Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance California Municipal Income Trust
(California Trust) and Eaton Vance New York Municipal Income Trust (New York Trust), (each individually referred to as the Trust, and collectively, the Trusts), are Massachusetts business trusts registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as non-diversified, closed-end management investment companies. Each Trusts investment objective is to provide current income exempt
from regular federal income tax and taxes in its specified state.
The following is a summary of significant accounting policies of the Trusts. The
policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Each Trust is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board
(FASB) Accounting Standards Codification Topic 946.
A Investment Valuation
The following methodologies are used to determine the market value or fair value of investments.
Debt Obligations. Debt obligations are
generally valued on the basis of valuations provided by third party pricing services, as derived from such services pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices,
broker/dealer quotations, prices or yields of securities with similar characteristics, interest rates, anticipated prepayments, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services
may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Short-term debt obligations purchased with a remaining maturity of sixty days or less for which a
valuation from a third party pricing service is not readily available may be valued at amortized cost, which approximates fair value.
Fair
Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of a Trust in a manner
that most fairly reflects the securitys fair value, which is the amount that a Trust might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a
consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the securitys
disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from
the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the companys or entitys financial statements, and an evaluation of the forces that influence the issuer and the market(s) in
which the security is purchased and sold.
B Investment Transactions and Related Income Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost. Interest
income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.
C Federal
Taxes Each Trusts policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable, if any, and tax-exempt net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is
necessary. Each Trust intends to satisfy conditions which will enable it to designate distributions from the interest income generated by its investments in non-taxable municipal securities, which are exempt
from regular federal income tax when received by each Trust, as exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax preference item to
shareholders.
As of May 31, 2021, the Trusts had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. Each Trust files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue
Service for a period of three years from the date of filing.
D Legal Fees
Legal fees and other related expenses incurred as part of negotiations of the terms and requirement of capital infusions, or that are expected to result in the restructuring of, or a plan of reorganization for, an investment are recorded as
realized losses. Ongoing expenditures to protect or enhance an investment are treated as operating expenses.
E Use of
Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
F Indemnifications Under each Trusts organizational documents, its officers and Trustees may be indemnified against certain
liabilities and expenses arising out of the performance of their duties to each Trust. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as a Trust) could be deemed to have personal
liability for the obligations of the Trust. However, each Trusts Declaration of Trust contains an express disclaimer of liability on the part of Trust shareholders and the By-laws provide that the Trust
shall assume, upon request by the shareholder, the defense on behalf of any Trust shareholders. Moreover, the By-laws also provide for indemnification out of Trust property of any shareholder held personally
liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, each Trust enters into agreements with service providers that may contain
indemnification clauses. Each Trusts maximum exposure under these arrangements is unknown as this would involve future claims that may be made against each Trust that have not yet occurred.
Eaton Vance
Municipal Income Trusts
May 31, 2021
Notes to Financial Statements (Unaudited) continued
G Floating Rate Notes Issued in Conjunction with Securities Held The Trusts may invest in residual interest bonds, also
referred to as inverse floating rate securities, whereby a Trust may sell a variable or fixed rate bond for cash to a Special-Purpose Vehicle (the SPV), (which is generally organized as a trust), while at the same time, buying a residual interest in
the assets and cash flows of the SPV. The bond is deposited into the SPV with the same CUSIP number as the bond sold to the SPV by the Trust, and which may have been, but is not required to be, the bond purchased from the Trust (the Bond). The SPV
also issues floating rate notes (Floating Rate Notes) which are sold to third-parties. The residual interest bond held by a Trust gives the Trust the right (1) to cause the holders of the Floating Rate Notes to generally tender their notes at
par, and (2) to have the Bond held by the SPV transferred to the Trust, thereby terminating the SPV. Should the Trust exercise such right, it would generally pay the SPV the par amount due on the Floating Rate Notes and exchange the residual
interest bond for the underlying Bond. Pursuant to generally accepted accounting principles for transfers and servicing of financial assets and extinguishment of liabilities, the Trusts account for the transaction described above as a secured
borrowing by including the Bond in their Portfolio of Investments and the Floating Rate Notes as a liability under the caption Payable for floating rate notes issued in their Statement of Assets and Liabilities. The Floating Rate Notes
have interest rates that generally reset weekly and their holders have the option to tender their notes to the SPV for redemption at par at each reset date. Accordingly, the fair value of the payable for floating rate notes issued approximates its
carrying value. If measured at fair value, the payable for floating rate notes would have been considered as Level 2 in the fair value hierarchy (see Note 6) at May 31, 2021. Interest expense related to a Trusts liability with
respect to Floating Rate Notes is recorded as incurred. The SPV may be terminated by the Trust, as noted above, or by the occurrence of certain termination events as defined in the trust agreement, such as a downgrade in the credit quality of the
underlying Bond, bankruptcy of or payment failure by the issuer of the underlying Bond, the inability to remarket Floating Rate Notes that have been tendered due to insufficient buyers in the market, or the failure by the SPV to obtain renewal of
the liquidity agreement under which liquidity support is provided for the Floating Rate Notes up to one year. At May 31, 2021, the amounts of the Trusts Floating Rate Notes and related interest rates and collateral were as follows:
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California
Trust
|
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New York
Trust
|
|
|
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|
Floating Rate Notes Outstanding
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|
$
|
59,578,488
|
|
|
$
|
40,531,169
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|
|
|
|
Interest Rate or Range of Interest Rates (%)
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|
|
0.07 - 0.15
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|
|
|
0.07 - 0.11
|
|
|
|
|
Collateral for Floating Rate Notes Outstanding
|
|
$
|
89,195,188
|
|
|
$
|
61,063,582
|
|
For the six months ended May 31, 2021, the Trusts average settled Floating Rate Notes outstanding and the average
interest rate (annualized) including fees were as follows:
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California
Trust
|
|
|
New York
Trust
|
|
|
|
|
Average Floating Rate Notes Outstanding
|
|
$
|
59,220,000
|
|
|
$
|
41,656,264
|
|
|
|
|
Average Interest Rate
|
|
|
0.45
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%
|
|
|
0.55
|
%
|
In certain circumstances, the Trusts may enter into shortfall and forbearance agreements with brokers by which a Trust agrees to
reimburse the broker for the difference between the liquidation value of the Bond held by the SPV and the liquidation value of the Floating Rate Notes, as well as any shortfalls in interest cash flows. The Trusts had no shortfalls as of May 31,
2021.
The Trusts may also purchase residual interest bonds in a secondary market transaction without first owning the underlying bond. Such transactions
are not required to be treated as secured borrowings. Shortfall agreements, if any, related to residual interest bonds purchased in a secondary market transaction are disclosed in the Portfolio of Investments.
The Trusts investment policies and restrictions expressly permit investments in residual interest bonds. Such bonds typically offer the potential for yields
exceeding the yields available on fixed rate bonds with comparable credit quality and maturity. These securities tend to underperform the market for fixed rate bonds in a rising long-term interest rate environment, but tend to outperform the market
for fixed rate bonds when long-term interest rates decline. The value and income of residual interest bonds are generally more volatile than that of a fixed rate bond. The Trusts investment policies do not allow the Trusts to borrow money
except as permitted by the 1940 Act. Management believes that the Trusts restrictions on borrowing money and issuing senior securities (other than as specifically permitted) do not apply to Floating Rate Notes issued by the SPV and included as
a liability in the Trusts Statement of Assets and Liabilities. As secured indebtedness issued by an SPV, Floating Rate Notes are distinct from the borrowings and senior securities to which the Trusts restrictions apply. Residual interest
bonds held by the Trusts are securities exempt from registration under Rule 144A of the Securities Act of 1933.
H When-Issued
Securities and Delayed Delivery Transactions The Trusts may purchase securities on a delayed delivery or when-issued basis. Payment and delivery may take place after the customary settlement
period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed. The Trusts maintain cash and/or security positions for these commitments such that sufficient liquid assets will be
available to make payments upon settlement. Securities purchased on a delayed delivery or when-issued basis are marked-to-market daily and begin earning interest
Eaton Vance
Municipal Income Trusts
May 31, 2021
Notes to Financial Statements (Unaudited) continued
on settlement date. Securities purchased on a delayed delivery or when-issued basis are subject to the risk that when delivered they will be worth less than the agreed upon payment price. Losses may also arise if
the counterparty does not perform under the contract.
I Interim Financial Statements The interim financial statements relating to May 31, 2021 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the
Trusts management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders and Income Tax Information
Each Trust intends to make
monthly distributions of net investment income to common shareholders. In addition, at least annually, each Trust intends to distribute all or substantially all of its net realized capital gains. Distributions to shareholders are recorded on the ex-dividend date. Distributions to shareholders are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As required by U.S. GAAP, only distributions in excess of tax basis earnings
and profits are reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. For tax
purposes, distributions from short-term capital gains are considered to be from ordinary income.
The cost and unrealized appreciation (depreciation) of
investments of each Trust at May 31, 2021, as determined on a federal income tax basis, were as follows:
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California
Trust
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New York
Trust
|
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Aggregate cost
|
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$
|
87,755,665
|
|
|
$
|
61,999,384
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
15,837,931
|
|
|
$
|
11,459,955
|
|
|
|
|
Gross unrealized depreciation
|
|
|
(123,577
|
)
|
|
|
(285,605
|
)
|
|
|
|
Net unrealized appreciation
|
|
$
|
15,714,354
|
|
|
$
|
11,174,350
|
|
3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Eaton Vance Management (EVM) as compensation for investment advisory services rendered to each Trust. On March 1, 2021,
Morgan Stanley acquired Eaton Vance Corp. (the Transaction) and EVM became an indirect, wholly-owned subsidiary of Morgan Stanley. In connection with the Transaction, California Trust entered into a new investment advisory agreement (the
New Agreement) with EVM, which took effect on March 1, 2021. California Trusts prior fee reduction agreement was incorporated into the New Agreement. Pursuant to the New Agreement (and California Trusts investment advisory
agreement with EVM in effect prior to March 1, 2021), the investment adviser fee is computed at an annual rate of 0.40% of California Trusts average weekly gross assets and is payable monthly. Gross assets for California Trust are calculated
by deducting accrued liabilities except the principal amount of any indebtedness for money borrowed, including debt securities issued and the amount of floating-rate notes included as a liability in its Statement of Assets and Liabilities of up to
$59,000,000, and the amount of any outstanding preferred shares issued.
In connection with the closing of the Transaction, New York Trust entered into
an interim investment advisory agreement (the Interim Agreement) with EVM, which took effect on March 1, 2021. The Interim Agreement allows EVM to continue to manage New York Trust for up to an additional 150 days following the
Transaction to provide more time for further proxy solicitation in connection with shareholder approval of a new investment advisory agreement (the New Agreement). Pursuant to the terms of the investment advisory agreement and fee
reduction agreement in effect prior to March 1, 2021 for New York Trust, the investment adviser fee was computed at an annual rate of 0.40% of New York Trusts average weekly gross assets and was payable monthly. Gross assets for New York Trust
were calculated by deducting accrued liabilities except the principal amount of any indebtedness for money borrowed, including debt securities issued and the amount of floating-rate notes included as a liability in its Statement of Assets and
Liabilities of up to $44,500,000, and the amount of any outstanding preferred shares issued. Pursuant to the Interim Agreement, EVM is entitled to receive a fee at the same rate and terms in effect prior to March 1, 2021, with such compensation to
be held in an interest-bearing escrow account with New York Trusts custodian. If the New Agreement is not approved with EVM to replace the Interim Agreement, EVM will be paid the lesser of its costs incurred in performing services under the
Interim Agreement or the amount in the escrow account, both plus interest earned on the escrow amount. The New Agreement for New York Trust was not approved by New York Trusts shareholders nor was the most recent special meeting of
shareholders in April 2021 to approve the New Agreement adjourned. Instead, after considering various options, the Board of Trustees of New York Trust approved the termination and liquidation of New York Trust, subject to shareholder approval (see
Note 8).
Eaton Vance
Municipal Income Trusts
May 31, 2021
Notes to Financial Statements (Unaudited) continued
The administration fee is earned by EVM for administering the business affairs of each Trust and is computed at an annual rate of 0.20% of each Trusts average weekly gross assets. For the six months ended
May 31, 2021, the investment adviser fees, the effective annual investment adviser fee rates as a percentage of average weekly gross assets and administration fees were as follows:
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California
Trust
|
|
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New York
Trust
|
|
|
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Investment Adviser Fee
|
|
$
|
326,701
|
|
|
$
|
158,527
|
|
|
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|
Effective Annual Investment Adviser Fee Rate
|
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|
0.40
|
%
|
|
|
0.26
|
%
|
|
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|
Administration Fee
|
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$
|
163,351
|
|
|
$
|
122,795
|
|
Trustees and officers of the Trusts who are members of EVMs organization receive remuneration for their services to the Trusts
out of the investment adviser fee. Trustees of the Trusts who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six
months ended May 31, 2021, no significant amounts have been deferred. Certain officers and Trustees of the Trusts are officers of EVM.
4 Purchases and Sales of Investments
Purchases and sales of investments, other than
short-term obligations, for the six months ended May 31, 2021 were as follows:
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California
Trust
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New York
Trust
|
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Purchases
|
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$
|
21,882,672
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|
|
$
|
10,504,777
|
|
|
|
|
Sales
|
|
$
|
19,153,852
|
|
|
$
|
20,813,100
|
|
5 Common Shares of Beneficial Interest
The Trusts may issue common shares pursuant to their dividend reinvestment plans. There were no common shares issued by the Trusts for the six months ended May 31, 2021 and the year ended November 30,
2020.
In November 2013, the Board of Trustees initially approved a share repurchase program for the Trusts. Pursuant to the reauthorization of the share
repurchase program by the Board of Trustees in March 2019, each Trust is authorized to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year at market prices when shares are trading at a discount to net
asset value (NAV). The share repurchase program does not obligate a Trust to purchase a specific amount of shares. There were no repurchases of common shares by the Trusts for the six months ended May 31, 2021 and the year ended
November 30, 2020.
At May 31, 2021, according to filings made on Schedule 13D and 13G pursuant to Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934, as amended, three affiliated entities together owned 11.9% of California Trusts common shares.
6 Fair Value Measurements
Under
generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is
summarized in the three broad levels listed below.
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Level 1 quoted prices in active markets for identical investments
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Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk,
etc.)
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Level 3 significant unobservable inputs (including a funds own assumptions in determining the fair value of investments)
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In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is
determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
securities.
Eaton Vance
Municipal Income Trusts
May 31, 2021
Notes to Financial Statements (Unaudited) continued
At May 31, 2021, the hierarchy of inputs used in valuing the Trusts investments, which are carried at value, were as follows:
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California Trust
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Asset Description
|
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Level 1
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Level 2
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Level 3
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Total
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Corporate Bonds
|
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$
|
|
|
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$
|
1,303,234
|
|
|
$
|
|
|
|
$
|
1,303,234
|
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Tax-Exempt Mortgage-Backed Securities
|
|
|
|
|
|
|
625,805
|
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|
|
|
|
|
|
625,805
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|
|
|
|
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Tax-Exempt Municipal Obligations
|
|
|
|
|
|
|
147,080,214
|
|
|
|
|
|
|
|
147,080,214
|
|
|
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Taxable Municipal Obligations
|
|
|
|
|
|
|
14,039,254
|
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|
|
|
|
|
|
14,039,254
|
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Total Investments
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$
|
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|
|
$
|
163,048,507
|
|
|
$
|
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|
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$
|
163,048,507
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New York Trust
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Asset Description
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Level 1
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Level 2
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Level 3*
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Total
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Corporate Bonds
|
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$
|
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|
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$
|
1,968,116
|
|
|
$
|
|
|
|
$
|
1,968,116
|
|
|
|
|
|
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Tax-Exempt Municipal Obligations
|
|
|
|
|
|
|
110,947,758
|
|
|
|
|
|
|
|
110,947,758
|
|
|
|
|
|
|
Taxable Municipal Obligations
|
|
|
|
|
|
|
227,879
|
|
|
|
|
|
|
|
227,879
|
|
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
|
561,150
|
|
|
|
561,150
|
|
|
|
|
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Total Investments
|
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$
|
|
|
|
$
|
113,143,753
|
|
|
$
|
561,150
|
|
|
$
|
113,704,903
|
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*
|
None of the unobservable inputs for Level 3 assets, individually or collectively, had a material impact on New York Trust.
|
Level 3 investments held by New York Trust at the beginning and/or end of the period in relation to net assets were not
significant and accordingly, a reconciliation of Level 3 assets for the six months ended May 31, 2021 is not presented.
7 Risks and Uncertainties
Pandemic
Risk
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread
internationally. This coronavirus has resulted in closing borders, enhanced health screenings, changes to healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general
concern and uncertainty. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks and disrupt normal market conditions and
operations. The impact of this outbreak has negatively affected the worldwide economy, the economies of individual countries, individual companies, and the market in general, and may continue to do so in significant and unforeseen ways, as may other
epidemics and pandemics that may arise in the future. Any such impact could adversely affect the Trusts performance, or the performance of the securities in which the Trusts invest.
8 Subsequent Event
On April 12, 2021, the New York Trusts Board of Trustees
approved a Plan of Liquidation and Termination for New York Trust. At a special meeting of shareholders held on June 25, 2021, New York Trust shareholders were asked to approve the liquidation and termination of New York Trust. The special
meeting was adjourned to July 14, 2021 and further adjourned to July 27, 2021 to allow more time for shareholders to vote.
Eaton Vance
Municipal Income Trusts
May 31, 2021