UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-09537
MFS CALIFORNIA MUNICIPAL FUND
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agents for service)
Registrants telephone number, including area code: (617) 954-5000
Date of fiscal year end: November 30
Date of reporting period: May 31, 2017
ITEM 1. | REPORTS TO STOCKHOLDERS. |
SEMIANNUAL REPORT
May 31, 2017
MFS® CALIFORNIA MUNICIPAL FUND
CCA-SEM
MFS® CALIFORNIA MUNICIPAL FUND
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Shareholders:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over looming Brexit negotiations, most markets have proved
resilient. U.S. share prices have reached new highs, and U.S. bond yields rose on hopes surrounding President Trumps proposed fiscal policies and indications that the U.S. Federal Reserve will continue to gradually hike interest rates. However, interest rates in most developed markets remain very low, with central banks maintaining accommodative monetary policies in hopes of reinvigorating slow-growing economies and lifting inflation.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation, as wage growth remains muted. Emerging market economies are recovering at a
somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with elections in the United Kingdom and Germany in the months ahead, as well as geopolitical hot spots on the Korean peninsula and in the Middle East.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
July 14, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
1
(a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moodys, Fitch, and Standard & Poors rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities, including fixed income futures contracts, which have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
(d) | Duration is a measure of how much a bonds price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. This calculation is based on net assets applicable to common shares as of May 31, 2017. |
2
Portfolio Composition continued
(i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolios ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
(j) | For the purpose of managing the funds duration, the fund holds short treasury futures with a bond equivalent exposure of (7.2)%, which reduce the funds interest rate exposure but not its credit exposure. |
(m) | In determining an instruments effective maturity for purposes of calculating the funds dollar-weighted average effective maturity, MFS uses the instruments stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instruments stated maturity. This calculation is based on gross assets, which consists of net assets applicable to common shares plus the value of preferred shares, as of May 31, 2017. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the funds cash position and other assets and liabilities.
From time to time Cash & Cash Equivalents may be negative due to the aggregate liquidation value of variable rate municipal term preferred shares and/or timing of cash receipts.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions.
Percentages are based on net assets applicable to common shares as of May 31, 2017.
The portfolio is actively managed and current holdings may be different.
3
Portfolio Manager | Primary Role | Since | Title and Five Year History | |||
Michael Dawson | Portfolio Manager |
2007 | Investment Officer of MFS; employed in the investment management area of MFS since 1998. | |||
Geoffrey Schechter | Portfolio Manager |
2007 | Investment Officer of MFS; employed in the investment management area of MFS since 1993. |
The funds shares may trade at a discount or premium to net asset value. When fund shares trade at a premium, buyers pay more than the net asset value underlying fund shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the funds concurrent liquidation.
The funds monthly distributions may include a return of capital to shareholders to the extent that distributions are in excess of the funds net investment income and net capital gains, determined in accordance with federal income tax regulations. Distributions that are treated for federal income tax purposes as a return of capital will reduce each shareholders basis in his or her shares and, to the extent the return of capital exceeds such basis, will be treated as gain to the shareholder from a sale of shares. Returns of shareholder capital may have the effect of reducing the funds assets and increasing the funds expense ratio.
In accordance with Section 23(c) of the Investment Company Act of 1940, the fund hereby gives notice that it may from time to time repurchase common and/or preferred shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.
4
5/31/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Municipal Bonds - 168.5% | ||||||||
Issuer | Shares/Par | Value ($) | ||||||
Airport Revenue - 8.8% | ||||||||
Los Angeles, CA, Department of Airports Rev. (Los Angeles International), C, BHAC, 5.25%, 5/15/2038 (Prerefunded 5/15/2018) | $ | 750,000 | $ | 782,128 | ||||
Orange County, CA, Airport Rev., A, 5%, 7/01/2031 | 190,000 | 203,792 | ||||||
San Diego County, CA, Regional Airport Authority Rev., A, 5%, 7/01/2021 | 500,000 | 558,955 | ||||||
San Diego County, CA, Regional Airport Authority Rev., A, 5%, 7/01/2043 | 500,000 | 560,235 | ||||||
San Francisco, CA, City & County Airports Commission, International Airport Rev., A, 5%, 5/01/2030 | 285,000 | 318,747 | ||||||
San Francisco, CA, City & County Airports Commission, International Airport Rev., A, 5%, 5/01/2031 | 150,000 | 167,099 | ||||||
San Jose, CA, Airport Rev., A-2, 5.25%, 3/01/2034 | 440,000 | 490,481 | ||||||
|
|
|||||||
$ | 3,081,437 | |||||||
General Obligations - General Purpose - 6.3% | ||||||||
Commonwealth of Puerto Rico, A, NATL, 5.5%, 7/01/2020 | $ | 165,000 | $ | 179,137 | ||||
Commonwealth of Puerto Rico, Public Improvement Refunding, A-4, AGM, 5%, 7/01/2031 | 40,000 | 41,946 | ||||||
Puerto Rico Public Buildings Authority Rev., H, AMBAC, 5.5%, 7/01/2017 | 140,000 | 140,337 | ||||||
Puerto Rico Public Buildings Authority Rev., H, AMBAC, 5.5%, 7/01/2018 | 125,000 | 127,524 | ||||||
Puerto Rico Public Buildings Authority Rev., M-2, AMBAC, 5.5%, 7/01/2035 (Put Date 7/01/2017) | 30,000 | 30,068 | ||||||
State of California, 5.25%, 4/01/2035 | 455,000 | 523,473 | ||||||
State of California, 5.5%, 3/01/2040 | 630,000 | 699,974 | ||||||
State of California, 5.25%, 11/01/2040 | 415,000 | 468,261 | ||||||
|
|
|||||||
$ | 2,210,720 | |||||||
General Obligations - Schools - 32.6% | ||||||||
Alhambra, CA, Unified School District, B, ASSD GTY, 5.25%, 8/01/2028 (Prerefunded 8/01/2019) | $ | 500,000 | $ | 546,595 | ||||
Banning, CA, Unified School District (Election of 2006), B, ASSD GTY, 5.25%, 8/01/2033 (Prerefunded 8/01/2018) | 500,000 | 526,150 | ||||||
Beaumont, CA, Unified School District (Election of 2008), Capital Appreciation, C, AGM, 0%, 8/01/2040 | 955,000 | 377,024 | ||||||
Beaumont, CA, Unified School District (Election of 2008), Capital Appreciation, C, AGM, 0%, 8/01/2044 | 1,000,000 | 332,180 | ||||||
Folsom Cordova, CA, Unified School District (Election of 2012), A, 5%, 10/01/2038 | 535,000 | 618,984 |
5
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
General Obligations - Schools - continued | ||||||||
Lake Tahoe, CA, Unified School District (Election of 2008), Capital Appreciation, AGM, 0%, 8/01/2045 | $ | 515,000 | $ | 359,774 | ||||
Los Angeles, CA, Community College District, 3%, 8/01/2039 | 455,000 | 422,417 | ||||||
Mendocino Lake, CA, Community College District Rev. (Election of 2006), Capital Appreciation, B, AGM, 0%, 8/01/2032 | 330,000 | 193,812 | ||||||
Montebello, CA, Unified School District (Election of 2004), A-1, ASSD GTY, 5.25%, 8/01/2034 (Prerefunded 8/01/2019) | 355,000 | 388,082 | ||||||
Mount San Antonio, CA, Community College District Rev. (Election of 2008), Convertible Capital Appreciation, A, 0% to 8/01/2028, 6.25% to 8/01/2043 | 855,000 | 663,574 | ||||||
Napa Valley, CA, Unified School District, 5%, 8/01/2020 | 225,000 | 253,080 | ||||||
Oakland, CA, Unified School District Rev., AGM, 5%, 8/01/2028 | 170,000 | 206,722 | ||||||
Oakland, CA, Unified School District Rev., AGM, 5%, 8/01/2030 | 170,000 | 204,027 | ||||||
Pittsburg, CA, Unified School District, B, AGM, 5.5%, 8/01/2034 | 500,000 | 526,310 | ||||||
Pomona, CA, Unified School District, A, NATL, 6.55%, 8/01/2029 | 1,000,000 | 1,319,920 | ||||||
San Diego, CA, Community College (Election of 2002), 5.25%, 8/01/2033 (Prerefunded 8/01/2019) | 125,000 | 136,593 | ||||||
San Diego, CA, Unified School District (Election of 2008), Capital Appreciation, G, 0%, 7/01/2034 | 265,000 | 122,406 | ||||||
San Joaquin, CA, Delta Community College District (Election of 2004), Capital Appreciation, B, AGM, 0%, 8/01/2018 | 400,000 | 394,792 | ||||||
San Jose, CA, Evergreen Community College District (Election of 2010), A, 5%, 8/01/2041 | 265,000 | 303,600 | ||||||
San Mateo County, CA, Union High School District, E, 3%, 9/01/2041 | 560,000 | 517,933 | ||||||
Santee, CA, School District (Election of 2006), Capital Appreciation, D, ASSD GTY, 0%, 8/01/2043 | 765,000 | 259,144 | ||||||
Vallejo City, CA, Unified School District, A, NATL, 5.9%, 8/01/2025 | 500,000 | 608,100 | ||||||
Victor, CA, Elementary School District (Election of 2008), A, ASSD GTY, 5.125%, 8/01/2034 (Prerefunded 8/01/2019) | 500,000 | 545,370 | ||||||
Washington, CA, Yolo County Unified School District (New High School Project), 5%, 8/01/2021 | 450,000 | 452,894 | ||||||
West Contra Costa, CA, Unified School District, A, NATL, 5.7%, 2/01/2023 | 500,000 | 604,960 | ||||||
West Covina, CA, Unified School District, A, NATL, 5.8%, 2/01/2021 | 500,000 | 577,345 | ||||||
|
|
|||||||
$ | 11,461,788 | |||||||
Healthcare Revenue - Hospitals - 29.3% | ||||||||
ABAG Finance Authority for Non-Profit Corps., CA, Rev. (Sharp Healthcare), 6.25%, 8/01/2039 | $ | 505,000 | $ | 558,454 | ||||
ABAG Finance Authority for Non-Profit Corps., CA, Rev. (Sharp Healthcare), A, 5%, 8/01/2026 | 110,000 | 125,324 | ||||||
California Health Facilities Financing Authority Rev. (Childrens Hospital Los Angeles), A, 5%, 8/15/2042 | 450,000 | 510,314 |
6
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
Healthcare Revenue - Hospitals - continued | ||||||||
California Health Facilities Financing Authority Rev. (Memorial Health Services), A, 5%, 10/01/2033 | $ | 295,000 | $ | 336,026 | ||||
California Health Facilities Financing Authority Rev. (Scripps Health), A, 5%, 11/15/2032 | 525,000 | 597,340 | ||||||
California Health Facilities Financing Authority Rev. (Scripps Health), A, 5%, 11/15/2040 | 255,000 | 287,918 | ||||||
California Health Facilities Financing Authority Rev. (Sutter Health), B, 5.875%, 8/15/2031 | 500,000 | 571,410 | ||||||
California Health Facilities Financing Authority Rev. (Sutter Health), B, 5%, 11/15/2035 | 460,000 | 539,382 | ||||||
California Municipal Finance Authority Rev. (Community Medical Centers), A, 5%, 2/01/2042 | 75,000 | 84,615 | ||||||
California Municipal Finance Authority Rev. (Community Medical Centers), A, 5%, 2/01/2036 | 225,000 | 256,428 | ||||||
California Municipal Finance Authority Rev. (Community Medical Centers), A, 5%, 2/01/2037 | 150,000 | 170,420 | ||||||
California Municipal Finance Authority Rev. (NorthBay Healthcare Group), 5%, 11/01/2028 | 45,000 | 51,264 | ||||||
California Municipal Finance Authority Rev. (NorthBay Healthcare Group), 5%, 11/01/2029 | 35,000 | 39,602 | ||||||
California Municipal Finance Authority Rev. (NorthBay Healthcare Group), 5%, 11/01/2044 | 85,000 | 92,972 | ||||||
California Municipal Finance Authority Rev. (NorthBay Healthcare Group), 5%, 11/01/2030 | 15,000 | 16,889 | ||||||
California Municipal Finance Authority Rev. (NorthBay Healthcare Group), 5%, 11/01/2035 | 65,000 | 71,990 | ||||||
California Public Finance Authority Rev. (Henry Mayo Newhall Hospital), 5%, 10/15/2047 | 455,000 | 494,703 | ||||||
California Statewide Communities Development Authority Rev. (Adventist), ASSD GTY, 5%, 3/01/2037 (Prerefunded 5/23/2018) | 495,000 | 514,246 | ||||||
California Statewide Communities Development Authority Rev. (Catholic Healthcare West), K, ASSD GTY, 5.5%, 7/01/2041 | 1,000,000 | 1,003,840 | ||||||
California Statewide Communities Development Authority Rev. (Enloe Medical Center), A, CALHF, 5.5%, 8/15/2023 | 500,000 | 526,625 | ||||||
California Statewide Communities Development Authority Rev. (Kaiser Permanente), A, 5%, 4/01/2042 | 455,000 | 506,906 | ||||||
California Statewide Communities Development Authority Rev. (Loma Linda University Medical Center), A, 5.5%, 12/01/2054 | 350,000 | 382,781 | ||||||
California Statewide Communities Development Authority Rev. (Redlands Community Hospital), 5%, 10/01/2046 | 350,000 | 385,326 | ||||||
California Statewide Communities Development Authority Rev. (Santa Ynez Valley Cottage Hospital), 5.25%, 11/01/2030 | 260,000 | 286,439 | ||||||
California Statewide Communities Development Authority Rev. (Sutter Health), A, 5%, 8/15/2032 | 610,000 | 694,522 |
7
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
Healthcare Revenue - Hospitals - continued | ||||||||
California Statewide Communities Development Authority Rev. (Trinity Health Corp.), 5%, 12/01/2041 | $ | 450,000 | $ | 505,139 | ||||
Santa Clara County, CA, Financing Authority Rev. (El Camino Hospital), AMBAC, 5.125%, 2/01/2041 (Prerefunded 8/01/2017) | 400,000 | 402,896 | ||||||
Upland, CA, COP (San Antonio Community Hospital), 6.375%, 1/01/2032 | 250,000 | 282,818 | ||||||
|
|
|||||||
$ | 10,296,589 | |||||||
Healthcare Revenue - Long Term Care - 4.0% | ||||||||
ABAG Finance Authority for Non-Profit Corps., CA, Rev. (Episcopal Senior Communities), 6.125%, 7/01/2041 | $ | 150,000 | $ | 165,939 | ||||
ABAG Finance Authority for Non-Profit Corps., CA, Rev. (Eskaton Properties, Inc.), 5%, 11/15/2035 | 230,000 | 247,986 | ||||||
California Statewide Communities Development Authority Rev. (899 Charleston Project), A, 5.25%, 11/01/2044 | 295,000 | 303,098 | ||||||
California Statewide Communities Development Authority Rev. (Episcopal Communities & Services for Seniors Obligated Group), 5%, 5/15/2047 | 315,000 | 338,694 | ||||||
Los Angeles County, CA, Regional Financing Authority Rev. (Montecedro Inc. Project), A, CALHF, 5%, 11/15/2044 | 300,000 | 338,676 | ||||||
|
|
|||||||
$ | 1,394,393 | |||||||
Industrial Revenue - Other - 1.7% | ||||||||
New York Liberty Development Corp. Rev. (Goldman Sachs Headquarters), 5.25%, 10/01/2035 | $ | 485,000 | $ | 610,450 | ||||
Miscellaneous Revenue - Other - 4.9% | ||||||||
ABAG Finance Authority for Non-Profit Corps., CA, Rev. (Jackson Lab), 5%, 7/01/2037 | $ | 400,000 | $ | 438,832 | ||||
California Infrastructure & Economic Development Bank Rev. (Academy of Motion Picture Arts and Sciences Obligated Group), A, 5%, 11/01/2030 | 235,000 | 276,529 | ||||||
California Infrastructure & Economic Development Bank Rev. (Academy of Motion Picture Arts and Sciences Obligated Group), A, 5%, 11/01/2034 | 170,000 | 197,453 | ||||||
California Infrastructure & Economic Development Bank Rev. (Academy of Motion Picture Arts and Sciences Obligated Group), A, 5%, 11/01/2035 | 170,000 | 197,015 | ||||||
California Infrastructure & Economic Development Bank Rev. (Walt Disney Family Museum), 5.25%, 2/01/2033 (Prerefunded 2/01/2018) | 160,000 | 164,738 | ||||||
California Statewide Communities Development Authority Rev. (Buck Institute for Research on Aging), AGM, 5%, 11/15/2044 | 385,000 | 436,371 | ||||||
|
|
|||||||
$ | 1,710,938 |
8
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
Port Revenue - 5.7% | ||||||||
Alameda, CA, Corridor Transportation Authority Second Subordinate Lien Rev., B, AGM, 5%, 10/01/2036 | $ | 310,000 | $ | 357,405 | ||||
Alameda, CA, Corridor Transportation Authority Second Subordinate Lien Rev., B, 5%, 10/01/2037 | 470,000 | 534,117 | ||||||
Port of Oakland, CA, Rev., P, 5%, 5/01/2033 | 1,000,000 | 1,105,700 | ||||||
|
|
|||||||
$ | 1,997,222 | |||||||
Sales & Excise Tax Revenue - 1.2% | ||||||||
California Economic Recovery, A, 5%, 7/01/2020 (Prerefunded 7/01/2019) | $ | 250,000 | $ | 271,215 | ||||
Puerto Rico Sales Tax Financing Corp., Sales Tax Rev., C, 5%, 8/01/2040 (a)(d) | 215,000 | 121,808 | ||||||
Puerto Rico Sales Tax Financing Corp., Sales Tax Rev., Capital Appreciation, A, NATL, 0%, 8/01/2042 | 120,000 | 28,595 | ||||||
|
|
|||||||
$ | 421,618 | |||||||
Secondary Schools - 2.1% | ||||||||
California School Finance Authority, Charter School Rev. (Aspire Public Schools - Obligated Group), 5%, 8/01/2040 | $ | 85,000 | $ | 91,481 | ||||
California School Finance Authority, Charter School Rev. (Aspire Public Schools - Obligated Group), 5%, 8/01/2045 | 85,000 | 91,174 | ||||||
California School Finance Authority, School Facility Rev. (Alliance for College-Ready Public Schools Projects), A, 5%, 7/01/2030 | 255,000 | 281,910 | ||||||
California Statewide Communities Development Authority School Facility Rev. (Alliance for College-Ready Public Schools), A, 6.375%, 7/01/2047 | 230,000 | 254,028 | ||||||
|
|
|||||||
$ | 718,593 | |||||||
Single Family Housing - State - 2.6% | ||||||||
California Housing Finance Agency Rev. (Home Mortgage), E, 4.75%, 2/01/2030 | $ | 305,000 | $ | 305,436 | ||||
California Housing Finance Agency Rev. (Home Mortgage), K, 5.3%, 8/01/2023 | 175,000 | 175,623 | ||||||
California Housing Finance Agency Rev. (Home Mortgage), L, 5.45%, 8/01/2033 | 405,000 | 413,550 | ||||||
|
|
|||||||
$ | 894,609 | |||||||
State & Agency - Other - 1.4% | ||||||||
Sacramento County, CA, Public Facilities Project, COP, AMBAC, 4.75%, 10/01/2027 | $ | 500,000 | $ | 500,625 | ||||
State & Local Agencies - 13.2% | ||||||||
California Public Works Board Lease Rev. (Department of Corrections), E, AGM, 3%, 10/01/2036 | $ | 415,000 | $ | 401,413 |
9
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
State & Local Agencies - continued | ||||||||
California Public Works Board Lease Rev. (Judicial Council Projects), A, 5%, 3/01/2028 | $ | 380,000 | $ | 440,952 | ||||
California Public Works Board Lease Rev. (New Stockton Courthouse), B, 5%, 10/01/2033 | 275,000 | 320,194 | ||||||
Los Angeles County, CA, Schools Regionalized Business Service Corp., Pooled Financing, Capital Appreciation, A, AMBAC, 0%, 8/01/2018 | 2,020,000 | 1,984,711 | ||||||
Los Angeles County, CA, Schools Regionalized Business Service Corp., Pooled Financing, Capital Appreciation, A, AMBAC, 0%, 8/01/2023 | 1,220,000 | 1,066,939 | ||||||
Los Angeles, CA, Municipal Improvement Corp. Lease Rev., B, ASSD GTY, 5.5%, 4/01/2030 (Prerefunded 4/01/2019) | 390,000 | 422,655 | ||||||
|
|
|||||||
$ | 4,636,864 | |||||||
Tax - Other - 1.5% | ||||||||
Puerto Rico Convention Center District Authority, Hotel Occupancy Tax Rev., A, AMBAC, 5%, 7/01/2031 | $ | 90,000 | $ | 90,176 | ||||
Puerto Rico Infrastructure Financing Authority Special Tax Rev., C, AMBAC, 5.5%, 7/01/2024 | 120,000 | 128,482 | ||||||
Puerto Rico Infrastructure Financing Authority Special Tax Rev., C, AMBAC, 5.5%, 7/01/2026 | 80,000 | 86,403 | ||||||
Puerto Rico Infrastructure Financing Authority Special Tax Rev., C, AMBAC, 5.5%, 7/01/2027 | 210,000 | 227,394 | ||||||
|
|
|||||||
$ | 532,455 | |||||||
Tax Assessment - 9.8% | ||||||||
Fontana, CA, Public Finance Authority, Tax Allocation Rev. (Sub Lien North Fontana Redevelopment), A, AMBAC, 5%, 10/01/2029 | $ | 1,000,000 | $ | 1,003,210 | ||||
Huntington Park, CA, Public Financing Authority Rev., A, AGM, 5.25%, 9/01/2019 | 500,000 | 501,780 | ||||||
North Natomas, CA, Community Facilities District Special Tax, 4-E, 5.25%, 9/01/2033 | 160,000 | 181,443 | ||||||
Riverside County, CA, Jurupa Valley Redevelopment Project Rev., B, AGM, 5%, 10/01/2030 | 190,000 | 223,106 | ||||||
Riverside County, CA, Jurupa Valley Redevelopment Project Rev., B, AGM, 5%, 10/01/2031 | 225,000 | 264,296 | ||||||
Riverside County, CA, Redevelopment Agency, Tax Allocation, A, AGM, 5%, 10/01/2034 | 295,000 | 337,746 | ||||||
San Dieguito, CA, Public Facilities Authority, A, AMBAC, 5%, 8/01/2032 | 500,000 | 520,260 | ||||||
San Francisco, CA, City & County Redevelopment Successor Agency, Community Facilities District No. 6 (Mission Bay South Public Improvements), A, 5%, 8/01/2033 | 130,000 | 140,318 | ||||||
San Francisco, CA, City & County Redevelopment Successor Agency, Tax Allocation (Mission Bay South Redevelopment Project), A, 5%, 8/01/2043 | 250,000 | 280,475 | ||||||
|
|
|||||||
$ | 3,452,634 |
10
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
Tobacco - 4.8% | ||||||||
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., A-1, 5.125%, 6/01/2047 | $ | 1,000,000 | $ | 999,920 | ||||
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Unrefunded Balance, 5.75%, 6/01/2047 | 675,000 | 679,995 | ||||||
|
|
|||||||
$ | 1,679,915 | |||||||
Toll Roads - 1.0% | ||||||||
Riverside County, CA, Transportation Commission, Toll Rev., A, 5.75%, 6/01/2044 | $ | 320,000 | $ | 363,107 | ||||
Transportation - Special Tax - 2.5% | ||||||||
Commonwealth of Puerto Rico Highway & Transportation Authority Rev., D, AGM, 5%, 7/01/2032 | $ | 55,000 | $ | 55,548 | ||||
Commonwealth of Puerto Rico Highway & Transportation Authority Rev., J, NATL, 5%, 7/01/2029 | 10,000 | 10,007 | ||||||
Commonwealth of Puerto Rico Highway & Transportation Authority Rev., L, NATL, 5.25%, 7/01/2035 | 30,000 | 32,399 | ||||||
Commonwealth of Puerto Rico Highway & Transportation Authority Rev., L, AMBAC, 5.25%, 7/01/2038 | 340,000 | 360,135 | ||||||
Commonwealth of Puerto Rico Highway & Transportation Authority Rev., N, NATL, 5.25%, 7/01/2032 | 35,000 | 38,063 | ||||||
San Francisco, CA, Municipal Transportation Agency Rev., B, 5%, 3/01/2037 | 335,000 | 380,590 | ||||||
|
|
|||||||
$ | 876,742 | |||||||
Universities - Colleges - 6.6% | ||||||||
California Educational Facilities Authority Rev. (Loma Linda University), A, 5%, 4/01/2036 | $ | 75,000 | $ | 86,173 | ||||
California Educational Facilities Authority Rev. (Loma Linda University), A, 5%, 4/01/2037 | 235,000 | 269,155 | ||||||
California Educational Facilities Authority Rev. (University of San Francisco), 6.125%, 10/01/2030 | 285,000 | 338,546 | ||||||
California Municipal Finance Authority Rev. (Azusa Pacific University Project), B, 5%, 4/01/2035 | 345,000 | 374,263 | ||||||
California Public Works Board Lease Rev. (The Regents of the University of California), 5%, 12/01/2028 (Prerefunded 12/01/2021) | 375,000 | 437,449 | ||||||
California State University Rev., A, 5%, 11/01/2024 | 370,000 | 429,256 | ||||||
California State University Rev., A, 5%, 11/01/2030 | 270,000 | 320,892 | ||||||
Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Educational Facilities Rev. (University Plaza Project), NATL, 5%, 7/01/2033 | 75,000 | 75,206 | ||||||
|
|
|||||||
$ | 2,330,940 |
11
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
Universities - Dormitories - 0.8% | ||||||||
California Municipal Finance Authority, Student Housing Rev. (Bowles Hall Foundation) A, 5%, 6/01/2035 | $ | 25,000 | $ | 27,017 | ||||
California Statewide Communities Development Authority Rev. (Lancer Plaza Project), 5.875%, 11/01/2043 | 230,000 | 247,248 | ||||||
|
|
|||||||
$ | 274,265 | |||||||
Utilities - Cogeneration - 0.7% | ||||||||
California Pollution Control Financing Authority, Water Furnishing Rev. (Poseidon Resources Desalination Project), 5%, 11/21/2045 | $ | 150,000 | $ | 160,268 | ||||
California Pollution Control Financing Authority, Water Furnishing Rev. (San Diego County Water Desalination Project Pipeline), 5%, 11/21/2045 | 75,000 | 75,142 | ||||||
|
|
|||||||
$ | 235,410 | |||||||
Utilities - Municipal Owned - 7.5% | ||||||||
California Department of Water Resources, Power Supply Rev., L, 5%, 5/01/2019 | $ | 305,000 | $ | 328,909 | ||||
Guam Power Authority Rev., A, AGM, 5%, 10/01/2039 | 50,000 | 56,083 | ||||||
Guam Power Authority Rev., A, AGM, 5%, 10/01/2044 | 55,000 | 61,385 | ||||||
Northern California Power Agency, Capital Facilities Rev., A, 5.25%, 8/01/2024 | 390,000 | 431,668 | ||||||
Puerto Rico Electric Power Authority Rev., DDD, AGM, 3.625%, 7/01/2023 | 10,000 | 10,008 | ||||||
Puerto Rico Electric Power Authority Rev., DDD, AGM, 3.65%, 7/01/2024 | 55,000 | 55,044 | ||||||
Puerto Rico Electric Power Authority Rev., SS, ASSD GTY, 4.375%, 7/01/2030 | 5,000 | 5,004 | ||||||
Puerto Rico Electric Power Authority Rev., UU, ASSD GTY, 4.25%, 7/01/2027 | 40,000 | 40,039 | ||||||
Puerto Rico Electric Power Authority Rev., VV, NATL, 5.25%, 7/01/2032 | 5,000 | 5,436 | ||||||
Sacramento, CA, Municipal Utility District Electric Rev., U, AGM, 5%, 8/15/2019 (Prerefunded 8/15/2018) | 290,000 | 304,825 | ||||||
Sacramento, CA, Municipal Utility District Electric Rev., X, 5%, 8/15/2025 (Prerefunded 8/15/2021) | 95,000 | 110,196 | ||||||
Sacramento, CA, Municipal Utility District Electric Rev., Unrefunded Balance, U, AGM, 5%, 8/15/2019 | 460,000 | 483,626 | ||||||
Sacramento, CA, Municipal Utility District Electric Rev., Unrefunded Balance, X, 5%, 8/15/2025 | 275,000 | 317,793 | ||||||
Vernon, CA, Electric System Rev., A, 5.5%, 8/01/2041 | 370,000 | 409,472 | ||||||
|
|
|||||||
$ | 2,619,488 |
12
Portfolio of Investments (unaudited) continued
Issuer | Shares/Par | Value ($) | ||||||
Municipal Bonds - continued | ||||||||
Utilities - Other - 3.0% | ||||||||
California M-S-R Energy Authority Gas Rev., A, 6.5%, 11/01/2039 | $ | 245,000 | $ | 350,308 | ||||
Southern California Public Power Authority (Natural Gas Project No. 1), A, 5%, 11/01/2033 | 585,000 | 706,113 | ||||||
|
|
|||||||
$ | 1,056,421 | |||||||
Water & Sewer Utility Revenue - 16.5% | ||||||||
Atwater, CA, Public Financing Authority Wastewater Rev., ASSD GTY, 5%, 5/01/2034 | $ | 500,000 | $ | 519,330 | ||||
California Department of Water Resources Rev. (Central Valley Project Water System), AE, 5%, 12/01/2028 (Prerefunded 6/01/2018) | 480,000 | 500,122 | ||||||
California Department of Water Resources Rev. (Central Valley Project Water System), AM, 5%, 12/01/2024 | 500,000 | 599,735 | ||||||
California Department of Water Resources Rev., Unrefunded Balance, 5%, 12/01/2028 | 20,000 | 20,821 | ||||||
Chino Basin, CA, Regional Financing Authority Rev. (Inland Empire Utilities Agency), A, AMBAC, 5%, 11/01/2038 (Prerefunded 11/01/2017) | 1,000,000 | 1,017,600 | ||||||
Escondido, CA, Joint Powers Financing Authority Rev. (Water System Financing), 5%, 9/01/2041 | 460,000 | 522,601 | ||||||
Guam Waterworks Authority Rev. (Water and Wastewater System), 5%, 7/01/2036 | 20,000 | 22,136 | ||||||
Guam Waterworks Authority Rev. (Water and Wastewater System), 5%, 1/01/2046 | 105,000 | 114,683 | ||||||
Guam Waterworks Authority Rev. (Water and Wastewater System), A, 5%, 7/01/2029 | 105,000 | 118,096 | ||||||
Guam Waterworks Authority Rev. (Water and Wastewater System), A, 5%, 7/01/2035 | 105,000 | 115,355 | ||||||
Madera, CA, Financing Authority, Irrigation Rev., 6.5%, 1/01/2040 (Prerefunded 1/01/2020) | 440,000 | 501,679 | ||||||
Norco, CA, Financing Authority, Enterprise Rev., AGM, 5.625%, 10/01/2039 | 215,000 | 233,793 | ||||||
Oxnard, CA, Financing Authority, Wastewater Rev., AGM, 5%, 6/01/2030 | 340,000 | 393,370 | ||||||
Oxnard, CA, Financing Authority, Wastewater Rev., AGM, 5%, 6/01/2031 | 85,000 | 97,920 | ||||||
Soquel Creek, CA, Water District, COP, 5%, 3/01/2043 | 370,000 | 421,793 | ||||||
Tulare, CA, Sewer Rev., AGM, 5%, 11/15/2031 | 350,000 | 411,936 | ||||||
Tulare, CA, Sewer Rev., AGM, 5%, 11/15/2035 | 170,000 | 196,874 | ||||||
|
|
|||||||
$ | 5,807,844 | |||||||
Total Municipal Bonds (Identified Cost, $55,033,732) | $ | 59,165,067 |
13
Portfolio of Investments (unaudited) continued
Money Market Funds - 0.5% | ||||||||
Issuer | Shares/Par | Value ($) | ||||||
MFS Institutional Money Market Portfolio, 0.87% (v) (Identified Cost, $167,196) |
167,196 | $ | 167,196 | |||||
Total Investments (Identified Cost, $55,200,928) | $ | 59,332,263 | ||||||
Other Assets, Less Liabilities - 0.5% | 164,477 | |||||||
VMTPS, at liquidation value of $24,425,000 net of unamortized debt issuance costs of $40,939 (issued by the fund) - (69.4)% | (24,384,061 | ) | ||||||
Net Assets applicable to common shares - 100.0% | $ | 35,112,679 |
(a) | Non-income producing security. |
(d) | In default. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
ARPS | Auction Rate Preferred Shares |
COP | Certificate of Participation |
VMTPS | Variable Rate Municipal Term Preferred Shares |
Insurers | ||
AGM | Assured Guaranty Municipal | |
AMBAC | AMBAC Indemnity Corp. | |
ASSD GTY | Assured Guaranty Insurance Co. | |
BHAC | Berkshire Hathaway Assurance Corp. | |
CALHF | California Health Facility Construction Loan Insurance Program | |
NATL | National Public Finance Guarantee Corp. |
Derivative Contracts at 5/31/17
Futures Contracts at 5/31/17
Description | Currency | Contracts | Value | Expiration Date |
Unrealized Appreciation (Depreciation) |
|||||||||||||
Liability Derivatives | ||||||||||||||||||
Interest Rate Futures | ||||||||||||||||||
U.S. Treasury Note 10 yr (Short) | USD | 20 | $2,525,938 | September - 2017 | $(8,984 | ) | ||||||||||||
|
|
At May 31, 2017, the fund had cash collateral of $26,000 to cover any commitments for certain derivative contracts. Cash collateral is comprised of Deposits with brokers on the Statement of Assets and Liabilities.
See Notes to Financial Statements
14
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 5/31/17 (unaudited)
This statement represents your funds balance sheet, which details the assets and liabilities comprising the total value of the fund.
Assets | ||||
Investments |
||||
Non-affiliated issuers, at value (identified cost, $55,033,732) |
$59,165,067 | |||
Underlying affiliated funds, at value (identified cost, $167,196) |
167,196 | |||
Total investments, at value (identified cost, $55,200,928) |
$59,332,263 | |||
Deposits with brokers |
26,000 | |||
Receivables for |
||||
Investments sold |
40,000 | |||
Interest |
660,541 | |||
Receivable from investment adviser |
11,098 | |||
Other assets |
9,073 | |||
Total assets |
$60,078,975 | |||
Liabilities | ||||
Payables for |
||||
Distributions on common shares |
$133 | |||
Daily variation margin on open futures contracts |
2,812 | |||
Investments purchased |
493,259 | |||
Interest expense |
40,653 | |||
Payable to affiliates |
||||
Transfer agent and dividend disbursing costs |
6 | |||
Payable for independent Trustees compensation |
300 | |||
Accrued expenses and other liabilities |
45,072 | |||
VMTPS, at liquidation value of $24,425,000 net of unamortized debt issuance costs of $40,939 |
24,384,061 | |||
Total liabilities |
$24,966,296 | |||
Net assets applicable to common shares |
$35,112,679 | |||
Net assets consist of | ||||
Paid-in capital - common shares |
$35,238,011 | |||
Unrealized appreciation (depreciation) on investments |
4,122,351 | |||
Accumulated net realized gain (loss) on investments |
(4,318,379 | ) | ||
Undistributed net investment income |
70,696 | |||
Net assets applicable to common shares |
$35,112,679 | |||
VMTPS, at liquidation value of $24,425,000 net of unamortized debt issuance costs of $40,939 (977 shares of Series 2019/3 issued and outstanding at $25,000 per share) |
24,384,061 | |||
Net assets including preferred shares |
$59,496,740 | |||
Common shares of beneficial interest issued and outstanding |
2,786,275 | |||
Net asset value per common share (net assets of $35,112,679 / 2,786,275 shares of beneficial interest outstanding) |
$12.60 |
See Notes to Financial Statements
15
Financial Statements
Six months ended 5/31/17 (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.
Net investment income | ||||
Income |
||||
Interest |
$1,258,769 | |||
Dividends from underlying affiliated funds |
1,728 | |||
Total investment income |
$1,260,497 | |||
Expenses |
||||
Management fee |
$189,970 | |||
Transfer agent and dividend disbursing costs |
2,855 | |||
Administrative services fee |
9,411 | |||
Independent Trustees compensation |
5,479 | |||
Stock exchange fee |
7,460 | |||
Custodian fee |
2,914 | |||
Shareholder communications |
9,008 | |||
Audit and tax fees |
40,194 | |||
Legal fees |
1,050 | |||
Interest expense and amortization of VMTPS debt issuance costs |
240,381 | |||
Miscellaneous |
30,923 | |||
Total expenses |
$539,645 | |||
Reduction of expenses by investment adviser |
(65,285 | ) | ||
Net expenses |
$474,360 | |||
Net investment income |
$786,137 | |||
Realized and unrealized gain (loss) on investments | ||||
Realized gain (loss) (identified cost basis) |
||||
Investments: |
||||
Non-affiliated issuers |
$11,510 | |||
Underlying affiliated funds |
(33 | ) | ||
Futures contracts |
(38,409 | ) | ||
Net realized gain (loss) on investments |
$(26,932 | ) | ||
Change in unrealized appreciation (depreciation) |
||||
Investments |
$1,614,083 | |||
Futures contracts |
(14,849 | ) | ||
Net unrealized gain (loss) on investments |
$1,599,234 | |||
Net realized and unrealized gain (loss) on investments |
$1,572,302 | |||
Change in net assets from operations |
$2,358,439 |
See Notes to Financial Statements
16
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.
Change in net assets | Six months ended 5/31/17 (unaudited) |
Year ended 11/30/16 |
||||||
From operations | ||||||||
Net investment income |
$786,137 | $1,723,243 | ||||||
Net realized gain (loss) on investments |
(26,932 | ) | (39,069 | ) | ||||
Net unrealized gain (loss) on investments |
1,599,234 | (1,695,160 | ) | |||||
Change in net assets from operations |
$2,358,439 | $(10,986 | ) | |||||
Distributions declared to common shareholders | ||||||||
From net investment income |
$(788,516 | ) | $(1,648,053 | ) | ||||
Share transactions applicable to common and preferred shares |
||||||||
Net asset value of shares issued to common shareholders in reinvestment of distributions |
$ | $493 | ||||||
Total change in net assets |
$1,569,923 | $(1,658,546 | ) | |||||
Net assets applicable to common shares | ||||||||
At beginning of period |
33,542,756 | 35,201,302 | ||||||
At end of period (including undistributed net investment income of $70,696 and $73,075, respectively) |
$35,112,679 | $33,542,756 |
See Notes to Financial Statements
17
Financial Statements
Six months ended 5/31/17 (unaudited)
This statement provides a summary of cash flows from investment activity for the fund.
Cash flows from operating activities: | ||||
Change in net assets from operations |
$2,358,439 | |||
Adjustments to reconcile change in net assets from operations to net cash provided by operating activities: | ||||
Purchase of investment securities |
(3,390,443 | ) | ||
Proceeds from disposition of investment securities |
3,186,069 | |||
Proceeds from disposition of short-term investments, net |
268,521 | |||
Realized gain/loss on investments |
(11,477 | ) | ||
Unrealized appreciation/depreciation on investments |
(1,614,083 | ) | ||
Net amortization/accretion of income |
(16,921 | ) | ||
Amortization of VMTPS debt issuance costs |
11,139 | |||
Decrease in interest receivable |
17,184 | |||
Decrease in accrued expenses and other liabilities |
(35,757 | ) | ||
Increase in receivable from investment adviser |
(293 | ) | ||
Decrease in receivable for daily variation margin on open futures contracts |
11,876 | |||
Increase in payable for daily variation margin on open futures contracts |
2,812 | |||
Decrease in deposits with brokers |
3,000 | |||
Increase in other assets |
(7,862 | ) | ||
Increase in payable for interest expense |
6,465 | |||
Net cash provided by operating activities |
$788,669 | |||
Cash flows from financing activities: | ||||
Cash distributions paid on common shares |
(788,669 | ) | ||
Net cash used by financing activities |
$(788,669 | ) | ||
Net increase (decrease) in cash |
$0 | |||
Cash: | ||||
Beginning of period |
$ | |||
End of period |
$ |
Supplemental disclosure of cash flow information:
Cash paid during the six months ended May 31, 2017 for interest was $222,777.
See Notes to Financial Statements
18
Financial Statements
The financial highlights table is intended to help you understand the funds 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.
Six months ended 5/31/17 |
Years ended 11/30 | |||||||||||||||||||||||
Common Shares | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period |
$12.04 | $12.63 | $12.55 | $11.32 | $13.03 | $10.71 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) |
$0.28 | $0.62 | $0.67 | $0.64 | $0.66 | $0.70 | ||||||||||||||||||
Net realized and unrealized |
0.56 | (0.62 | ) | 0.03 | 1.22 | (1.75 | ) | 1.92 | ||||||||||||||||
Distributions declared to |
| | | | | (0.02 | ) | |||||||||||||||||
Total from investment operations |
$0.84 | $(0.00 | ) | $0.70 | $1.86 | $(1.09 | ) | $2.60 | ||||||||||||||||
Less distributions declared to common shareholders | ||||||||||||||||||||||||
From net investment income |
$(0.28 | ) | $(0.59 | ) | $(0.62 | ) | $(0.63 | ) | $(0.62 | ) | $(0.72 | ) | ||||||||||||
Net increase resulting from tender and |
$ | $ | $ | $ | $ | $0.44 | ||||||||||||||||||
Net asset value, end of period (x) |
$12.60 | $12.04 | $12.63 | $12.55 | $11.32 | $13.03 | ||||||||||||||||||
Market value, end of period |
$11.75 | $11.36 | $11.72 | $10.91 | $9.76 | $12.71 | ||||||||||||||||||
Total return at market value (%) (p) |
5.99 | (n) | 1.57 | 13.45 | 18.45 | (18.83 | ) | 22.84 | ||||||||||||||||
Total return at net asset |
7.24 | (n) | (0.10 | ) | 6.28 | 17.48 | (8.17 | ) | 29.22 | (y) | ||||||||||||||
Ratios (%) (to average net assets applicable to common shares) and Supplemental data: |
||||||||||||||||||||||||
Expenses before expense |
3.16 | (a) | 2.82 | 2.67 | 2.75 | 2.70 | 2.40 | |||||||||||||||||
Expenses after expense reductions (f)(p) |
2.78 | (a) | 2.46 | 2.30 | 2.38 | 2.42 | 1.94 | |||||||||||||||||
Net investment income (p) |
4.61 | (a) | 4.75 | 5.34 | 5.32 | 5.47 | 5.88 | |||||||||||||||||
Portfolio turnover |
3 | (n) | 6 | 11 | 17 | 12 | 19 | |||||||||||||||||
Net assets at end of period |
$35,113 | $33,543 | $35,201 | $34,969 | $31,554 | $36,309 |
19
Financial Highlights continued
Six months ended 5/31/17 |
Years ended 11/30 | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Supplemental Ratios (%): | ||||||||||||||||||||||||
Ratio of expenses to average net assets |
1.37 | (a) | 1.34 | 1.41 | 1.43 | 1.43 | 1.40 | |||||||||||||||||
Ratio of expenses to average net assets |
0.80 | (a) | 0.80 | 0.83 | 0.83 | 0.83 | 0.81 | |||||||||||||||||
Net investment income available to |
4.61 | 4.75 | 5.34 | 5.32 | 5.47 | 5.73 | ||||||||||||||||||
Senior Securities: | ||||||||||||||||||||||||
VMTPS |
977 | 977 | 977 | 977 | 977 | 977 | ||||||||||||||||||
Asset coverage per preferred share (k) |
$60,897 | $59,279 | $61,030 | $60,792 | $57,296 | $62,164 | ||||||||||||||||||
Involuntary liquidation preference per |
$25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | ||||||||||||||||||
Average market value per preferred |
$25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 |
(a) | Annualized. |
(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 funds total liabilities (not including liquidation preference of VMTPS) from the funds total assets and dividing this number by the total number of preferred shares outstanding. |
(l) | Interest expense and fees relate to payments made to the holders of the floating rate certificates from trust assets, interest expense paid to shareholders of VMTPS and amortization of VMTPS debt issuance costs, as applicable. For the year ended November 30, 2012, the expense ratio also excludes fees and expenses related to the tender and repurchase of the funds ARPS. For periods prior to November 30, 2016, the expense ratio includes amortization of VMTPS debt issuance costs. |
(m) | Amount excludes accrued interest on VMTPS. |
(n) | Not annualized. |
(p) | For the year ended November 30, 2012, the ratio excludes dividend payments on ARPS. |
(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 funds VMTPS. |
(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. |
(y) | Included in the total return at net asset value for the year ended November 30, 2012 is the impact of the tender and repurchase by the fund of a portion of its ARPS at 95% of the ARPS per share liquidation preference. Had this transaction not occurred, the total return at net asset value for the year ended November 30, 2012 would have been lower by 3.34%. |
See Notes to Financial Statements
20
(unaudited)
(1) Business and Organization
MFS California Municipal Fund (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 funds Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in municipal instruments. The value of municipal instruments can be affected by changes in their actual or perceived credit quality. The credit quality of municipal instruments can be affected by, among other things, the financial condition of the issuer or guarantor, the issuers future borrowing plans and sources of revenue, the economic feasibility of the revenue bond project or general borrowing purpose, and political or economic developments in the region where the instrument is issued. Municipal instruments generally trade in the over-the-counter market. Municipal instruments backed by current and anticipated revenues from a specific project or specific assets can be negatively affected by the discontinuance of the taxation supporting the projects or assets or the inability to collect revenues for the project or from the assets. 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.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the Rule). The Rule, which introduces two new regulatory reporting forms for investment companies Form N-PORT and Form N-CEN also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the funds current financial statement presentation and expects that the fund will be able to comply with the Rules Regulation S-X amendments by the August 1, 2017 compliance date.
In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (ASU 2016-18). For entities that have restricted cash and are required to present a statement of cash flows, ASU 2016-18 changes the cash flow presentation for restricted cash. Although still evaluating the
21
Notes to Financial Statements (unaudited) continued
potential impacts of ASU 2016-18, management expects that the effects of the funds adoption will be limited to the reclassification of restricted cash on the funds Statement of Cash Flows and the addition of disclosures regarding the nature of the restrictions on restricted cash. ASU 2016-18 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.
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 entities that hold callable debt securities at a premium, ASU 2017-08 requires that the premium be amortized to the earliest call date. ASU 2017-08 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Management is still evaluating the potential impacts of ASU 2017-08 but believes that adoption of ASU 2017-08 will not have a material effect on the funds overall financial position or its overall results of operations.
Balance Sheet Offsetting The funds 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 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 funds 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 funds Significant Accounting Policies note under the captions for each of the funds 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 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. Values obtained from 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 funds 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
22
Notes to Financial Statements (unaudited) continued
such procedures under the oversight of the Board of Trustees. Under the funds 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 investments 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 funds net asset value, or after the halting 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 funds 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 funds 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 funds 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 investments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The funds 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 unobservable inputs, which may include the advisers own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as futures contracts. The following is a summary of the levels used as of May 31, 2017 in valuing the funds assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Municipal Bonds | $ | $59,165,067 | $ | $59,165,067 | ||||||||||||
Mutual Funds | 167,196 | | | 167,196 | ||||||||||||
Total Investments | $167,196 | $59,165,067 | $ | $59,332,263 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Liabilities | $(8,984 | ) | $ | $ | $(8,984 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
23
Notes to Financial Statements (unaudited) continued
Derivatives The fund uses derivatives for different purposes, 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 derivatives original cost.
The derivative instruments used by the fund were futures contracts. The funds period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at May 31, 2017 as reported in the Statement of Assets and Liabilities:
Fair Value (a) | ||||||
Risk | Derivative Contracts | Liability Derivatives | ||||
Interest Rate | Interest Rate Futures | $(8,984) |
(a) | The value of futures contracts includes cumulative appreciation (depreciation) as reported in the funds Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the funds Statement of Assets and Liabilities. |
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, 2017 as reported in the Statement of Operations:
Risk | Futures Contracts | |||
Interest Rate | $(38,409 | ) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended May 31, 2017 as reported in the Statement of Operations:
Risk | Futures Contracts | |||
Interest Rate | $(14,849 | ) |
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 certain 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 across all transactions traded under the ISDA Master Agreement could result in a reduction of the funds credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
24
Notes to Financial Statements (unaudited) continued
Collateral and margin requirements differ by type of derivative. Margin requirements are set by the clearing broker and the clearing house for cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options) while collateral terms are contract specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options). 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 agreement and one amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated to cover the funds collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as Restricted cash or Deposits with brokers. 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 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 certain 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 exchanges clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The funds 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 is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount included within the funds Statement of Assets and Liabilities and includes cash on hand at its custodian bank and does not include any short-term investments.
Indemnifications Under the funds 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
25
Notes to Financial Statements (unaudited) continued
indemnification clauses. The funds 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. 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.
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 funds federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the funds 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. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
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.
26
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 11/30/16 |
||||
Ordinary income (including any short-term capital gains) |
$7,707 | |||
Tax-exempt income | 2,017,315 | |||
Total distributions | $2,025,022 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 5/31/17 | ||||
Cost of investments | $54,787,070 | |||
Gross appreciation | 4,613,518 | |||
Gross depreciation | (68,325 | ) | ||
Net unrealized appreciation (depreciation) | $4,545,193 | |||
As of 11/30/16 | ||||
Undistributed ordinary income | 1,607 | |||
Undistributed tax-exempt income | 105,942 | |||
Capital loss carryforwards | (4,691,991 | ) | ||
Other temporary differences | (34,474 | ) | ||
Net unrealized appreciation (depreciation) | 2,923,661 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the Act), net capital losses recognized for fund fiscal years beginning after November 30, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses (post-enactment losses). Previously, net capital losses were carried forward for eight years and treated as short-term losses (pre-enactment losses). As a transition rule, the Act requires that all post-enactment net capital losses be used before pre-enactment net capital losses.
As of November 30, 2016, the fund had capital loss carryforwards available to offset future realized gains as follows:
Pre-enactment losses which expire as follows: |
||||
11/30/17 | $(3,006,395 | ) | ||
11/30/18 | (696,235 | ) | ||
11/30/19 | (725,457 | ) | ||
Total | $(4,428,087 | ) | ||
Post-enactment losses which are characterized as follows: |
||||
Short-Term | $(263,904 | ) |
27
Notes to Financial Statements (unaudited) continued
(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 funds average daily net assets (including the value of preferred shares).
The investment adviser has agreed in writing to pay a portion of the funds total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total fund operating expenses do not exceed 0.80% annually of the funds average daily net assets (including the value of preferred shares). This written agreement will continue until modified by the funds Board of Trustees, but such agreement will continue at least until November 30, 2018. For the six months ended May 31, 2017, this reduction amounted to $65,285, 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 funds 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, 2017, these fees paid to MFSC amounted to $62.
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, 2017 was equivalent to an annual effective rate of 0.0322% of the funds 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.
Other This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended May 31, 2017, the fee paid by the fund under this agreement was $32 and is included in Miscellaneous expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
28
Notes to Financial Statements (unaudited) continued
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.
(4) Portfolio Securities
For the six months ended May 31, 2017, purchases and sales of investments, other than short-term obligations, aggregated $3,221,229 and $2,010,000, respectively.
(5) Shares of Beneficial Interest
The funds 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 the six months ended May 31, 2017 and year ended November 30, 2016, the fund did not repurchase any shares. Other transactions in fund shares were as follows:
Six months ended 5/31/17 |
Year ended 11/30/16 |
|||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares issued to shareholders in reinvestment of distributions |
| $ | 37 | $493 |
(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 syndication 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 higher of the Overnight Federal Reserve funds rate or daily one month LIBOR 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 at the end of each calendar quarter. 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 a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended May 31, 2017, the funds commitment fee and interest expense were $121 and $0, respectively, and are included in Miscellaneous expense in the Statement of Operations.
(7) Transactions in Underlying Affiliated Funds-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 fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount |
Acquisitions Shares/Par Amount |
Dispositions Shares/Par Amount |
Ending Shares/Par Amount |
||||||||||||
MFS Institutional Money Market Portfolio | 435,717 | 3,601,023 | (3,869,544 | ) | 167,196 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) |
Capital Gain Distributions |
Dividend Income |
Ending Value |
||||||||||||
MFS Institutional Money Market Portfolio | $(33 | ) | $ | $1,728 | $167,196 |
29
Notes to Financial Statements (unaudited) continued
(8) Preferred Shares
The fund has 977 shares issued and outstanding of Variable Rate Municipal Term Preferred Shares (VMTPS), series 2019/3. 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 March 31, 2019 unless 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. Six months prior to the term redemption date of the VMTPS, the fund is required to begin to segregate liquid assets with the funds custodian to fund the redemption. Dividends on the VMTPS are cumulative and are set weekly to a fixed spread against the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index. During the six months ended May 31, 2017, the VMTPS dividend rates ranged from 1.71% to 2.07%. For the six months ended May 31, 2017, the average dividend rate was 1.88%.
In the funds 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, 2017, interest expense related to dividends to the VMTPS amounted to $229,215 and is included in Interest expense and amortization of VMTPS debt issuance costs 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 being amortized into interest expense over the life of the VMTPS. The period-end carrying value for the VMTPS in the funds 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 funds 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.
30
Notes to Financial Statements (unaudited) continued
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 shareholder 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 funds common shareholders. To the extent that investments are purchased by the fund with proceeds from the issuance of preferred shares, the funds net asset value will increase or decrease at a greater rate than a comparable unleveraged fund. Changes in the value of the funds portfolio will be borne entirely by the common shareholders. It is possible that the fund 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 funds leveraging strategy will be successful.
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of MFS California Municipal Fund:
We have reviewed the accompanying statement of assets and liabilities, including the portfolio of investments, of MFS California Municipal Fund (the Fund) as of May 31, 2017, and the related statements of operations, changes in net assets, cash flows and financial highlights for the six-month period ended May 31, 2017. These interim financial statements and financial highlights are the responsibility of the Funds 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, 2016 and the financial highlights for each of the five years in the period ended November 30, 2016, and in our report dated January 13, 2017, we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.
Boston, Massachusetts
July 14, 2017
32
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 (once you have selected Individual Investor as your role, click on Individual Investor Home in the top navigation and then select Learn More About Proxy Voting under the I want to header on the left hand column of the page), or by visiting the SECs 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 (once you have selected Individual Investor as your role, click on Individual Investor Home in the top navigation and then select Learn More About Proxy Voting under the I want to header on the left hand column of the page), or by visiting the SECs Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The funds Form N-Q is also available on the EDGAR database on the Commissions Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the funds Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
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 by visiting the Market Commentary and Announcements sub sections in the Market Outlooks section of mfs.com or by clicking on the funds name under Closed-End Funds in the Products section of mfs.com.
Additional information about the fund (e.g. performance, dividends and the funds price history) is also available by clicking on the funds name under Closed-End Funds in the Products section of mfs.com.
33
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 Trusts 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.
34
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 43078
Providence, RI 02940-3078
NYSE MKT Symbol: CCA
ITEM 2. | CODE OF ETHICS. |
Effective January 1, 2017, the Code of Ethics (the Code) was amended to (i) clarify that the term for profit company as used in Section II.B of the Code excludes the investment adviser and its subsidiaries and pooled investment vehicles sponsored by the investment adviser or its subsidiaries, (ii) align the Codes provisions regarding receipt of gifts and entertainment in Section II.B of the Code with the gifts and entertainment policy of the Funds investment adviser, and (iii) make other administrative changes. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
A copy of the amended Code effective as of January 1, 2017 is filed as an exhibit to this Form N-CSR.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable for semi-annual reports.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable for semi-annual reports.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable for semi-annual reports.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
A schedule of investments for MFS California Municipal Fund is included as part of the report to shareholders under Item 1 of this Form N-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable for semi-annual reports.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
There were no changes during this period.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
MFS California Municipal Fund
Period |
(a) Total number of Shares Purchased |
(b) Average Price Paid per Share |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs |
||||||||||||
12/01/16-12/31/16 |
0 | N/A | 0 | 278,626 | ||||||||||||
1/01/17-1/31/17 |
0 | N/A | 0 | 278,626 | ||||||||||||
2/01/17-2/28/17 |
0 | N/A | 0 | 278,626 | ||||||||||||
3/01/17-3/31/17 |
0 | N/A | 0 | 278,626 | ||||||||||||
4/01/17-4/30/17 |
0 | N/A | 0 | 278,626 | ||||||||||||
5/01/17-5/31/17 |
0 | N/A | 0 | 278,626 | ||||||||||||
|
|
|
|
|||||||||||||
Total |
0 | 0 | ||||||||||||||
|
|
|
|
Note: The Board approved procedures to repurchase shares and reviews the results periodically. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on October 1st of each year. The programs conform to the conditions of Rule 10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (October 1 through the following September 30) to 10% of the Registrants outstanding shares as of the first day of the plan year (October 1). The aggregate number of shares available for purchase for the October 1, 2016 plan year is 278,626.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrants Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | Based upon their evaluation of the registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the Act)) as conducted within 90 days of the filing date of this Form N-CSR, the registrants principal financial officer and principal executive officer have concluded that those |
disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. |
(b) | There were no changes in the registrants internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter covered by the report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
ITEM 12. | EXHIBITS. |
(a) | File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated. |
(1) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. Attached hereto. |
(2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto. |
(b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed filed for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto. |
Notice
A copy of the Agreement and Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant MFS CALIFORNIA MUNICIPAL FUND
By (Signature and Title)* | DAVID L. DILORENZO | |
David L. DiLorenzo, President |
Date: July 14, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | DAVID L. DILORENZO | |
David L. DiLorenzo, President (Principal Executive Officer) |
Date: July 14, 2017
By (Signature and Title)* | JAMES O. YOST | |
James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: July 14, 2017
* | Print name and title of each signing officer under his or her signature. |