<PAGE>
[Logo] Semiannual Report
INVESTMENT MANAGEMENT July 31, 1997
MFS(R) MUNICIPAL HIGH INCOME FUND
[Graphic Omitted]
LEARNING FINANCIAL BASICS THE EASY WAY (see page 31)
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman ................................................... 1
Portfolio Manager's Overview ............................................... 2
Portfolio Manager's Profile ................................................ 3
Fund Facts ................................................................. 4
Performance Summary ........................................................ 4
Portfolio Concentration .................................................... 5
Portfolio of Investments ................................................... 6
Financial Statements .......................................................20
Notes to Financial Statements ..............................................26
The ABCs of Investing ......................................................31
The MFS Family of Funds(R) .................................................32
Trustees and Officers ......................................................33
- -------------------------------------------------------------------------------
HIGHLIGHTS
o FOR THE SIX MONTHS ENDED JULY 31, 1997, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 5.45%, WHILE CLASS B SHARES RETURNED
4.99%. (SEE PERFORMANCE SUMMARY FOR MORE INFORMATION.)
o THE FUND HAS BENEFITED FROM THE RECENT INTEREST-RATE RALLY SPARKED BY
MODERATE ECONOMIC GROWTH, A LACK OF INFLATIONARY PRESSURE, AND THE FEDERAL
RESERVE BOARD'S STABLE MONETARY POLICY.
o DESPITE RECENT FALLING INTEREST RATES, PREPAYMENT RISK HAS BEEN DIMINISHED
IN THE SINGLE-FAMILY HOUSING ARENA, WHILE MULTI-FAMILY PROJECTS CONTINUE TO
ENJOY HISTORICALLY HIGH OCCUPANCY LEVELS.
o CASH FLOWS INTO THE FUND REMAIN MANAGEABLE DESPITE THE LIGHT SUPPLY OF NEW
HIGH-YIELD ISSUANCE BUT, SHOULD CONDITIONS CHANGE, WE WOULD CONSIDER CLOSING
THE FUND TO NEW INVESTORS AGAIN TO HELP PROTECT EXISTING SHAREHOLDERS FROM
DIVIDEND DILUTION DUE TO EXCESS CASH FLOW.
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. While some lenders are beginning to tighten standards to address this
problem, consumer debt and personal bankruptcies continue to rise. Because of
this, plus changes in other indicators, such as a slight decline in average
hourly wages and only small gains in consumer spending on some big-ticket items,
the rapid pace of growth seen in the first quarter of 1997 slowed to an annual
rate of approximately 2.2% in the second quarter, which we consider a
more-sustainable, less-inflationary pace. While growth in the second quarter
slowed dramatically, we expect it to pick up once again in the second half of
the year, with real (inflation-adjusted) growth centering around 2 1/2%.
In the fixed-income markets, we have been encouraged by the Federal Reserve
Board's decision to not raise short-term interest rates at its July meeting. But
we cannot rule out the possibility of future monetary tightening in the second
half of the year if, as we now expect, the economy strengthens during the
balance of 1997. Therefore, our risk/reward outlook for the fixed-income markets
is neutral, and we believe that fixed-income investors should think in terms of
earning the coupon income from their investments rather than seeking possible
gains from price appreciation.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
August 12, 1997
<PAGE>
PORTFOLIO MANAGER'S OVERVIEW
[Photo of Cynthia M. Brown]
CYNTHIA M. BROWN
Dear Shareholders:
For the six months ended July 31, 1997, Class A shares of the Fund provided a
total return of 5.45%, while Class B shares returned 4.99%. These returns, which
include the reinvestment of distributions but exclude the effects of any sales
charges, compare to a 5.86% return for the Lehman Brothers Municipal Bond Index
(the Lehman Index) over the same period. While the Fund underperformed the
Lehman Index, it is important to note that this index is an unmanaged one of
investment-grade municipal bonds rated "Baa" or higher, while the Fund primarily
invests in lower-quality municipal issues rated "Baa" or below or that are
unrated.
The Fund has rebounded nicely during the recent interest-rate rally sparked
by moderate U.S. economic growth, the lack of inflationary pressure,
particularly on wages, and the Federal Reserve Board's stable monetary policy.
The Fund has been positioned to try to take advantage of a falling interest-
rate environment and has benefited from the increase in value of previously
underperforming securities.
The first quarter of each year is typically the slowest as far as high-yield
issuance is concerned. This year, however, that trend continued into the second
quarter and, as a result, yield spreads between "Aaa"-rated and "Baa"- rated
bonds remain at extremely narrow levels. We continue to find opportunities in
the housing bond sector. Despite recent falling interest rates, prepayment risk
has been diminished in the single-family housing arena, while multi-family
projects continue to enjoy historically high occupancy levels. Additionally, the
corporate-backed bonds held in the portfolio, such as those issued by airline
and manufacturing facilities, have performed well. Whenever possible, we have
taken advantage of the high prices paid for these securities and used those
opportunities to upgrade the credit quality of the portfolio.
Cash flows into the Fund remain manageable despite the light supply of new
high-yield issuance. Should conditions change, we would consider closing the
Fund to new investors, as we have in the past, to help protect existing
shareholders from dividend dilution due to excess cash flow. Our focus remains
on fundamental credit research and diversification of the portfolio's assets.
Respectfully,
/s/ Cynthia M. Brown
Cynthia M. Brown
Portfolio Manager
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
CYNTHIA M. BROWN BEGAN HER CAREER AT MFS IN 1984 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. MS. BROWN IS A MEMBER OF THE BOSTON MUNICIPAL ANALYSTS GROUP
AND HAS MANAGED MFS(R) MUNICIPAL HIGH INCOME FUND SINCE 1993.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
FUND FACTS
OBJECTIVE: THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE HIGH
CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES BY
INVESTING PRIMARILY IN DEBT SECURITIES, THE INTEREST ON
WHICH IS EXEMPT FROM FEDERAL INCOME TAX.
COMMENCEMENT OF
INVESTMENT OPERATIONS: CLASS A SHARES: FEBRUARY 24, 1984
CLASS B SHARES: SEPTEMBER 7, 1993
SIZE: $1.2 BILLION NET ASSETS AS OF JULY 31, 1997
- -------------------------------------------------------------------------------
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 AS OF JULY 31, 1997
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +5.45% +9.49% +37.98% +101.74%
- ------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +9.49% + 6.65% + 7.27%
- ------------------------------------------------------------------------------------------------------------------------
SEC Results -- +4.24% + 5.62% + 6.75%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.99% +8.56% +32.88% +94.16%
- ------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +8.56% + 5.85% + 6.86%
- ------------------------------------------------------------------------------------------------------------------------
SEC Results -- +4.56% + 5.54% + 6.86%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A share SEC results include the maximum 4.75% sales charge. Class B share
SEC results reflect the applicable contingent deferred sales charge (CDSC),
which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%.
Class B share results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the
commencement of offering of Class B shares. Because operating expenses
attributable to Class A shares are lower than those of Class B shares, Class B
share performance generally would have been lower than Class A share
performance. The Class A share performance included within the Class B share SEC
performance has been adjusted to reflect the CDSC generally applicable to Class
B shares rather than the initial sales charge generally applicable to Class A
shares.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
PORTFOLIO CONCENTRATION AS OF JULY 31, 1997
QUALITY RATINGS
[Graphic Omitted - Pie]
Cash 1.9%
"A" 2.2%
"AA" 8.4%
"AAA" 14.4%
"BBB" & Below 25.4%
Not Rated 47.7%
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - July 31, 1997
<TABLE>
<CAPTION>
Municipal Bonds - 96.4%
- ------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
General Obligation - 4.7%
Chicago, IL, FGIC, 5.125s, 2025 $ 5,000 $ 4,874,800
Cook County, IL (Markham), 9s, 2012 2,685 2,980,162
District of Columbia, 6s, 2026 5,000 5,136,450
Jefferson County, OH, 7.125s, 2019 8,660 9,444,683
New York City, NY, 6.875s, 2003 525 576,907
New York City, NY, 7.1s, 2011 750 830,017
New York City, NY, 7.1s, 2011 250 282,490
New York City, NY, 7s, 2022 1,700 1,896,367
New York City, NY, 5.875s, 2024 7,000 7,246,400
New York City, NY, 6.125s, 2025 8,000 8,492,880
New York City, NY, 6.125s, 2025 5,000 5,268,800
Orleans Parish, LA, School Board, FGIC, 0s, 2015 9,860 3,890,559
Texas Veteran Housing Assistance Program, 7s, 2025 1,330 1,445,644
Ukiah, CA, Unified School District, FGIC, 0s, 2017 4,795 1,640,369
Ukiah, CA, Unified School District, FGIC, 0s, 2018 4,085 1,324,439
Virgin Islands Public Financing Authority, 7.25s, 2018 2,000 2,199,040
West Warwick, RI, 7.3s, 2008 200 216,544
West Warwick, RI, 7.45s, 2013 570 604,576
--------------
$ 58,351,127
- ------------------------------------------------------------------------------------------------
State and Local Appropriation - 0.5%
District of Columbia, Certificates of Participation,
7.3s, 2013 $ 2,500 $ 2,801,275
South Tucson, AZ, Municipal Property Corp., 8.75s, 2010 865 933,343
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 1998 75 76,201
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 1999 80 82,226
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2000 85 87,816
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2001 95 98,316
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2002 115 119,074
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2003 130 134,404
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2004 150 155,498
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2005 165 171,061
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2010 235 243,063
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2011 250 257,970
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2013 290 298,546
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2015 335 344,873
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2016 360 370,609
Williamsburg County, SC, School District, Public
Facilities Rev., 7.5s, 2017 390 401,493
--------------
$ 6,575,768
- ------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 14.2%
Austin, TX, Utilities System Rev., 10.75s, 2000 $ 1,780 $ 2,087,548
Colquitt County, GA, Development Authority Rev., 0s, 2021 7,270 1,865,845
Colquitt County, GA, Development Authority Rev., 0s, 2021 4,250 1,090,763
Daphne, AL, Special Care Facilities Financing Authority
(1st Mortgage Rev.), 0s, 2008 89,975 53,040,262
Daphne, AL, Special Care Facilities Financing Authority
(2nd Mortgage Rev.), 0s, 2008 4,500 2,652,750
Daphne, AL, Special Care Facilities Financing
Authority (Presbyterian), 0s, 2008 48,475 8,109,383
Desert Hospital District, CA, Insured Hospital Rev.
(Desert Hospital Corp.), 8.654s, 2020(++) 4,000 4,926,760
District of Columbia, Hospital Rev. (Washington
Hospital), 7.125s, 2019 1,750 1,982,593
Fairfax County, VA, Redevelopment & Housing
Authority (Little River Glen), 8.95s, 2020 2,010 2,219,804
Hannibal, MO, Industrial Development Authority
(Hannibal Regional Healthcare), 9.5s, 2022+ 3,000 3,728,880
Illinois Development Finance Authority, Retirement
Housing (Regency Park), ETM, 0s, 2025 8,050 1,672,871
Illinois Development Finance Authority, Retirement
Housing Rev., 0s, 2023 30,000 6,977,700
Maine Health & Higher Education Facilities Authority
(St. Mary's General Hospital), 8.625s, 1999 5,140 5,661,967
Massachusetts Industrial Finance Agency, Tunnel Rev.
(Mass. Turnpike), 9s, 2020 11,045 12,807,119
Mesa County, CO, Residual Rev., 0s, 2003 25,125 8,390,494
Mississippi Hospital Equipment & Facilities
Authority Rev. (Rush Medical Foundation), 8.75s, 2001 2,800 3,168,396
New Lenox, IL, Community Park Development Authority,
8.25s, 2004 4,205 5,203,225
New York City, NY, 6.875s, 2003 475 533,439
New York Local Government Assistance Corp., 7s, 2001 800 893,200
Prince William County,VA, Industrial Development
Authority, Residential Care, 10s, 2022 3,500 4,350,710
South Carolina Public Service Authority (Santee Coop),
7.1s, 2001 2,000 2,248,540
Spirit Lake, IA, Industrial Development Rev.
(Crystal Tips, Inc.), 0s, 2008 4,167 5,744,807
Telluride, CO, Real Estate Transfer Assessment,
11.5s, 2012 5,025 8,108,591
Texas Turnpike Authority (Houston Ship Channel
Bridge), 12.625s, 2002 21,090 29,121,283
Washington Public Power Supply System Rev. (Nuclear
Project #1), 14.375s, 2001 805 990,319
--------------
$ 177,577,249
- ------------------------------------------------------------------------------------------------
Airlines - 6.4%
Chicago, IL, O'Hare International Airport, Special
Facilities Rev. (United Airlines), 8.4s, 2018 $ 2,630 $ 2,850,604
Chicago, IL, O'Hare International Airport, Special
Facilities Rev. (United Airlines), 8.5s, 2018 4,500 4,955,805
Chicago, IL, O'Hare International Airport, Special
Facilities Rev. (United Airlines), 8.85s, 2018 5,850 6,632,438
Cleveland, OH, Airport Special Facilities Rev.
(Continental Airlines), 9s, 2019 9,120 9,901,858
Dallas-Fort Worth, TX, International Airport
Facility Improvement Corp. (Delta), 7.625s, 2021 4,500 4,972,950
Denver, CO, City & County Airport Rev. (United
Airlines), 6.875s, 2032 7,130 7,639,795
Hillsborough County, FL, Aviation Authority Rev.
(USAir), 8.6s, 2022 4,255 4,859,295
Kenton County, KY, Airport Board Special Facilities
(Delta Airlines), 7.5s, 2020 16,570 18,341,830
Tulsa, OK, Municipal Airport Trust Rev. (American
Airlines), 7.375s, 2020 4,000 4,334,440
Tulsa, OK, Municipal Airport Trust Rev. (American
Airlines), 7.6s, 2030 14,210 15,626,026
--------------
$ 80,115,041
- ------------------------------------------------------------------------------------------------
Airport and Port Revenue - 2.2%
Denver, CO, City & County Airport Rev., 8.875s, 2012 $ 5,000 $ 5,886,250
Denver, CO, City & County Airport Rev., 7.75s, 2021 2,050 2,312,031
Denver, CO, City & County Airport Rev., 8.5s, 2023 2,950 3,346,834
Denver, CO, City & County Airport Rev., 8.75s, 2023 5,770 6,844,374
Denver, CO, City & County Airport Rev., 8s, 2025 1,140 1,276,207
Port Authority, NY (JFK International Air Terminal),
MBIA, 5.75s, 2022 7,000 7,279,440
--------------
$ 26,945,136
- ------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 7.2%
Clark County, NV (Nevada Power), FGIC, 6.7s, 2022 $ 4,000 $ 4,385,600
Farmington, NM, Pollution Control Rev. (Tucson
Electric Power Co.), 6.95s, 2020 3,000 3,182,280
Midland, MI, Environmental Development Authority,
Pollution Control Rev. (Midland Cogeneration),
9.5s, 2009 4,500 4,969,035
Montana Board of Investment Resources Recovery Rev.
(Yellowstone Energy), 7s, 2019 4,995 4,945,050
Municipal Electric Authority, GA, Project #1, AMBAC,
7.756s, 2022(++) 9,900 11,002,167
New Jersey Economic Development Authority (Vineland
Cogeneration), 7.875s, 2019 7,550 8,218,930
New York Research and Development Authority,
Electrical Facilities Rev. (Consolidated Edison),
AMBAC, 7.5s, 2026 4,750 5,136,460
New York Research and Development Authority,
Electrical Facilities Rev. (Long Island Lighting),
7.15s, 2019 1,650 1,776,291
New York Research and Development Authority,
Electrical Facilities Rev. (Long Island Lighting),
7.15s, 2022 6,050 6,513,067
Ohio Water Development, Pollution Control Rev.
(Cleveland Electric), 8s, 2023 4,700 5,260,381
Pennsylvania Economic Development Financing
Authority, Resources Recovery Rev., 6.5s, 2013 2,300 2,332,729
Pennsylvania Economic Development Financing
Authority, Resources Recovery Rev., 6.6s, 2019 5,000 5,080,550
Pittsylvania County, VA, Industrial Development
Authority, 7.55s, 2019 10,000 10,757,100
Southern California Public Power Authority,
Transmission Project Rev., RIBS, 7.407s, 2012(++) 7,850 8,695,916
West Feliciana Parish, LA, Pollution Control Rev.
(Gulf States Utilities Co.), 9s, 2015 2,500 2,802,350
West Feliciana Parish, LA, Pollution Control Rev.
(Gulf States Utilities Co.), 8s, 2024 4,000 4,304,360
--------------
$ 89,362,266
- ------------------------------------------------------------------------------------------------
Health Care Revenue - 17.2%
Arkansas Development Finance Authority, Economic
Development Rev. (Southwest Homes), 10.8s, 2018 $ 955 $ 991,997
Bell County, TX, Health Facilities Development
(Advanced Living Tech), 7.25s, 2001 270 264,535
Bell County, TX, Health Facilities Development
(Advanced Living Tech), 7.75s, 2006 395 380,993
Bell County, TX, Health Facilities Development
(Advanced Living Tech), 8.125s, 2016 1,420 1,347,253
Bell County, TX, Health Facilities Development
(Advanced Living Tech), 8.5s, 2026 3,150 2,972,624
Bell County, TX, Health Facilities Development
(Kings Daughters Hospital), 9.25s, 2008 1,140 1,242,714
Berlin, MD, Hospital Rev. (Atlantic General
Hospital), 8.375s, 2022 1,345 1,415,814
Brevard County, FL, Health Facilities Authority
(Beverly Enterprises), 10s, 2010 1,295 1,433,487
Cambria County, PA, Industrial Development Authority
(Beverly Enterprises), 10s, 2012 1,080 1,386,569
Cheneyville, LA, Westside Habilitation Center,
8.375s, 2013 6,200 6,444,280
Chester County, PA, Industrial Development Authority
(RHA/PA Nursing Home), 10.125s, 2019 1,933 1,875,010
Colorado Health Facilities Authority Rev. (Gericare/
Denver), 10.5s, 2019** 5,000 3,443,750
Colorado Health Retirement Facilities (Liberty
Heights), 0s, 2022 6,850 1,697,841
Colorado Health Retirement Facilities (Liberty
Heights), 0s, 2024 29,295 6,440,506
Connecticut Health & Educational Facilities (Johnson
Evergreen), 8.5s, 2014 1,350 1,473,228
Daphne, AL, Special Care Facilities Financing
Authority (Westminster Village), 8.25s, 2026+ 12,500 11,308,000
District of Columbia, Hospital Rev. (Hospital for
Sick Children), 8.875s, 2021 960 1,055,741
Doylestown, PA, Hospital Authority (Doylestown
Hospital), 7.2s, 2023 2,200 2,323,134
Fairfax, Fauquier & Loudoun Counties, VA, Health
Center Commission, Nursing Home Rev., 9s, 2020 1,865 2,019,459
Grand Junction, CO, Hospital Rev. (Community
Hospital), 6.9s, 2017 2,900 2,876,945
Hobbs County, NM, Health Facilities Rev. (Nemecal
Associates), 9.625s, 2014 1,685 1,782,663
Illinois Health Facilities Rev. (Memorial Hospital -
Woodstock), 7.25s, 2022 1,500 1,601,490
Jacksonville, FL, Health Facilities Authority
(National Benevolent), 7s, 2022 1,000 1,074,340
Jacksonville, FL, Industrial Development Rev.
(Beverly Enterprises), 9.75s, 2011 945 1,025,996
Jefferson County, KY, Health Facilities Rev.
(Beverly Enterprises), 10.125s, 2008 2,150 2,325,311
Jenks Township, PA, Municipal Authority Rev., 8s, 2018 4,650 4,725,237
Kansas City, MO, Industrial Development Authority
(Bishop Spencer Place Inc. Project), 8s, 2024 7,720 7,924,657
Kansas City, MO, Industrial Development Authority,
Retirement Facilities (Kingswood), 9s, 2013 5,250 5,630,362
Lee County, FL, Industrial Development Authority
(Beverly Enterprises), 10s, 2010 900 1,007,244
Louisiana Public Facilities Authority (Southwest
Medical Center), 11s, 2006 1,399 437,021
Luzerne County, PA, Industrial Development Authority
(Beverly Enterprises), 10.125s, 2008 1,275 1,398,548
Martin County, FL, Industrial Development Authority
(Beverly Enterprises), 9.8s, 2010 2,750 2,992,165
Massachusetts Health & Education Facilities
Authority (Fairview Extended Care Facility),
10.25s, 2021 3,000 3,532,200
Massachusetts Health & Education Facilities Authority
(St. Anne's Hospital), 9.375s, 2014 5,000 5,004,800
Massachusetts Health & Education Facilities Authority
(St. Memorial Medical Center), 6s, 2023 10,640 9,846,894
Massachusetts Industrial Finance Agency, 9.25s, 2009 3,940 4,004,025
Massachusetts Industrial Finance Agency (Brandon
Residential Treatment), 8.75s, 2024 5,275 5,674,528
Massachusetts Industrial Finance Agency (GF Revere),
8.875s, 2025 7,780 8,372,291
Massachusetts Industrial Finance Agency (Glenmeadow
Retirement Community), 8.375s, 2018 2,300 2,452,697
Massachusetts Industrial Finance Agency (Glenmeadow
Retirement Community), 8.625s, 2026 3,520 3,790,160
Massachusetts Industrial Finance Agency (Martha's
Vineyard Long-Term Care Facility), 9.25s, 2022** (+) 3,410 2,046,000
Michigan Strategic Fund Ltd., Obligation Rev. (River
Valley Recovery Center), 12.875s, 2015 1,020 1,045,544
Montgomery County, PA, Higher Education & Health
Authority Rev. (AHF/Montgomery), 10.5s, 2020 2,460 2,625,386
Nebraska Investment Finance Authority (Centennial
Park), 10.5s, 2016 2,200 2,258,630
New Hampshire Industrial Development Authority (Tall
Pines), 11.25s, 2016 2,300 2,480,734
New Jersey Economic Development Authority (Burnt
Tavern Convalescent Center), 9s, 2013 1,700 1,820,462
New Jersey Economic Development Authority
(Courthouse Convalescent Center), 8.7s, 2014 1,350 1,437,520
New Jersey Economic Development Authority (Geriatric
& Medical Services), 9.625s, 2004 425 475,817
New Jersey Economic Development Authority (Geriatric
& Medical Services), 9.625s, 2022 1,350 1,498,163
New Jersey Economic Development Authority (Gerimed),
10.5s, 2020 3,000 3,202,440
New Jersey Economic Development Authority (Greenwood
Health Care), 9.75s, 2011 3,035 3,208,511
New Jersey Economic Development Authority (Wanaque
Convalescent Center), 8.5s, 2009 700 735,812
New Jersey Economic Development Authority (Wanaque
Convalescent Center), 8.6s, 2011 1,000 1,050,980
New Jersey Health Care Facilities Financing (Cherry Hill),
8s, 2027 4,000 4,145,200
North Carolina Medical Care Commission, Hospital
Rev. (Valdese General Hospital), 8.75s, 2016 1,905 2,179,149
North Central, TX, Health Facilities Development
Corp. (Baylor University Medical Center), 9.725s, 2016(++) 4,300 5,258,427
Okaloosa County, FL, Retirement Rental Housing Rev.
(Beverly Enterprises), 10.75s, 2003 2,715 2,812,170
Osceola County, FL, Industrial Development Rev.,
Community Pooled Loan, 7.75s, 2017 2,700 2,831,031
Portsmouth, VA, Industrial Development Authority
(Beverly Enterprises), 10s, 2011 1,950 2,205,430
Reedley, CA, Certificates of Participation
(Mennonite Home), 7.5s, 2026 5,500 5,658,235
Rochester, MN, Health Care Facilities Rev. (Mayo
Medical Foundation), 7.94s, 2021(++) 2,000 2,119,180
San Francisco, CA, City & County (Coventry Park),
8.5s, 2026 9,435 9,771,735
Santa Fe, NM, Industrial Development Rev. (Casa Real
Nursing Home), 9.75s, 2013 1,860 2,008,819
Seminole County, FL, Industrial Development
Authority (Friendly Village), 10s, 2011 855 874,374
St. Charles County, MO, Industrial Development
Authority (Garden View Care Center), 10s, 2016 1,740 1,766,483
St. Petersburg, FL, Health Facilities Rev. (Swanholm
Nursing), 10s, 2022 1,490 1,704,307
Suffolk County, NY, Industrial Development Agency
(APPLE), 9.75s, 2015 3,605 3,064,250
Tyler, TX, Health Facilities Development Corp. (East
Texas Medical Center Project), MBIA, 5.6s, 2027 3,000 3,059,970
Vincennes, IN, Economic Development Authority (Lodge
of the Wabash), 12.5s, 2015 2,025 1,984,500
Waterford Township, MI, Economic Development Rev.
(Canterbury Health Care), 8.375s, 2023 3,100 3,287,488
Westerville, OH, Industrial Development Rev. (1st
Mortgage Health Care), 10s, 2008 515 520,639
Wilkins Area, PA, Industrial Development Authority
(Beverly Enterprises), 10s, 2011 1,050 1,189,629
Wilkinsburg, PA, Municipal Authority Health
(Monroeville Christian), 8.25s, 2027 7,100 7,244,911
--------------
$ 214,568,435
- ------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 15.7%
Baltimore County, MD, Pollution Control (Bethlehem
Steel), 7.55s, 2017 $ 1,000 $ 1,073,720
Burns Harbor, IN, Solid Waste Disposal Facilities
Rev. (Bethlehem Steel), 8s, 2024 10,455 11,347,230
Butler, AL, Industrial Developement Board, Solid
Waste Rev. (James River Corp.), 8s, 2028 4,500 5,124,645
Cambria County, PA, Industrial Development Authority
(Beverly Enterprises), 7.5s, 2015 2,950 3,154,730
Courtland, AL, Industrial Development Board, Solid
Waste Disposal Rev. (Champion International
Corp.), 6.375s, 2029 2,500 2,599,350
Dayton, OH, Special Facilities Rev. (Emery Air Freight),
12.5s, 2009 950 1,047,451
DeQueen, AR, Industrial Development Board
(Weyerhaeuser Co.), 9s, 2006 1,000 1,024,690
Eastern Band of Cherokee Indian Community, NC
(Carolina Mirror Co.), 10.25s, 2009+ 3,020 3,039,962
Eastern Band of Cherokee Indian Community, NC
(Carolina Mirror Co.), 11s, 2012+ 950 956,213
Florence County, SC, Industrial Development Rev.
(Stone Container Corp.), 7.375s, 2007 3,630 3,859,343
Hardeman County, TN (Correctional Facilities Corp.),
7.75s, 2017 6,500 7,040,020
Hernando County, FL, Water & Sewer Rev. (Florida
Crushed Stone), 8.5s, 2014 8,555 9,849,799
Hodge Village, LA, Utilities Rev. (Stone Container),
9s, 2010 6,800 7,372,084
Indiana Development Finance Authority, 7.25s, 2011 10,000 10,943,800
Lawrenceburg, TN, Industrial Development Board
(Tridon, Inc.), 9.875s, 2006 2,600 2,789,228
Maine Finance Authority (Bowater), 7.75s, 2022 8,500 9,559,355
Massachusetts Industrial Finance Agency, Solid Waste
Disposal Rev. (Molten Metal Technology), 8.25s, 2014 9,750 9,238,125
Mesa County, CO (Joy Technologies), 8.5s, 2006 1,350 1,537,623
New Hampshire Business Authority, Sewer & Solid
Waste Disposal (Crown Paper), 7.875s, 2026 5,000 5,648,500
New Jersey Economic Development Authority (Holt
Hauling & Warehousing), 8.4s, 2015 4,000 4,258,880
New Jersey Economic Development Authority (Holt
Hauling & Warehousing), 8.6s, 2017 8,000 8,548,960
Ohio Solid Waste Rev. (Republic Engineered Steels),
8.25s, 2014 7,000 7,025,760
Owyhee County, ID, Industrial Development Rev.,
8.25s, 2002 4,000 4,277,680
Perry County, KY, Solid Waste Disposal Resources
(TJ International), 7s, 2024 11,000 11,842,270
Philadelphia, PA, Industrial Development Authority Rev.,
7.75s, 2017 2,000 2,186,900
Port of New Orleans, LA (Avondale Industries), 8.5s, 2014 22,750 26,166,823
Port of New Orleans, LA (Continental Grain Co.),
7.5s, 2013 2,000 2,177,680
Riverdale, IL, Enviromental Improvement Rev. (Acme
Metals), 7.9s, 2024 2,500 2,742,325
Savannah, GA, Economic Development Authority,
Industrial Development Rev. (Hershey Foods Corp.),
7.4s, 2026 7,500 7,969,725
Spokane County, WA, Industrial Development Corp.
(Kaiser Aluminum & Chemical Corp. Project), 7.6s,
2027 3,700 3,878,007
Sweetwater County, WY, Solid Waste Disposal Rev.,
6.9s, 2024 3,000 3,289,560
Tooele County, UT, Pollution Control Rev., 7.55s, 2027 5,000 5,161,700
Walton, GA, Industrial Development Rev. (Ultima
Rubber Products), 10s, 2010 4,250 4,661,230
Wierton, WV, Pollution Control Rev. (Weirton Steel),
8.625s, 2014 3,630 3,785,001
--------------
$ 195,178,369
- ------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 1.8%
Bexar County, TX, Health Facilities Development
(Baptist Health Systems), MBIA, 5.25s, 2027 $ 4,000 $ 3,946,800
Clermont County, OH, Hospital Facilities Rev. (Mercy
Health Systems), AMBAC, 9.451s, 2021(++) 1,300 1,596,543
Illinois Health Facilities Authority Rev. (Sisters
of Mercy), MBIA, 9.417s, 2015(++) 5,200 6,218,784
Montana Health Facility Authority (Deaconess
Hospital), AMBAC, RIBS, 9.033s, 2016(++) 4,000 4,588,720
North Central, TX, Health Facilities Development
Corp. (Presbyterian Hospital), MBIA, 9.205s, 2021(++) 4,000 4,826,760
Salt Lake City, UT, Hospital Rev. (Intermountain
Health Care), AMBAC, 9.616s, 2020(++) 1,250 1,475,025
--------------
$ 22,652,632
- ------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.2%
Alexandria, VA, Redevelopment & Housing Finance
Authority (Jefferson Village Apartments), 9s, 2018 $ 2,000 $ 2,069,840
Austin Texas Housing Finance Corp. (Woodland Heights
Apartments Project), 7.25s, 2027 4,000 4,526,040
Butler County, OH, Multifamily Housing (Meadow Ridge
Apartments Project B), 9.5s, 2030 2,130 2,130,000
Dallas, TX, Housing Finance Corp., 8.5s, 2011 3,245 3,369,446
Florida Multi-Family Housing Finance Agency Rev.
(Center Court Apartments), 8.5s, 2018 2,000 2,060,720
Maplewood, RI, Housing Development Corp. (Terrace
Apartments), 6.9s, 2025 4,015 4,238,836
Maryland Community Development Administration, 0s, 2032 11,550 816,816
Massachusetts Housing Finance Agency, 8.5s, 2020 15 15,275
Memphis, TN, Health, Education & Housing Facilities
Board (Wesley Highland Terrace), 12.75s, 2015++ 6,300 5,355,000
Texas Housing & Community Board (Harbors & Plumtree),
10s, 2026 1,775 1,797,258
Virginia Housing & Development Authority, 0s, 2017 6,530 1,184,020
--------------
$ 27,563,251
- ------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 0.3%
Denver, CO, Urban Renewal Tax (Musicland), 8.5s, 2017 $ 950 $ 966,150
Denver, CO, Urban Renewal Tax Increment (Downtown
Denver), 8.5s, 2013 1,380 1,403,460
Denver, CO, Urban Renewal Tax Increment (Downtown
Denver), 7.25s, 2017 1,250 1,350,650
--------------
$ 3,720,260
- ------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 7.2%
Arkansas Housing Development Agency, Residential
Mortgage Rev., 0s, 2015 $ 7,925 $ 1,188,908
Berkeley, Brookes & Fayette Counties, WV, Single
Family Mortgage Rev., MBIA, 0s, 2016 22,285 2,839,109
California Housing Finance Authority Rev., 0s, 2023 12,950 1,768,452
California Housing Finance Authority Rev., 7.4s, 2026 12,645 13,687,327
Chicago, IL, Capital Appreciation, Single Family
Mortgage Rev., FGIC, 0s, 2017 9,895 1,091,913
Colorado Housing Finance Authority, 8s, 2016 3,000 3,039,450
Cook County, IL, Single Family Housing Rev., 0s, 2015 3,100 434,527
Corpus Christi, TX, Housing Finance Corp., MBIA, 0s, 2011 3,395 869,426
Delaware Single Family Housing Authority Rev.,
6.75s, 2024 2,685 2,855,471
Denver, CO, Single Family Mortgage Rev., 0s, 2015 945 118,399
East Baton Rouge, LA, Capital Appreciation Rev., MBIA,
0s, 2010 12,585 3,038,271
El Paso, TX, Housing Finance Corp., Single Family
Mortgage Rev., 8.75s, 2011 790 859,441
Florida Housing Finance Agency Rev., 0s, 2016 10,800 1,628,316
Florida Housing Finance Agency Rev. (South Lake
Apartments), 0s, 2012 105 22,625
Georgia Housing & Finance Authority Rev., 0s, 2031 77,265 6,529,665
Harris County, TX, Housing Finance Corp., 9.875s, 2014 660 660,686
Jefferson County, CO, Single Family Mortgage Rev.,
MBIA, 8.875s, 2013 335 358,333
Jefferson County, TX, Housing Finance Corp., Single
Family Mortgage Rev., MBIA, 0s, 2015 4,285 607,185
Maine Housing Authority, Mortgage Purchase Rev.,
8.2s, 2022 4,115 4,279,641
Maryland Community Development Administration, 6s, 2039 3,500 3,571,750
Mississippi Home Corp., Single Family Senior Housing
Rev., FGIC, 9.25s, 2012 217 234,221
Nebraska Investment Finance Authority Housing Rev.,
6.3s, 2028 2,500 2,635,925
Nevada Housing Division, Single Family Mortgage Rev.,
0s, 2015 2,079 347,090
New Castle County, DE, Single Family Mortgage Rev.,
FGIC, 0s, 2016 1,155 162,740
New Hampshire Housing Finance Authority, Single
Family Mortgage Rev., 8.5s, 2014 3,040 3,167,954
New Mexico Mortgage Finance Authority, Single Family
Mortgage Rev., 6.9s, 2024 3,030 3,208,497
North Carolina Housing Finance Agency, 5.85s, 2028 9,110 9,247,743
North Dakota Housing Finance Agency, Single Family
Mortgage Rev., 6.8s, 2023 950 1,005,271
North Dakota Single Family Mortgage Rev., 8.3s, 2012 400 418,876
Ohio Housing Finance Agency, Single Family Mortgage
Rev., GNMA, RIBS, 9.466s, 2031(++) 1,600 1,795,952
Reno County, KS, Single Family Morgage Rev., AMBAC,
0s, 2014 5,200 752,024
Texas Housing & Development Agency, Residential
Mortgage Rev., 8.4s, 2020 1,730 1,839,682
Texas Housing & Development Agency, Single Family
Mortgage Rev., 8.2s, 2016 720 738,094
Vermont Housing Finance Agency, Single Family Home
Mortgage Purchase, 8.1s, 2022 1,510 1,570,672
Virginia Housing & Development Authority, 7.125s,
2022 9,505 10,184,037
Wisconsin Housing & Economic Development Authority,
Home Ownership Rev., 0s, 2016 1,785 269,392
Wisconsin Housing & Economic Development Authority,
Home Ownership Rev., RIBS, 9.885s, 2022(++) 2,050 2,300,325
--------------
$ 89,327,390
- ------------------------------------------------------------------------------------------------
Solid Waste Revenue - 2.4%
Massachusetts Industrial Finance Agency (Solid Waste
Disposal), 12s, 2016 $ 3,600 $ 360,000
Michigan Strategic Fund Ltd., Obligation Rev. (Blue
Water Fiber), 8s, 2012** 2,000 1,340,000
Pennsylvania Economic Development Finance Authority,
9.25s, 2022 24,500 15,925,000
Port Walla Walla, WA, Solid Waste Recycling Rev.
(Ponderosa Fibres Project), 9.125s, 2026 17,000 12,325,000
--------------
$ 29,950,000
- ------------------------------------------------------------------------------------------------
Special Assessment District - 0.2%
Indianapolis, IN, Public Improvement Bond Rev.,
6.5s, 2022 $ 2,000 $ 2,019,000
- ------------------------------------------------------------------------------------------------
Student Loan Revenue - 0.9%
Arizona Student Loan Acquisition Authority, "D",
7.25s, 2010 $ 2,970 $ 3,171,782
Arizona Student Loan Acquisition Authority, "C",
7.625s, 2010 4,610 5,196,346
Pennsylvania Higher Education Assistance Agency,
AMBAC, RIBS, 8.158s, 2022(++) 2,700 2,791,368
--------------
$ 11,159,496
- ------------------------------------------------------------------------------------------------
Turnpike Revenue - 8.7%
Arapahoe County, CO, Capital Improvement (Highway
Rev.), 0s, 2015 $76,375 $ 25,626,867
Arapahoe County, CO, Capital Improvement (Highway
Rev.), 0s, 2026 69,000 9,885,630
Florida Mid-Bay Bridge Authority Rev., 8.5s, 2022 2,500 2,856,875
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s to 2005, 7.15s to 2013 5,000 3,539,550
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2018 44,190 13,787,280
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2021 25,000 6,526,500
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2022 30,835 7,600,210
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2023 5,765 1,341,631
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2024 72,045 15,829,007
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s, 2030 14,935 2,322,990
San Joaquin Hills, CA, Transportation Corridor
Agency, Toll Road Rev., 0s, 2005 1,500 981,750
San Joaquin Hills, CA, Transportation Corridor
Agency, Toll Road Rev., 0s, 2007 4,000 2,293,080
San Joaquin Hills, CA, Transportation Corridor
Agency, Toll Road Rev., 0s, 2008 5,400 2,888,730
San Joaquin Hills, CA, Transportation Corridor
Agency, Toll Road Rev., 0s, 2011 13,400 5,832,484
San Joaquin Hills, CA, Transportation Corridor
Agency, Toll Road Rev., 0s, 2028 13,450 1,917,836
Telluride, CO, Real Estate Transfer Assessment Rev.,
11.5s, 2012 975 1,182,275
Telluride, CO, Real Estate Transfer Assessment Rev.,
9s, 2016 2,510 2,820,814
West Virginia Parkways, Economic Development &
Tourism Authority, FGIC, RIBS, 7.484s, 2019(++) 1,200 1,280,796
--------------
$ 108,514,305
- ------------------------------------------------------------------------------------------------
Universities - 0.9%
Islip, NY, Community Development Agency Rev. (New
York Institute of Technology), 7.5s, 2026 $ 6,000 $ 6,428,700
Massachusetts Industrial Finance Agency (Curry College),
8s, 2014 1,440 1,496,909
Massachusetts Industrial Finance Agency (Emerson
College), 8.9s, 2018 3,000 3,336,720
--------------
$ 11,262,329
- ------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 0.9%
Detroit, MI, Sewage Disposal Rev., FGIC, 7.314s,
2023(++) $ 2,000 $ 2,073,440
New York City Municipal Water Finance Authority,
5.75s, 2029 8,590 8,916,248
--------------
$ 10,989,688
- ------------------------------------------------------------------------------------------------
Other - 2.8%
Brush, CO, Industrial Development Rev. (Training
Centers International), 9.5s, 2015 $ 8,964 $ 11,017,115
Colorado Postsecondary Educational Facility
(Colorado Ocean Journey), 8.3s, 2017 3,500 3,660,895
Danville, VA, Industrial Development Authority Rev.
(Piedmont Mall), 8s, 2017 8,280 8,588,761
District of Columbia (National Public Radio), 7.7s,
2023 3,500 3,819,830
Harris County, TX, Cultural Education Facility
(Space Center Houston), 9.25s, 2023 70 71,263
Martha's Vineyard, MA, Land Bank (Land Acquisition),
8.125s, 2011 2,700 2,878,551
Massachusetts Health & Education Facilities
Authority (Learning Center for Deaf), 9.25s, 2014 900 960,786
St. Louis County, MO, Industrial Development Authority
(Eagle Golf Enterprises), 10s, 2005 2,200 2,438,458
St. Louis County, MO, Industrial Development Authority
(Keil Center Arena), 7.875s, 2024 1,000 1,085,810
--------------
$ 34,521,469
- ------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,104,806,104) $1,200,353,211
- ------------------------------------------------------------------------------------------------
FLOATING RATE DEMAND NOTES - 1.8%
- ------------------------------------------------------------------------------------------------
Allegheny County, Hospital, due 03/01/20 $ 200 $ 200,000
Allegheny County, Hospital Development Authority
Rev. (Presbyterian), due 03/01/20 400 400,000
Burke County, GA, Development Authority Pollution
Rev. (Georgia Power Co.), due 04/01/25 5,300 5,300,000
East Baton Rouge, LA, Pollution Control Rev. (Exxon),
due 03/01/22 100 100,000
Harris County, TX, Health Facilities Hospital, due 02/15/16 200 200,000
Jackson County, MS, Pollution Control Rev. (Chevron
USA, Inc.), due 12/01/16 600 600,000
Lincoln County, WY, Pollution Control Rev. (Exxon),
due 11/01/14 300 300,000
New York City, NY, Municipal Water Finance Authority,
due 06/15/24 1,500 1,500,000
Uinta County, WY, Pollution Control Rev. (Chevron),
due 08/15/20 10,200 10,200,000
Uinta County, WY, Pollution Control Rev. (Chevron),
due 12/01/22 2,500 2,500,000
Uinta County, WY, Pollution Control Rev. (Chevron USA),
due 04/01/10 1,700 1,700,000
- ------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Amortized Cost $ 23,000,000
- ------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,127,806,104) $1,223,353,211
OTHER ASSETS, LESS LIABILITIES - 1.8% 21,801,050
- ------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,245,154,261
- ------------------------------------------------------------------------------------------------
(+) Security valued by or at the direction of the Trustees.
(++) Inverse floating rate security.
+ Restricted security.
++ Security accruing partial interest - in default.
** Non-income producing security - in default.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
July 31, 1997
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,127,806,104) $ 1,223,353,211
Cash 44,576
Receivable for investments sold 5,915,890
Receivable for Fund shares sold 7,371,369
Interest receivable 17,592,226
Other assets 9,760
---------------
Total assets $ 1,254,287,032
---------------
Liabilities:
Distributions payable $ 4,213,325
Payable for Fund shares reacquired 1,448,809
Payable to affiliates -
Management fee 21,939
Shareholder servicing agent fee 4,426
Distribution and service fee 64,362
Administrative fee 494
Accrued expenses and other liabilities 3,379,416
---------------
Total liabilities $ 9,132,771
---------------
Net assets $ 1,245,154,261
===============
Net assets consist of:
Paid-in capital $ 1,305,354,137
Unrealized appreciation on investments 95,547,107
Accumulated net realized loss on investments (156,174,538)
Accumulated undistributed net investment income 427,555
---------------
Total $ 1,245,154,261
===============
Shares of beneficial interest outstanding 139,902,437
===============
Class A shares:
Net asset value per share
(net assets of $1,055,936,763 / 118,658,090 shares
of beneficial interest outstanding) $8.90
=====
Offering price per share (100 / 95.25 of net asset
value per share) $9.34
=====
Class B shares:
Net asset value and offering price per share
(net assets of $189,217,498 / 21,244,347 shares of beneficial
interest outstanding) $8.91
=====
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
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
Six Months Ended July 31, 1997
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 43,643,369
------------
Expenses -
Management fee $ 3,787,054
Trustees' compensation 35,118
Shareholder servicing agent fee 741,900
Distribution and service fee (Class B) 640,161
Administrative fee 71,531
Custodian fee 188,691
Postage 42,755
Printing 30,970
Legal fee 18,451
Auditing fee 18,357
Miscellaneous 250,999
------------
Total expenses $ 5,825,987
Fees paid indirectly (157,876)
------------
Net expenses $ 5,668,111
------------
Net investment income $ 37,975,258
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on investment
transactions $(24,415,973)
Change in unrealized appreciation on investments 48,155,127
------------
Net realized and unrealized gain on investments $ 23,739,154
------------
Increase in net assets from operations $ 61,714,412
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------
Six Months Ended
July 31, 1997 Year Ended
(Unaudited) January 31, 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 37,975,258 $ 73,016,861
Net realized loss on investments (24,415,973) (22,959,311)
Net unrealized gain (loss) on investments 48,155,127 (20,906,221)
--------------- ---------------
Increase in net assets from operations $ 61,714,412 $ 29,151,329
--------------- ---------------
Distributions declared to shareholders -
From net investment income (Class A) $ (33,714,468) $ (70,123,751)
From net investment income (Class B) (4,451,530) (5,579,841)
--------------- ---------------
Total distributions declared to shareholders $ (38,165,998) $ (75,703,592)
--------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 180,063,065 $ 205,275,625
Net asset value of shares issued to shareholders
in reinvestment of distributions 13,866,874 27,979,659
Cost of shares reacquired (86,472,609) (159,393,535)
--------------- ---------------
Increase in net assets from Fund share
transactions $ 107,457,330 $ 73,861,749
--------------- ---------------
Total increase in net assets $ 131,005,744 $ 27,309,486
--------------- ---------------
Net assets:
At beginning of year 1,114,148,517 1,086,839,031
--------------- ---------------
At end of year (including accumulated
undistributed net investment income of $427,555
and $618,295, respectively) $ 1,245,154,261 $ 1,114,148,517
=============== ===============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended January 31,
July 31, 1997 ----------------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning
of period $ 8.73 $ 9.12 $ 8.60 $ 9.38 $ 9.26 $ 9.22
---------- -------- ---------- -------- -------- --------
Income from investment
operations# -
Net investment income $ 0.29 $ 0.61 $ 0.61 $ 0.64 $ 0.77 $ 0.73
Net realized and unrealized
gain (loss) on investments 0.17 (0.36) 0.59 (0.75) 0.05 0.06
---------- -------- ---------- -------- -------- --------
Total from investment
operations $ 0.46 $ 0.25 $ 1.20 $ (0.11) $ 0.82 $ 0.79
---------- -------- ---------- -------- -------- --------
Less distributions declared to
shareholders from net
investment income $ (0.29) $ (0.64) $ (0.68) $ (0.67) $ (0.70) $ (0.75)
---------- -------- ---------- -------- -------- --------
Net asset value - end of
period $ 8.90 $ 8.73 $ 9.12 $ 8.60 $ 9.38 $ 9.26
========== ======== ========== ======== ======== ========
Total return(+) 5.45%++ 2.87% 13.92% (1.04)% 9.19% 9.02%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.88%+ 0.93% 0.93% 1.04% 1.10% 1.00%
Net investment income 6.79%+ 6.96% 6.83% 7.27% 7.15% 7.95%
Portfolio turnover 10% 17% 20% 32% 18% 10%
Net assets at end of period
(000 omitted) $1,055,937 $988,178 $1,009,031 $920,043 $809,957 $731,968
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to January 31, 1995, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended January 31, 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.09 $ 9.45 $ 9.55 $ 9.68 $ 10.38
-------- ---------- -------- -------- --------
Income from investment operations -
Net investment income $ 0.73 $ 0.74 $ 0.85 $ 0.88 $ 0.84
Net realized and unrealized gain (loss)
on investments 0.17 (0.32) (0.09) (0.12) (0.67)
-------- ---------- -------- -------- --------
Total from investment operations $ 0.90 $ 0.42 $ 0.76 $ 0.76 $ 0.17
-------- ---------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ (0.77) $ (0.78) $ (0.81) $ (0.82) $ (0.84)
From net realized gain on investments -- -- (0.04) (0.07) (0.03)
From paid-in capital -- -- (0.01) -- --
-------- ---------- -------- -------- --------
Total distributions declared to
shareholders $ (0.77) $ (0.78) $ (0.86) $ (0.89) $ (0.87)
-------- ---------- -------- -------- --------
Net asset value - end of period $ 9.22 $ 9.09 $ 9.45 $ 9.55 $ 9.68
======== ========== ======== ======== ========
Total return(+) 10.34% 4.65% 8.24% 8.32% 1.87%
Ratios (to average net assets)/Supplemental data:
Expenses 1.03% 1.05% 1.02% 0.65% 1.03%
Net investment income 7.96% 8.17% 8.90% 9.27% 8.54%
Portfolio turnover 21% 41% 21% 23% 16%
Net assets at end of period (000 omitted) $648,043 $ 638,185 $485,037 $325,044 $349,655
(+) 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended January 31,
July 31, 1997 --------------------------------------------------------
(Unaudited) 1997 1996 1995 1994**
- -----------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.74 $ 9.12 $ 8.60 $ 9.38 $ 9.40
-------- ---------- -------- -------- --------
Income from investment operations# -
Net investment income $ 0.25 $ 0.52 $ 0.52 $ 0.57 $ 0.32
Net realized and unrealized gain (loss) on
investments 0.18 (0.35) 0.59 (0.78) (0.14)
-------- ---------- -------- -------- --------
Total from investment operations $ 0.43 $ 0.17 $ 1.11 $ (0.21) $ 0.18
-------- ---------- -------- -------- --------
Less distributions declared to shareholders
from net investment income $ (0.26) $ (0.55) $ (0.59) $ (0.57) $ (0.20)
-------- ---------- -------- -------- --------
Net asset value - end of period $ 8.91 $ 8.74 $ 9.12 $ 8.60 $ 9.38
======== ========== ======== ======== ========
Total return 4.99%++ 1.96% 12.78% (2.13)% 1.89%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.73%+ 1.86% 1.91% 2.10% 2.04%+
Net investment income 5.92%+ 6.00% 5.84% 6.32% 5.43%+
Portfolio turnover 10% 17% 20% 32% 18%
Net assets at end of period (000 omitted) $189,217 $ 125,971 $ 77,808 $ 55,675 $1
** For the period from the commencement of the Fund's offering of Class B shares, September 7, 1993, through January 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to January 31, 1995, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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. 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 is 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 may invest up to 100% 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 investments in 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. 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 expensed.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement which measures the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
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 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 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 tax 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. At January 31, 1997, the Fund, for federal income tax purposes, had a
capital loss carryforward of ($125,591,055) 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, ($1,041,409), January 31, 1999,
($2,433,909), January 31, 2000, ($4,786,449), January 31, 2001, ($5,199,093),
January 31, 2002, ($28,166,887), January 31, 2003, ($27,178,217), January 31,
2004, ($30,637,034), and January 31, 2005, ($26,148,057).
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. All shareholders bear the common expenses of the Fund pro
rata based on settled shares outstanding 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 is computed daily and paid monthly at an effective annual rate of
0.30% of average daily net assets and 4.75% of investment income.
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee up to 0.015% per annum of the Fund's average daily net
assets, provided that the administrative fee is not assessed on Fund assets that
exceed $3 billion.
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 renumeration
for their services to the Fund from MFS. Certain 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
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $8,733 for the period ended
July 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$472,091 for the period ended July 31, 1997, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted a distribution
plan relating to Class B shares pursuant to Rule 12b-1 of the Investment Company
Act of 1940 as follows:
The Fund's 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. Except in the
case of the 0.25% per annum Class B service fee paid by the sale of Class B
shares in the first year, payment of the Class B service fee will be suspended
until such date as the Trustees of the Fund may determine. 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. MFD retains the service fee
for accounts not attributable to a securities dealer, which amounted to $0. The
service fee is intended to be additional consideration for services rendered by
the dealer with respect to Class B shares. Fees incurred under the distribution
plans during the period ended July 31, 1997, were 0.85% of average daily net
assets attributable to Class B shares on an annualized basis.
Purchases over $1 million of Class A shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
such 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 period ended July 31, 1997,
were $13,836 and $127,370 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was 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 $192,291,269 and $114,149,822, 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 $1,127,806,104
==============
Gross unrealized appreciation $ 118,825,210
Gross unrealized depreciation (23,278,103)
--------------
Net unrealized appreciation $ 95,547,107
==============
(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
Period Ended July 31, 1997 Year Ended January 31, 1997
------------------------------ ------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 13,001,707 $ 113,002,618 16,594,610 $ 145,833,348
Shares issued to shareholders in
reinvestment of distributions 1,423,254 12,376,931 2,943,909 25,881,400
Shares reacquired (8,915,500) (77,380,274) (17,043,700) (149,563,593)
------------- ------------- ------------- -------------
Net increase 5,509,461 $ 47,999,275 2,494,819 $ 22,151,155
============= ============= ============= =============
<CAPTION>
Class B Shares
Period Ended July 31, 1997 Year Ended January 31, 1997
------------------------------ ------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,707,439 $ 67,060,447 6,763,017 $ 59,442,277
Shares issued to shareholders in
reinvestment of distributions 171,007 1,489,943 238,469 2,098,259
Shares reacquired (1,045,681) (9,092,335) (1,121,560) (9,829,942)
------------- ------------- ------------- -------------
Net increase 6,832,765 $ 59,458,055 5,879,926 $ 51,710,594
============= ============= ============= =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. 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 period ended July 31, 1997, was $4,490.
(7) Restricted Securities
The Fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At July 31, 1997,
the Fund owned the following restricted securities (constituting 1.5% 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>
Date of
Description Acquisition Par Amount Cost Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daphne, AL, Special Care Facilities
Financing Authority, 8.25s, 2026 10/28/88 $12,500,000 $12,504,656 $11,308,000
Eastern Band of Cherokee Indian
Community, NC, 10.25s, 2009 11/25/86 3,020,000 3,107,268 3,039,962
Eastern Band of Cherokee Indian
Community, NC, 11s, 2012 09/19/86 950,000 862,261 956,213
Hannibal, MO, Industrial Development
Authority, 9.5s, 2022 03/23/92 3,000,000 2,971,257 3,728,880
-----------
$19,033,055
===========
</TABLE>
--------------------------------------------
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.
<PAGE>
<TABLE>
MFS(R) MUNICIPAL HIGH INCOME FUND
<S> <C>
Trustees Custodian
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; Former Investor Information
Chairman and Director (until 1991), For MFS stock and bond market outlooks, call
Massachusetts Financial Services Company; toll free: 1-800-637-4458 anytime from a
Director, Cambridge Bancorp; Director, touch-tone telephone.
Cambridge Trust Company
For information on MFS mutual funds, call your
Peter G. Harwood -Private Investor financial adviser or, for an information kit,
call toll free: 1-800-637-2929 any business day
J. Atwood Ives - Chairman and Chief Executive from 9 a.m. to 5 p.m. Eastern time (or leave a
Officer, Eastern Enterprises message anytime).
Lawrence T. Perera - Partner, Hemenway & Barnes Investor Service
MFS Service Center, Inc.
William J. Poorvu - Adjunct Professor, Harvard P.O. Box 2281
University Graduate School of Business Boston, MA 02107-9906
Administration
For general information, call toll free:
Charles W. Schmidt - Private Investor 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary, For service to speech- or hearing-impaired,
Massachusetts Financial Services Company call toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. (To use
Jeffrey L. Shames* - President and Director, this service, your phone must be equipped with
Massachusetts Financial Services Company a Telecommunications Device for the Deaf.)
Elaine R. Smith - Independent Consultant For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
David B. Stone - Chairman, North American (1-800-637-8255) anytime from a touch-tone
Management Corp. (investment advisers) telephone.
Investment Adviser World Wide Web
Massachusetts Financial Services Company www.mfs.com
500 Boylston Street
Boston, MA 02116-3741
-------------------------------------------------
Distributor [DALBAR Logo] For the fourth year in a row, MFS
MFS Fund Distributors, Inc. earned a #1 ranking in the DALBAR,
500 Boylston Street Inc. Broker/Dealer Survey, Main
Boston, MA 02116-3741 Office Operations Service Quality Category. The
firm achieved a 3.42 overall score on a scale
Portfolio Manager of 1 to 4 in the 1997 survey. A total of 111
Cynthia M. Brown* firms responded, offering input on the quality
of service they received from 29 mutual fund
Treasurer companies nationwide. The survey contained
W. Thomas London* questions about service quality in 11
categories, including "knowledge of operations
Assistant Treasurers contact, " "keeping you informed," and "ease of
Mark E. Bradley* doing business" with the firm.
Ellen Moynihan* -------------------------------------------------
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
------------
MFS(R) MUNICIPAL [DALBAR Logo] BULK RATE
HIGH INCOME FUND U.S. POSTAGE
P A I D
500 Boylston Street MFS
Boston, MA 02116-3741 ------------
[MFS Logo]
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(SM)
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MMH-3 9/97 59M 25/225
