Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 5/31/20 (unaudited)
This statement represents your fund’s balance sheet, which details the
assets and liabilities comprising the total value of the fund.
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|
|
|
|
|
|
Assets
|
|
|
|
|
|
Investments in unaffiliated issuers, at value (identified cost, $191,676,661)
|
|
|
$193,591,242
|
|
|
Investments in affiliated issuers, at value (identified cost, $5,262,907)
|
|
|
5,262,730
|
|
|
Deposits with brokers for
|
|
|
|
|
|
Futures contracts
|
|
|
16
|
|
|
Receivables for
|
|
|
|
|
|
Investments sold
|
|
|
546,495
|
|
|
Interest
|
|
|
2,882,268
|
|
|
Other assets
|
|
|
18,049
|
|
|
Total assets
|
|
|
$202,300,800
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Payables for
|
|
|
|
|
|
Distributions on common shares
|
|
|
$22,259
|
|
|
Investments purchased
|
|
|
294,260
|
|
|
Investments purchased on an extended settlement basis
|
|
|
2,535,510
|
|
|
Interest expense
|
|
|
84,365
|
|
|
Payable to affiliates
|
|
|
|
|
|
Investment adviser
|
|
|
8,654
|
|
|
Administrative services fee
|
|
|
418
|
|
|
Transfer agent and dividend disbursing costs
|
|
|
1,172
|
|
|
Accrued expenses and other liabilities
|
|
|
70,401
|
|
|
VMTPS, at liquidation value
|
|
|
75,000,000
|
|
|
Total liabilities
|
|
|
$78,017,039
|
|
|
Net assets applicable to common shares
|
|
|
$124,283,761
|
|
|
|
|
|
Net assets consist of
|
|
|
|
|
|
Paid-in capital - common shares
|
|
|
$124,693,197
|
|
|
Total distributable earnings (loss)
|
|
|
(409,436
|
)
|
|
Net assets applicable to common shares
|
|
|
$124,283,761
|
|
|
VMTPS, at liquidation value (3,000 shares issued and outstanding at $25,000
per share)
|
|
|
75,000,000
|
|
|
Net assets including preferred shares
|
|
|
$199,283,761
|
|
|
Common shares of beneficial interest issued and outstanding
|
|
|
28,325,314
|
|
|
Net asset value per common share (net assets of $124,283,761 / 28,325,314 shares of beneficial
interest outstanding)
|
|
|
$4.39
|
|
See Notes to Financial Statements
56
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 5/31/20 (unaudited)
This statement describes how much your fund earned in
investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
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|
|
|
|
|
|
Net investment income (loss)
|
|
|
|
|
|
Income
|
|
|
|
|
|
Interest
|
|
|
$4,539,655
|
|
|
Dividends from affiliated issuers
|
|
|
17,656
|
|
|
Total investment income
|
|
|
$4,557,311
|
|
|
Expenses
|
|
|
|
|
|
Management fee
|
|
|
$675,098
|
|
|
Transfer agent and dividend disbursing costs
|
|
|
13,274
|
|
|
Administrative services fee
|
|
|
19,290
|
|
|
Independent Trustees’ compensation
|
|
|
10,893
|
|
|
Stock exchange fee
|
|
|
13,815
|
|
|
Custodian fee
|
|
|
5,387
|
|
|
Shareholder communications
|
|
|
13,926
|
|
|
Audit and tax fees
|
|
|
42,215
|
|
|
Legal fees
|
|
|
2,881
|
|
|
Interest expense and fees
|
|
|
890,584
|
|
|
Miscellaneous
|
|
|
47,925
|
|
|
Total expenses
|
|
|
$1,735,288
|
|
|
Reduction of expenses by investment adviser
|
|
|
(23,882
|
)
|
|
Net expenses
|
|
|
$1,711,406
|
|
|
Net investment income (loss)
|
|
|
$2,845,905
|
|
|
|
|
|
Realized and unrealized gain (loss)
|
|
|
|
|
|
Realized gain (loss) (identified cost basis)
|
|
|
|
|
|
Unaffiliated issuers
|
|
|
$(1,200,837
|
)
|
|
Affiliated issuers
|
|
|
(1,853
|
)
|
|
Futures contracts
|
|
|
(1,111,706
|
)
|
|
Net realized gain (loss)
|
|
|
$(2,314,396
|
)
|
|
Change in unrealized appreciation or depreciation
|
|
|
|
|
|
Unaffiliated issuers
|
|
|
$(12,236,856
|
)
|
|
Affiliated issuers
|
|
|
(284
|
)
|
|
Futures contracts
|
|
|
(49,778
|
)
|
|
Net unrealized gain (loss)
|
|
|
$(12,286,918
|
)
|
|
Net realized and unrealized gain (loss)
|
|
|
$(14,601,314
|
)
|
|
Change in net assets from operations
|
|
|
$(11,755,409
|
)
|
See Notes to Financial Statements
57
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
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|
|
|
|
|
|
|
|
|
|
Change in net assets
|
|
Six months ended
5/31/20
(unaudited)
|
|
|
Year ended
11/30/19
|
|
|
|
|
|
|
From operations
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
$2,845,905
|
|
|
|
$6,555,285
|
|
|
Net realized gain (loss)
|
|
|
(2,314,396
|
)
|
|
|
(623,482
|
)
|
|
Net unrealized gain (loss)
|
|
|
(12,286,918
|
)
|
|
|
7,325,049
|
|
|
Change in net assets from operations
|
|
|
$(11,755,409
|
)
|
|
|
$13,256,852
|
|
|
Distributions to common shareholders
|
|
|
$(3,002,483
|
)
|
|
|
$(6,485,763
|
)
|
|
Net asset value of shares issued to common shareholders in reinvestment of
distributions
|
|
|
$—
|
|
|
|
$23,114
|
|
|
Total change in net assets
|
|
|
$(14,757,892
|
)
|
|
|
$6,794,203
|
|
|
|
|
|
|
Net assets applicable to common shares
|
|
|
|
|
|
|
|
|
|
At beginning of period
|
|
|
139,041,653
|
|
|
|
132,247,450
|
|
|
At end of period
|
|
|
$124,283,761
|
|
|
|
$139,041,653
|
|
See Notes to Financial Statements
58
Financial Statements
STATEMENT OF CASH FLOWS
Six months ended 5/31/20 (unaudited)
This statement provides a summary of cash flows from investment
activity for the fund.
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|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Change in net assets from operations
|
|
|
$(11,755,409
|
)
|
|
|
|
|
Adjustments to reconcile change in net assets from operations to net cash provided by operating activities:
|
|
|
|
|
|
Purchase of investment securities
|
|
|
(27,371,801
|
)
|
|
Proceeds from disposition of investment securities
|
|
|
32,668,786
|
|
|
Purchase of short-term investments, net
|
|
|
(4,499,779
|
)
|
|
Realized gain/loss on investments
|
|
|
1,200,837
|
|
|
Unrealized appreciation/depreciation on investments
|
|
|
12,237,140
|
|
|
Net amortization/accretion of income
|
|
|
119,777
|
|
|
Decrease in interest receivable
|
|
|
391,134
|
|
|
Decrease in accrued expenses and other liabilities
|
|
|
(39,180
|
)
|
|
Decrease in receivable for net daily variation margin on open futures contracts
|
|
|
15,016
|
|
|
Increase in other assets
|
|
|
(15,809
|
)
|
|
Decrease in payable for interest expense and fees
|
|
|
(54,292
|
)
|
|
Net cash provided by operating activities
|
|
|
$2,896,420
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Cash distributions paid on common shares
|
|
|
(3,002,529
|
)
|
|
Decrease in payable to custodian
|
|
|
(31,875
|
)
|
|
Net cash used by financing activities
|
|
|
$(3,034,404
|
)
|
|
Net decrease in cash and restricted cash
|
|
|
$(137,984
|
)
|
|
|
|
|
Cash and restricted cash:
|
|
|
|
|
|
Beginning of period
|
|
|
$138,000
|
|
|
End of period
|
|
|
$16
|
|
Supplemental disclosure of cash flow information:
Cash paid during the six months ended May 31, 2020 for interest was $944,876.
See Notes to Financial
Statements
59
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a
single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
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Six months
ended
5/31/20
|
|
|
Year ended
|
|
|
Common Shares
|
|
11/30/19
|
|
|
11/30/18
|
|
|
11/30/17
|
|
|
11/30/16
|
|
|
11/30/15
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of
period
|
|
|
$4.91
|
|
|
|
$4.67
|
|
|
|
$4.80
|
|
|
|
$4.68
|
|
|
|
$4.84
|
|
|
|
$4.85
|
|
|
|
|
Income (loss) from investment operations
|
|
|
Net investment income
(loss) (d)
|
|
|
$0.10
|
|
|
|
$0.23
|
|
|
|
$0.26
|
(c)
|
|
|
$0.27
|
|
|
|
$0.29
|
(c)
|
|
|
$0.31
|
|
|
Net realized and unrealized
gain (loss)
|
|
|
(0.51
|
)
|
|
|
0.24
|
|
|
|
(0.13
|
)
|
|
|
0.12
|
|
|
|
(0.18
|
)
|
|
|
(0.04
|
)
|
|
Distributions declared to
shareholders of auction rate
preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.00)
|
(w)
|
|
|
(0.00
|
)(w)
|
|
Total from investment operations
|
|
|
$(0.41
|
)
|
|
|
$0.47
|
|
|
|
$0.13
|
|
|
|
$0.39
|
|
|
|
$0.11
|
|
|
|
$0.27
|
|
|
|
|
Less distributions declared to common shareholders
|
|
|
From net investment income
|
|
|
$(0.11
|
)
|
|
|
$(0.23
|
)
|
|
|
$(0.26
|
)
|
|
|
$(0.27
|
)
|
|
|
$(0.27
|
)
|
|
|
$(0.28
|
)
|
|
Net asset value, end of period (x)
|
|
|
$4.39
|
|
|
|
$4.91
|
|
|
|
$4.67
|
|
|
|
$4.80
|
|
|
|
$4.68
|
|
|
|
$4.84
|
|
|
Market value, end of period
|
|
|
$4.12
|
|
|
|
$4.73
|
|
|
|
$4.22
|
|
|
|
$4.73
|
|
|
|
$4.37
|
|
|
|
$4.51
|
|
|
Total return at market
value (%) (p)
|
|
|
(10.79
|
)(n)
|
|
|
17.71
|
|
|
|
(5.54
|
)
|
|
|
14.66
|
|
|
|
2.55
|
|
|
|
9.00
|
|
|
Total return at net asset
value (%) (j)(r)(s)(x)
|
|
|
(8.43
|
)(n)
|
|
|
10.42
|
|
|
|
3.01
|
(c)
|
|
|
8.65
|
|
|
|
2.34
|
(c)
|
|
|
6.36
|
|
|
|
Ratios (%) (to average net assets
applicable to common shares)
and Supplemental data:
|
|
|
Expenses before expense
reductions (f)(p)
|
|
|
2.62
|
(a)
|
|
|
2.76
|
|
|
|
2.70
|
(c)
|
|
|
2.37
|
|
|
|
2.10
|
(c)
|
|
|
1.96
|
|
|
Expenses after expense
reductions (f)(p)
|
|
|
2.58
|
(a)
|
|
|
2.73
|
|
|
|
2.69
|
(c)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Net investment income (loss) (p)
|
|
|
4.29
|
(a)
|
|
|
4.80
|
|
|
|
5.40
|
(c)
|
|
|
5.71
|
|
|
|
5.81
|
(c)
|
|
|
6.33
|
|
|
Portfolio turnover
|
|
|
14
|
(n)
|
|
|
17
|
|
|
|
16
|
|
|
|
15
|
|
|
|
14
|
|
|
|
17
|
|
|
Net assets at end of period
(000 omitted)
|
|
|
$124,284
|
|
|
|
$139,042
|
|
|
|
$132,247
|
|
|
|
$136,077
|
|
|
|
$132,633
|
|
|
|
$136,977
|
|
60
Financial Highlights – continued
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
5/31/20
|
|
|
Year ended
|
|
|
|
|
11/30/19
|
|
|
11/30/18
|
|
|
11/30/17
|
|
|
11/30/16
|
|
|
11/30/15
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Ratios (%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios of expenses to average net
assets applicable to common
shares after expense reductions
and excluding interest
expense
and fees (f)(l)(p)
|
|
|
1.24
|
(a)
|
|
|
1.22
|
|
|
|
1.25
|
(c)
|
|
|
1.26
|
|
|
|
1.24
|
(c)
|
|
|
1.29
|
|
|
Ratios of expenses to average net
assets applicable to common
and preferred shares after
expense reductions and
excluding
interest expense and
fees (f)(l)(p)
|
|
|
0.79
|
(a)
|
|
|
0.79
|
|
|
|
0.80
|
(c)
|
|
|
0.81
|
|
|
|
0.80
|
(c)
|
|
|
0.83
|
|
|
Net investment income available
to common shares
|
|
|
4.29
|
(a)
|
|
|
4.80
|
|
|
|
5.40
|
(c)
|
|
|
5.71
|
|
|
|
5.80
|
(c)
|
|
|
6.32
|
|
|
|
|
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
ARPS
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
156
|
|
|
VMTPS
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
2,844
|
|
|
Total preferred shares outstanding
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
Asset coverage per preferred
share (k)
|
|
|
$66,428
|
|
|
|
$71,347
|
|
|
|
$69,082
|
|
|
|
$70,348
|
|
|
|
$69,192
|
|
|
|
$70,659
|
|
|
Involuntary liquidation preference
per preferred share (m)
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
Average market value per
preferred share (m)(u)
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
|
$25,000
|
|
|
(c)
|
Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net
investment income and performance would be lower and expenses would be higher.
|
|
(d)
|
Per share data is based on average shares outstanding.
|
|
(f)
|
Ratios do not reflect reductions from fees paid indirectly, if applicable.
|
|
(j)
|
Total return at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than
the total return at market value.
|
|
(k)
|
Calculated by subtracting the fund’s total liabilities (not including liquidation preference of preferred shares) from the fund’s total assets
and dividing this number by the total number of preferred shares outstanding.
|
|
(l)
|
Interest expense and fees include payments made to the holders of the floating rate certificates, interest expense paid to shareholders of VMTPS, and
amortization of VMTPS debt issuance costs, as applicable. For the year ended November 30, 2016, the expense ratio also excludes fees and expenses related to redemption of the fund’s auction rate preferred shares (“ARPS”). For periods
prior to November 30, 2016, the expense ratio includes amortization of VMTPS debt issuance costs.
|
|
(m)
|
Amount excludes accrued unpaid distributions on preferred shares.
|
|
(p)
|
Ratio excludes dividend payments on ARPS, if applicable.
|
61
Financial Highlights – continued
|
(r)
|
Certain expenses have been reduced without which performance would have been lower.
|
|
(s)
|
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
|
|
(u)
|
Average market value represents the approximate fair value of each of the fund’s preferred shares.
|
|
(w)
|
Per share amount was less than $0.01.
|
|
(x)
|
The net asset values and total returns at net asset value have been calculated on net assets which include adjustments made in accordance with U.S.
generally accepted accounting principles required at period end for financial reporting purposes.
|
See Notes to Financial Statements
62
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Business and Organization
MFS High Yield Municipal Trust (the fund) is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940,
as amended, as a diversified closed-end management investment company.
The fund is an investment company and
accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) Significant Accounting Policies
General –
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of
these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in
municipal instruments, which generally trade in the over-the-counter market. The value of municipal instruments can be affected by changes in their actual or perceived
credit quality. The credit quality of, and the ability to pay principal and interest when due by, an issuer of a municipal instrument depends on the credit quality of the entity supporting the municipal instrument, how essential any services
supported by the municipal instrument are, the sufficiency of any revenues or taxes that support the municipal instrument, and/or the willingness or ability of the appropriate government entity to approve any appropriations necessary to support the
municipal instrument. Municipal instruments may be supported by insurance which typically guarantees the timely payment of all principal and interest due on the underlying municipal instrument. The value of a municipal instrument can be volatile and
significantly affected by adverse tax changes or court rulings, legislative or political changes, changes in specific or general market and economic conditions in the region where the instrument is issued, and the financial condition of municipal
issuers and of municipal instrument insurers of which there are a limited number. Also, because many municipal instruments are issued to finance similar projects, conditions in certain industries can significantly affect the fund and the overall
municipal market. If the Internal Revenue Service determines an issuer of a municipal instrument has not complied with the applicable tax requirements, interest from the security could become taxable, the security could decline in value, and
distributions made by the fund could be taxable to shareholders. The fund invests in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or
can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments.
63
Notes to Financial Statements (unaudited) – continued
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides
optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the
end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31,
2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the
reference rate reform.
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables
–Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). For callable debt
securities purchased at a premium that have explicit, non-contingent call features and that are callable at fixed prices on preset dates, ASU 2017-08 requires the
premium to be amortized to the earliest call date. The fund adopted ASU 2017-08 as of the beginning of the reporting period on a modified retrospective basis. The adoption resulted in a change in accounting
principle, since the fund had historically amortized such premiums to maturity for U.S. GAAP. As a result of the adoption, the fund recognized a cumulative effect adjustment that decreased the beginning of period cost of investments and increased
the unrealized appreciation on investments by $1,074,049. Adoption had no impact on the fund’s net assets or any prior period information presented in the financial statements. With respect to the fund’s results of operations, amortization
of premium to first call date under ASU 2017-08 accelerates amortization with the intent of more closely aligning the recognition of income on such bonds with the economics of the instrument.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the
counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the
Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a
specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the
fund’s in-scope financial instruments and transactions.
Investment Valuations – Debt
instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may
be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no
trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing
64
Notes to Financial Statements (unaudited) – continued
service. Open-end investment companies are
generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party
pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation
policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of
derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been
materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt
of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the
correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in
determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair
valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an
investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in
determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in
its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based
inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes
65
Notes to Financial Statements (unaudited) – continued
unobservable inputs, which may include the adviser’s own assumptions in
determining the fair value of investments. The following is a summary of the levels used as of May 31, 2020 in valuing the fund’s assets or liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Municipal Bonds
|
|
|
$—
|
|
|
|
$193,487,103
|
|
|
|
$—
|
|
|
|
$193,487,103
|
|
|
U.S. Corporate Bonds
|
|
|
—
|
|
|
|
104,139
|
|
|
|
—
|
|
|
|
104,139
|
|
|
Mutual Funds
|
|
|
5,262,730
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,262,730
|
|
|
Total
|
|
|
$5,262,730
|
|
|
|
$193,591,242
|
|
|
|
$—
|
|
|
|
$198,853,972
|
|
For further information regarding security characteristics, see the Portfolio of Investments.
Derivatives – The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to
increase or decrease interest rate exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce
or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts. Depending on the type of derivative, the fund may exit a derivative position
by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. At May 31, 2020, the fund did not have any outstanding derivative
instruments.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six
months ended May 31, 2020 as reported in the Statement of Operations:
|
|
|
|
|
|
|
|
|
|
Risk
|
|
Futures Contracts
|
|
|
Interest Rate
|
|
|
$(1,111,706
|
)
|
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on
derivatives held by the fund for the six months ended May 31, 2020 as reported in the Statement of Operations:
|
|
|
|
|
|
|
|
|
|
Risk
|
|
Futures Contracts
|
|
|
Interest Rate
|
|
|
$(49,778
|
)
|
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On
certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the
agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out
and net payments
66
Notes to Financial Statements (unaudited) – continued
across all transactions traded under the ISDA Master Agreement could result in a
reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options),
margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared
derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund’s custodian in connection with
these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is
posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the
Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of
Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Interest expense and fees” in the Statement of Operations.
Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure,
or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a
specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement
purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures
contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty
credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Statement of Cash Flows – Information on financial transactions which have been settled through the receipt or disbursement of cash or
restricted cash is presented in the Statement of Cash Flows. Cash as presented in the fund’s Statement of Assets and Liabilities includes cash on hand at the fund’s custodian bank and does not include any
67
Notes to Financial Statements (unaudited) – continued
short-term investments. Restricted cash is presented in the fund’s Statement of
Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives and represents cash that has been segregated or delivered to cover the fund’s collateral or margin obligations under
derivative contracts.
The following table provides a reconciliation of cash and restricted cash reported within the Statement of Assets and Liabilities
with that shown in the Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
5/31/20
|
|
|
Cash
|
|
|
$—
|
|
|
Restricted cash
|
|
|
—
|
|
|
Restricted cash included in deposits with brokers
|
|
|
16
|
|
|
|
|
|
Total cash and restricted cash in the Statement of Cash Flows
|
|
|
$16
|
|
Indemnifications – Under the fund’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 fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The
fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for
financial statement purposes in accordance with U.S. generally accepted accounting principles. Some securities may be purchased or sold on an extended settlement basis which includes “when-issued”, “delayed delivery” or “To
Be Announced” (TBA) securities. For extended settlement transactions, the receipt or delivery of the securities by the fund and related payments occur at a future date, usually beyond the customary settlement time. Interest payments received in
additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual
status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.
The fund may receive proceeds from litigation
settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still
held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The
fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement
period. When the fund sells securities on a when-issued, delayed delivery, TBA, or forward commitment basis, the fund typically owns or has the right to acquire securities equivalent in kind and amount to the delivered securities. At the time a fund
enters into a commitment to
68
Notes to Financial Statements (unaudited) – continued
purchase or sell a security, the transaction is recorded and the value of the security
acquired or sold is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with
market fluctuations. When-issued investments purchased are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy and included in Investments purchased on an extended settlement basis in
the Statement of Assets and Liabilities. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its
commitments. Losses may arise due to changes in the value of the underlying securities prior to settlement date or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political,
economic or other factors.
Legal fees and other related expenses incurred to preserve and protect the value of a security owned are added to the cost of
the security; other legal fees are expensed. Capital infusions made directly to the security issuer, which are generally non-recurring, incurred to protect or enhance the value of high-yield debt securities,
are reported as additions to the cost basis of the security. Costs that are incurred to negotiate the terms or conditions of capital infusions or that are expected to result in a plan of reorganization are reported as realized losses. Ongoing costs
incurred to protect or enhance an investment, or costs incurred to pursue other claims or legal actions, are expensed.
Tax Matters and Distributions
– The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable and tax-exempt income, including
realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has
analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax
character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes
will reverse at some time in the future.
Book/tax differences primarily relate to expiration of capital loss carryforwards, amortization and accretion
of debt securities, and non-deductible expenses that result from the treatment of VMTPS as equity for tax purposes.
69
Notes to Financial Statements (unaudited) – continued
The tax character of distributions made during the current period will be determined at
fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
11/30/19
|
|
Ordinary income (including any
short-term capital gains)
|
|
|
$240,729
|
|
|
Tax-exempt income
|
|
|
8,307,245
|
|
|
|
|
|
Total distributions
|
|
|
$8,547,974
|
|
The federal tax cost and the tax basis components of distributable earnings were as follows:
|
|
|
|
|
|
|
|
|
|
As of 5/31/20
|
|
|
|
|
|
|
|
Cost of investments
|
|
|
$196,379,620
|
|
|
Gross appreciation
|
|
|
8,562,614
|
|
|
|
|
|
Gross depreciation
|
|
|
(6,088,262
|
)
|
|
Net unrealized appreciation (depreciation)
|
|
|
$2,474,352
|
|
|
|
|
|
As of 11/30/19
|
|
|
|
|
|
|
|
Undistributed ordinary income
|
|
|
59,501
|
|
|
Undistributed tax-exempt income
|
|
|
991,910
|
|
|
Capital loss carryforwards
|
|
|
(1,227,340
|
)
|
|
Other temporary differences
|
|
|
(232,596
|
)
|
|
Net unrealized appreciation (depreciation)
|
|
|
14,756,981
|
|
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of November 30, 2019, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward
indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
|
|
|
|
|
|
|
Short-Term
|
|
|
$(199,534
|
)
|
|
Long-Term
|
|
|
(1,027,806
|
)
|
|
Total
|
|
|
$(1,227,340
|
)
|
(3) Transactions with Affiliates
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is
computed daily and paid monthly at an annual rate of 0.65% of the fund’s average daily net assets (including the value of preferred shares).
The
investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest expense on VMTPS, taxes, extraordinary expenses, brokerage and transaction costs, other interest expense, and investment-related expenses, such that total fund operating expenses do not exceed 0.79% annually of the fund’s average daily net assets (including the value of preferred
70
Notes to Financial Statements (unaudited) – continued
shares). This written agreement will continue until modified by the fund’s Board
of Trustees, but such agreement will continue at least until November 30, 2021. For the six months ended May 31, 2020, this reduction amounted to $23,882, which is included in the reduction of total expenses in the Statement of Operations.
Transfer Agent – The fund engages Computershare Trust Company, N.A. (“Computershare”) as the sole transfer agent for the
fund’s common shares. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the six months ended May 31, 2020, these fees paid to MFSC amounted
to $3,632.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services
to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets (including the value of
preferred shares). The administrative services fee incurred for the six months ended May 31, 2020 was equivalent to an annual effective rate of 0.0186% of the fund’s average daily net assets (including the value of preferred shares).
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance
fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for
their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.
Other – The fund invests in
the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating
costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (”cross-trades“) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended May 31, 2020, the fund engaged in sale transactions pursuant to this policy, which amounted to $204,413. The sales transactions
resulted in net realized gains (losses) of $(14,895).
(4) Portfolio Securities
For the six months ended May 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $27,773,138 and $30,113,701, respectively.
(5) Shares of Beneficial Interest
The fund’s
Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The fund reserves the right to repurchase shares of beneficial interest of the fund subject to Trustee approval. During
71
Notes to Financial Statements (unaudited) – continued
the six months ended May 31, 2020 and the year ended November 30, 2019, the fund did
not repurchase any shares. Transactions in fund shares were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
5/31/20
|
|
|
Year ended
11/30/19
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares issued to shareholders in reinvestment of distributions
|
|
|
—
|
|
|
|
$—
|
|
|
|
4,728
|
|
|
|
$23,114
|
|
(6) Line of Credit
The fund
and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary
financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment
fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with
certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended May 31, 2020, the fund’s commitment
fee and interest expense were $368 and $0, respectively, and are included in ”Interest expense and fees“ in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer
may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
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Affiliated Issuers
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Beginning
Value
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Purchases
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Sales
Proceeds
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Realized
Gain
(Loss)
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Change in
Unrealized
Appreciation or
Depreciation
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Ending
Value
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MFS Institutional Money
Market Portfolio
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$763,235
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$27,429,398
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$22,927,766
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$(1,853
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)
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$(284
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)
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$5,262,730
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Affiliated Issuers
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Dividend
Income
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Capital Gain
Distributions
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MFS Institutional Money Market Portfolio
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$17,656
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$—
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(8) Preferred Shares
The
fund has 3,000 shares issued and outstanding of VMTPS. The outstanding VMTPS are redeemable at the option of the fund in whole or in part at the liquidation preference of $25,000 per share, plus accumulated and unpaid dividends, but generally solely
for the purpose of decreasing the leverage of the fund. The VMTPS are subject to a mandatory term redemption date of October 31, 2021, as extended, unless further extended through negotiation with the private holders of the VMTPS. There is no
assurance that the term of the VMTPS will be extended or that the VMTPS will be replaced with any other preferred shares or other form of leverage upon the redemption of the VMTPS. Two months prior to the term redemption date of the
72
Notes to Financial Statements (unaudited) – continued
VMTPS, the fund is required to begin to segregate liquid assets with the fund’s
custodian to fund the redemption. Dividends on the VMTPS are cumulative and are reset weekly to a fixed spread against the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index. During the six months ended
May 31, 2020, the VMTPS dividend rates ranged from 1.29% to 6.35%. For the six months ended May 31, 2020, the average dividend rate was 2.35%.
In the fund’s Statement of Assets and Liabilities, the VMTPS aggregate liquidation preference is shown as a liability since they have a stated mandatory redemption date. Dividends paid to the VMTPS are treated
as interest expense and recorded as incurred. For the six months ended May 31, 2020, interest expense related to the dividends paid to VMTPS amounted to $889,813 and is included in ”Interest expense and fees“ in the Statement of
Operations. Costs directly related to the issuance of the VMTPS are considered debt issuance costs. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt liability and are amortized into interest
expense over the life of the VMTPS. The period-end carrying value for the VMTPS in the fund’s Statement of Assets and Liabilities is its liquidation value less any unamortized debt issuance costs, which
approximates its fair value. Its fair value would be considered level 2 under the fair value hierarchy.
Under the terms of a purchase agreement between
the fund and the investor in the VMTPS, the fund is subject to various investment restrictions. These investment-related requirements are in various respects more restrictive than those to which the fund is otherwise subject in accordance with its
investment objectives and policies. In addition, the fund is subject to certain restrictions on its investments imposed by guidelines of the rating agencies that rate the VMTPS, which guidelines may be changed by the applicable rating agency, in its
sole discretion, from time to time. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the fund by the Investment Company Act of 1940 (the “1940 Act”).
The fund is required to maintain certain asset coverage with respect to the VMTPS as defined in the fund’s governing documents and the 1940 Act. One of a
number of asset coverage-related requirements is that the fund is not permitted to declare or pay common share dividends unless immediately thereafter the fund has a minimum asset coverage ratio of 200% with respect to the VMTPS after deducting the
amount of such common share dividends.
The 1940 Act requires that the preferred shareholders of the fund, voting as a separate class, have the right to
elect at least two trustees at all times, and elect a majority of the trustees at any time when dividends on the preferred shares are unpaid for two full years. Unless otherwise required by law or under the terms of the preferred shares, each
preferred share is entitled to one vote and preferred shareholders will vote together with common shareholders as a single class.
Leverage involves
risks and special considerations for the fund’s common shareholders. To the extent that investments are purchased by the fund with proceeds from the issuance of preferred shares, the fund’s net asset value will increase or decrease at a
greater rate than a comparable unleveraged fund. Changes in the value of the fund’s portfolio will be borne entirely by the common shareholders. It is possible that the fund
73
Notes to Financial Statements (unaudited) – continued
will be required to sell assets at a time when it may be disadvantageous to do so in
order to redeem preferred shares to comply with asset coverage or other restrictions including those imposed by the 1940 Act and the rating agencies that rate the preferred shares. There is no assurance that the fund’s leveraging strategy will
be successful.
(9) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to
global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects
of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of MFS High Yield Municipal Trust:
We have reviewed the accompanying statement of assets and liabilities of MFS High Yield Municipal Trust (the “Fund”), including the portfolio of investments, as of May 31, 2020, and the related
statements of operations, changes in net assets, cash flows and financial highlights for the six-month period ended May 31, 2020. These interim financial statements and financial highlights are the
responsibility of the Fund’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial
statements and financial highlights for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of changes in net assets for the year ended November 30, 2019 and the financial highlights for each of the five years in the
period ended November 30, 2019, and in our report dated January 15, 2020, we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.
Boston, Massachusetts
July 17, 2020
75
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available
by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of
portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s
website at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/closedendfunds by choosing the fund’s name and then selecting the
“Resources” tab and clicking on “Prospectus and Reports”.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available at
https://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/closedendfunds by choosing the fund’s name.
Additional
information about the fund (e.g., performance, dividends and the fund’s price history) is also available by clicking on the fund’s name under “Closed-End Funds” in the “Products” section of mfs.com.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, transfer agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are
not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against
the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws, any claims asserted against or on behalf of the MFS
Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
76
CONTACT US
TRANSFER AGENT, REGISTRAR, AND
DIVIDEND
DISBURSING AGENT
CALL
1-800-637-2304
9 a.m. to 5 p.m.
Eastern time
WRITE
Computershare Trust Company,
N.A.
P.O. Box 505005
Louisville, KY 40233-5005
New York Stock Exchange Symbol: CMU