Corp. (EVC) and Eaton
Vance, Inc. (EV),
respectively; Director of
EV; Vice President and
Director of EVD. Trustee
and/or officer of 190
registered investment
companies in the Eaton Vance
Fund Complex. Mr. Hawkes is
an interested person because
of his positions with BMR,
EVM and EVC, which are
affiliates of the Trust.
-------------------------------------------------------------------------------------------------------------
NAME AND
DATE OF BIRTH OTHER DIRECTORSHIPS HELD
-----------------------
Jessica M. Bibliowicz None
11/28/59
James B. Hawkes 11/9/41 Director of EVC
-----------------------
NONINTERESTED TRUSTEE(S)
TERM OF NUMBER OF PORTFOLIOS
POSITION(S) OFFICE AND IN FUND COMPLEX
NAME AND WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH TRUST SERVICE DURING PAST FIVE YEARS TRUSTEE(1)
-------------------------------------------------------------------------------------------------------------
Donald R. Dwight Trustee (2) 3 years Since President of Dwight 190
3/26/31 1998 Partners, Inc. (corporate
relations and communications
company).
Samuel L. Hayes, Trustee (3) 3 years Since Jacob H. Schiff Professor of 190
III (A) 2/23/35 1998 Investment Banking Emeritus,
Harvard University Graduate
School of Business
Administration.
Norton H. Reamer (A) Trustee (4) 3 years Since President, Unicorn 190
9/21/35 1998 Corporation (an investment
and financial advisory
services company) (since
September 2000). Chairman,
Hellman, Jordan Management
Co., Inc. (an investment
management company) (since
November 2000). Advisory
Director, Berkshire Capital
Corporation (investment
banking firm) (since June
2002). Formerly, Chairman of
the Board, United Asset
Management Corporation (a
holding company owning
institutional investment
management firms) and
Chairman, President and
Director, UAM Funds (mutual
funds).
Lynn A. Stout 9/14/57 Trustee (4) 3 years Since Professor of Law, University 185
1998 of California at Los Angeles
School of Law (since July
2001). Formerly, Professor
of Law, Georgetown
University Law Center.
Jack L. Treynor 2/21/30 Trustee (4) 3 years Since Investment Adviser and 170
1998 Consultant.
-------------------------------------------------------------------------------------------------------------
NAME AND
DATE OF BIRTH OTHER DIRECTORSHIPS HELD
-----------------------
Donald R. Dwight Trustee/Director of the
3/26/31 Royce Funds (mutual
funds) consisting of 17
portfolios
Samuel L. Hayes, Director of Tiffany &
III (A) 2/23/35 Co. (specialty retailer)
and Director of Telect,
Inc. (telecommunication
services company)
Norton H. Reamer (A) None
9/21/35
Lynn A. Stout 9/14/57 None
Jack L. Treynor 2/21/30 None
-----------------------
19
EATON VANCE MUNICIPAL INCOME TRUST NOVEMBER 30, 2002
MANAGEMENT AND ORGANIZATION CONT'D
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
TERM OF
POSITION(S) OFFICE AND
NAME AND WITH THE LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH TRUST SERVICE DURING PAST FIVE YEARS
-----------------------------------------------------------------------------------------------------------------------------------
Thomas J. Fetter President Since 1998 Vice President of EVM and
8/20/43 BMR. Officer of 126
registered investment
companies managed by EVM or
BMR.
Robert B. MacIntosh Vice President Since 1998 Vice President of EVM and
1/22/57 BMR. Officer of 125
registered investment
companies managed by EVM or
BMR.
Thomas M. Metzold Vice President Since 1998 Vice President of EVM and
8/3/58 BMR. Officer of 9 registered
investment companies managed
by EVM or BMR.
Alan R. Dynner Secretary Since 1998 Vice President, Secretary
10/10/40 and Chief Legal Officer of
BMR, EVM, EVD and EVC.
Officer of 190 registered
investment companies managed
by EVM or BMR.
James L. O'Connor Treasurer Since 1998 Vice President of BMR, EVM
4/1/45 and EVD. Officer of 112
registered investment
companies managed by EVM or
BMR.
(A) APS Trustee
(1) Includes both master and feeder funds in a master-feeder structure.
(2) Class I trustee whose term expires in 2003.
(3) Class II trustee whose term expires in 2004.
(4) Class III trustee whose term expires in 2005.
20
INVESTMENT ADVISER AND ADMINISTRATOR OF EATON VANCE MUNICIPAL INCOME TRUST
EATON VANCE MANAGEMENT
The Eaton Vance Building
255 State Street
Boston, MA 02109
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
PFPC INC.
P.O. BOX 43027
Providence, RI 02940-3027
(800) 331-1710
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
200 Berkeley Street
Boston, MA 02116-5022
EATON VANCE FUNDS
EATON VANCE MANAGEMENT
BOSTON MANAGEMENT AND RESEARCH
EATON VANCE DISTRIBUTORS, INC.
PRIVACY NOTICE
The Eaton Vance organization is committed to ensuring your financial privacy.
This notice is being sent to comply with privacy regulations of the Securities
and Exchange Commission. Each of the above financial institutions has in effect
the following policy with respect to nonpublic personal information about its
customers:
- Only such information received from you, through application forms or
otherwise, and information about your Eaton Vance fund transactions will be
collected.
- None of such information about you (or former customers) will be disclosed
to anyone, except as permitted by law (which includes disclosure to
employees necessary to service your account).
- Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality
of such information.
For more information about Eaton Vance's privacy policies, call: 1-800-262-1122
EATON VANCE MUNICIPAL INCOME TRUST
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
151-1/03 CE-NASRC