<PAGE>
MFS MUNICIPAL HIGH INCOME FUND
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS 02116-3741
617 o 954-5000
September 25, 1995
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: MFS Series Trust III (File No. 811-2794), on Behalf of
MFS Municipal High Income Fund
Ladies and Gentlemen:
Pursuant to the requirements of Section 30(b) of the Investment Company Act
of 1940 and Rule 30b2-1 thereunder, we hereby file a copy of the Semiannual
Report to Shareholders dated July 31, 1995 of MFS Municipal High Income Fund.
Very truly yours,
JOHN MCNAMARA
John McNamara
Production Editor
<PAGE>
[MFS Logo] Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS July 31, 1995
MFS(R) Municipal High Income Fund
[A photo of two men sitting at a window.]
<PAGE>
MFS(R) MUNICIPAL HIGH INCOME FUND
Trustees
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991),
Massachusetts Financial Services Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief Executive
Officer, Eastern Enterprises
Lawrence T. Perera - Partner,
Hemenway & Barnes
William J. Poorvu - Adjunct Professor,
Harvard University Graduate School of
Business Administration
Charles W. Schmidt - Private Investor
Arnold D. Scott* - Senior Executive Vice
President and Secretary, Massachusetts
Financial Services Company
Jeffrey L. Shames* - President, Massachusetts
Financial Services Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North American
Management Corp. (Investment Advisers)
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116-3741
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, Massachusetts 02116-3741
Portfolio Manager
Cynthia M. Brown*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
* Affiliated with the Investment Adviser
Custodian
State Street Bank and Trust Company
Auditors
Ernst & Young LLP
Investor Information
For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
touch-tone telephone.
For information on MFS mutual funds, call
your financial adviser or, for an information
kit, call toll free: 1-800-637-2929 any
business day from 9 a.m. to 5 p.m. Eastern
time (or leave a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For current account service, call toll free:
1-800-225-2606 any business day from 8 a.m.
to 8 p.m. Eastern time.
For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be equipped
with a Telecommunications Device for the
Deaf.)
For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
telephone.
- ---------------------------------------------
[Dalbar logo] TOP-RATED SERVICE
MFS was rated first when securities firms
evaluated the quality of service they receive
from 40 mutual fund companies. MFS got high
marks for answering calls quickly, processing
transactions accurately and sending
statements out on time.
(Source: 1994 DALBAR Survey)
- ---------------------------------------------
<PAGE>
Letter to Shareholders
Dear Shareholders:
The municipal bond market, particularly the high-yield segment, has been under
significant pressure in the past six months, resulting from a decline in the
supply of new issues and uncertainty about federal flat-tax proposals. In spite
of this environment, Class A shares of the Fund provided a total return of
+7.02% for the six months ended July 31, while Class B shares had a total return
of +6.47%. Both of these returns, which include the reinvestment of
distributions but exclude the effects of any sales charges, slightly
underperformed the +7.61% return of the Lehman Brothers Municipal Bond Index
(the Lehman Index). It should be noted that the Lehman Index is an unmanaged
index of investment-grade bonds which are rated Baa or higher, while the Fund
invests primarily in lower-quality municipal issues which are rated Baa or
below, or are unrated. A discussion of the Fund's results relative to the Lehman
Index may be found in the Portfolio Performance and Strategy section of this
letter.
Economic Outlook
Moderate, but sustainable, growth appears to be the hallmark of the economic
expansion's fifth year. Consumer spending and homebuying showed only modest
gains through July 31, while businesses continued to work off excess inventories
and reduce factory output. Meanwhile, overseas economies, particularly those of
Germany and Japan, have not recovered as expected, limiting U.S. export growth.
However, we believe the Federal Reserve Board's consistent and, so far,
successful efforts to fight inflation seem to be giving consumers and businesses
enough confidence to help maintain 2 1/2% to 3% real (adjusted for inflation)
growth in gross domestic product through 1995.
Interest Rates
Although the Federal Reserve implemented a one-quarter percentage point decrease
in short-term interest rates in July, the effects of its seven rate increases,
which began in late 1993 and ended in February of this year, are still being
felt throughout the economy. While there have been some increases in commodity
prices, companies have not been able to pass along most of those higher costs,
partly because of the need to keep fighting for market share, but also because
wages and benefits of U.S. workers continue to grow at rates that are near or
perhaps below the inflation rate, limiting consumer buying power. At the end of
July, the nation's employment cost index had risen at a rate of just 2.8% over
the previous year, helping to contain cost pressures. At the same time, however,
the bond markets have perceived isolated signs of more rapid economic growth as
possible harbingers of increasing inflation, and have slightly bid up
longer-term interest rates. Although previous monetary easing by the Federal
Reserve has been followed by additional rate reductions, prospects for further
1
<PAGE>
Letter to Shareholders -- continued
decreases in the current environment are uncertain. Still, with long-term
government bonds yielding approximately 7%, in an environment of 2 1/2% to 3%
inflation, we believe real rates of return in the fixed-income markets could
remain relatively attractive.
Municipal Bond Market
The municipal bond market has been marked by a dramatic decline in the supply of
new issues, particularly in the high-yield segment, a trend that began in 1994.
This year, municipal supply is expected to shrink by another $50 to $60 billion,
while bond calls have been setting records, further reducing supply. Also, prior
to 1994, many municipalities issued new debt in order to refinance
higher-yielding bonds issued in the 1980s. Last year's increases in interest
rates stopped most of that activity and, since many of these refinancings were
accomplished prior to the series of interest rate increases by the Federal
Reserve, refinancing activity has not returned to its previous levels. Also, the
anti-tax, anti-government sentiment expressed in the November 1994 elections has
manifested itself in the cancellation or postponement of many projects that
would have been financed with general-obligation bonds.
At the same time, flat-tax proposals in Congress have also dampened the
municipal bond market, even though passage of any major tax reform legislation
is not expected before 1997 or 1998. Meanwhile, voters' defeat of the Orange
County, California sales tax increase did not seem to impact the market,
suggesting continued investor confidence. While the Fund had no direct exposure
to Orange County, 1.5% of total Fund assets is invested in two issues of the San
Joaquin Transportation Corridor Agency, which had one-third of its construction
funds and all of its contingency funds invested with the county. Prices of the
agency's bonds declined for a short time after the county declared bankruptcy,
but later recovered and did not adversely affect the Fund.
Portfolio Performance and Strategy
The Fund's slight underperformance relative to the Lehman Index during the
period can be attributed in part to the difficulty of finding reasonably priced
bonds with attractive yields, without adding excessive risk to the portfolio.
Also, the Fund has a high concentration of bonds with higher-than-market-rate
coupons, which are associated with lower-rated bonds. This can limit price
potential in a declining interest rate environment such as we have seen in the
past six months. However, we do not think it is prudent to take on additional
risk simply to maintain the same level of yield. This contributed to a reduction
in the Fund's dividend to $0.052 per share from $0.055.
2
<PAGE>
Letter to Shareholders -- continued
The risk of calls and lack of supply will continue to be major
challenges in the remainder of 1995. July 1, 1995 saw the largest number of bond
calls in history and the number of calls is expected to be even larger on
January 1, 1996, after which calls will decline. We will maintain our emphasis
on careful research, diversification of credit risk, liquidity and high current
tax-exempt income. We continue to closely monitor our holdings and seek out new
opportunities for investment. The easing of credit concerns regarding Orange
County and the opening of the new Denver International Airport have been
positive developments for the municipal bond market, and financings for such
projects as de-inked paper facilities and a transportation system to serve the
ski resort in Telluride, Colorado have also helped the portfolio.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[A photo of A. Keith Brodkin, Chairman and President.]
[A photo of Cynthia M. Brown, Portfolio Manager.]
/s/ A. Keith Brodkin /s/ Cynthia M. Brown
A. Keith Brodkin Cynthia M. Brown
Chairman and President Portfolio Manager
August 10, 1995
Portfolio Manager Profile
Cynthia Brown began her career at MFS in 1986 in the Fixed Income Department. A
graduate of Boston University, she was named Investment Officer in 1986,
Assistant Vice President in 1987, Vice President in 1989 and Senior Vice
President in 1994. In addition to managing MFS Municipal High Income Fund, she
oversees MFS(R) Municipal Income Trust. Ms. Brown is a member of the Boston
Municipal Analysts Group.
3
<PAGE>
Objective and Policy
The Fund's investment objective is to provide high current income exempt from
federal income taxes.
The Fund's investment policy is to invest primarily in debt securities, the
interest on which is exempt from federal income tax. Generally, these securities
are in the medium- and lower-rated categories or are unrated. The Fund may enter
into futures contracts and options on futures contracts to protect against
anticipated changes in interest rates. The Fund may also enter into options
transactions and purchase securities on a "when-issued" basis.
Performance Summary
Because mutual funds like MFS Municipal High Income Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for Class A and Class B shares for the
applicable time periods.
Average Annual and Cumulative Total Rates of Return
Class A Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Cumulative Total Return* +7.02% +7.33% +41.00% +113.21%
- --------------------------------------------------------------------------------
Average Annual Total Return* -- +7.33% +7.11% +7.86%
- --------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC), with all distributions reinvested and reflecting the maximum sales
charge of 4.75% on the initial investment for the 1-, 5- and 10-year periods
ended June 30, 1995, were +3.44%, +6.20% and +7.49%, respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
9/07/93+-
6 Months 1 Year 7/31/95
- --------------------------------------------------------------------------------
Cumulative Total Return++ +6.47% +6.21% +6.17%
- --------------------------------------------------------------------------------
Average Annual Total Return++ -- +6.21% +3.21%
- --------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the current maximum contingent deferred sales charge
(CDSC) of 4% for the 1-year period ended June 30, 1995 and for the period from
September 7, 1993 to June 30, 1995, were +3.47% and +1.21%, respectively.
All results represent past performance and are not necessarily an indication of
future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
* These results do not include the sales charge. If the charge had been
included, the results would have been lower.
+ Commencement of offering of this class of shares.
++ These results do not include any CDSC. If the charge had been included, the
results would have been lower.
4
<PAGE>
Portfolio of Investments - July 31, 1995
Municipal Bonds - 98.1%
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Student Loan Revenue - 2.0%
Arizona Student Loan Acquisition Authority, 7.25s, 2010 $ 2,970 $ 3,042,349
Arizona Student Loan Acquisition Authority, 7.625s, 2010 4,610 4,998,715
Nebraska Higher Education Loan Rev., 6.45s, 2018 11,000 10,803,430
Pennsylvania Higher Education Assistance Agency, AMBAC, RIBS,
8.159s, 2022 2,700 2,582,038
----------------
$ 21,426,532
- -----------------------------------------------------------------------------------------------------------------
General Obligation - 2.8%
City of Markham, Cook County, IL, 9s, 2012 $ 2,700 $ 2,868,723
Jefferson County, OH, 7.125s, 2019 8,660 8,913,305
New Lenox, IL, Community Park Development
Authority, 8.25s, 2014 4,205 4,291,959
New York City, NY, 6.875s, 2003 1,000 1,051,550
New York City, NY, 6.6s, 2010 3,000 3,012,960
New York City, NY, 7.1s, 2011 1,000 1,035,460
New York City, NY, 7s, 2022 1,700 1,830,085
State of California, 0s, 2009 5,800 2,519,578
Virgin Islands Public Financing Authority, 7.25s, 2018 2,000 2,058,100
West Warwick, RI, 6.8s, 1998 500 510,645
West Warwick, RI, 7s, 2002 190 194,654
West Warwick, RI, 7.3s, 2008 200 210,048
West Warwick, RI, 7.45s, 2013 570 569,099
----------------
$ 29,066,166
- -----------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 1.5%
California Public Works Board, Lease Rev., 5.625s, 2018 $ 5,000 $ 4,600,700
District of Columbia, Certificates of Participation, 7.3s, 2013 2,500 2,498,550
San Bernardino, CA, Certificates of Participation (Short Rites),
MBIA, 8.66s, 2016 5,000 4,631,850
South Tucson, AZ, Municipal Property Corp., 8.75s, 2010 865 942,227
Troy, NY, Certificates of Participation, Recreational Facilities
Rev., 9.75s, 2010*# 2,805 280,500
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 1996 65 64,878
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 1997 70 69,718
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 1998 75 74,549
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 1999 80 79,372
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2000 85 84,140
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2001 95 93,920
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2002 115 113,559
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2003 130 128,229
</TABLE>
5
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
State and Local Appropriation - continued
<S> <C> <C>
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2004 $ 150 $ 147,807
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2005 165 162,435
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2010 235 223,520
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2011 250 237,390
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2013 290 274,552
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2015 335 316,344
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2016 360 339,566
Williamsburg County, SC, School District, Public Facilities Rev.,
7.5s, 2017 390 367,478
----------------
$ 15,731,284
- -----------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 10.7%
Austin, TX, Combined Utilities System Rev., 10.75s, 2015 $ 1,780 $ 2,253,747
Daphne, AL, Special Care Facilities Financing Authority,
First Mortgage Rev., 0s, 2028 4,500 2,130,255
Daphne, AL, Special Care Facilities Financing Authority,
Second Mortgage Rev., 0s, 2028 89,975 42,593,265
Daphne, AL, Special Care Facilities Financing Authority,
Subordinated Note, 0s, 2018 48,475 6,427,785
Dayton, OH, Special Facilities Rev. (Emery Air Freight), "A",
12.5s, 2009 950 1,115,043
Maine Health & Higher Education Facilities Authority
(St. Mary's General Hospital), 8.625s, 2022 5,140 5,992,777
Mesa County, CO, Residual Rev., 0s, 2012 25,125 7,425,191
Mississippi Hospital Equipment & Facilities Authority Rev.
(Rush Medical Center), 8.75s, 2016 2,800 3,064,796
New York Local Government Assistance Corp., 7s, 2021 800 911,344
South Carolina Public Service Authority, 7.1s, 2021 2,000 2,292,280
Spirit Lake, IA, Industrial Development Rev. (Crystal Tips, Inc.),
0s, 2016 3,445 4,696,999
Texas Turnpike Authority (Houston Ship Channel Bridge), 0s, 2020 21,090 28,852,596
Washington Public Power Supply System, Project #1,
14.375s, 2001 1,000 1,348,830
Washington Public Power Supply System, Project #1, 15s, 2017 1,830 2,063,984
Washington Public Power Supply System, Project #3, 15s, 2018 1,350 1,522,611
----------------
$ 112,691,503
- -----------------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 9.7%
Alaska Housing Finance Corp., 6.5s, 2034 $ 1,810 $ 1,809,855
Arkansas Housing Development Agency Residential Mortgage Rev.,
0s, 2015 14,000 1,644,580
Berkeley, Brookes, & Fayette Counties, WV, 0s, 2016 22,285 2,332,125
</TABLE>
6
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Single Family Housing Revenue - continued
California Housing Finance Authority, 7.4s, 2026 $ 17,240 $ 18,324,396
Chicago, IL, Single Family Residence, 0s, 2017 20,020 1,786,985
Colorado Housing Finance Authority, 8s, 1998 3,000 3,060,780
Cook County, IL, Single Family Housing, 0s, 2015 6,025 687,995
Corpus Christi, TX, Housing Finance Corp., 0s, 2011 3,395 734,101
Delaware Housing Authority, 6.75s, 2024 3,200 3,238,592
Denver, CO, City & County Airport Rev., 0s, 2015 2,110 203,277
East Baton Rouge, LA, 0s, 2010 26,570 5,239,870
El Paso, TX, Housing Finance Corp., 8.75s, 2011 1,030 1,111,638
Florida Housing Finance Agency, 0s, 2012 825 149,606
Florida Housing Finance Agency, 0s, 2016 10,800 1,358,640
Harris County, TX, Housing Finance Corp., 9.875s, 2014 940 948,968
Jefferson County, CO, 8.875s, 2013 570 614,813
Jefferson County, TX, Health Facilities Rev., 0s, 2015 6,235 722,824
Maine Housing Authority, Mortgage Purchase, 8.2s, 2019 1,820 1,864,408
Maine Housing Authority, Mortgage Purchase, 6.35s, 2022 75 72,908
Maine Housing Authority, Mortgage Purchase, 8.2s, 2022 5,980 6,125,912
Mississippi Home Corp., 9.25s, 2012 310 335,271
Nebraska Investment Finance Authority, 0s, 2016 6,060 535,946
Nevada Housing Division, 0s, 2015 5,587 775,520
New Castle County, DE, 0s, 2016 2,035 239,967
New Hampshire Housing Finance Authority, 0s, 2011 1,860 351,931
New Hampshire Housing Finance Authority, 8.5s, 2014 4,005 4,206,291
New Mexico Mortgage Finance Authority, 12s, 2011 75 75,901
New Mexico Mortgage Finance Authority, 6.9s, 2024 3,640 3,710,652
North Dakota Housing Finance Agency, 8.3s, 2012 525 543,102
North Dakota Housing Finance Agency, 6.8s, 2023 955 970,872
Ohio Housing Finance Agency, GNMA, RIBS, 9.324s, 2031 1,800 1,910,268
Reno County, KS, Mortgage Rev., 0s, 2014 10,425 1,209,613
Rhode Island Housing & Mortgage Finance Corp., 8.4s, 2021 6,020 6,238,947
State of Texas, 7s, 2025 4,150 4,263,378
Tennessee Housing Development Agency, Homeownership Program,
8.125s, 2021 3,910 4,063,819
Texas Housing Agency, 8.2s, 2016 1,060 1,089,033
Texas Housing Agency, Residential Mortgage Rev., 8.4s, 2020 2,050 2,144,177
Utah Housing Finance Agency, 10.75s, 2008 5 5,109
Utah Housing Finance Agency, 0s, 2016 28,825 3,435,379
Vermont Housing Finance Agency, Home Mortgage Purchase, "B",
8.1s, 2022 1,735 1,812,849
Virginia Housing & Development Authority, 7.125s, 2022 9,505 9,876,075
Wisconsin Housing & Economic Development Authority,
Home Ownership Rev., 0s, 2016 2,535 319,537
Wisconsin Housing & Economic Development Authority,
Home Ownership Rev., 9.692s, 2022 1,800 1,899,018
----------------
$ 102,044,928
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Multi-Family Housing Revenue - 2.5%
Alexandria, VA, Redevelopment & Housing Authority
(Jefferson Village Apartments), 9s, 2018 $ 2,000 $ 2,058,400
Broward County, FL, Housing Finance Authority
(Deerfield Beach Apartments), 13s, 2000* 3,419 1,987,330
Dallas, TX, Housing Finance Corp., 8.5s, 2011 3,450 3,545,427
Escondido, CA, Community Development Authority
(Las Villas del Norte), 8.875s, 2005 1,760 1,728,461
Fairfax County, VA, Redevelopment & Housing Authority
(Little River Glen), 8.95s, 2020 2,050 2,109,634
Florida Housing Finance Agency (Mutual Benefit Life), 7s, 2004 720 651,600
Florida Housing Finance Agency (South Lake Apartments), 8.7s, 2021 3,500 3,527,160
Indianapolis, IN, Economic Development Authority
(Buckingham/Balmoral), 10.5s, 2015*# 4,385 1,315,500
Maplewood Terrace, RI, Housing Development Corp., 6.9s, 2025 4,035 4,098,995
Massachusetts Housing Finance Agency, 8.5s, 2020 15 15,390
Memphis, TN, Health, Education & Housing Facilities Board
(Wesley Highland Terrace), 12.75s, 2015# 6,300 5,355,000
----------------
$ 26,392,897
- -----------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 1.9%
Clermont County, OH, Hospital Facilities Rev. (Mercy Health System),
AMBAC, MVRIC, 9.191s, 2021 $ 1,300 $ 1,426,737
Desert Hospital District, CA, Hospital Rev. (Desert Hospital),
CG, COP, MVRIC, 8.564s, 2020 4,000 4,124,880
North Central Texas, Health Facilities Development Corp.
(Presbyterian Hospital), MBIA, RITES, 9.72s, 2021 4,000 4,202,880
Quincy, MA, Rev. (Quincy Hospital), 5.82s, 2011 5,000 4,362,550
Salt Lake City, UT, Hospital Rev. (Intermountain Health Care),
AMBAC, INFLO, 9.16s, 2020 1,250 1,357,175
State of Montana Health Facilities Authority, 9.884s, 2016 4,000 4,189,920
----------------
$ 19,664,142
- -----------------------------------------------------------------------------------------------------------------
Health Care Revenue - 15.1%
Arkansas Development Finance Authority, Economic Development Rev.
(Southwest Homes), 10.8s, 2018 $ 975 $ 1,032,223
Bell County, TX, Health Facilities Authority (Kings Daughters
Hospital), 9.25s, 2008 1,255 1,386,976
Berlin, MD, Hospital Rev. (Atlantic General Hospital), 8.375s, 2022 1,375 1,444,369
Brentwood, TN, Industrial Development Board, 8.5s, 1995# 50 25,000
Brentwood, TN, Industrial Development Board, 9s, 1997# 15 7,500
Brentwood, TN, Industrial Development Board, 10s, 2001# 1,650 825,000
Brevard County, FL, Health Facilities Authority (Beverly Enterprises),
10s, 2010 1,350 1,515,793
Cambria County, PA, Industrial Development Authority
(Beverly Enterprises), 10s, 2012 1,200 1,470,732
Chester County, PA, Industrial Development Authority
(RHA/PA Nursing Home, Inc.), 10.125s, 2019 1,980 2,035,321
Colorado Health Facilities Authority Rev.
(Gericare, Inc./Denver), 10.5s, 2019# 5,000 3,443,750
</TABLE>
8
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care Revenue - continued
Connecticut Development Authority (Waterbury Health),
13.5s, 2014 $ 2,765 $ 2,834,070
Connecticut Health & Educational Facilities (Johnson Evergreen
Corp.), 8.5s, 2014 1,350 1,422,036
Daphne, AL, Special Care Facilities Financing Authority
(Westminster Village), 8.25s, 2026* 12,500 7,500,000
District of Columbia, Hospital Rev. (Hospital for Sick Children),
8.875s, 2021 980 1,052,804
District of Columbia, Hospital Rev. (Washington Hospital),
7.125s, 2019 1,750 1,680,473
Doylestown, PA, Hospital Authority (Doylestown Hospital),
7.2s, 2023 2,200 2,147,728
Fairfax, Fauquier & Loudoun Counties, VA, Health Center
Commission, Nursing Home Rev., 9s, 2020 1,910 1,994,078
Fulton County, GA, Residential Care Facilities, Elderly Authority
Rev. (Lenbrook Square Foundation), 9.75s, 2017 3,580 3,677,806
Grand Junction, CO, Hospital Rev. (Lincoln Park Osteopathic
Hospital), 6.9s, 2019 2,900 2,655,356
Guntersville, AL, Medical Clinic Board Rev.
(Barfield Health Care), 12s, 2010 1,000 1,001,710
Hannibal, MO, Industrial Development Authority
(Hannibal Regional Health Care System, Inc.), 9.5s, 2022+ 3,000 3,472,350
Hobbs, NM, Health Facilities Rev. (Nemecal Associates),
9.5s, 2014 1,760 1,865,987
Hopewell County, VA, Hospital Authority
(John Randolph Hospital), 8.85s, 2013 975 1,001,481
Illinois Health Facilities Rev. (Memorial Hospital), 7.25s, 2022 1,500 1,482,015
Jacksonville, FL, Health Facilities Authority
(National Benevolent), 7s, 2022 1,000 1,002,110
Jacksonville, FL, Industrial Development Rev.
(Beverly Enterprises), 9.75s, 2011 1,015 1,130,233
Jefferson County, KY, Health Facilities Rev.
(Beverly Enterprises), 10.125s, 2008 2,295 2,549,034
Kansas City, MO, Industrial Development Authority,
Retirement Facilities, 9s, 2013 5,450 5,797,655
Lee County, FL, Industrial Development Authority
(Beverly Enterprises), 10s, 2010 955 1,080,029
Lexington-Fayette Counties, KY, Health Care
Facilities (Sayre Christian Village), 10s, 2012 980 1,009,096
Louisiana Public Facilities Authority
(Southwest Medical Center), 11s, 2006 1,571 816,937
Luzerne County, PA, Industrial Development Authority
(Beverly Enterprises), 10.125s, 2008 1,375 1,539,134
Martin County, FL, Industrial Development Authority
(Beverly Enterprises), 9.8s, 2010 2,950 3,294,648
Massachusetts Health & Education Facilities Authority
(Fairview Extended Care Facility), 10.25s, 2021 3,000 3,382,410
</TABLE>
9
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care Revenue - continued
Massachusetts Industrial Finance Agency, 8.875s, 2025 $ 7,845 $ 7,937,571
Massachusetts Industrial Finance Agency (Martha's Vineyard
Long-Term Care), 9.25s, 2022 3,410 3,239,500
Meridian, MI, Economic Development Corp. (Burcham Hills),
9.625s, 2019 2,390 2,568,342
Michigan Strategic Fund Ltd. Obligation Rev. (River Valley
Recovery Center), 12.875s, 2015 1,042 1,188,932
Montgomery County, OH, Hospital Rev.
(Kettering Convalescent Center), 10s, 2020 5,200 5,513,404
Montgomery County, PA, Higher Education & Health Authority Rev.
(AHF/Montgomery, Inc.), 10.5s, 2020 2,500 2,606,425
Nebraska Investment Finance Authority (Centennial Park), 10.5s, 2016 2,200 2,298,582
New Hampshire Industrial Development Authority (Tall Pines),
11.25s, 2016 2,400 2,668,920
New Jersey Economic Development Authority (Burnt Tavern
Convalescent Center), 9s, 2013 1,700 1,766,657
New Jersey Economic Development Authority (Courthouse
Convalescent Center), 8.7s, 2014 1,350 1,389,987
New Jersey Economic Development Authority (Dover),
13.375s, 2014# 1,835 917,500
New Jersey Economic Development Authority (Geriatric &
Medical Services), 9.625s, 2004 510 551,019
New Jersey Economic Development Authority (Geriatric &
Medical Services), 9.625s, 2022 1,350 1,447,996
New Jersey Economic Development Authority (Gerimed Care Inn),
10.5s, 2020 3,000 3,246,660
New Jersey Economic Development Authority (Wanaque
Convalescent Center), 8.5s, 2009 700 702,499
New Jersey Economic Development Authority (Wanaque
Convalescent Center), 8.6s, 2011 1,000 1,003,540
New Jersey Economic Development Authority (Woodgreen
Health Care), 9.75s, 2011 3,215 3,256,731
North Carolina Medical Care Commission, Hospital Rev.
(Valdese General Hospital), 8.75s, 2016 1,970 2,061,625
North Central Texas, Health Facilities Development Corp.
(Baylor University Medical Center), INFLO, 9.664s, 2016 4,300 4,693,708
Okaloosa County, FL, Retirement Rental Housing Rev.
(Beverly Enterprises), 10.75s, 2003 3,045 3,332,996
Osceola County, FL, Industrial Development Rev. (Community
Provider), 7.75s, 2017 2,700 2,777,625
Owensboro, KY (Children's Regional Hospital), 13s, 2010 3,480 3,570,480
Portsmouth, VA, Industrial Development Authority (Beverly
Enterprises), 10s, 2011 2,085 2,368,935
Prince William County, VA, Industrial Development Authority,
Residential Care (Westminster at Lake Ridge), 10s, 2022 3,500 3,763,970
Rochester, MN (Mayo Foundation/Mayo Medical Foundation),
FIRS, 7.93s, 2021 2,000 2,032,720
</TABLE>
10
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care Revenue - continued
Santa Fe, NM, Industrial Development Rev. (Casa Real Nursing
Home), 9.75s, 2013 $ 1,920 $ 2,018,688
Seminole County, FL, Industrial Development Authority
(Friendly Village of Florida), 10s, 2011 905 945,888
St. Charles County, MO, Industrial Development Authority
(Garden View Care Center), 10s, 2016 1,795 1,843,644
St. Petersburg, FL, Health Facilities Rev. (Swanholm Nursing),
10s, 2022 1,580 1,700,080
Suffolk County, NY, Industrial Development Agency
(A Planned Program for Life Enrichment, Inc.), 9.75s, 2015 3,765 3,388,500
Tyler, TX, Health Facilities Development Corp. (Park Place),
12.5s, 2018++ 4,905 5,074,615
Vincennes, IN, Economic Development Authority (Lodge of the
Wabash), 12.5s, 2015 1,130 1,107,400
Waterford Township, MI, Economic Development Rev.
(Canterbury Health Care), 8.375s, 2023 3,100 3,217,676
Westerville, OH, Industrial Development Rev. (Health Care
Corp.), 10s, 2008 555 572,188
Westside Habilitation Center, Cheneyville, LA, 8.375s, 2013 2,700 2,632,554
Wilkins Area, PA, Industrial Development Authority (Beverly
Enterprises), 10s, 2011 1,150 1,308,125
----------------
$ 159,291,526
- -----------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 8.8%
Beaver County, PA, Industrial Development Authority
(Toledo Edison), 12.25s, 2015 $ 5,610 $ 5,755,804
Claiborne County, MS, Pollution Control Rev. (Middle South
Energy, Inc.), 9.5s, 2016 2,350 2,483,315
Clark County, NV (Nevada Power), FGIC, 6.7s, 2022 4,000 4,131,680
Georgia Municipal Electric Authority, Power Rev., 8.426s, 2022 9,900 9,714,177
Intermountain Power, GA, 0s, 2017 5,000 1,222,150
Lake Charles, LA, Port Facilities Rev. (Truckline LNG), 7.75s, 2022 3,500 3,824,870
Los Angeles, CA, Department of Water, Electric Plant Rev.,
5.375s, 2023 3,000 2,661,390
Midland Michigan Environmental Development Authority,
Pollution Control Rev. (Midland Cogeneration), 9.5s, 2009 3,000 3,231,000
Montana Board of Investment Resources Recovery Rev.
(Yellowstone Energy), 7s, 2019 6,500 6,142,435
New Jersey Economic Development Authority (Vineland
Cogeneration), 7.875s, 2019 3,000 3,212,400
New York Energy Research & Development Authority, 7.15s, 2019 1,650 1,656,353
New York Energy Research & Development Authority, 7.15s, 2020 7,350 7,378,297
New York Energy Research & Development Authority, 7.5s, 2026 4,750 5,050,960
Palm Beach County, FL, Solid Waste Development, 6.95s, 2022 6,650 6,361,922
Pennsylvania Economic Development, Fingauth Research Recovery,
6.6s, 2019 10,000 9,650,700
Pittsylvania County, VA, Industrial Development Authority,
7.55s, 2019 10,000 10,266,700
</TABLE>
11
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electric and Gas Utility Revenue - continued
Southern California Public Power Authority, Transportation Project,
RIBS, 7.508s, 2012 $ 1,350 $ 1,341,522
Swanton Village, VT, Electric System Rev., 6.7s, 2023 1,750 1,771,263
West Feliciana Parish, LA, Pollution Control Rev.
(Gulf States Utilities Co.), 9s, 2015 2,500 2,801,450
West Feliciana Parish, LA, Pollution Control Rev.
(Gulf States Utilities Co.), 8s, 2024 4,000 4,222,040
----------------
$ 92,880,428
- -----------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 5.9%
Florida Mid-Bay Bridge Authority Rev., "B", 8.5s, 2022 $ 2,500 $ 2,824,975
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2013 5,000 2,632,450
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2018 44,190 8,805,299
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2021 25,000 4,011,250
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2022 30,835 4,602,740
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2024 72,045 9,305,332
Massachusetts Industrial Finance Agency, Tunnel Rev.
(Massachusetts Turnpike), 9s, 2020 11,295 12,305,677
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2001 9,100 6,047,496
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2005 1,500 737,475
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2007 4,000 1,672,880
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2008 5,400 2,092,338
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2011 13,400 4,097,854
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2026 5,765 683,556
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2028 11,750 835,190
West Virginia Parkways, Economic Development & Tourism
Authority, 7.068s, 2019 1,200 1,135,560
----------------
$ 61,790,072
- -----------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 9.4%
Chicago, IL, O'Hare International Airport, Special Facilities Rev.
(United Airlines), 8.4s, 2018 $ 2,720 $ 2,958,789
Chicago, IL, O'Hare International Airport, Special Facilities Rev.
(United Airlines), 8.5s, 2018 4,500 4,918,770
Chicago, IL, O'Hare International Airport, Special Facilities Rev.
(United Airlines), 8.85s, 2018 6,070 6,885,140
Cleveland, OH, Airport Special Facilities Rev.
(Continental Airlines), 9s, 2019 9,120 9,250,507
</TABLE>
12
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Airport and Port Revenue - continued
Dallas-Fort Worth, TX, International Airport Facility Improvement
Corp. (American Airlines), 7.625s, 2021 $ 4,500 $ 4,728,105
Denver, CO, City & County Airport Rev., 8.875s, 2012 5,000 5,768,200
Denver, CO, City & County Airport Rev., 7.75s, 2021 2,050 2,201,720
Denver, CO, City & County Airport Rev., 8.5s, 2023 2,950 3,293,144
Denver, CO, City & County Airport Rev., 8.75s, 2023 5,770 6,603,073
Denver, CO, City & County Airport Rev., 8s, 2025 1,140 1,239,169
Denver, CO, City & County Airport Rev., 6.875s, 2032 7,130 7,118,449
Hillsborough County, FL, Aviation Authority Rev. (US Air),
8.6s, 2022 4,255 4,380,012
Kenton County, KY, Airport Board Special Facilities (Delta Airlines),
7.5s, 2020 16,570 17,256,661
Tulsa, OK, Municipal Airport Trust Rev., 7.375s, 2020 7,000 7,227,080
Tulsa, OK, Municipal Airport Trust Rev., 7.6s, 2030 14,210 14,809,804
----------------
$ 98,638,623
- -----------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 0.3%
Denver, CO, Urban Renewal Authority, Tax Increment Rev.,
8.5s, 2013 $ 1,450 $ 1,357,678
Denver, CO, Urban Renewal Authority, Tax Increment Rev.
(Downtown Denver), 7.25s, 2017 1,250 1,301,462
Denver, CO, Urban Renewal Authority, Tax Increment
Rev. (Musicland), 8.5s, 2017 950 885,305
----------------
$ 3,544,445
- -----------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 13.1%
Baltimore County, MD, Pollution Control (Bethlehem Steel),
7.55s, 2017 $ 1,000 $ 1,023,360
Burns Harbor, IN, Solid Waste Disposal Facilities Rev.
(Bethlehem Steel), 8s, 2024 10,455 10,961,963
Butler, AL, Industrial Development Rev., 8s, 2028 4,500 4,979,700
Courtland, AL, Industrial Development Board, Solid Waste
Disposal Rev., 6.375s, 2029 4,325 4,304,975
DeQueen, AR, Industrial Development Board (Weyerhaeuser Co.),
9s, 2006 1,000 1,028,010
Eastern Band Cherokee Indian Community, NC (Carolina Mirror
Co.), 10.25s, 2009 3,390 3,572,179
Eastern Band Cherokee Indian Community, NC (Carolina Mirror
Co.), 11s, 2012+ 950 1,008,282
El Paso, TX, Industrial Development Authority
(Popular Dry Goods Co.), 9.875s, 2016 800 817,536
Hernando County, FL, Industrial Development Rev. (Crushed
Stone Co.), 8.5s, 2014 8,325 8,949,708
Hodge Village, LA, Utilities Rev. (Stone Container Corp.),
9s, 2010 6,800 7,279,400
Hunt County, TX, Industrial Development Rev. (Household
Manufacturing), 10.236s, 2003 6,000 5,909,940
Lawrenceburg, TN, Industrial Development Board (Tridon, Inc.),
9.625s, 2006 2,800 2,868,712
</TABLE>
13
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial Revenue (Corporate Guarantee) - continued
Maine Finance Authority (Bowater, Inc.), 7.75s, 2022 $ 8,500 $ 9,021,475
Massachusetts Industrial Finance Agency (Malden Metal
Technology), 8.25s, 2014 4,000 4,160,200
McMinn County, TN, Industrial Development Board
(Bowater, Inc.), 7.4s, 2022 7,000 7,332,220
Mesa County, CO (Joy Technologies), 8.5s, 2006 1,350 1,431,864
New Hampshire Business Finance Authority, Pollution Control
Rev., 5.875s, 2033 2,500 2,195,125
New Hampshire Industrial Development Authority
(RockinghamPark), 13.5s, 1999 1,270 1,298,512
Perry County, KY, Solid Waste (T.J. International), 7s, 2024 11,000 11,129,250
Port of New Orleans, LA (Avondale Industries), 8.5s, 2014 22,550 24,978,860
Port of New Orleans, LA, Industrial Development
(Continental Grain), 7.5s, 2013 2,000 2,033,960
Sweetwater County, WY, Solid Waste, 6.9s, 2024 3,000 3,036,330
Sweetwater County, WY, Solid Waste (FMC Corp.), 7s, 2024 8,725 8,894,527
Valdez, AK, Marine Terminal, 5.65s, 2028 5,000 4,581,750
Walton, GA, Industrial Development Authority
(Ultima Rubber Products, Inc.), 10s, 2010 4,550 4,879,102
----------------
$ 137,676,940
- -----------------------------------------------------------------------------------------------------------------
Universities - 0.4%
Massachusetts Industrial Finance Agency (Curry College),
8s, 2014 $ 1,500 $ 1,510,710
Massachusetts Industrial Finance Agency (Emerson College),
8.9s, 2018 3,000 3,338,340
----------------
$ 4,849,050
- -----------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - 13.8%
Atlanta, GA, Downtown Development Authority
(Garnett Station), 11.5s, 2015*# $ 2,343 $ 574,155
Bristol, CT, Resource Recovery Facilities, 6.5s, 2014 7,000 7,180,740
Brush, CO, Industrial Development Rev. (Training Centers
International), 12s, 2015 4,735 5,461,301
Brush, CO, Industrial Development Rev. (Training Centers
International), "A", 12s, 2015 4,455 5,138,352
Connecticut Industrial Development Authority (Nutmeg Partners),
12.75s, 2015*# 7,135 2,925,350
Danville, VA, Industrial Development Authority (Piedmont Mall),
2.75s, 2017 8,280 8,164,411
District of Columbia (National Public Radio), 7.7s, 2023 3,500 3,628,415
Eastern Connecticut Resources Recovery, 5.5s, 2020 2,000 1,751,740
Fond du Lac, WI, 11s, 2003*# 2,882 1,845,005
Martha's Vineyard, MA, Land Bank, 8.125s, 2011 2,900 2,975,226
Maryland Energy Financing Administration (Solid Waste),
9s, 2016 28,300 28,480,271
Massachusetts Health & Education Facilities Authority
(Learning Center for Deaf Children), 9.25s, 2014 1,000 1,074,040
Massachusetts Industrial Finance Agency, Solid Waste Disposal
Rev., 12s, 2016 3,600 3,582,432
</TABLE>
14
<PAGE>
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous Revenue - continued
Michigan Strategic Fund Ltd. Obligation Rev. (Blue Water Fiber),
8s, 2012 $ 2,000 $ 1,886,900
Michigan Strategic Fund Ltd. Obligation Rev. (Great Lakes
Fiber Project), 10.25s, 2016 18,380 19,078,808
Pennsylvania Convention, 6.75s, 2019 5,370 5,546,780
Pennsylvania Economic Development Finance Authority,
Recycling Rev., 9.25s, 2022 25,000 26,230,500
Retama, TX, Special Facilities Rev. (Retama Park Racetrack Project),
8.75s, 2018 10,000 8,000,000
St. Louis County, MO, Industrial Development Authority
(Eagle Golf Enterprises, Inc.), 10s, 2005 2,200 2,445,872
St. Louis County, MO, Industrial Development Authority
(Kiel Center Arena), 7.785s, 2024 1,000 1,039,180
Telluride Gondola Transit Co., CO, Real Estate Transfer Assessment
Rev., 11.5s, 2012 6,000 7,926,119
----------------
$ 144,935,597
- -----------------------------------------------------------------------------------------------------------------
Special Assessment District - 0.2%
Indianapolis, IN, Public Improvement Bond, 6.5s, 2022 $ 2,000 $ 2,000,880
- -----------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,004,843,021) $ 1,032,625,013
Other Assets, Less Liabilities - 1.9% 20,244,222
- -----------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 1,052,869,235
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Security valued by or at the direction of the Trustees.
# Non-income producing security - in default.
+ Restricted security.
++ Security accruing partial interest - in default.
See notes to financial statements
15
<PAGE>
Financial Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,004,843,021) $ 1,032,625,013
Cash 41,410
Receivable for investments sold 7,177,428
Receivable for Fund shares sold 3,714,158
Interest receivable 15,432,409
Other assets 13,101
---------------
Total assets $ 1,059,003,519
---------------
Liabilities:
Payable for investments purchased $ 355,042
Payable for Fund shares reacquired 2,031,407
Payable to affiliates -
Management fee 89,784
Distribution fee 49,904
Shareholder servicing agent fee 12,100
Accrued expenses and other liabilities 3,596,047
---------------
Total liabilities $ 6,134,284
---------------
Net assets $ 1,052,869,235
---------------
Net assets consist of:
Paid-in capital $ 1,119,640,034
Unrealized appreciation on investments 27,781,992
Accumulated net realized loss on investments (93,121,213)
Distributions in excess of net investment income (1,431,578)
---------------
Total $ 1,052,869,235
---------------
Shares of beneficial interest outstanding 118,701,825
---------------
Class A shares:
Net asset value and redemption price per share
(net assets of $983,797,507/110,914,251 shares of
beneficial interest outstanding) $ 8.87
---------------
Offering price per share (100/95.25) $ 9.31
---------------
Class B shares:
Net asset value and offering price per share
(net assets of $69,071,728/7,787,574 shares of
beneficial interest outstanding) $ 8.87
---------------
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
16
<PAGE>
Financial Statements - continued
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended July 31, 1995
- --------------------------------------------------------------------------------
Net investment income:
Interest income $ 40,208,973
------------
Expenses -
Management fee $ 3,342,223
Trustees' compensation 24,042
Shareholder servicing agent fee (Class A) 650,403
Shareholder servicing agent fee (Class B) 69,870
Distribution and service fee (Class B) 305,188
Workout expenditures 206,647
Custodian fees 118,275
Postage 64,804
Legal fees 55,047
Printing 43,346
Auditing fees 23,784
Miscellaneous 158,880
------------
Total expenses $ 5,062,509
------------
Net investment income $ 35,146,464
------------
Realized and unrealized loss on investments:
Realized loss (identified cost basis) on
investment transactions $(14,333,711)
Change in unrealized appreciation (depreciation) on
investments 48,347,919
------------
Net realized and unrealized gain on investments $ 34,014,208
------------
Increase in net assets from operations $ 69,160,672
------------
See notes to financial statements
17
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
July 31, 1995 January 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 35,146,464 $ 66,441,830
Net realized loss on investments (14,333,711) (34,044,867)
Net unrealized gain (loss) on investments 48,347,919 (41,635,823)
---------------- --------------
Increase (decrease) in net assets
from operations $ 69,160,672 $ (9,238,860)
---------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (34,242,909) $ (66,774,251)
In excess of net investment income (Class A) (1,429,326) --
From net investment income (Class B) (2,002,424) (1,978,622)
In excess of net investment income (Class B) (2,252) --
---------------- --------------
Total distributions declared to shareholders $ (37,676,911) $ (68,752,873)
---------------- --------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 94,297,934 $ 345,765,914
Net asset value of shares issued to shareholders
in reinvestment of distributions 14,093,990 24,997,370
Cost of shares reacquired (62,724,297) (127,012,254)
---------------- --------------
Increase in net assets from Fund
share transactions $ 45,667,627 $ 243,751,030
---------------- --------------
Total increase in net assets $ 77,151,388 $ 165,759,297
Net assets:
At beginning of year 975,717,847 809,958,550
---------------- --------------
At end of year (including distributions in excess of
net investment income of $1,431,578 and
undistributed net investment income of
$1,098,869, respectively) $ 1,052,869,235 $ 975,717,847
---------------- --------------
</TABLE>
See notes to financial statements
18
<PAGE>
Financial Statements - continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
Six Months ----------------------------------------------------------------
Ended July 31, 1995++ 1995++ 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 8.60 $ 9.38 $ 9.26 $ 9.22 $ 9.09 $ 9.45
----------- --------- --------- --------- --------- -----------
Income from investment operations -
Net investment income $ 0.30 $ 0.64 $ 0.77 $ 0.73 $ 0.73 $ 0.74
Net realized and unrealized gain
(loss) on investments 0.30 (0.75) 0.05 0.06 0.17 (0.32)
----------- --------- --------- --------- --------- -----------
Total from investment
operations $ 0.60 $ (0.11) $ 0.82 $ 0.79 $ 0.90 $ 0.42
----------- --------- --------- --------- --------- -----------
Less distributions declared
to shareholders -
From net investment
income $ (0.30) $ (0.67) $ (0.70) $ (0.75) $ (0.77) $ (0.78)
In excess of net
investment income (0.03) -- -- -- -- --
From net realized gain
on investments -- -- -- -- -- --
From paid-in capital -- -- -- -- -- --
----------- --------- --------- --------- --------- -----------
Total distributions
declared to
shareholders $ (0.33) $ (0.67) $ (0.70) $ (0.75) $ (0.77) $ (0.78)
----------- --------- --------- --------- --------- -----------
Net asset value -
end of period $ 8.87 $ 8.60 $ 9.38 $ 9.26 $ 9.22 $ 9.09
----------- --------- --------- --------- --------- -----------
Total return* 7.02%** (1.04)% 9.19% 9.02% 10.34% 4.65%
Ratios (to average net assets)/Supplemental data:
Expenses 0.92%+ 1.04% 1.10% 1.00% 1.03% 1.05%
Net investment
income 6.90%+ 7.27% 7.15% 7.95% 7.96% 8.17%
Portfolio turnover 10% 32% 18% 10% 21% 41%
Net assets at end of period
(000 omitted) $ 983,798 $ 920,043 $ 809,957 $ 731,968 $ 648,043 $ 638,185
</TABLE>
+ Annualized.
* Total returns for Class A shares do not include the applicable sales charge
(except for reinvested dividends prior to October 1, 1989). If the charge
had been included, the results would have been lower.
++ Per share data for the periods indicated is based on average shares
outstanding.
** Not annualized.
See notes to financial statements
19
<PAGE>
Financial Statements - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Six Months Year Ended
January 31, Ended January 31,
----------------------------------------------------- July 31, -----------------------------
1990 1989 1988 1987 1995++ 1995++ 1994+++
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 9.55 $ 9.68 $ 10.38 $ 10.49 $ 8.60 $ 9.38 $ 9.40
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations -
Net investment income $ 0.85 $ 0.88 $ 0.84 $ 0.99 $ 0.26 $ 0.57 $ 0.32
Net realized and
unrealized gain (loss)
on investments (0.09) (0.12) (0.67) (0.01) 0.29 (0.78) (0.14)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from invest-
ment operations $ 0.76 $ 0.76 $ 0.17 $ 0.98 $ 0.55 $ (0.21) $ 0.18
----------- ----------- ----------- ----------- ----------- ----------- -----------
Less distributions declared
to shareholders -
From net investment
income $ (0.81) $ (0.82) $ (0.84) $ (1.01) $ (0.26) $ (0.57) $ (0.20)
In excess of net
investment income -- -- -- -- (0.02) -- --
From net realized gain
on investments (0.04) (0.07) (0.03) (0.08) -- -- --
From paid-in capital (0.01) -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions
declared to
shareholders $ (0.86) $ (0.89) $ (0.87) $ (1.09) $ (0.28) $ (0.57) $ (0.20)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value -
end of period $ 9.45 $ 9.55 $ 9.68 $ 10.38 $ 8.87 $ 8.60 $ 9.38
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total return* 8.24% 8.32% 1.87% 10.00% 6.47%** (2.13)% 1.89%
Ratios (to average net assets)/Supplemental data:
Expenses 1.02% 0.65% 1.03% 1.00% 1.96%+ 2.10% 2.04%+
Net investment income 8.90% 9.27% 8.54% 9.54% 5.86%+ 6.32% 5.43%+
Portfolio turnover 21% 23% 16% 9% 10% 32% 18%
Net assets at end of period
(000 omitted) $ 485,037 $ 325,044 $ 349,655 $ 442,036 $ 69,072 $ 55,675 $ 1
</TABLE>
+ Annualized.
* Total returns for Class A shares do not include the applicable sales charge
(except for reinvested dividends prior to October 1, 1989). If the charge
had been included, the results would have been lower.
** Not annualized.
++ Per share data for the periods indicated is based on average shares
outstanding.
+++ For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
See notes to financial statements
20
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Municipal High Income Fund (the Fund) is a non-diversified series of MFS
Series Trust III (the Trust). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options are
valued by brokers through the use of a pricing model which takes into account
closing bond valuations, implied volatility and short-term repurchase rates.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Trustees.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. 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.
The Fund can invest up to 65% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than higher-rated securities, and tend to be
more sensitive to economic conditions.
The Fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Fund at a constant yield to maturity. Legal fees and other
related expenses incurred to preserve and protect the value of a security owned
are added to the cost of the security; other legal fees are expensed. Capital
infusions, which are generally non-recurring, incurred to protect or enhance the
value of high-yield debt securities, are reported as an addition to the cost
basis of the security. Costs that are incurred to negotiate the terms or
conditions of capital infusions or that are expected to result in a plan of
reorganization are reported as realized losses. Ongoing costs incurred to
protect or enhance an investment, or costs incurred to pursue other claims or
legal actions, are reported as operating expenses.
21
<PAGE>
Notes to Financial Statements - continued
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions paid by the Fund from net interest received on tax-exempt
municipal bonds are not includable by shareholders as gross income for federal
income tax purposes because the Fund intends to meet certain requirements of the
Code applicable to regulated investment companies, which will enable the Fund to
pay 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. Distributions to shareholders are recorded
on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers both Class A
and Class B shares. The two classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. All shareholders
bear the common expenses of the Fund pro rata based on the average daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee, computed daily and paid monthly at an effective annual rate of
0.30% of average daily net assets and 4.75% of investment income, amounted to
$3,342,223 for the six months ended July 31, 1995.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
22
<PAGE>
Notes to Financial Statements - continued
for all its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $6,632 for the six months
ended July 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$391,843 for the six months ended July 31, 1995 as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted a
distribution plan relating solely to Class B shares pursuant to Rule 12b-1 of
the Investment Company Act of 1940 as follows:
The Class B distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B shares. The service fee
is not charged on Class B shares held over one year. MFD will pay to securities
dealers that enter into a sales agreement with MFD all or a portion of the
service fee attributable to Class B shares. The service fee is intended to be
additional consideration for services rendered by the dealer with respect to
Class B shares. MFD retains the service fee for accounts not attributable to a
securities dealer. Fees incurred under the distribution plan during the six
months ended July 31, 1995 were 1.00% of average daily net assets attributable
to Class B shares and amounted to $305,188.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the six months ended July 31, 1995 were $48,194 and
$65,004 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$650,403 and $69,870 for Class A and Class B shares, respectively, for its
services as shareholder servicing agent. The fee is calculated as a percentage
of the average daily net assets of each class of shares at an effective annual
rate of up to 0.15% and up to 0.22% attributable to Class A and Class B shares,
respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations,
aggregated $118,538,663 and $101,629,879, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $ 1,004,843,021
---------------
Gross unrealized appreciation $ 62,017,678
Gross unrealized depreciation (34,235,686)
---------------
Net unrealized appreciation $ 27,781,992
---------------
23
<PAGE>
Notes to Financial Statements - continued
At January 31, 1995, the Fund, for federal income tax purposes, had a capital
loss carryforward of $68,805,964, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on January 31, 1998 ($2,344,797), January 31, 1999 ($2,433,909),
January 31, 2000 ($4,786,449), January 31, 2001 ($5,199,093), January 31, 2002
($26,863,497) and January 31, 2003 ($27,178,219).
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Six Months Ended July 31, 1995 Year Ended January 31, 1995
------------------------------ ----------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,112,825 $ 80,434,022 32,283,057 $286,032,399
Shares issued to shareholders in
reinvestment of distributions 1,508,252 13,233,561 2,760,128 24,132,344
Shares reacquired (6,726,876) (59,563,005) (14,365,883) (123,961,674)
---------- ------------ ----------- ------------
Net increase 3,894,201 $ 34,104,578 20,677,302 $186,203,069
---------- ------------ ----------- ------------
Class B Shares Six Months Ended July 31, 1995 Year Ended January 31, 1995
------------------------------ ----------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------
Shares sold 1,570,467 $ 13,863,912 6,732,579 $ 59,733,515
Shares issued to shareholders in
reinvestment of distributions 97,934 860,429 100,403 865,026
Shares reacquired (357,385) (3,161,292) (356,549) (3,050,580)
---------- ------------ ----------- ------------
Net increase 1,311,016 $ 11,563,049 6,476,433 $ 57,547,961
---------- ------------ ----------- ------------
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the six months ended July
31, 1995 was $7,084.
24
<PAGE>
Notes to Financial Statements - continued
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At July 31, 1995, the
Fund owned the following restricted securities (constituting 0.76% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Description Date of Acquisition Par Amount Cost Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eastern Band Cherokee
Indian Community, NC
(Carolina Mirror Co.), 10.25s, 2009 12/21/93 $3,390,000 $3,502,851 $3,572,179
Eastern Band Cherokee
Indian Community, NC
(Carolina Mirror Co.), 11s, 2012 9/19/86 950,000 862,500 1,008,282
Hannibal, MO, Industrial Development
Authority (Hannibal Regional Health
Care System, Inc.), 9.5s, 2022 3/23/92 3,000,000 2,970,713 3,472,350
----------
$8,052,811
----------
</TABLE>
(8) Litigation
MFS has been named as a defendant in a lawsuit brought by the City of Troy, NY
(the City) alleging, among other things, that certain municipal securities
issued by Troy and purchased by the Fund were invalid at the time of issuance.
The Fund is actual owner of the securities. The lawsuit seeks to void the
issuance of the securities and seeks the return of all principal and interest
payments previously made by Troy together with interest on such amounts. If the
matter cannot be resolved through settlement with the City and other parties,
MFS and the Fund, if named as defendant, intend vigorously to contest the case.
This lawsuit is in a preliminary state and involves significant complexities
that prevent the Fund from being able to predict whether any liability might
result. Management does not believe that any potential liability would be
material to the financial position of the Fund. Accordingly, no amount has been
accrued in the financial statements with respect to this matter. The Fund has
filed a separate lawsuit against the City, and certain other parties, in which
the Fund is seeking a determination that the securities are valid and that the
Fund is entitled to payment and/or damages.
25
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Trustees of MFS Series Trust III and Shareholders of MFS Municipal High
Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Municipal High Income Fund, including the schedule of portfolio investments, as
of July 31, 1995, the related statement of operations for the six-month period
then ended, and the statement of changes in net assets and financial highlights
for the six-month period then ended and for the year ended January 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the eight years in the period ended January 31, 1994 for
Class A shares, and for the period September 7, 1993 (commencement of
operations) to January 31, 1994 for Class B shares, were audited by other
auditors whose report dated March 16, 1994 expressed an unqualified opinion on
those statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1995, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Municipal High Income Fund as of July 31, 1995, and the results of its
operations for the six-month period then ended, and the changes in its net
assets and financial highlights for the six-month period then ended and for the
year ended January 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
September 1, 1995
-----------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
26
<PAGE>
It's Easy to Contact Us
[GRAPHIC OMITTED]
MFS Automated Information
Account Information:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
Market Outlook:
Call 1-800-637-4458 any time for the MFS outlook
on the bond and stock markets.
[GRAPHIC OMITTED]
MFS Personal Service
Account Service:
Call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
Product Information:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
IRA Service:
Call 1-800-637-1255 any business day
from 8 a.m. to 6 p.m. Eastern time.
Service for the Hearing-Impaired:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
[GRAPHIC OMITTED]
MFS Mailing Addresses
For Personal Accounts:
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For IRA Accounts:
MFS Service Center, Inc.
J.W. McCormack Station
P.O. Box 4501
Boston, MA 02101-9817
27
<PAGE>
MFS Investment Opportunities
Mutual Funds
The MFS Family of Funds, shown on the facing page, falls into the eight general
categories below. All offer full-time professional management, a diversified
portfolio, and a wide array of shareholder services.
Stock funds seek growth of capital rather than income through investments in
stocks.
Stock and bond funds seek current income and growth of capital through
investments in both stocks and bonds.
Bond funds seek current income through investments in debt securities.
World funds seek stock, balanced, and bond fund objectives through investments
in U.S. and foreign stocks and bonds.
Limited-maturity funds seek current income and preservation of capital through
investments in debt securities with remaining maturities of five years or less.
National tax-free bond funds seek current income exempt from federal income tax
through investments in debt securities issued by states and municipalities.1
State tax-free bond funds seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state and
its municipalities.(1)
Money market funds seek preservation of capital and current income through
investments in short-term debt securities.(2)
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information for
literature(3) on MFS products and services: 1-800-637-2929, from 9 a.m. to
5 p.m. Eastern time any business day (leave a message anytime).
1 A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
2 Investments in money market funds are not issued or guaranteed by the U.S.
government and there is no assurance that the fund will be able to maintain a
stable net asset value.
3 Including a prospectus containing more complete information including charges
and expenses. Read the prospectus carefully before investing.
28
<PAGE>
The MFS Family of Funds(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any
time). This material should be read carefully before investing or sending money.
Stock
- --------------------------------------------------------------------------------
Massachusetts Investors Trust
- --------------------------------------------------------------------------------
Massachusetts Investors Growth Stock Fund
- --------------------------------------------------------------------------------
MFS(R) Capital Growth Fund
- --------------------------------------------------------------------------------
MFS(R) Emerging Growth Fund
- --------------------------------------------------------------------------------
MFS(R) Gold & Natural Resources Fund
- --------------------------------------------------------------------------------
MFS(R) Growth Opportunities Fund
- --------------------------------------------------------------------------------
MFS(R) Managed Sectors Fund
- --------------------------------------------------------------------------------
MFS(R) OTC Fund MFS(R) Research Fund
- --------------------------------------------------------------------------------
MFS(R) Value Fund
- --------------------------------------------------------------------------------
Stock and Bond
- --------------------------------------------------------------------------------
MFS(R) Total Return Fund
- --------------------------------------------------------------------------------
MFS(R) Utilities Fund
- --------------------------------------------------------------------------------
Bond
- --------------------------------------------------------------------------------
MFS(R) Bond Fund
- --------------------------------------------------------------------------------
MFS(R) Government Mortgage Fund
- --------------------------------------------------------------------------------
MFS(R) Government Securities Fund
- --------------------------------------------------------------------------------
MFS(R) High Income Fund
- --------------------------------------------------------------------------------
MFS(R) Intermediate Income Fund
- --------------------------------------------------------------------------------
MFS(R) Strategic Income Fund
(formerly MFS(R) Income & Opportunity Fund)
- --------------------------------------------------------------------------------
Limited Maturity Bond
- --------------------------------------------------------------------------------
MFS(R) Government Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS(R) Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS(R) Municipal Limited Maturity Fund
- --------------------------------------------------------------------------------
World
- --------------------------------------------------------------------------------
MFS(R) World Asset Allocation Fund
- --------------------------------------------------------------------------------
MFS(R) World Equity Fund
- --------------------------------------------------------------------------------
MFS(R) World Governments Fund
- --------------------------------------------------------------------------------
MFS(R) World Growth Fund
- --------------------------------------------------------------------------------
MFS(R) World Total Return Fund
- --------------------------------------------------------------------------------
National Tax-Free Bond
- --------------------------------------------------------------------------------
MFS(R) Municipal Bond Fund
- --------------------------------------------------------------------------------
MFS(R) Municipal High Income Fund
(closed to new investors)
- --------------------------------------------------------------------------------
MFS(R) Municipal Income Fund
- --------------------------------------------------------------------------------
State Tax-Free Bond
- --------------------------------------------------------------------------------
Alabama, Arkansas, California, Florida,
Georgia, Louisiana, Maryland,
Massachusetts, Mississippi, New York,
North Carolina, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia,
Washington, West Virginia
- --------------------------------------------------------------------------------
Money Market
- --------------------------------------------------------------------------------
MFS(R) Cash Reserve Fund
- --------------------------------------------------------------------------------
MFS(R) Government Money Market Fund
- --------------------------------------------------------------------------------
MFS(R) Money Market Fund
- --------------------------------------------------------------------------------
<PAGE>
MFS(R) Municipal [Dalbar logo] Bulk Rate
High Income U.S. Postage
Fund PAID
Permit #55638
500 Boylston Street Boston, MA
Boston, MA 02116
[MFS logo]
THE FIRST NAME IN MUTUAL FUNDS
MMH-3/95 53.5M 25/225
