If You Invested in Aberdeen Municipal Income Fund (MFM)

MFS Municipal Income Trust (NYSE: MFM) is described as a diversified closed-end management investment company. According to available information, its stated investment objective is to seek high current income that is exempt from federal income tax, while also considering the potential for capital appreciation. The fund invests a majority of its net assets, including assets attributable to preferred shares and borrowings for investment purposes, in municipal bonds.

As a closed-end fund, MFS Municipal Income Trust issues a fixed number of shares that trade on a stock exchange. The value at which its shares trade on an exchange can differ from the net asset value (NAV) of the underlying portfolio. Shares may trade at a premium or a discount to NAV, and that relationship can change over time based on market conditions and investor demand. The fund’s investment return and principal value can fluctuate, so an investor’s shares may be worth more or less than the original cost.

Investment focus and structure

The fund’s focus on municipal bonds is aligned with its objective of seeking income exempt from federal income tax. Municipal bonds are debt securities issued by state and local entities, and the income from many of these securities is exempt from federal income tax. The fund indicates that it may also consider capital appreciation, which means it may take into account the potential for the value of its investments to increase over time in addition to generating income.

The description notes that the fund is diversified, which refers to the way its assets are allocated across different securities within its investment universe. The fund also indicates that it may use preferred shares and borrowings for investment purposes, and that these are included when considering the majority of its net assets invested in municipal bonds.

Proposed reorganization and future name change

According to a press release from abrdn National Municipal Income Fund (NYSE American: VFL), the Board of Trustees of that fund has approved a proposed reorganization of VFL into MFS Municipal Income Trust, which is referred to as the “Surviving Fund.” This proposal is part of a broader plan that would require shareholders of MFS Municipal Income Trust to consider several items related to the Surviving Fund.

The proposal described in the press release would ask shareholders of MFS Municipal Income Trust to appoint the US subsidiary of Aberdeen Investments, abrdn Inc., as the investment adviser to the Surviving Fund. It would also ask them to appoint the incumbent VFL trustees plus one additional independent trustee to serve as the Surviving Fund’s board of trustees, and to approve the issuance of shares in connection with the reorganization.

The press release states that, upon closing of the proposed transaction, it is intended that the Surviving Fund’s name will change from “MFS Municipal Income Trust” to “Aberdeen Municipal Income Fund.” The goal described for this reorganization is to create a larger fund with greater economic scale and increased trading volume, which may help reduce the discount to net asset value over time. For VFL shareholders, the transaction is described as offering the opportunity to continue their investment in a significantly larger fund with a targeted annual distribution rate based on the Surviving Fund’s net asset value.

The proposal is subject to conditions, including shareholder approval, and detailed information is expected to be provided in a proxy statement/prospectus to be filed with the U.S. Securities and Exchange Commission. The press release notes that the registration statement containing the proxy statement/prospectus had not yet been declared effective at the time of the announcement and that the proposal may be amended or withdrawn.

Trading characteristics and risks

The press release explains that closed-end funds are traded on the secondary market through stock exchanges, and that a fund’s investment return and principal value will fluctuate. It further notes that shares of closed-end funds may trade at a premium or a discount to the net asset value of the fund’s portfolio and that there is no assurance a fund will achieve its investment objective.

The value at which a closed-end fund trades is described as a function of external market factors that are not under the control of the fund’s board or investment adviser. As a result, a fund’s discount to net asset value can widen or narrow, and trading at a premium may not be sustainable. The press release also notes that shareholders participating in a dividend reinvestment plan in a fund trading at a premium should be aware that reinvestment of distributions may occur at a premium to net asset value.

Advisers and related asset managers

The press release indicates that MFS is a registered investment adviser. It also provides information about Aberdeen Investments, which is described as having extensive experience in managing closed-end funds and managing multiple U.S. and non-U.S. closed-end funds. In the context of the proposed reorganization, abrdn Inc. is identified as the entity that would serve as investment adviser to the Surviving Fund if shareholders approve the proposal and related conditions are satisfied.

Key points for investors

• The fund is described as a diversified closed-end management investment company.
• Its stated objective is to seek high current income exempt from federal income tax, while also considering capital appreciation.
• It invests a majority of its net assets, including assets attributable to preferred shares and borrowings for investment purposes, in municipal bonds.
• Shares trade on a stock exchange and may trade at a premium or discount to net asset value.
• A proposed reorganization would combine abrdn National Municipal Income Fund into MFS Municipal Income Trust, with MFM as the Surviving Fund, subject to shareholder and regulatory approvals.
• Following the proposed reorganization, it is intended that the fund’s name would change to “Aberdeen Municipal Income Fund,” if the transaction closes as described.