<PAGE>
MFS MUNICIPAL BOND FUND
(A SERIES OF MFS SERIES TRUST IV)
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS 02116-3741
617 o 954-5000
October 24, 1995
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: MFS Series Trust IV (File No. 811-02594), on Behalf of
MFS Municipal Bond Fund
Ladies and Gentlemen:
Pursuant to Section 30(b) of the Investment Company Act of 1940 and Rule
30b2-1 thereunder, we hereby file a copy of the Annual Report to Shareholders
dated August 31, 1995 of MFS Municipal Bond Fund.
Very truly yours,
LORRAINE K. GRIP
Lorraine K. Grip
Production Editor
LKG/kha
<PAGE>
[LOGO] MFS [SM] Annual Report for
Year Ended
THE FIRST NAME IN MUTUAL FUNDS August 31, 1995
MFS [R] MUNICIPAL BOND FUND
[A photo of a bridge.]
<PAGE>
MFS [R] MUNICIPAL BOND 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, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Robert A. Dennis*
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Deloitte & Touche 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 general information, 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.
* Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The municipal bond market has recovered handsomely from 1994's sharp setback.
Yields of longer-term high-grade bonds have declined about 75 basis points
(0.75%) from the end of 1994 through August 31, 1995, as the bond market has
responded to the economy's slowing growth rate consistent with diminishing fears
of inflation. Intense price competition, restrained wage growth and government
downsizing have contributed to the positive outlook for inflation. This outlook
has also been improved by prospects for meaningful federal deficit reduction and
the recent recovery of the dollar in currency markets. For the year ended August
31, 1995, Class A shares of the Fund provided a total return of +7.31%, while
Class B shares had a total return of +6.35%. Both of these figures assume the
reinvestment of distributions but exclude the effects of any sales charges.
Complete performance information for the Fund is provided on pages four and five
of this report.
Economic Outlook
Moderate, but sustainable growth appears to be the hallmark of the economic
expansion's fifth year. After slowing earlier in the summer, consumer spending
and homebuying were showing renewed strength by August 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, at
least 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 early 1994 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 are still growing at a pace that is 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 apparently become convinced that economic growth will be
contained for the near future and have allowed long-term interest rates to
decline slightly. Although previous monetary easing by the Federal Reserve has
1
<PAGE>
LETTER TO SHAREHOLDERS - continued
been followed by additional rate reductions, prospects for further decreases in
the current environment are uncertain. Still, with long-term government bonds
yielding approximately 6.6%, in an environment of 2 1/2% to 3% inflation, real
rates of return in the fixed-income markets remain relatively attractive.
Municipal Bond Market
While municipal bonds have provided impressive returns so far this year, they
have significantly underperformed many segments of the taxable bond market.
Indeed, for the six-month period ended August 31, yields of longer-term U.S.
Treasuries declined by about 85 basis points (0.85%), while municipal yields
declined by a meager 10 basis points (0.10%). Over this period, the ratio of
long-term, AAA-rated municipal yields to comparable U.S. Treasury yields rose
from 80% to 87%, the highest level for this ratio since late 1993, leaving
municipals very attractively priced (although principal value and interest on
Treasury securities are guaranteed by the U.S. government if held to maturity).
The municipal bond market's underperformance seemed to begin soon after
the media began to focus on various proposals for radical tax reform. If
enacted, a substantial reduction in federal income tax rates, some type of flat
tax and/or the loss of municipal bonds' unique tax-exempt status would certainly
have negative implications for valuations of outstanding municipal bonds. The
unresolved status of the Orange County, California bankruptcy also depressed
market psychology, while the soaring equity markets have offered a strong
challenge to all fixed-income investments. Thus, while the supply of new issues
is down 25% from the corresponding period in 1994, and despite the continuation
of a heavy volume of bond calls, demand for long-term municipals has been
disappointing this year, leading to the dramatic increase in yield ratios
between the tax-exempt and taxable markets.
For the long-term municipal bond investor, we believe the current yield
ratios may provide an attractive opportunity, in spite of near-term
uncertainties. Serious consideration of tax reform, for example, is probably two
years off, in our opinion, and a truly radical overhaul of the current system
still seems politically unlikely. At today's ratios, municipals have seemingly
already adjusted for a more moderate version of tax reform, such as the
imposition of lower marginal rates as part of a flat-tax system. As for Orange
County, the market clearly recognized that situation as a unique, isolated
instance of fiscal irresponsibility. We believe the overall fiscal health of
state and local governments is its strongest in years. As for the stock market,
clearly it is not going to go up forever. Thus, its strength as a competitor to
municipal bonds seems likely to weaken at some point.
2
<PAGE>
LETTER TO SHAREHOLDERS - continued
Portfolio Performance and Strategy
Total returns for the Fund's Class A and Class B shares for the year ended
August 31, 1995 underperformed the +8.86% return of the Lehman Brothers
Municipal Bond Index (the Lehman Index), an unmanaged index of municipal bonds
rated Baa or better. The performance of Class A shares was nearly identical to,
while Class B shares slightly underperformed the average return of +7.34%
reported by Lipper Analytical Services, Inc. (an independent firm which reports
mutual fund performance) for other municipal bond funds with similar investment
objectives and policies. In the general municipal debt category, the Fund's
Class A shares ranked 109th out of 211 funds for the past year. Nevertheless,
over longer time periods, the Fund has one of the better performance records in
its peer group; according to Lipper, the Fund's Class A shares ranked 24th out
of 99 funds in its general municipal debt category for the past five years, and
13th out of 54 fund for the past 10 years. Also, the Fund would have performed
better, compared to the Lehman Index, had it restructured itself earlier and
more aggressively to take advantage of this year's trend of declining interest
rates.
Given our generally favorable outlook for the bond market, the Fund
remains well-invested in long-term maturities seeking to participate in the
price appreciation resulting from declining interest rates. In an effort to
maximize performance and minimize call risk, about 33% of the Fund is invested
in bonds that are non-callable. Finally, reflecting the fact that yield
differentials between qualities remain historically narrow, the Fund remains
predominantly invested in high-quality securities; currently nearly 70% of the
Fund is invested in securities rated by Standard & Poor's Corporation AA or
higher.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ Robert A. Dennis
A. Keith Brodkin Robert A. Dennis
Chairman and President Portfolio Manager
September 12, 1995
3
<PAGE>
PORTFOLIO MANAGER PROFILE
A graduate of Massachusetts Institute of Technology and its Sloan School of
Management, Robert Dennis began his career at MFS in 1980 and was promoted to
Vice President - Investments in 1983. In 1986, he was named a Senior Vice
President. He has been the Portfolio Manager of MFS Municipal Bond Fund since
1984.
TAX FORM SUMMARY
Of the dividends paid from the net investment income for the fiscal year ended
August 31, 1995, 100% were exempt interest dividends which are tax exempt for
purposes of regular federal income tax.
PERFORMANCE
The information below and on the following page illustrates the historical
performance of MFS Municipal Bond Fund Class A shares in comparison to various
market indicators. Fund results in the graph reflect the deduction of the 4.75%
maximum sales charge; benchmark comparisons are unmanaged and do not reflect any
fees or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B
share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-Year Period ended August 31, 1995)
[Line graph representing the growth of a $10,000 investment for the 5-year
period ended August 31, 1995. The graph is scaled from $8,000 to $18,000 in
$2,000 segments. The years are marked from 1990 to 1995. There are three lines
drawn to scale. One is a solid line representing MFS Municipal Bond Fund (Class
A), a second line of short dashes represents the Lehman Brothers Municipal Bond
Index, and a third line of long dashes represents the Consumer Price Index.]
MFS Municipal Bond Fund $14,534
Lehman Brothers Municipal Bond Index $15,201
Consumer Price Index $11,619
4
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-Year Period ended August 31, 1995)
[Line graph representing the growth of a $10,000 investment for the 10-year
period ended August 31, 1995. The graph is scaled from $5,000 to $30,000
segments. The years are marked from 1985 to 1995. There are three lines drawn to
scale. One is a solid line representing MFS Municipal Bond Fund (Class A), a
second line of short dashes represents the Lehman Brothers Municipal Bond Index,
and a third line of long dashes represents the Consumer Price Index.]
MFS Municipal Bond Fund $23,172
Lehman Brothers Municipal Bond Index $24,713
Consumer Price Index $14,159
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Municipal Bond Fund (Class A) including 4.75% sales charge +2.24% +4.81% +7.77% +8.77%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Municipal Bond Fund (Class A) at net asset value +7.31% +6.53% +8.82% +9.29%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Municipal Bond Fund (Class B) with CDSC+ +2.35% -- -- -0.30%*
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Municipal Bond Fund (Class B) without CDSC +6.35% -- -- +1.56%*
- ------------------------------------------------------------------------------------------------------------------------------------
Average general municipal debt fund +7.34% +6.12% +8.28% +8.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index +8.86% +6.95% +8.74% +9.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index ++ +2.62% +2.76% +3.05% +3.54%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* For the period from the commencement of offering of Class B shares, September 7, 1993 to August 31, 1995.
+ These returns reflect the current maximum Class B contingent deferred sales charge (CDSC) of 4%.
++ The Consumer Price Index is a popular measure of change in prices.
</FN>
</TABLE>
In the above table, we have included the average annual total returns of all
general municipal debt funds (including the Fund) tracked by Lipper Analytical
Services, Inc. for the applicable time periods (211, 117, 99 and 54 funds for
the 1-, 3-, 5- and 10-year periods ended August 31, 1995, respectively). Because
these returns do not reflect any applicable sales charges, we have also included
the Fund's results at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual fund
will vary with changes in market conditions, and shares, when redeemed, may be
worth more or less than their original cost.
5
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - August 31, 1995
Municipal Bonds - 94.2%
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligations - 18.8%
AA Birmingham, AL, 5.125s, 2017 $ 8,500 $ 7,627,305
AAA Clark County, NV, School District, MBIA, 7s, 2010 4,000 4,563,840
A+ Commonwealth of Massachusetts, 7s, 2007 4,590 5,068,645
A+ Commonwealth of Massachusetts, 6.5s, 2008 6,400 7,126,592
AAA Commonwealth of Massachusetts, FGIC, 7s, 2009 7,000 8,040,550
AAA Cook County, IL, MBIA, 7.25s, 2007 6,500 7,633,925
AAA Cook County, IL, FGIC, 5.5s, 2022 10,000 9,219,600
BBB Detroit, MI, 6.25s, 2009 3,000 2,954,580
AAA District of Columbia, MBIA, 6s, 2011 6,000 6,039,180
AAA Du Page County, IL, Stormwater Project Rev.,
5.6s, 2021 5,000 4,810,200
AAA Fairfax County, VA, 5.2s, 2013 5,150 4,851,609
AA Florida Board of Education, Capital Outlay,
9.125s, 2014 1,735 2,404,172
AA Honolulu, HI, City and County, 5.25s, 2012 13,000 12,415,780
AAA Los Angeles, CA, MBIA, 5.25s, 2012 6,500 5,989,880
AAA Los Angeles, CA, MBIA, 5.25s, 2013 6,500 5,939,765
AA- Los Angeles County, CA, Public Works Financing
Authority Rev. (Flood Control), 5s, 2017 33,995 29,722,848
BBB+ New York City, NY, 7.5s, 2002 12,500 13,767,750
BBB+ New York City, NY, 7.75s, 2004 9,020 9,929,035
BBB+ New York City, NY, 7.5s, 2006 5,000 5,503,050
BBB+ New York City, NY, 7.65s, 2006 5,000 5,542,700
BBB+ New York City, NY, 7.5s, 2007 15,500 16,876,865
BBB+ New York City, NY, 7.5s, 2008 10,000 10,866,000
BBB+ New York City, NY, 7.7s, 2009 4,000 4,437,920
BBB+ New York City, NY, 6.375s, 2012 5,000 4,995,550
BBB+ New York City, NY, 8.25s, 2013 60 68,176
BBB+ New York City, NY, 8.25s, 2015 240 274,169
BBB+ New York City, NY, 6.67s, 2016** 4,000 3,990,000
BBB+ New York City, NY, 8s, 2018 25 28,140
AA Richmond, VA, Public Improvement, 5.5s, 2023 9,505 8,975,952
A State of California, 5.5s, 2011 3,750 3,604,388
A State of California, 5.5s, 2013 5,000 4,807,350
A State of California, 5.5s, 2015 11,500 10,838,980
AAA State of California, AMBAC, 5.5s, 2014 10,485 9,969,557
AAA State of California, FGIC, 5.5s, 2015 10,980 10,364,351
AAA State of California, MBIA, 5.5s, 2012 14,500 13,902,600
AAA State of California, MBIA, 5.125s, 2017 3,090 2,747,195
AA State of Florida, Broward County Expressway
Authority, 10s, 2014 4,350 6,336,341
AA State of Nevada (Municipal Bond Bank), 6.8s, 2012 85 89,787
AA State of Texas, 5s, 2014 25,450 23,109,364
AA State of Texas (Superconductor Project), 5.5s, 2020 12,700 11,981,434
AA State of Washington, 6.75s, 2010 3,880 4,377,222
AA State of Washington, 5.75s, 2012 5,000 5,052,500
AA State of Washington, 6s, 2012 4,360 4,522,018
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligations - continued
AA State of Washington, 4.875s, 2015 $ 9,500 $ 8,410,730
AA State of Washington, 5s, 2017 5,000 4,452,150
AA State of Washington (Motor Vehicle Fuel Tax),
6.125s, 2017 6,400 6,653,632
AA State of Washington, 6.4s, 2017 8,900 9,554,684
AA State of Washington, 5.5s, 2018 27,090 25,903,729
--------------
$ 376,341,790
- ------------------------------------------------------------------------------------------------------------------------------------
State and Community Lease Revenue - 28.9%
AAA Alameda County, CA, Certificates of Participation
(Santa Rita Jail Project), MBIA, 5.7s, 2014 $ 4,000 $ 3,889,840
A- California Public Works Board, Lease Rev. (Community
College Projects), 5.625s, 2013 12,605 11,763,616
A- California Public Works Board, Lease Rev. (Community
College Projects), 5.625s, 2018 3,750 3,425,363
A- California Public Works Board, Lease Rev. (Department
of Corrections), 5.5s, 2019 10,000 8,973,800
AAA California Public Works Board, Lease Rev. (Department
of Corrections), AMBAC, 5.25s, 2013 6,795 6,296,451
AAA California Public Works Board, Lease Rev. (Department
of Corrections), MBIA, 5.375s, 2012 6,500 6,111,625
AAA California Public Works Board, Lease Rev. (Department
of Corrections), MBIA, 5.375s, 2019 20,055 18,365,566
A- California Public Works Board, Lease Rev. (University
of California Projects), 5.25s, 2013 4,200 3,728,466
A California Public Works Board, Lease Rev. (University
of California Projects), 5.5s, 2014 7,000 6,408,360
A- California Public Works Board, Lease Rev. (University
of California Projects), 5.5s, 2014 5,000 4,603,300
A California Public Works Board, Lease Rev. (University
of California Projects), 5.5s, 2019 13,345 12,005,829
A- California Public Works Board, Lease Rev. (University
of California Projects), 5s, 2023 19,000 15,626,930
AAA Charlotte, NC, Certificates of Participation (Convention
Facility Project), AMBAC, 5.25s, 2020 5,420 4,979,842
AAA Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2009+ 5,160 5,498,599
AAA Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2015 27,295 28,316,652
AAA Commonwealth of Pennsylvania, Certificates of
Participation, AMBAC, 5s, 2015 29,765 26,332,798
AAA Hillsborough County, FL, School Board, AMBAC,
5.625s, 2015 4,500 4,349,925
A+ Indiana Office Building Community Capital Complex
Rev., 6.9s, 2011 9,500 10,558,110
AAA Indiana Office Building Community Capital Complex
Rev., AMBAC, 5.25s, 2015 10,195 9,269,867
7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
State and Community Lease Revenue - continued
A+ Massachusetts Bay Transportation Authority,
6.1s, 2013 $ 10,200 $ 10,587,702
A+ Massachusetts Bay Transportation Authority,
5.875s, 2015 4,500 4,564,665
A+ Massachusetts Bay Transportation Authority, 5.5s, 2021 12,250 11,531,170
A+ Massachusetts Bay Transportation Authority, 7s, 2021 10,185 11,641,557
A Metropolitan Government of Nashville & Davidson
Counties, TN, 7s, 2011 5,280 5,762,170
BBB Metropolitan Transportation Authority, NY, Service
Contract, 7.4s, 2001 4,075 4,554,057
BBB Metropolitan Transportation Authority, NY, Service
Contract, 7.375s, 2008 5,000 5,672,750
BBB Metropolitan Transportation Authority, NY, Service
Contract, 5.75s, 2013 5,600 5,386,024
BBB Metropolitan Transportation Authority, NY, Service
Contract, 5.5s, 2017 10,850 10,029,849
A+ Missouri Regional Convention & Sports Complex
Authority, 5.5s, 2013 13,085 12,366,241
A+ Missouri Regional Convention & Sports Complex
Authority, 5.6s, 2017 4,000 3,749,680
BBB New York Dormitory Authority Rev. (City University
System), 5.75s, 2009 10,000 9,870,800
BBB New York Dormitory Authority Rev. (City University
System), 7s, 2009 13,765 15,284,518
BBB New York Dormitory Authority Rev. (City University
System), 7.5s, 2010 15,650 18,009,394
BBB New York Dormitory Authority Rev. (City University
System), 5.75s, 2013 22,150 21,118,032
BBB New York Dormitory Authority Rev. (City University
System), 5.75s, 2018 8,975 8,514,403
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), 7.375s, 2010 16,100 18,386,844
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), 5.25s, 2015 8,125 7,301,288
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), 5.5s, 2019 8,000 7,363,040
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), 5.25s, 2021 7,875 6,972,919
BBB+ New York Medical Care Facilities Finance Agency,
8.875s, 2007 4,205 4,610,404
BBB+ New York Medical Care Facilities Finance Agency
(Mental Health Services), 7.875s, 2020 4,050 4,556,088
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), FGIC, 5.375s, 2014 16,010 15,103,674
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), FGIC, 5.25s, 2019 25,950 23,666,400
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
State and Community Lease Revenue - continued
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), FSA, 5.375s, 2014 $ 10,550 $ 9,896,322
BBB New York Urban Development Corp. (Correctional
Facilities), 5.5s, 2009 7,710 7,428,893
BBB New York Urban Development Corp. (Correctional
Facilities) 5.75s, 2013 22,575 21,286,644
BBB New York Urban Development Corp. (Correctional
Facilities) 5.5s, 2014 5,000 4,632,750
BBB New York Urban Development Corp. (Correctional
Facilities) 5.5s, 2015 31,200 28,482,168
BBB New York Urban Development Corp. (Correctional
Facilities) 5.5s, 2016 5,300 4,855,118
BBB New York Urban Development Corp. (Correctional
Facilities), 5.25s, 2021 10,000 8,653,900
AAA Rhode Island Convention Center Authority,
MBIA, 5.25s, 2015 15,500 14,417,325
AAA Rhode Island Convention Center Authority,
MBIA, 5s, 2023 31,110 26,557,363
AAA Rhode Island Public Buildings Authority Rev.,
AMBAC, 5.25s, 2010 5,000 4,796,650
BBB+ St. Louis County, MO, Regional Convention and
Sports Complex Authority, 5.75s, 2021 4,760 4,421,183
AAA Vallejo, CA, Sanitation & Flood Control District,
Certificates of Participation, FGIC, 5s, 2019 7,000 6,085,310
--------------
$ 578,622,234
- ------------------------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligations* - 23.0%
AAA Alameda County, CA, Certificates of Participation,
MBIA, 7.25s, 2000 $ 29,900 $ 34,472,007
AAA Austin, TX, Utility Systems Rev., 10.75s, 2000+ 2,615 3,305,308
AAA Austin, TX, Water, Sewer & Electric Rev., 14.25s, 1997 1,305 1,519,372
AA Chicago, IL, Metropolitan Water Reclamation District,
6.8s, 2000 5,000 5,549,800
AAA Chicago, IL, Public Building Rev., ETM, MBIA,
7.125s, 2015 6,590 7,252,625
AAA Clark County, NV, School District, MBIA, 7s, 2001 10,050 11,384,741
A+ Commonwealth of Massachusetts, 6.875s, 2001 4,825 5,480,042
AAA Commonwealth of Massachusetts, FGIC, 7.25s, 2000 11,220 12,693,410
AAA Delaware County, PA, Hospital Rev. (Delaware
Memorial Hospital), MBIA, 7.2s, 1999 10,175 11,485,337
AAA Detroit, MI, Water Supply System Rev., FGIC,
7.25s, 2000 4,575 5,220,212
A Eden Township, CA, Health Facilities Authority
(Eden Hospital), 7.8s, 1998 4,000 4,461,280
AAA Florida Board of Education Administration, Capital
Outlay, ETM, 9.125s, 2014 265 360,747
NR Indianapolis, IN, Local Public Improvement Rev.,
7.4s, 2000 3,710 4,248,432
9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Refunded and Special Obligations* - continued
AAA Maryland Health & Higher Educational Facilities
Authority Rev. (University of Maryland Medical
System), FGIC, 7s, 2001 $ 7,945 $ 9,095,992
AAA Massachusetts Port Authority Rev., ETM, 13s, 2013 3,500 5,735,310
AAA Massachusetts Water Resources Authority, 7.5s, 2000 15,850 18,122,890
AAA Massachusetts Water Resources Authority, 7.625s, 2000 15,760 18,100,833
AAA Metropolitan Transportation Authority, NY, Service
Contract, 7.5s, 2000 4,350 5,020,596
AAA Michigan Hospital Finance Authority Rev. (Oakwood
Hospital), FGIC, 7.1s, 2000 4,000 4,538,280
AAA Michigan Hospital Finance Authority Rev. (Oakwood
Hospital), FGIC, 7.2s, 2000 18,590 21,206,543
AAA Michigan Municipal Bond Authority (Wayne County),
FGIC, 7s, 2000 10,000 11,285,400
AAA Missouri Regional Convention & Sports Complex
Authority, 6.8s, 2003 8,950 10,215,262
AAA Missouri Regional Convention & Sports Complex
Authority, 6.9s, 2003 21,520 24,703,669
BBB+ New York City, NY, 8s, 2001 2,475 2,953,492
BBB+ New York City, NY, 8.25s, 2001 2,940 3,543,082
BBB New York Dormitory Authority Rev. (City
University System), 7.875s, 2000 10,600 12,405,392
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), 8.875s, 1997 3,745 4,157,250
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), 7.875s, 2000 5,590 6,561,542
NR New York Urban Development Corp. (Correctional
Facilities), 7.625s, 2001 7,570 8,836,083
NR New York Urban Development Corp. (Correctional
Facilities), 7.375s, 2002 4,000 4,686,440
AAA Pennsylvania Convention Center Authority Rev.,
FGIC, 6.7s, 2016 51,195 57,350,175
AAA Philadelphia, PA, Municipal Authority Rev.,
FGIC, 7.8s, 1998 385 426,322
AAA Philadelphia, PA, Municipal Authority Rev.,
FGIC, 7.8s, 2000 3,765 4,297,823
AAA Philadelphia, PA, Municipal Authority Rev.,
FGIC, 7.1s, 2001 6,000 6,943,080
AAA Philadelphia, PA, Municipal Authority Rev., MBIA,
7.125s, 2001 4,500 5,213,340
AAA Philadelphia, PA, School District, MBIA, 7s, 2001 9,440 10,734,507
AA- Richmond, VA, 7s, 2000 4,750 5,323,230
AAA San Diego, CA, Regional Building Authority Lease
Rev., MBIA, 7.25s, 2000 4,000 4,526,880
AAA Santa Clara County, CA, Certificates of Participation
(American Baptist Homes West), CA-MTG-INS,
8s, 1998 5,200 5,777,824
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Refunded and Special Obligations* - continued
AAA Southern California Public Power Authority Rev.,
12s, 1997 $ 2,400 $ 2,735,664
AA State of Florida (Roads), 7.375s, 1999 4,000 4,511,760
AAA State of Florida, Jacksonville Transportation Authority,
ETM, 9.2s, 2015 2,000 2,840,580
AAA Sullivan County, TN, Health, Educational and Housing
Facilities Board Rev., MBIA, 7.25s, 2000 4,000 4,529,840
AAA Washington Public Power Supply System Rev.,
Nuclear Project #2, 7.375s, 2000 28,845 33,000,411
AA Washington Public Power Supply System Rev.,
Nuclear Project #2, 7.625s, 2001 10,815 12,539,776
AA Washington Public Power Supply System Rev.,
Nuclear Project #3, 7.25s, 2000 20,000 22,549,600
--------------
$ 461,902,181
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.2%
NR Colorado Housing Finance Authority, 8.3s, 2023 $ 4,000 $ 4,192,920
- ------------------------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 5.8%
AAA California Statewide Communities Development
Authority Rev. (St. Joseph Health System),
AMBAC, 5.5s, 2014 $ 18,735 $ 17,601,345
AAA California Statewide Communities Development
Authority Rev. (Sutter Health), MBIA, 5.5s, 2013+ 9,000 8,516,880
AAA California Statewide Communities Development
Authority Rev. (Sutter Health), MBIA, 5.5s, 2023 11,100 10,225,320
AAA Colorado Health Facilities Authority Rev. (PSL
Health Systems), FSA, 7.25s, 2016 4,905 5,456,469
AAA Davenport, IA, Hospital Rev. (St. Luke's Hospital),
AMBAC, 7.4s, 2020 2,715 2,985,876
AAA Fresno, CA, Health Facilities Rev. (Holy Cross Health
System), MBIA, 5.625s, 2015 8,000 7,568,560
AAA Illinois Health Facilities Authority (Methodist Health
Project), AMBAC, 9.365s, 2021*** 3,000 3,350,100
AAA Maryland Health & Higher Educational Facilities
Authority Rev. (Francis Scott Key Medical Center),
FGIC, 5s, 2013 3,200 2,889,888
AAA Massachusetts Health & Educational Facilities Authority
(University Hospital), MBIA, 7.25s, 2019 4,500 4,945,320
AAA Medical Center Hospital Authority, GA,
Rev., MBIA, 8.293s, 2010*** 4,000 4,419,400
AAA Metropolitan Health Facilities Development Corp., TX
(Wilson N. Jones Memorial Hospital), 5.6s, 2017 4,250 4,031,465
AAA Michigan Hospital Finance Authority Rev. (Sisters of Mercy),
MBIA, 5.375s, 2014 9,000 8,562,060
AAA Peninsula Ports Authority, VA, Hospital Facilities Rev.
(Whittaker Memorial Hospital), FHA, 8.7s, 2023 1,595 1,718,995
AAA Salt Lake City, UT, Hospital Rev. (Intermountain
Health Care), AMBAC, 9.16s, 2020*** 2,000 2,195,460
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Insured Health Care Revenue - continued
AAA Sayre, PA, Health Care Facilities Authority Rev.
(Guthrie Healthcare Systems), AMBAC, 7s, 2011 $ 6,000 $ 6,452,460
AAA Tampa, FL, Rev. (Allegany Health System -
St. Mary's), MBIA, 5.125s, 2023 10,700 9,432,157
AAA Tarrant County, TX, Health Facilities Development
Corp. (Fort Worth Osteopathic), MBIA, 6s, 2021 6,000 6,118,800
AAA Washington County, PA, Hospital Authority
(Washington Hospital), AMBAC, 7.15s, 2017 9,000 9,811,620
--------------
$ 116,282,175
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 1.5%
A+ Cuyahoga County, OH, Hospital Rev. (Cleveland Clinic),
8s, 2015 $ 8,550 $ 9,172,440
AA- Maryland Health & Higher Educational Facilities
Authority Rev. (The Johns Hopkins Hospital),
5s, 2023 7,595 6,544,687
NR Travis County, TX, Health Facilities Development Corp.
(Daughters of Charity/Seton Medical Center),
10.125s, 2015 14,815 15,236,042
--------------
$ 30,953,169
- ------------------------------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 5.8%
A Georgia Municipal Electric Authority, 7.8s, 2020 $ 7,000 $ 7,473,480
AAA Georgia Municipal Electric Authority, MBIA,
6.375s, 2016 5,000 5,241,650
AAA Municipal Electric Authority of Georgia, Special
Obligation, AMBAC, 6.5s, 2017 8,510 9,178,290
AAA North Carolina Municipal Power Agency Rev.
(Catawba Electric), MBIA, 5s, 2018 6,500 5,741,190
AAA Northern California Transmission Agency (Oregon
Transmission), MBIA, 7s, 2013 4,000 4,530,120
AA- Orlando, FL, Utilities Commission, Water & Electric
Rev., 5.25s, 2023 5,000 4,506,150
AAA Piedmont Municipal Power Agency, SC, Electric Rev.,
FGIC, 6.25s, 2021 4,150 4,356,587
AAA Sacramento, CA, Municipal Utility District, Electric
Rev., FGIC, 5.25s, 2012 3,500 3,258,745
AA- Southern California Public Power Authority,
Transmission Project Rev., 0s, 2005 11,185 6,614,362
AAA Southern California Public Power Authority,
Transmission Project Rev., MBIA, 5.25s, 2014 14,940 13,715,667
AA Washington Public Power Supply System Rev.,
Nuclear Project #1, 5.375s, 2015 12,500 11,197,500
AAA Washington Public Power Supply System Rev.,
Nuclear Project #1, MBIA, 5.6s, 2015 4,720 4,444,305
AAA Washington Public Power Supply System Rev.,
Nuclear Project #1, MBIA, 5.7s, 2017 8,450 7,985,166
AA Washington Public Power Supply System Rev.,
Nuclear Project #2, 5.625s, 2012 15,530 14,599,753
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Electric and Gas Utility Revenue - continued
AA Washington Public Power Supply System Rev.,
Nuclear Project #2, 7s, 2012 $ 6,000 $ 6,309,960
AAA Washington Public Power Supply System Rev.,
Nuclear Project #3, FGIC, 0s, 2005 6,895 4,132,449
AAA Washington Public Power Supply System Rev.,
Nuclear Project #3, MBIA, 0s, 2010 5,860 2,425,806
--------------
$ 115,711,180
- ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 1.2%
AAA East Bay, CA, Municipal Utility District, MBIA,
5s, 2014 $ 7,900 $ 7,023,890
AAA Los Angeles County, CA, Sanitation Districts
Financing Authority Rev. (Capital Projects),
MBIA, 5.25s, 2019 11,700 10,533,510
AAA Philadelphia, PA, Water & Wastewater Rev., CGIC,
5s, 2016 4,500 3,953,835
AAA Philadelphia, PA, Water & Wastewater Rev., MBIA,
5.5s, 2014 3,310 3,148,770
--------------
$ 24,660,005
- ------------------------------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 2.3%
NR Arapahoe County, CO, Capital Improvement Trust
Fund Rev., 6.9s, 2015 $ 2,500 $ 2,560,850
BBB- Foothill/Eastern Transportation Corridor Agency Rev.
(California Toll Road), 6s, 2034 6,500 5,907,720
A New Jersey Turnpike Authority, 6.5s, 2016 11,755 12,728,432
BBB Triborough Bridge & Tunnel Authority, NY,
7.25s, 2010 22,905 25,382,863
--------------
$ 46,579,865
- ------------------------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 0.6%
AAA Connecticut Airport Rev., FGIC, 7.65s, 2012 $ $ 5,000 $ 5,719,850
AAA Denver, CO, City and County Airport Rev., MBIA,
5.6s, 2020 6,850 6,521,200
--------------
$ 12,241,050
- ------------------------------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 3.7%
AAA Illinois Dedicated Tax Rev. (Civic Center), AMBAC,
6.25s, 2011 $ 3,640 $ 3,821,781
AAA Illinois Sales Tax Rev. (Public Improvement), 0s, 2009 8,965 4,111,259
AAA Los Angeles County, CA, Metropolitan Transportation
Authority Sales Tax Rev., AMBAC, 5.5s, 2017 14,000 13,167,980
AAA Los Angeles County, CA, Metropolitan Transportation
Authority Sales Tax Rev., FGIC, 5s, 2021 38,500 33,290,180
AA- Metropolitan Atlanta Rapid Transit Authority, GA,
6.25s, 2018 4,580 4,832,724
AAA Rhode Island Depositors Economic Protection Corp.,
FSA, 5.75s, 2014 14,800 14,579,332
--------------
$ 73,803,256
- ------------------------------------------------------------------------------------------------------------------------------------
13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
====================================================================================================================================
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Industrial Revenue (Corporate Guarantee) - 0.8%
AAA Brazos River, TX, Authority Rev. (Houston Light and
Power), MBIA, 5.6s, 2017 $ 4,000 $ 3,861,400
AAA Mercer County, ND, Pollution Control (Antelope
Valley Station), AMBAC, 7.2s, 2013 4,000 4,640,720
AAA Michigan State Strategic Fund Rev. (Detroit Edison),
MBIA, 7s, 2008 3,000 3,448,890
AAA Northeast Maryland Waste Disposal Authority (Harford
County Resource Recovery), MBIA, 7.2s, 2005 3,000 3,452,220
--------------
$ 15,403,230
- ------------------------------------------------------------------------------------------------------------------------------------
Universities - 0.7%
AA+ Massachusetts State Health and Educational Facilities
Authority Rev. (MIT), 5s, 2023 $ 3,000 $ 2,674,140
AAA Pennsylvania Higher Educational Facilities Authority,
College & University Rev. (Hahnemann University),
MBIA, 7.2s, 2019 4,015 4,314,960
AA+ Texas A & M University (Permanent University Fund),
0s, 2007 6,695 3,578,678
AA+ Texas A &MUniversity (Permanent University Fund),
0s, 2008 7,175 3,637,510
--------------
$ 14,205,288
- ------------------------------------------------------------------------------------------------------------------------------------
Special Assessment District - 0.6%
AAA Brea, CA, Redevelopment Agency (Redevelopment
Projects), MBIA, 5.75s, 2023 $ 12,470 $ 11,903,987
AAA Culver City, CA, Redevelopment Finance Authority,
AMBAC, 7.1s, 2010 560 611,341
--------------
$ 12,515,328
- ------------------------------------------------------------------------------------------------------------------------------------
Other - 0.3%
Harris County, TX, 4.25s, 1996 $ 2,000 $ 2,005,558
AA- York County, PA, Industrial Development Rev.,
8.2s, 2014 4,250 4,656,555
--------------
$ 6,662,113
- ------------------------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,745,555,495) $1,890,075,784
- ------------------------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Issuer
- ------------------------------------------------------------------------------------------------------------------------------------
Allegheny County, PA, Hospital, due 2020 $ 1,100 $ 1,100,000
Charleston County, SC, Industrial Rev., due 2003 400 400,000
Charleston County, SC, Industrial Rev. (Massey Coal),
due 2007 1,500 1,500,000
Georgia Hospital Financing Authority Rev., due 2001 2,700 2,700,000
Hillsborough County, FL, Pollution Control Rev., due 2018 9,600 9,600,000
Jackson County, MS, Pollution Control Rev. (Chevron), due 2016 1,805 1,805,000
Jackson County, MS, Pollution Control Rev. (Chevron), due 2023 2,900 2,900,000
Lubbock, TX, Health Facilities (St. Joseph's), due 2013 1,850 1,850,000
New York City, NY, Municipal Water Finance Authority, due 2023 1,480 1,480,000
New York City, NY, Municipal Water Finance Authority, due 2024 5,500 5,500,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Floating Rate Demand Notes - continued
====================================================================================================================================
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
New York City, NY, Municipal Water Finance Authority, due 2025 $ 300 $ 300,000
Peninsula Ports, VA, Authority (Shell Oil Co.), due 2005 1,400 1,400,000
Peninsula Ports, VA, Authority, due 2016 1,300 1,300,000
Perry County, MS, Pollution Control Rev., due 2002 2,050 2,050,000
St. Charles Parish, LA, Pollution Control Rev., due 2022 1,200 1,200,000
Southwest, TX, Higher Education Authority, due 2015 3,000 3,000,000
Sullivan County, TN, Industrial Development Pollution Control
Rev., due 2016 1,700 1,700,000
Uinta County, WY, Pollution Control Rev. (Chevron), due 2020 4,700 4,700,000
Uinta County, WY, Pollution Control Rev. (Chevron), due 2022 800 800,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes (Identified Cost, $45,285,000) $ 45,285,000
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Floating Rate Demand Notes - 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
New York City, NY, Municipal Finance Authority, due 2022 $ 1,400 $ 1,400,000
Peninsula Ports, VA, Authority, due 2016 1,000 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Non-Floating Rate Demand Notes (Identified Cost, $2,400,000) $ 2,400,000
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants - 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermountain Power Agency, Utah Power Supply Rev., expire 5/30/96 $ 20,000 $ 1,600,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,793,240,495) $1,939,360,784
Other Assets, Less Liabilities - 3.3% 65,209,863
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,004,570,647
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Dates indicated are refunding dates.
**Indexed security.
***Inverse floating rate security.
+Security segregated as collateral for an open futures contract.
</FN>
</TABLE>
See notes to financial statements
15
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
================================================================================
August 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $1,793,240,495) $ 1,939,360,784
Cash 44,051,251
Receivable for investments sold 4,722,692
Receivable for Fund shares sold 1,240,299
Interest receivable 27,004,873
Other assets 26,627
---------------
Total assets $ 2,016,406,526
---------------
Liabilities:
Distributions payable $ 3,597,578
Payable for investments purchased 5,435,255
Payable for Fund shares reacquired 2,098,327
Payable for daily variation margin on open futures contracts 200,000
Payable to affiliates -
Management fee 48,171
Shareholder servicing agent fee 6,433
Distribution fee 9,122
Accrued expenses and other liabilities 440,993
---------------
Total liabilities $ 11,835,879
---------------
Net assets $ 2,004,570,647
===============
Net assets consist of:
Paid-in capital $ 1,886,722,749
Unrealized appreciation on investments 146,157,788
Accumulated net realized loss on investments (23,353,148)
Accumulated distributions in excess of net investment income (4,956,742)
---------------
Total $ 2,004,570,647
===============
Shares of beneficial interest outstanding 185,032,058
===============
Class A shares:
Net asset value and redemption price per share
(net assets of $1,948,548,002 / 179,857,494 shares of
beneficial interest outstanding) $10.83
======
Offering price per share (100/95.25) $11.37
======
Class B shares:
Net asset value and offering price per share
(net assets of $56,022,645 / 5,174,564 shares of
beneficial interest outstanding) $10.83
======
</TABLE>
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
<TABLE>
<CAPTION>
Statement of Operations
================================================================================
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Net investment income:
Interest income $ 124,252,599
-------------
Expenses -
Management fee $ 8,210,290
Trustees' compensation 78,398
Shareholder servicing agent fee (Class A) 2,179,815
Shareholder servicing agent fee (Class B) 106,468
Distribution and service fee (Class B) 427,858
Custodian fees 430,364
Postage 176,941
Printing 120,216
Auditing fees 72,144
Legal fees 12,959
Miscellaneous 633,995
-------------
Total expenses $ 12,449,448
-------------
Net investment income $ 111,803,151
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 3,503,468
Futures contracts (20,167,272)
-------------
Net realized loss on investments $ (16,663,804)
-------------
Change in unrealized appreciation (depreciation) -
Investments $ 45,505,532
Futures contacts 1,789,032
-------------
Net unrealized gain on investments $ 47,294,564
-------------
Net realized and unrealized gain on investments $ 30,630,760
-------------
Increase in net assets from operations $ 142,433,911
=============
</TABLE>
See notes to financial statements
17
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
====================================================================================================================================
Year Ended Ten Months Ended Year Ended
August 31, 1995 August 31, 1994 October 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 111,803,151 $ 97,314,488 $ 116,912,608
Net realized gain (loss) on investments (16,663,804) (5,170,469) 37,195,278
Net unrealized gain (loss) on investments 47,294,564 (143,768,588) 164,691,254
--------------- --------------- ---------------
Increase (decrease) in net assets
from operations $ 142,433,911 $ (51,624,569) $ 318,799,140
--------------- --------------- ---------------
Distributions declared to shareholders -
From net investment income (Class A) $ (109,114,422) $ (89,895,416) $ (120,496,324)
From net investment income (Class B) (2,258,122) (1,157,886) (30,652)
From net realized gain on investments (Class A) -- (29,910,644) (26,678,481)
From net realized gain on investments (Class B) -- (173,779) --
In excess of net investment income (Class A) -- (6,715,969) (6,260,261)
In excess of net investment income (Class B) -- (6,615) (925)
In excess of net realized gain on investments
(Class A) -- (5,268,443) --
In excess of net realized gain on investments
(Class B) -- (85,666) --
--------------- --------------- ---------------
Total distributions declared to shareholders $ (111,372,544) $ (133,214,418) $ (153,466,643)
--------------- --------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 1,013,395,465 $ 419,165,214 $ 287,246,301
Net asset value of shares issued to shareholders
in reinvestment of distributions 65,324,925 78,691,850 90,336,552
Cost of shares reacquired (1,180,849,407) (442,427,997) (215,763,795)
--------------- --------------- ---------------
Increase (decrease) in net assets from
Fund share transactions $ (102,129,017) $ 55,429,067 $ 161,819,058
--------------- --------------- ---------------
Total increase (decrease) in net assets $ (71,067,650) $ (129,409,920) $ 327,151,555
Net assets:
At beginning of period 2,075,638,297 2,205,048,217 1,877,896,662
--------------- --------------- ---------------
At end of period (including accumulated
distributions in excess of net investment
income of $4,956,742, $6,722,584 and
$6,261,186, respectively) $ 2,004,570,647 $ 2,075,638,297 $ 2,205,048,217
--------------- --------------- ---------------
</TABLE>
See notes to financial statements
18
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
====================================================================================================================================
Ten Months
Year Ended Ended
August 31, August 31, Year Ended October 31,
-----------------------------------------
1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
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 $10.68 $11.64 $10.73 $10.80 $10.11 $10.53
------ ------ ------ ------ ------ ------
Income from investment operations++-
Net investment income $ 0.60 $ 0.51 $ 0.61 $ 0.66 $ 0.68 $ 0.68
Net realized and unrealized gain
(loss) on investments 0.15 (0.77) 1.14 0.09 0.69 (0.13)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.75 $(0.26) $ 1.75 $ 0.75 $ 1.37 $ 0.55
------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment
income $(0.60) $(0.47) $(0.66) $(0.66) $(0.68) $(0.69)
In excess of net
investment income -- (0.04) (0.03) -- -- --
From net realized gain
on investments -- (0.16) (0.15) (0.16) -- (0.27)
In excess of net realized
gain on investments -- (0.03) -- -- -- --
From paid-in capital -- -- -- -- -- (0.01)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.60) $(0.70) $(0.84) $(0.82) $(0.68) $(0.97)
------ ------ ------ ------ ------ ------
Net asset value -
end of period $10.83 $10.68 $11.64 $10.73 $10.80 $10.11
====== ====== ====== ====== ====== ======
Total return# 7.31% (2.33)% 16.97% 7.35% 13.85% 5.42%
Ratios (to average net assets)/Supplemental data:
Expenses 0.61% 0.59%+ 0.59% 0.57% 0.59% 0.60%
Net investment income 5.70% 5.49%+ 5.63% 6.12% 6.47% 6.69%
Portfolio turnover 90% 74% 56% 87% 98% 160%
Net assets at end of period
(000,000 omitted) $1,949 $2,031 $2,195 $1,878 $1,715 $1,409
<FN>
+ Annualized.
++ Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
# 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.
</FN>
</TABLE>
See notes to financial statements
19
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
====================================================================================================================================
Year Ended October 31,
---------------------------------------------------------------
1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 10.57 $ 9.71 $ 11.00 $ 10.02 $ 9.12
--------- --------- --------- --------- ---------
Income from investment operations -
Net investment income $ 0.72 $ 0.73 $ 0.72 $ 0.78 $ 0.82
Net realized and
unrealized gain (loss)
on investments 0.04 0.86 (0.90) 1.27 0.89
--------- --------- --------- --------- ---------
Total from invest-
ment operations $ 0.76 $ 1.59 $ (0.18) $ 2.05 $ 1.71
--------- --------- --------- --------- ---------
Less distributions declared
to shareholders -
From net investment
income $ (0.72) $ (0.73) $ (0.72) $ (0.78) $ (0.81)
From net realized gain
on investments (0.08) -- (0.39) (0.29) --
--------- --------- --------- --------- ---------
Total distributions
declared to
shareholders $ (0.80) $ (0.73) $ (1.11) $ (1.07) $ (0.81)
--------- --------- --------- --------- ---------
Net asset value -
end of period $ 10.53 $ 10.57 $ 9.71 $ 11.00 $ 10.02
========= ========= ========= ========= =========
Total return# 7.54% 16.95% (1.98)% 21.79% 19.64%
Ratios (to average net assets)/Supplemental data:
Expenses 0.64% 0.65% 0.61% 0.64% 0.69%
Net investment income 6.87% 7.16% 6.96% 7.45% 8.50%
Portfolio turnover 199% 190% 218% 164% 225%
Net assets at end of period
(000,000 omitted) $ 1,259 $ 1,003 $ 903 $ 844 $ 469
<FN>
# 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.
</FN>
</TABLE>
See notes to financial statements
20
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
====================================================================================================================================
Year Ended Ten Months Ended Year Ended
August 31, August 31, October 31,
1995 1994 1993**
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $10.67 $11.63 $11.68
------ ------ ------
Income from investment operations++ -
Net investment income $ 0.49 $ 0.40 $ 0.07
Net realized and
unrealized gain (loss)
on investments 0.16 (0.77) (0.05)
------ ------ ------
Total from invest-
ment operations $ 0.65 $(0.37) $ 0.02
------ ------ ------
Less distributions declared
to shareholders -
From net investment
income $(0.49) $(0.40) $(0.07)***
From net realized gain
on investments -- (0.16) --
In excess of net realized
gain on investments -- (0.03) --
------ ------ ------
Total distributions
declared to
shareholders $(0.49) $(0.59) $(0.07)
------ ------ ------
Net asset value -
end of period $10.83 $10.67 $11.63
------ ------ ------
Total return 6.35% (3.25)% 1.49%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.60% 1.72%+ 1.70%+
Net investment income 4.68% 4.41%+ 3.85%+
Portfolio turnover 90% 74% 56%
Net assets at end of period
(000,000 omitted) $ 56 $ 45 $ 10
<FN>
+ Annualized.
++ Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
** For the period from the date of issue of Class B shares, September 7, 1993 to October 31, 1993.
*** Includes a per share distribution in excess of net investment income of $0.002.
</FN>
</TABLE>
See notes to financial statements
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Municipal Bond Fund (the Fund) is a diversified series of MFS Series Trust
IV (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.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying security may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as a part of an income producing strategy reflecting the view of
the Fund's management on the direction of interest rates.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities or contracts based on financial indices at a fixed price
on a future date. In entering such contracts, the Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of the
contract amount. Subsequent payments are made or received by the Fund each day,
depending on the daily fluctuations in the value of the underlying security, and
are recorded for financial statement purposes as unrealized gains or losses by
the Fund. The Fund's investment in futures contracts is designed to hedge
against anticipated future changes in interest rates or securities prices.
Investments in interest rate futures for purposes other than hedging may be made
to modify the duration of the portfolio without incurring the additional
transaction costs involved in buying and selling the underlying securities.
Should interest rates or securities prices move unexpectedly, the Fund may not
achieve the anticipated benefits of the futures contracts and may realize a
loss.
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.
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 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.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
During the year ended August 31, 1995, $1,335,235 was reclassified from
accumulated net investment income to accumulated net realized gain on
investments due to differences between book and tax accounting. This change had
no effect on the net assets or net asset value per share.
At August 31, 1995, the accumulated distributions exceeded book income because
of differences in book and tax accounting for dividends declared but not paid at
year end.
At August 31, 1995, the Fund, for federal income tax purposes, had a capital
loss carryforward of $16,113,077, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on August 31, 2002 ($5,959,343) and August 31, 2003 ($10,153,734).
Multiple Classes of Shares of Beneficial Interest - The Fund offers 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 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 is computed daily and paid monthly at an effective annual rate of
0.19% of average daily net assets and 3.59% of investment income.
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
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $21,347 for the year ended
August 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$329,416 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
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
respect to Class B shares. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $106,468 for Class B
shares for the year ended August 31, 1995. Fees incurred under the distribution
plan during the year ended August 31, 1995 were 0.88% of average daily net
assets attributable to Class B shares on an annualized basis.
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 twelve 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 year ended August 31, 1995 were $6,621 and $221,978
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 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 U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$1,725,547,749 and $1,887,039,954, 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 $ 1,796,032,798
===============
Gross unrealized appreciation $ 145,173,472
Gross unrealized depreciation (1,845,486)
---------------
Net unrealized appreciation $ 143,327,986
===============
(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 Year Ended Ten Months Ended Year Ended
August 31, 1995 August 31, 1994 October 31, 1993
------------------------------- ---------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 93,895,405 $ 988,178,343 34,484,881 $ 374,991,527 24,520,472 $ 276,503,989
Shares issued to share-
holders in reinvestment
of distributions 6,046,921 63,804,833 7,028,609 77,691,863 8,091,561 90,315,455
Shares reacquired (110,192,105) (1,164,453,444) (39,960,254) (434,165,148) (19,054,148) (215,497,820)
------------ --------------- ----------- ------------- ----------- -------------
Net increase
(decrease) (10,249,779) $ (112,470,268) 1,553,236 $ 18,518,242 13,557,885 $ 151,321,624
============ =============== =========== ============= =========== =============
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Class B Shares Year Ended Ten Months Ended Year Ended
August 31, 1995 August 31, 1994 October 31, 1993*
------------------------------- ---------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,382,993 $ 25,217,122 3,988,525 $ 44,173,687 917,981 $ 10,742,312
Shares issued to share-
holders in reinvestment
of distributions 143,928 1,520,092 91,605 999,987 1,813 21,097
Shares reacquired (1,559,038) (16,395,963) (770,579) (8,262,849) (22,664) (265,975)
---------- ------------- --------- ------------- ------- ------------
Net increase 967,883 $ 10,341,251 3,309,551 $ 36,910,825 897,130 $ 10,497,434
========== ============= ========= ============= ======= ============
<FN>
* For the period from commencement of offering of Class B shares, September 7, 1993 to October 31, 1993.
</FN>
</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 year ended August 31,
1995 was $34,272.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates. These financial instruments include futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at August 31, 1995, is as follows:
<TABLE>
<CAPTION>
Futures Contracts
Unrealized
Appreciation
Expiration Contracts Position (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
September 1995 200 U.S. Treasury Bonds Short $ 212,500
September 1995 200 Municipal Bonds Short (175,000)
---------
$ 37,500
=========
</TABLE>
At August 31, 1995, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
The Fund also invests in indexed securities whose value may be linked to
interest rates or other financial indicators. Indexed securities are
fixed-income securities whose proceeds at maturity (principal-indexed
securities) or interest rates (coupon-indexed securities) rise and fall
according to the change in one or more specified underlying instruments. Indexed
securities may be more volatile than the underlying instrument itself. The
following is a summary of such securities held at August 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Description Index Principal Value Depreciation
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Coupon-Indexed Securities: PSA Municipal
New York City, NY, 6.67s, 2016 Swap $4,000,000 $3,990,000 $10,000
=======
</TABLE>
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust IV and Shareholders
of MFS Municipal Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Municipal Bond Fund (one of the series
constituting MFS Series Trust IV) as of August 31, 1995, the related statement
of operations for the year then ended, the statement of changes in net assets
for the year then ended, the ten months ended August 31, 1994 and the year ended
October 31, 1993, and the financial highlights for each of the years in the
ten-year period ended August 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.
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 the securities owned at
August 31, 1995 by correspondence with the custodian and brokers. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Municipal Bond
Fund at August 31, 1995, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 6, 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.
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 Bulk Rate
BOND FUND U.S. Postage
P A I D
500 Boylston Street Permit #55638
Boston, MA 02116 Boston, MA
[LOGO]
MMB-2 10/95 63M 17/217
