SEC Form N-CSR filed by Invesco Municipal Trust

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number

 

Invesco Municipal Trust

(Exact name of registrant as specified in charter)

 

1555 Peachtree Street, N.E., Suite 1800 Atlanta, Georgia 30309

(Address of principal executive offices) (Zip code)

 

Glenn Brightman 1555 Peachtree Street, N.E., Suite 1800 Atlanta, Georgia 30309

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: (713)

Date of fiscal year end: 2/29

Date of reporting period: 2/29/2024

30e-1

Invesco Municipal Trust

Management’s Discussion of Trust Performance

 

2024 was also constructive in terms of inflows to municipal funds. Following two years of outsized inflows and outflows, the municipal market began its return to a more normalized trend as we finished the fiscal year.

 As a result of Puerto Rico’s restructuring of $22 billion of general obligation debt in March 2022, marking significant progress towards its long-winded bankruptcy process, the Commonwealth’s weight in the Bloomberg High Yield Municipal Bond Index increased from 13% in February 2019 to 17% in March 2022 as the newly restructured bonds reentered the index. During the fiscal year, the focus turned to the Puerto Rico Electric and Power Authority (PREPA). As of February 29, 2024, bankruptcy negotiations and U.S. District Court proceedings related to PREPA were ongoing.

 Municipal bonds have a long history of low defaults as many are issued to fund essential services to Americans. This continues to be the case as evidenced by S&P rating changes – during calendar year 2023, S&P’s rating activity was positive, with 949 ratings upgraded versus 278 downgraded, translating to more than three upgrades for every downgrade. This positive dynamic, which we believe will continue, likely stems from benefits of the various federal stimulus measures, including the American Rescue Plan Act, the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, as well as higher revenues collected by state and local governments.

 We believe the valuable benefits of municipal bonds will prevail over current market volatility and economic uncertainty. We continue to rely on our experienced portfolio managers and credit analysts to weather the economic challenges while identifying marketplace opportunities to add long-term value for shareholders.

 During the fiscal year, an overweight exposure to hospital bonds contributed to relative return. An overweight allocation to bonds also added to relative performance. On a state level, bonds domiciled in Wisconsin contributed to relative performance.

 Underweight allocations to state and local general obligation bonds detracted from relative performance over the fiscal year. Underweight exposures to AAA and bonds also detracted from relative performance. On a state level, bonds domiciled in California detracted from relative performance, as well.

 One important factor affecting the Trust’s performance relative to its style-specific benchmark was the use of leverage. The Trust uses leverage because we believe that, over time, leveraging can provide opportunities for additional income and total return for common shareholders. However, the use of leverage also can expose common shareholders to additional volatility. For example, if the prices of securities held by a trust decline, the

negative effect of these valuation changes on common-share NAV and total return is magnified by the use of leverage. Conversely, leverage may enhance common-share returns during periods when the prices of securities held by a trust generally are rising.

 Over the fiscal year, leverage contributed to the Trust’s performance relative to its style-specific benchmark. The Trust achieved a leveraged position through the use of inverse floating rate securities and variable rate muni term preferred (VMTP) shares. Inverse floating rate securities or tender option bonds (TOBs) are instruments that have an inverse relationship to a referenced interest rate. VMTPs are a variable rate form of preferred stock with a mandatory redemption date. Inverse floating rate securities and VMTPs can be an efficient way to manage duration, yield curve exposure and credit exposure, potentially enhancing yield. At the close of the fiscal year, leverage accounted for 33% of the Trust’s total assets and it contributed to returns. For more information about the Trust’s use of leverage, see the Notes to Financial Statements later in this report.

 We wish to remind you that the Trust is subject to interest rate risk, meaning when interest rates rise, the value of fixed income securities tends to fall. The degree to which the value of fixed income securities may decline due to rising interest rates may vary depending on the speed and magnitude of the increase in interest rates, as well as individual security characteristics, such as price, maturity, duration and coupon and market forces, such as supply and demand for similar securities. We are monitoring interest rates, and the market, economic and geopolitical factors that may impact the direction, speed and magnitude of changes to interest rates across the maturity spectrum, including the potential impact of monetary policy changes by the Fed and certain foreign central banks. If interest rates rise or fall faster than expected, markets may experience increased volatility, which may affect the value and/or liquidity of certain of the Trust’s investments and/or the market price of the Trust’s common shares.

 Thank you for investing in Invesco Municipal Trust and for sharing our long-term investment horizon.

1 Source: Bloomberg LP

2 Source: US Federal Reserve

3 Source: Lipper Inc.

4 Source: Standard & Poor’s

† Standard & Poor’s, Fitch Ratings, Moody’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. indicates the debtor was not rated and should not be interpreted as indicating low quality. For more information on rating methodology, please visit spglobal.com, fitchratings.com and ratings.moodys.com.

 

:

Jack Connelly

Josh Cooney

Tim O’Reilly

Mark Paris

Rebecca Setcavage

John Schorle

Julius Williams

 

See important Trust and, if applicable, index disclosures later in this report.

Your Trust’s Long-Term Performance

Results of a $10,000 Investment

pay-in

pay-in

 Past performance cannot guarantee future results.

 Performance shown in the chart does not reflect deduction of taxes a shareholder would pay on Trust distributions or sale of Trust shares.

 

 

Supplemental Information

 

Application of Control Share Provisions

15-17,

Dividend Reinvestment Plan

closed-end

 

 

 

If you own shares in your own name, your purchase will automatically enroll you in the Plan. If your shares are held in “street name” – in the name of your brokerage firm, bank, or other financial institution – you must instruct that entity to participate on your behalf. If they are unable to participate on your behalf, you may request that they reregister your shares in your own name so that you may enroll in the Plan.

 

 

If you haven’t participated in the Plan in the past or chose to opt out, you are still eligible to participate. Enroll by visiting by calling toll-free 800 341 2929 or by notifying us in writing at Invesco Funds, Computer-share Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. If you are writing to us, please include the Trust name and account number and ensure that all shareholders listed on the account sign these written instructions. Your participation in the Plan will begin with the next Distribution payable after the Agent receives your authorization, as long as they receive it before the “record date,” which is generally 10 business days before the Distribution is paid. If your authorization arrives after such record date, your participation in the Plan will begin with the following Distribution.

 

 

If you choose to participate in the Plan, your Distributions will be promptly reinvested for you, automatically increasing your shares. If the Trust is trading at a share price that is equal to its NAV, you’ll pay that amount for your reinvested shares. However, if the Trust is trading above or below NAV, the price is determined by one of two ways:

 

 

There is no direct charge to you for reinvesting Distributions because the Plan’s fees are paid by the Trust. If the Trust is trading at or above its NAV, your new shares are issued directly by the Trust and there are no brokerage charges or fees. However, if the Trust is trading at a discount, the shares are purchased on the open market, and you will pay your portion of any per share fees. These per share fees are typically less than the standard brokerage charges for individual transactions because shares are purchased for all participants in blocks, resulting in lower fees for each individual participant. Any service or per share fees are added to the purchase price. Per share fees include any applicable brokerage commissions the Agent is required to pay.

 

 

The automatic reinvestment of Distributions does not relieve you of any income tax that may be due on Distributions. You will receive tax information annually to help you prepare your federal income tax return.

 

 

You may withdraw from the Plan at any time by calling 800 341 2929, by visiting invesco.com/ or by writing to Invesco Funds, Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. Simply indicate that you would like to withdraw from the Plan, and be sure to include your Trust name and account number. Also, ensure that all shareholders listed on the account sign these written instructions. If you withdraw, you have three options with regard to the shares held in the Plan:

The Trust and Computershare Trust Company, N.A. may amend or terminate the Plan at any time. Participants will receive at least 30 days written notice before the effective date of any amendment. In the case of termination, Participants will receive at least 30 days written notice before the record date for the payment of any such Distributions by the Trust. In the case of amendment or termination necessary or appropriate to comply with applicable law or the rules and policies of the Securities and Exchange Commission or any other regulatory authority, such written notice will not be required.

Fund Information

 

 

The Trust’s holdings are subject to change, and there is no assurance that the Trust will continue to hold any particular security.

Data presented here are as of February 29, 2024.

Schedule of Investments