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THE FIRST NAME IN MUTUAL FUNDS
SEMIANNUAL REPORT
FEBRUARY 28, 1995
MFS(R) MUNICIPAL BOND FUND
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MFS(R) MUNICIPAL BOND FUND
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TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Former Financial Vice For MFS stock and bond market outlooks,
President, Treasurer and Director (until 1988), call toll-free: 1-800-637-4458 anytime from
Loomis, Sayles & Co., Inc. a touch-tone telephone.
J. Atwood Ives - Chairman and Chief Executive For information on MFS mutual funds,
Officer, Eastern Enterprises call your financial adviser or, for an
information kit, call toll-free:
Lawrence T. Perera - Partner, Hemenway & Barnes 1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
William J. Poorvu - Adjunct Professor, Harvard a message anytime).
University Graduate School of Business
Administration INVESTOR SERVICE
MFS Service Center, Inc.
Charles W. Schmidt - Private Investor; P.O. Box 2281
Former Senior Vice President and Group Executive Boston, MA 02107-9906
(until 1990), Raytheon Company
For current account service, call toll free:
Arnold D. Scott* - Senior Executive Vice President 1-800-225-2606 any business day from
and Secretary, Massachusetts Financial 8 a.m. to 8 p.m. Eastern time.
Services Company
For service to speech- or hearing-impaired,
Jeffrey L. Shames* - President and Chief Equity call toll free: 1-800-637-6576 any business
Officer, Massachusetts Financial Services Company day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be
Elaine R. Smith - Independent Consultant equipped with a Telecommunications Device for
the Deaf.)
David B. Stone - Chairman, North American
Management Corp. (Investment Advisers) For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
INVESTMENT ADVISER (1-800-637-8255) anytime from a touch-tone
Massachusetts Financial Services Company telephone.
500 Boylston Street
Boston, Massachusetts 02116-3741
PORTFOLIO MANAGER TOP-RATED SERVICE
Robert A. Dennis* MFS was rated first when securities firms evaluated the
quality of service they receive from 40 mutual fund companies.
TREASURER MFS got high marks for answering calls quickly, processing
W. Thomas London* transactions accurately and sending statements out on time.
(Source: 1994 DALBAR Survey)
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
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LETTER TO SHAREHOLDERS
Dear Shareholders:
The past six months have seen significant volatility in long-term, tax-exempt
rates. Last fall, the municipal bond market was battered by the combination of
rising inflationary fears sparked by rapid economic growth and the damaging
effects of heavy selling by tax-exempt mutual funds. From August 31, 1994
through mid-November, the Bond Buyer Municipal 20 Index (an index comprised of
20 general obligation bonds with an average maturity of 20 years) rose 90 basis
points (0.90%), from 6.16% to 7.06%. Since then, however, the rate of economic
growth appears to have moderated, inflation at the consumer level has remained
restrained, and the municipal market's supply/demand picture has significantly
improved. Indeed, rates have gradually declined from their highs and, by the end
of February, were actually about 10 basis points lower than the levels of six
months earlier. As a result of this improvement, for the six months ended
February 28, 1995, Class A shares of the Fund provided a total return of +2.94%,
while Class B shares had a total return of +2.38%. Both of these returns assume
the reinvestment of distributions but exclude the effects of any sales charges.
Economic Outlook
The economic expansion, entering its fifth year, gained firmer underpinnings in
1994 as employers significantly stepped up hiring levels. Increased employment,
stronger capital spending by businesses, and strengthening overseas economies
resulted in 4% real (adjusted for inflation) gross domestic product growth last
year. Interest rates rose substantially over the past year, which should help
restrain, but not curtail, the economic expansion. Based on sound economic
fundamentals both here and abroad, we expect the business expansion to continue
well into 1995.
Interest Rates
Despite a stronger economy, inflation at the consumer level has remained
relatively benign at 2.7% in 1994, the fourth straight year of 3.0% or less. Due
to a prolonged period of below-trend-line growth and continued pressure on
corporations to emphasize effective cost controls, wage growth and unit labor
costs have remained subdued. However, as the economy has exhibited continuing
strength, various industrial commodity prices have been rising substantially
faster than consumer prices. Nevertheless, businesses have had difficulty
passing these price increases on to the consumer. With the economy continuing to
expand, we expect some upward movement in inflation from below 3% to the 3 1/2%
range. The Federal Reserve Board has shown a willingness to raise short-term
rates to slow the economy in order to dampen inflationary pressures. Most
recently, it raised the federal funds rate 50 basis points (0.50%) after a 75
basis-point (0.75%) increase in November. We do not expect the central bank to
raise short-term rates in the near term for domestic policy reasons unless it
concludes that current efforts have failed to dampen inflationary expectations.
Recent significant weakness in the dollar versus the deutsche mark and yen could
prompt the Federal Reserve to raise short-term rates in an effort to prevent
further declines in the value of the U.S. currency. However, we believe the
potential recessionary implications of further short-term rate increases will
constrain Federal Reserve action.
We believe fundamentals are favorable for lower long-term rates in 1995, but
that further declines in rates may not occur until after the dollar stabilizes
in world currency markets.
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LETTER TO SHAREHOLDERS - continued
Municipal Bond Market
The municipal market has been one of the best performing sectors of the
fixed-income markets this year. Since the peak rates of last November, long-term
municipal bond yields have fallen by about 100 basis points (1%) compared to a
decline of about 65 basis points (0.65%) experienced by long-term U.S. Treasury
bonds. Demand for municipals appears to be stabilizing at a time when supply is
severely diminished. New-issue supply during the first two months of 1995 was
down 57% from the comparable period of 1994. Furthermore, the 12-month volume
for 1994 had already declined 44% from 1993's record issuance. In addition, a
prodigious amount of bonds calls and early redemptions this year is reducing the
amount of previously issued bonds outstanding.
Even after this year's outperformance, long-term AAA-rated municipals yield
about 80% of comparable Treasuries, a ratio that still represents good-
to-excellent investment value for moderate- or top-bracket taxpayers (although
principal value and interest on Treasury securities are guaranteed by the U.S.
government if held to maturity).
Portfolio Performance and Strategy
The Fund's six-month total returns (+2.94% for Class A shares and +2.38% for
Class B shares) compare favorably to the +2.81% return registered by the Lehman
Brothers Municipal Bond Index (the Lehman Index), an unmanaged index of
municipal bonds rated Baa or better. Class A shares slightly outperformed the
Lehman Index while Class B shares modestly underperformed, but both returns are
in line when you consider the expense-free nature of the Lehman Index.
We have moderately increased the Fund's duration (or sensitivity to interest
rates) this year in order to benefit from the trend of declining municipal bond
rates. The portfolio remains oriented to high-quality securities, with almost
75% of total net assets invested in AAA- or AA-rated securities. Overall,
reflecting the improved economy as well as the benefits of conservative
budgetary practices, the financial health of state and local governments is
currently the strongest it has been in several years. Although the municipal
bond market was briefly impacted by the bankruptcy of Orange County, California,
last December, it recovered quickly as it became apparent that the county's
problems were caused by unique circumstances not at all reflective of the
conservative financial practices employed by nearly all other state and local
governments.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- -------------------------- --------------------------
A 1 1/2 inch by 1 5/8 inch A 1 1/2 inch by 1 5/8 inch
photo of A. Keith Brodkin, photo of Robert A. Dennis,
Chairman and President. Portfolio Manager.
- -------------------------- --------------------------
A. Keith Brodkin Robert A. Dennis
Chairman and President Portfolio Manager
March 9, 1995
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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 Senior Vice
President. He has been the Portfolio Manager of MFS Municipal Bond Fund since
1984. Mr. Dennis is a Chartered Financial Analyst (C.F.A.).
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide as high a level of current income
exempt from federal income taxes as is considered consistent with prudent
investing while seeking protection of investors' capital.
The Fund normally invests substantially all of its assets (i.e., at least 80%)
in debt securities in the highest three grades of Standard & Poor's Corporation
or Moody's Investors Service, Inc. (and comparable unrated securities), the
interest on which is exempt from federal income tax. As a defensive measure
during times of adverse market conditions, up to 50% of the Fund's assets may be
invested in obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities, commercial paper, obligations of larger banks or
cash. The Fund may enter into options and futures transactions and purchase
securities on a "when-issued" basis.
PERFORMANCE SUMMARY
Because mutual funds like MFS Municipal Bond 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 shares for the past 6-month, 1-, 5- and 10-year
periods ended February 28, 1995.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
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Cumulative Total Return* +2.94% +0.96% +48.08% +156.29%
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Average Annual Total Return* -- +0.96% + 8.17% + 9.87%
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The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC), with all distributions reinvested and reflecting the maximum sales
charge of 4.75% for the 1-, 5- and 10-year periods ended December 31, 1994, were
- -10.91%, +5.85% and +8.97%, respectively. Class B Investment Results (net asset
value change including reinvested distributions)
9/07/93+ -
6 Months 1 Year 2/28/95
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Cumulative Total Return++ +2.38% -0.15% -0.73%
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Average Annual Total Return++ -- -0.15% -0.50%
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The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, for the 1-year period ended
December 31, 1994 and for the period from September 7, 1993+ to December 31,
1994, reflecting the current maximum contingent deferred sales charge (CDSC) of
4%, were -10.99% and -7.38%, respectively. All results represent past
performance and are not necessarily an indication of future results. Investment
return and principal value will fluctuate, and shares, when redeemed, may be
worth more or less than their original cost.
* These results do not include the sales charge. If the charge had been
included, the results would have been lower.
++ These results do not include any CDSC. If the charge had been included, the
results would have been lower.
+ Commencement of offering of this class of shares.
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PORTFOLIO OF INVESTMENTS - February 28, 1995
Municipal Bonds - 98.8%
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S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
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General Obligation - 22.2%
AAA Clark County, NV, School District, MBIA,
7s, 2010 $ 4,000 $ 4,398,680
A+ Commonwealth of Massachusetts, 7s, 2007 4,590 4,990,983
A+ Commonwealth of Massachusetts, 6.5s, 2008 6,400 6,846,336
AAA Commonwealth of Massachusetts, FGIC, 7s, 2009 7,000 7,865,550
AAA Cook County, IL, FGIC, 5.5s, 2022 10,000 8,908,700
AAA Cook County, IL, MBIA, 7.25s, 2007 6,500 7,284,225
AAA District of Columbia, MBIA, 6s, 2011 6,000 5,822,280
AAA Fairfax County, VA, 5.2s, 2013 5,150 4,765,348
AA Florida Board of Education, Capital
Outlay, 9.125s, 2014 1,735 2,375,926
AA Florida Board of Education, Capital
Outlay, 5.4s, 2018 10,000 9,204,400
AA Florida Board of Education, Capital
Outlay, 5.5s, 2023 4,000 3,683,320
AA Fulton County, GA, School District,
6.375s, 2012 7,280 7,704,861
AA Honolulu, HI, City & County, 5.25s, 2012 13,000 12,090,780
AA Los Angeles, CA, 5.25s, 2012 6,500 5,876,845
AA Los Angeles, CA, 5.25s, 2013 6,500 5,824,585
A- New York, NY, 7.5s, 2002 12,500 13,427,750
A- New York, NY, 7.75s, 2004 9,020 9,647,161
A- New York, NY, 7.5s, 2006 5,000 5,304,500
A- New York, NY, 7.65s, 2006 5,000 5,345,600
A- New York, NY, 7.5s, 2007 15,500 16,417,445
A- New York, NY, 7.5s, 2008 10,000 10,563,400
A- New York, NY, 5.5s, 2009 4,930 4,299,749
A- New York, NY, 6.25s, 2009 5,000 4,796,400
A- New York, NY, 7.7s, 2009 4,000 4,269,080
A- New York, NY, 5.75s, 2012 10,240 9,061,786
A- New York, NY, 8.25s, 2013 60 67,040
A- New York, NY, 5.75s, 2014 4,000 3,487,120
A- New York, NY, 8.25s, 2015 240 261,499
A- New York, NY, 6.6s, 2016** 4,000 3,940,400
A- New York, NY, 8s, 2018 25 26,862
NR State of California, 5.75s, 1996 25,000 25,235,000
A State of California, 5.5s, 2011 3,750 3,539,513
A State of California, 5.5s, 2013 5,000 4,699,000
A State of California, 5.5s, 2015 10,500 9,717,015
AAA State of California, AMBAC, 5.5s, 2014 10,485 9,781,143
AAA State of California, FGIC, 5.5s, 2012 14,500 13,566,345
AAA State of California, FGIC, 5.5s, 2015 10,980 10,223,149
AAA State of California, MBIA, 5.125s, 2017 8,090 7,003,998
AA State of Florida, Broward County
Expressway Authority, 10s, 2014 4,350 6,266,523
AA- State of Illinois, 5.7s, 2011 4,000 3,876,160
AA- State of Illinois, 5.875s, 2012 6,965 6,833,083
AA- State of Illinois, 5.75s, 2013 2,750 2,659,443
AA- State of Illinois, 5.875s, 2013 11,860 11,628,730
AA- State of Illinois, 5.5s, 2014 5,000 4,687,300
AA- State of Illinois, 5.875s, 2014 10,500 10,289,685
AA- State of Illinois, 5.875s, 2019 10,000 9,653,800
AA State of Nevada, 6.8s, 2012 85 88,946
AA State of Nevada, 6.6s, 2016 15,430 15,895,060
AA State of Texas, 5s, 2014 25,450 22,670,860
AA State of Washington, 6.75s, 2010 3,880 4,210,848
AA State of Washington, 5.75s, 2011 5,000 4,905,650
AA State of Washington, 5.75s, 2012 5,000 4,874,800
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PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
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S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
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General Obligation - continued
AA State of Washington, 6s, 2012 $ 4,360 $ 4,368,023
AA State of Washington, 4.875s, 2015 9,500 7,862,485
AA State of Washington, 5s, 2017 5,000 4,291,950
AA State of Washington, 5.75s, 2017 12,045 11,487,919
AA State of Washington, 6.125s, 2017 6,400 6,395,713
AA State of Washington, 6.4s, 2017 8,900 9,188,360
AA State of Washington, 5.5s, 2018 22,990 21,206,896
AA State of Washington, 5.75s, 2018 4,000 3,812,680
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$449,478,688
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State and Community Lease Revenue - 25.3%
AAA Alameda County, CA, Certificates of
Participation, MBIA, 5.7s, 2014 $ 4,000 $ 3,838,960
A- California Public Works Board, Lease
Rev. (California State University
Projects), 5.25s, 2013 4,200 3,609,942
A- California Public Works Board, Lease
Rev. (Community College Projects),
5.625s, 2013 12,605 11,402,861
A- California Public Works Board, Lease
Rev. (Community College Projects),
5.625s, 2018 3,750 3,330,000
A- California Public Works Board, Lease
Rev. (Department of Corrections),
5.5s, 2019 10,000 8,665,200
AAA California Public Works Board, Lease
Rev. (Department of Corrections),
AMBAC, 5.25s, 2013 6,795 6,167,346
AAA California Public Works Board, Lease
Rev. (Department of Corrections),
MBIA, 5.375s, 2019 19,055 17,120,155
A- California Public Works Board, Lease
Rev. (University of California
Projects), 5.5s, 2014 10,000 8,797,700
A- California Public Works Board, Lease
Rev. (University of California
Projects), 5.5s, 2014 5,000 4,398,850
A- California Public Works Board, Lease
Rev. (University of California
Projects), 5.5s, 2019 7,845 6,755,565
A- California Public Works Board, Lease
Rev. (University of California
Projects), 5s, 2023 19,000 14,903,220
AAA Chicago, IL, Board of Education Lease
Certificates, MBIA, 6.25s, 2009 5,160 5,317,070
AAA Chicago, IL, Board of Education Lease
Certificates, MBIA, 6.25s, 2015 24,295 24,790,375
AAA Commonwealth of Pennsylvania, Certificates of
Participation, AMBAC, 5.25s, 2011 8,625 7,820,978
AAA Commonwealth of Pennsylvania, Certificates of
Participation, AMBAC, 5s, 2015 46,765 40,268,874
AAA Convention Center Authority, RI, MBIA,
5.25s, 2015 15,500 14,044,860
AAA Convention Center Authority, RI, MBIA,
5s, 2023 31,110 25,589,530
A+ Indiana Office Building Community
Capital Complex Rev., 6.9s, 2011 9,500 10,234,730
AAA Indiana Office Building Community
Capital Complex Rev., AMBAC, 5.25s, 2015 6,195 5,512,001
AAA Indiana Office Building Community
Capital Complex Rev., AMBAC, 5.25s, 2015 4,000 3,517,000
NR Indianapolis, IN, Local Public Improvement
Rev., 6.7s, 2017 3,500 3,569,825
A+ Massachusetts Bay Transportation
Authority, 6.1s, 2013 10,200 10,298,328
A+ Massachusetts Bay Transportation
Authority, 5.875s, 2019 7,640 7,377,872
A+ Massachusetts Bay Transportation
Authority, 5.5s, 2021 12,250 11,222,838
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PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
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S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
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State and Community Lease Revenue - continued
A+ Massachusetts Bay Transportation
Authority, 7s, 2021 $10,185 $ 11,388,154
A Metropolitan Government of Nashville &
Davidson Counties, TN, 7s, 2011 5,280 5,666,707
BBB Metropolitan Transportation Authority,
NY, Service Contract, 7.4s, 2001 4,075 4,450,634
BBB Metropolitan Transportation Authority,
NY, Service Contract, 7.375s, 2008 5,000 5,534,850
BBB Metropolitan Transportation Authority,
NY, Service Contract, 5.75s, 2015 5,600 5,081,384
BBB Metropolitan Transportation Authority,
NY, Service Contract, 5.5s, 2017 6,350 5,551,615
A+ Missouri Regional Convention & Sports
Complex Authority, 5.5s, 2013 12,360 11,249,454
A+ Missouri Regional Convention & Sports
Complex Authority, 5.6s, 2017 4,000 3,629,680
BBB New York Dormitory Authority Rev. (City
University System), 5.75s, 2009 10,000 9,481,600
BBB New York Dormitory Authority Rev. (City
University System), 7s, 2009 13,765 14,781,132
BBB New York Dormitory Authority Rev. (City
University System), 7.375s, 2010 4,000 4,452,640
BBB New York Dormitory Authority Rev. (City
University System), 7.5s, 2010 15,650 17,489,345
NR New York Dormitory Authority Rev. (City
University System), 10.25s, 2012 1,250 1,296,137
BBB New York Dormitory Authority Rev. (City
University System), 5.75s, 2013 23,650 21,877,432
BBB+ New York Dormitory Authority Rev. (Court
Facilities), 5.5s, 2010 3,985 3,620,014
BBB+ New York Dormitory Authority Rev. (State
University Educational Facilities),
5.5s, 2010 11,000 10,092,390
BBB+ New York Dormitory Authority Rev. (State
University Educational Facilities),
5.25s, 2013 6,500 5,650,450
BBB New York Housing Finance Agency (Service
Contract), 5.875s, 2014 26,335 24,440,723
A New York Local Government Assistance
Corp., 5.5s, 2021 11,905 10,804,740
BBB+ New York Medical Care Facilities Finance
Agency, 8.875s, 2007 4,205 4,621,505
BBB+ New York Medical Care Facilities Finance
Agency, 7.875s, 2020 4,050 4,396,275
AAA New York Medical Care Facilities Finance
Agency (Mental Health Services), FGIC,
5.375s, 2014 5,000 4,522,000
AAA New York Medical Care Facilities Finance
Agency (Mental Health Services), FSA,
5.375s, 2014 10,550 9,541,420
BBB New York Urban Development Corp.
(Correctional Facilities), 5.5s, 2009 12,710 11,599,527
BBB New York Urban Development Corp.
(Correctional Facilities), 5.75s, 2013 4,840 4,458,414
BBB New York Urban Development Corp.
(Correctional Facilities), 5.75s, 2013 5,530 5,094,015
BBB New York Urban Development Corp.
(Correctional Facilities), 5.5s, 2014 5,000 4,405,450
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
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S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
State and Community Lease Revenue - continued
BBB New York Urban Development Corp.
(Correctional Facilities), 5.5s, 2015 $16,500 $ 14,586,660
AAA New York Urban Development Corp.
(Correctional Facilities), AMBAC, 5s, 2017 4,200 3,591,546
AAA Rhode Island Public Buildings Authority,
AMBAC, 5.25s, 2010 5,000 4,590,450
AAA Vallejo, CA, Sanitation & Flood Control
District, FGIC, 5s, 2019 7,000 5,966,100
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$512,466,523
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Refunded and Special Obligations* - 25.6%
AAA Alameda County, CA, Certificates of
Participation, BIGI, 7.25s, 2000 $29,900 $ 33,665,008
AAA Austin, TX, Utility Systems Rev.,
10.75s, 2000 2,615 3,274,006
AAA Austin, TX, Water, Sewer & Electric
Rev., 14.25s, 1997 1,305 1,555,390
AA Chicago, IL, Metropolitan Water
Reclamation District, 6.8s, 2000 5,000 5,436,900
AAA Chicago, IL, Public Building Rev., MBIA,
7.125s, 2015 6,590 7,159,508
AAA Clark County, NV, School District, FGIC,
7s, 2001 10,050 11,102,738
A+ Commonwealth of Massachusetts, 6.875s, 2001 4,825 5,352,276
AAA Commonwealth of Massachusetts, FGIC,
7.25s, 2000 11,220 12,470,469
AAA Cook County, IL, MBIA, 7s, 2000 4,250 4,705,642
AAA Culver City, CA, Redevelopment Finance
Authority, AMBAC, 7.1s, 1999 6,775 7,480,752
AA Cumberland County, ME, 6.95s, 2001 6,000 6,599,760
AAA Detroit, MI, AMBAC, 7.2s, 1999 7,720 8,474,476
AAA Detroit, MI, Water Supply System Rev.,
FGIC, 7.25s, 2000 4,575 5,108,902
A Eden Township, CA, Health Facilities
Authority (Eden Hospital), 7.8s, 1998 4,000 4,412,360
AA Florida Board of Education, Capital
Outlay, 7.25s, 2000 4,100 4,572,976
AAA Florida Board of Education, Capital
Outlay, 9.125s, 2014 265 352,829
NR Indianapolis, IN, Local Public
Improvement Rev., 7.4s, 2000 3,710 4,159,355
AAA Los Angeles, CA, Convention & Exhibition
Center Authority, Certificates of
Participation, 7.375s, 1999 17,700 19,604,520
AAA Maryland Health & Higher Education
Facilities Authority Rev. (University
of Maryland Medical System), FGIC, 7s, 2001 7,945 8,866,223
AAA Massachusetts Port Authority Rev., 13s, 2013 3,500 6,136,795
AAA Massachusetts Water Resources Authority,
7.5s, 2000 15,850 17,812,230
AAA Massachusetts Water Resources Authority,
7.625s, 2000 15,760 17,798,241
AAA Massachusetts Water Resources Authority,
6.875s, 2001 3,870 4,312,070
AAA Metropolitan Transportation Authority,
NY, Service Contract, 7.5s, 2000 4,350 4,918,676
AAA Michigan Hospital Finance Authority Rev.
(Oakwood Hospital), FGIC, 7.1s, 2000 4,000 4,439,120
AAA Michigan Hospital Finance Authority Rev.
(Oakwood Hospital), FGIC, 7.2s, 2000 18,590 20,741,235
AAA Michigan Municipal Bond Authority (Wayne
County Project), FGIC, 7s, 2000 10,000 11,040,000
AAA Missouri Regional Convention & Sports
Complex Authority, 6.8s, 2003 14,500 16,067,885
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
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S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
Refunded and Special Obligations* - continued
AAA Missouri Regional Convention & Sports
Complex Authority, 6.9s, 2003 $21,520 $ 23,992,433
A- New York, NY, 8s, 2001 2,475 2,879,588
A- New York, NY, 8.25s, 2001 2,940 3,455,970
BBB New York Dormitory Authority Rev. (City
University System), 7.875s, 2000 10,600 12,169,224
AAA New York Medical Care Facilities Finance
Agency (Mental Health Services), 8.875s, 1997 3,745 4,165,226
AAA New York Medical Care Facilities Finance
Agency (Mental Health Services), 7.875s, 2000 5,590 6,432,245
NR New York Urban Development Corp.
(Correctional Facilities), 7.625s, 2001 7,570 8,654,403
NR New York Urban Development Corp.
(Correctional Facilities), 7.375s, 2002 4,000 4,574.760
AAA Pennsylvania Convention Center Authority
Rev., FGIC, 6.7s, 2016 47,945 52,212,584
AAA Philadelphia, PA, Municipal Authority
Rev., FGIC, 7.8s, 1998 385 423,050
AAA Philadelphia, PA, Municipal Authority
Rev., FGIC, 7.8s, 2000 3,765 4,222,560
AAA Philadelphia, PA, Municipal Authority
Rev., FGIC, 7.1s, 2001 6,000 6,757,920
AAA Philadelphia, PA, Municipal Authority
Rev., MBIA, 7.125s, 2001 4,500 5,074,740
AAA Philadelphia, PA, School District, MBIA,
7s, 2001 9,440 10,465,939
AA- Richmond, VA, 7s, 2000 4,750 5,218,588
AA Richmond, VA, 6.7s, 2001 4,995 5,469,125
AAA San Diego, CA, Regional Building
Authority Lease Rev., MBIA, 7.25s, 2000 4,000 4,443,680
AAA Santa Clara County, CA, Certificates of
Participation (American Baptist Homes
West), CA-MTG-INS, 8s, 1998 5,200 5,743,036
AAA South Coast Air Quality Management
District Building Corp., CA,
Installment Sales Rev., AMBAC,
7.125s, 1999 5,550 6,111,160
AAA Southern California Public Power
Authority, 12s, 1997 2,400 2,777,088
AA State of Florida, Jacksonville
Transportation Authority, 7.375s, 1999 4,000 4,428,960
AAA State of Florida, Jacksonville
Transportation Authority, 9.2s, 2015 2,000 2,704,580
AA State of Georgia, 6.25s, 2000 4,000 4,273,000
AA State of Nevada, 6.8s, 2002 3,480 3,816,551
AAA Sullivan County, TN, Health, Education
and Housing Facilities Board Rev.,
MBIA, 7.25s, 2000 4,000 4,442,760
AAA Washington Public Power Supply System
Rev., Nuclear Project #2, 7.375s, 2000 28,845 32,305,535
AA Washington Public Power Supply System
Rev., Nuclear Project #2, 7.625s, 2001 10,815 12,247,014
AA Washington Public Power Supply System
Rev., Nuclear Project #3, 7.25s, 2000 20,000 22,037,400
------------
$519,119,461
- ------------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.2%
NR Colorado Housing Finance Authority, 8.3s, 2023 $ 4,000 $ 4,195,040
- ------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
- ------------------------------------------------------------------------------
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
Insured Health Care Revenue - 5.6%
AAA California Statewide Communities
Development Authority Rev. (St. Joseph
Health System), AMBAC, 5.5s, 2014 $18,735 $ 17,264,490
AAA California Statewide Communities
Development Authority Rev. (Sutter),
MBIA, 5.5s, 2013 9,000 8,311,050
AAA Colorado Health Facilities Authority
Rev. (PSL Health Systems), FSA, 7.25s, 2016 4,905 5,275,278
AAA Davenport, IA, Hospital Rev. (St. Luke's
Hospital), AMBAC, 7.4s, 2020 2,715 2,968,554
AAA Delaware County, PA, Hospital Rev.
(Delaware Memorial Hospital), MBIA, 7.2s, 2019 4,735 5,016,401
AAA Delaware County, PA, Hospital Rev.
(Keystone Health System), MBIA, 7.2s, 2019 5,440 5,763,299
AAA Henderson, NV, Health Care Facility
(Catholic West), AMBAC, 5s, 2020 5,000 4,176,100
AAA Illinois Health Facilities Authority
(Methodist Health
Project), AMBAC, 9.061s, 2021*** 3,000 3,263,310
A+ Los Angeles, CA (Hollywood Presbyterian
Hospital), CA-MTG-INS, 9s, 2013 5,250 5,397,630
AAA Maryland Health & Higher Education
Facilities Authority Rev. (Francis
Scott Key Medical Center), FGIC, 5s, 2013 3,200 2,836,480
AAA Massachusetts Health & Education
Facilities Authority (University
Hospital), MBIA, 7.25s, 2019 4,500 4,848,660
AAA Medical Center Hospital Authority, GA,
MBIA, 8.242s, 2010*** 4,000 4,268,680
AAA Metropolitan Health Facilities
Development Corp., TX (Wilson N. Jones
Memorial Hospital), Connie Lee, 5.6s, 2017 4,250 3,894,020
AAA Michigan Hospital Finance Authority Rev.
(Sisters of Mercy), MBIA, 5.375s, 2014 9,000 8,299,440
AAA Peninsula Ports Authority, VA, Hospital
Facilities Rev. (Whittaker Memorial
Hospital), FHA, 8.7s, 2023 1,595 1,699,807
AAA Salt Lake City, UT, Hospital Rev.,
AMBAC, 9.008s, 2020*** 2,000 2,146,180
AAA Sayre, PA, Health Care Facilities
Authority Rev. (Guthrie Healthcare
Systems), AMBAC, 7s, 2011 6,000 6,392,100
AAA Tampa, FL, Rev. (Allegany Health System -
St. Mary's), MBIA, 5.125s, 2023 6,200 5,354,444
AAA Tarrant County, TX, Health Facilities
Development Corp., Hospital Rev. (Fort
Worth Osteopathic), MBIA, 6s, 2021 6,000 5,898,420
AAA Washington County, PA, Hospital
Authority (Washington Hospital),
AMBAC, 7.15s, 2017 9,000 9,764,370
------------
$112,838,713
- ------------------------------------------------------------------------------
Health Care Revenue - 2.4%
A+ Cuyahoga County, OH, Hospital Rev.
(Cleveland Clinic), 8s, 2015 $ 8,550 $ 9,219,892
AA- Maryland Health & Higher Education
Facilities Authority Rev. (Johns Hopkins
Hospital), 5s, 2023 4,095 3,385,255
A- San Joaquin County, CA (General
Hospital), 6.25s, 2013 21,400 20,508,904
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
- ------------------------------------------------------------------------------
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
Health Care Revenue - continued
NR Travis County, TX, Health Facilities
Development Corp. (Daughters of
Charity/Seton Medical Center),
10.125s, 2015 $14,815 $ 15,576,639
------------
$ 48,690,690
- ------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 7.8%
A+ Georgia Municipal Electric Authority,
7.8s, 2020 $ 7,000 $ 7,517,020
AAA Georgia Municipal Electric Authority,
MBIA, 6.375s, 2016 5,000 5,165,200
AA Intermountain Power Agency, UT, 9.375s, 2018 3,300 3,415,566
AA Los Angeles, CA, Department of Water &
Power, Waterworks Rev., 5.25s, 2018 6,700 5,848,229
AAA Municipal Electric Authority of Georgia,
Special Obligation, AMBAC, 6.5s, 2017 8,510 8,884,951
AAA Northern California Transmission Agency
(Oregon Transmission), MBIA, 7s, 2013 4,000 4,428,520
AAA Piedmont Municipal Power Agency, SC,
Electric Rev., FGIC, 6.25s, 2021 4,150 4,274,127
AAA Sacramento, CA, Municipal Utility
District Electric Rev., FGIC, 5.25s, 2012 3,500 3,211,530
AAA South Carolina Public Service Authority
Rev., FGIC, 5.875s, 2023+ 7,000 6,780,830
AAA South Carolina Public Service Authority
Rev., MBIA, 5.5s, 2021 5,000 4,578,350
AA- Southern California Public Power
Authority, Transmission Project Rev.,
0s, 2005 11,185 6,088,331
AAA Southern California Public Power
Authority, Transmission Project Rev.,
MBIA, 5.25s, 2014 14,940 13,494,704
AA Washington Public Power Supply System
Rev., Nuclear Project #1, 5.7s, 2010 8,000 7,521,840
AA Washington Public Power Supply System
Rev., Nuclear Project #1, 5.375s, 2015 7,500 6,584,025
AAA Washington Public Power Supply System
Rev., Nuclear Project #1, MBIA, 5.6s, 2015 29,470 27,306,902
AAA Washington Public Power Supply System
Rev., Nuclear Project #1, MBIA, 5.7s, 2017 14,750 13,710,420
AA Washington Public Power Supply System
Rev., Nuclear Project #2, 5.625s, 2012 15,530 14,260,112
AA Washington Public Power Supply System
Rev., Nuclear Project #2, 6s, 2012 6,695 6,407,985
AA Washington Public Power Supply System
Rev., Nuclear Project #3, 0s, 2003 10,000 6,133,300
AAA Washington Public Power Supply System
Rev., Nuclear Project #3, FGIC, 0s, 2005 6,895 3,764,532
------------
$159,376,474
- ------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 2.7%
AA Birmingham, AL, Waterworks & Sewer
Board, 5.5s, 2020 $ 3,900 $ 3,569,592
AA California Department of Water Resources
(Central Valley Project), 5.75s, 2014 4,500 4,319,550
AAA East Bay, CA, Municipal Utility
District, MBIA, 5s, 2014 7,900 6,913,290
AAA Los Angeles, CA, Wastewater System Rev.,
MBIA, 5.6s, 2020 9,000 8,379,180
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
- ------------------------------------------------------------------------------
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
Water and Sewer Utility Revenue - continued
AA Los Angeles County, CA, Sanitation
District Financing Authority, 5.25s, 2019 $ 7,245 $ 6,356,618
AAA New York, NY, Municipal Water Finance
Authority, Water & Sewer System Rev.,
MBIA, 5.5s, 2023 5,000 4,572,550
A- New York Environmental Facilities Corp.,
Pollution Control Rev., 5.875s, 2014 17,425 17,154,390
AAA Philadelphia, PA, Water & Wastewater
Rev., CGIC, 5s, 2016 4,500 3,860,595
------------
$ 55,125,765
- ------------------------------------------------------------------------------
Turnpike Revenue - 1.5%
AAA Indiana Transportation Finance
Authority, Highway Rev., AMBAC, 5.25s, 2010 $ 5,400 $ 4,961,628
BBB Triborough Bridge & Tunnel Authority,
NY, 7.25s, 2010 22,905 24,856,964
------------
$ 29,818,592
- ------------------------------------------------------------------------------
Airport and Port Revenue - 0.3%
AAA Connecticut Airport Rev., FGIC, 7.65s, 2012 $ 5,000 $ 5,630,050
- ------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 2.0%
AA- Connecticut Special Tax Obligation
Rev.,Transportation Infrastructure,
6.5s,2012 $ 5,000 $ 5,285,000
AAA Illinois Dedicated Tax Rev. (Civic
Center), AMBAC, 6.25s, 2011 3,640 3,718,770
AAA Illinois Sales Tax Rev., 0s,2009 8,965 3,817,925
AAA Los Angeles County, CA,
Metropolitan Transit Authority, Sales
Tax Rev., FGIC, 5s, 2021 10,000 8,473,500
AA- Metropolitan Atlanta Rapid Transit
Authority, GA, 6.25s, 2018 4,580 4,675,905
AAA Rhode Island Depositors Economic
Protection Corp.,FSA, 5.75s, 2014 14,800 13,986,888
------------
$ 39,957,988
- ------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.5%
AAA Mercer County, ND, Pollution Control
(Antelope Valley Station), AMBAC, 7.2s,
2013 $ 4,000 $ 4,513,920
AAA Michigan State Strategic Fund Rev.
(Detroit Edison), MBIA, 7s, 2008 3,000 3,348,180
AAA Northeast Maryland Waste Disposal
Authority (Harford County Resource
Recovery), MBIA, 7.2s,2005 3,000 3,369,090
------------
$ 11,231,190
- ------------------------------------------------------------------------------
Universities - 1.3%
AAA Pennsylvania Higher Educational
Facilities Authority,
College & University Rev.
(Hahnemann University),
MBIA, 7.2s, 2019 $ 4,015 $ 4,300,105
A+ Texas A & M University (Permanent
University Fund), 0s, 2007 6,695 3,231,743
A+ Texas A & M University (Permanent
University Fund), 0s, 2008 7,175 3,264,769
NR University of California, Certificates
of Participation (UCLA Center Project),
5.5s, 2017 8,000 7,064,720
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
- ------------------------------------------------------------------------------
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
Universities - continued
NR University of California, Certificates
of Participation (UCLA Center Project),
5.6s, 2020 $ 4,000 $ 3,557,200
AAA University of California, Multi-Purpose
Projects Rev., AMBAC, 5.125s, 2018 5,000 4,366,850
--------------
$ 25,785,387
- ------------------------------------------------------------------------------
Special Assessment District - 0.8%
AAA Brea, CA, Redevelopment Agency, MBIA,
5.75s,2023 $ 7,250 $ 6,816,305
AAA Cerritos, CA, Public Financing Authority
Rev. (Los Coyotes Redevelopment Project),
AMBAC, 5.75s,2022 4,400 4,167,020
AAA Culver City, CA, Redevelopment Finance
Authority, AMBAC, 7.1s, 2010 560 598,545
AAA San Francisco, CA, City &
County Redevelopment
Financing Authority, FGIC, 5.25s, 2017 5,000 4,444,550
--------------
$ 16,026,420
- ------------------------------------------------------------------------------
Other - 0.6%
AA+ Indianapolis, IN, Local Public
Improvement Board, 6s, 2018 $ 7,715 $ 7,628,901
AA- York County, PA, Industrial
Development Rev., 8.2s, 2014 4,250 4,594,803
--------------
$ 12,223,704
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,874,076,122) $2,001,964,685
- ------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.9%
- ------------------------------------------------------------------------------
Hillsborough County, FL, due 5/15/18 $10,300 $ 10,300,000
Jackson County, MS, Pollution Control Rev.
(Chevron), due 12/01/16 5,000 5,000,000
Lubbock, TX, Health Facilities Development, due 7/01/13 3,000 3,000,000
New York City Municipal Water Finance Authority,
due 8/15/22 7,600 7,600,000
New York City Municipal Water Finance Authority,
due 6/15/24 7,600 7,600,000
Peninsula Ports Authority, VA, due 12/01/05 6,300 6,300,000
Perry County, MS, Pollution Control Rev., due 3/01/02 8,900 8,900,000
Uinta County, WY, Pollution Control Rev., due 8/15/20 10,000 10,000,000
- ------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 58,700,000
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,932,776,122) $2,060,664,685
Other Assets, Less Liabilities - (1.7)% (33,536,252)
- ------------------------------------------------------------------------------
Net Assets - 100.0% $2,027,128,433
- ------------------------------------------------------------------------------
* Dates indicated are refunding dates.
** Indexed security.
*** Inverse floating rate security.
+ When-issued security. At February 28, 1995, the Fund had sufficient cash
and/or securities at least equal to the value of the when-issued security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
February 28, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,932,776,122) $2,060,664,685
Cash 67,047
Receivable for investments sold 31,819,462
Receivable for Fund shares sold 989,099
Interest receivable 30,884,130
Other assets 29,789
--------------
Total assets $2,124,454,212
--------------
Liabilities:
Distributions payable $ 3,730,426
Payable for investments purchased 82,669,318
Payable for when-issued investments purchased 6,708,590
Payable for Fund shares reacquired 3,051,962
Payable for daily variation margin on open futures
contracts 691,375
Payable to affiliates -
Management fee 69,427
Shareholder servicing agent fee 19,152
Distribution and service fee 22,038
Accrued expenses and other liabilities 363,491
--------------
Total liabilities $ 97,325,779
--------------
Net assets $2,027,128,433
--------------
Net assets consist of:
Paid-in capital $1,941,409,188
Unrealized appreciation on investments 118,881,500
Accumulated undistributed net realized loss (26,892,376)
Accumulated distributions in excess of net investment
income (6,269,879)
--------------
Total $2,027,128,433
--------------
Shares of beneficial interest outstanding 189,796,589
--------------
Class A shares:
Net asset value and redemption price per share
(net assets of $1,979,192,338 / 185,305,520 shares of
beneficial interest outstanding) $10.68
------
Offering price per share (100/95.25) $11.21
------
Class B shares:
Net asset value, redemption price and offering price per share
(net assets of $47,936,095 / 4,491,069 shares of
beneficial interest outstanding) $10.67
------
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
- ------------------------------------------------------------------------------
Six Months Ended
February 28, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 63,175,982
------------
Expenses -
Management fee $ 4,102,300
Trustees' compensation 39,164
Shareholder servicing agent fee (Class A) 1,075,910
Shareholder servicing agent fee (Class B) 49,018
Distribution and service fee (Class B) 222,399
Custodian fee 176,792
Postage 72,176
Printing 50,405
Auditing fees 32,119
Legal fees --
Miscellaneous 325,091
------------
Total expenses $ 6,145,374
------------
Net investment income $ 57,030,608
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(26,146,575)
Futures contracts 4,608,308
------------
Net realized loss on investments $(21,538,267)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 27,273,807
Futures contracts (7,255,531)
------------
Net unrealized gain (loss) on investments $ 20,018,276
------------
Net realized and unrealized loss on investments $ (1,519,991)
------------
Increase (decrease) in net assets from
operations $ 55,510,617
------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Ten Months Ended Year Ended
February 28, 1995 August 31, 1994 October 31, 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 57,030,608 $ 97,314,488 $ 116,912,608
Net realized gain (loss) on
investments (21,538,267) (5,170,469) 37,195,278
Net unrealized gain (loss) on
investments 20,018,276 (143,768,588) 164,691,254
-------------- -------------- --------------
Increase (decrease) in net
assets from operations $ 55,510,617 $ (51,624,569) $ 318,799,140
-------------- -------------- --------------
Distributions declared
to shareholders -
From net investment
income (Class A) $ (49,368,350) $ (89,895,416) $ (120,496,324)
From net investment
income (Class B) (939,674) (1,157,886) (30,652)
From net realized
gain on investments -- (30,084,423) (26,678,481)
In excess of net investment
income (Class A) (6,153,176) (6,715,969) (6,260,261)
In excess of net investment
income (Class B) (116,703) (6,615) (925)
In excess of net realized
gain on investments -- (5,354,109) --
-------------- -------------- --------------
Total distributions
declared to shareholders $ (56,577,903) $ (133,214,418) $ (153,466,643)
-------------- -------------- --------------
Fund share (principal) transactions -
Net proceeds from sale
of shares $ 463,519,753 $ 419,165,214 $ 287,246,301
Net asset value of shares
issued to shareholders in
reinvestment of distributions 33,341,934 78,691,850 90,336,552
Cost of shares reacquired (544,304,265) (442,427,997) (215,763,795)
-------------- -------------- --------------
Increase (decrease) in net
assets from Fund share
transactions $ (47,442,578) $ 55,429,067 $ 161,819,058
-------------- -------------- --------------
Total increase (decrease)
in net assets $ (48,509,864) $ (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 $6,269,879,
$6,722,584 and $6,261,186,
respectively) $2,027,128,433 $2,075,638,297 $2,205,048,217
-------------- -------------- --------------
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ten Months
Ended Ended
February August Year Ended October 31,
28, 31, --------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 $10.57 $ 9.71
------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F2> -
Net investment income $ 0.30 $ 0.51 $ 0.61 $ 0.66 $ 0.68 $ 0.68 $ 0.72 $ 0.73
Net realized and
unrealized gain (loss)
on investments -- (0.77) 1.14 0.09 0.69 (0.13) 0.04 0.86
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.30 $ (0.26) $ 1.75 $ 0.75 $ 1.37 $ 0.55 $ 0.76 $ 1.59
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income $ (0.27) $ (0.47) $ (0.66) $ (0.66) $ (0.68) $ (0.69) $ (0.72) $ (0.73)
In excess of net
investment income (0.03) (0.04) (0.03) -- -- -- -- --
From net realized gain
on investments -- (0.16) (0.15) (0.16) -- (0.27) (0.08) --
In excess of net
realized gain on
investments -- (0.03) -- -- -- -- -- --
From paid-in capital -- -- -- -- -- (0.01) -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.30) $(0.70) $(0.84) $(0.82) $(0.68) $(0.97) $(0.80) $(0.73)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $10.68 $10.68 $11.64 $10.73 $10.80 $10.11 $10.53 $10.57
------ ------ ------ ------ ------ ------ ------ ------
Total return<F3> 2.94% (2.33)% 16.97% 7.35% 13.85% 5.42% 7.54% 16.95%
Ratios (to average net assets)/Supplemental data:
Expenses 0.61%<F1> 0.59%<F1> 0.59% 0.57% 0.59% 0.60% 0.64% 0.65%
Net investment income 5.91%<F1> 5.49%<F1> 5.63% 6.12% 6.47% 6.69% 6.87% 7.16%
Portfolio turnover 58% 74% 56% 87% 98% 160% 199% 190%
Net assets at end of
period (000,000 omitted) $1,979 $2,031 $2,195 $1,878 $1,715 $1,409 $1,259 $1,003
- ---------------
<FN>
<F1> Annualized.
<F2> Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
<F3> 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>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ten Months
Year Ended October 31, Ended Ended Year Ended
------------------------------------------- February 28, August 31, October 31,
1987 1986 1985 1984 1995 1994 1993<F3>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $11.00 $10.02 $ 9.12 $ 9.16 $10.67 $11.63 $11.68
------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F2> -
Net investment income $ 0.72 $ 0.78 $ 0.82 $ 0.78 $ 0.25 $ 0.40 $ 0.07
Net realized and unrealized
gain (loss) on investments (0.90) 1.27 0.89 (0.03) -- (0.77) (0.05)
------ ------ ------ ------ ------ ------ ------
Total from investment
operations $(0.18) $ 2.05 $ 1.71 $ 0.75 $ 0.25 $(0.37) $ 0.02
------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.72) $(0.78) $(0.81) $(0.79) $(0.22) $(0.40) $(0.07)<F4>
In excess of net investment
income -- -- -- -- (0.03) -- --
From net realized gain on
investments (0.39) (0.29) -- -- -- (0.16) --
In excess of net realized gain
on investments -- -- -- -- -- (0.03) --
------ ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(1.11) $(1.07) $(0.81) $(0.79) $(0.25) $(0.59) $(0.07)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.71 $11.00 $10.02 $ 9.12 $10.67 $10.67 $11.63
------ ------ ------ ------ ------ ------ ------
Total return<F5> (1.98)% 21.79% 19.64% 8.65% 2.38% (3.25)% 1.49%<F1>
Ratios (to average net assets)/Supplemental data:
Expenses 0.61% 0.64% 0.69% 0.75% 1.71%<F1> 1.72%<F1> 1.70%<F1>
Net investment income 6.96% 7.45% 8.50% 8.70% 4.79%<F1> 4.41%<F1> 3.85%<F1>
Portfolio turnover 218% 164% 255% 348% 58% 74% 56%
Net assets at end of period
(000,000 omitted) $ 903 $ 844 $ 469 $ 318 $ 48 $ 45 $ 10
<FN>
- ----------
<F1> Annualized.
<F2> Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
<F3> For the period from the commencement of offering of Class B shares,
September 7, 1993 to October 31, 1993.
<F4> Includes a per share distribution in excess of net investment income of
$0.002.
<F5> 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>
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 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 securities 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.
Futures Contracts - The Fund may enter into financial futures contracts for the
delayed delivery of securities 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 financial futures contracts is designed to hedge against
anticipated future changes in interest rates or securities prices. The Fund may
also invest in financial futures contracts for non-hedging purposes. For
example, Treasury and/or municipal futures may be used in modifying 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 financial futures contracts and may realize a loss.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
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 both 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers both Class A
and Class B shares. The two classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. Shareholders of each
class also bear certain expenses that pertain only to that particular class. All
shareholders bear the common expenses of the Fund pro rata, based on the 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, including distribution and shareholder
service fees.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee, computed daily and paid monthly at an effective annual rate of
0.19% of average daily net assets and 3.66% of investment income, amounted to
$4,102,300.
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. Included in Trustees' compensation is a net
periodic pension expense of $10,014 for the six months ended February 28, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$157,256 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:
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
The Class B Distribution Plan provides that the Fund will pay MFD a monthly
distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to
0.25% per annum, of the Fund's average daily net assets attributable to Class B
shares. MFD will pay to each securities dealer that enters into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
shares. The service fee is intended to be additional consideration for services
rendered by the dealer with respect to Class B shares. Fees incurred under the
distribution plan during the six months ended February 28, 1995 were 1.00% of
average daily net assets attributable to Class B shares on an annualized basis
and amounted to $222,399.
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 may be imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the six months ended February 28, 1995
were $1,919 and $128,983 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$1,075,910 and $49,018 for Class A and Class B shares, respectively, for its
services as shareholder servicing agent. The fee is calculated as a percentage
of the average daily net assets of each class of shares at an effective annual
rate of up to 0.15% and up to 0.22% attributable to Class A and Class B shares,
respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $1,105,403,610 and $1,105,561,966,
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 $1,935,649,359
--------------
Gross unrealized appreciation $ 132,060,434
Gross unrealized depreciation (7,045,108)
--------------
Net unrealized appreciation $ 125,015,326
--------------
At August 31, 1994, the Fund, for federal income tax purposes, had a capital
loss carryforward of $5,957,976, 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(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>
Class A Shares
<CAPTION>
Six Months Ended Ten Months Ended Year Ended
February 28, 1995 August 31, 1994 October 31, 1993
-------------------------------- -------------------------------- ----------------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 44,068,633 $ 452,287,680 34,484,881 $ 374,991,527 24,520,472 $ 276,503,989
Shares issued to
shareholders in
reinvestment of
distributions 3,156,310 32,622,024 7,028,609 77,691,863 8,091,561 90,315,455
Shares reacquired (52,026,696) (535,333,120) (39,960,254) (434,165,148) (19,054,148) (215,497,820)
----------- ------------- ----------- ------------- ----------- -------------
Net increase (decrease) (4,801,753) $ (50,423,416) 1,553,236 $ 18,518,242 13,557,885 $ 151,321,624
----------- ------------- ----------- ------------- ----------- -------------
Class B Shares
<CAPTION>
Six Months Ended Ten Months Ended Period Ended
February 28, 1995 August 31, 1994 October 31, 1993<F1>
-------------------------------- -------------------------------- ----------------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,087,846 $ 11,232,073 3,988,525 $ 44,173,687 917,981 $ 10,742,312
Shares issued to
shareholders in
reinvestment of
distributions 69,707 719,910 91,605 999,987 1,813 21,097
Shares reacquired (873,165) (8,971,145) (770,579) (8,262,849) (22,664) (265,975)
----------- ------------- ----------- ------------- ----------- -------------
Net increase 284,388 $ 2,980,838 3,309,551 $ 36,910,825 897,130 $ 10,497,434
----------- ------------- ----------- ------------- ----------- -------------
- -------------
<FN>
<F1> For the period from the commencement of offering of Class B shares,
September 7, 1993 to October 31, 1993.
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $350 million, collectively.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the six
months ended February 28, 1995 was $15,447.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(7) Financial Instruments
The Fund regularly 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 February 28, 1995, is as
follows:
Futures Contracts
Unrealized
Appreciation
Expiration Contracts Position (Depreciation)
- ------------------------------------------------------------------------------
March 1995 1,900 U.S. Treasury Bonds Short $(9,133,750)
March 1995 52 Municipal Bonds Long 126,687
-----------
$(9,007,063)
-----------
At February 28, 1995, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
(8) Indexed Securities
The Fund also invests in indexed securities whose value may be linked to
interest rates, indices 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 February 28, 1995:
Unrealized
Description Index Principal Value Depreciation
- ------------------------------------------------------------------------------
Coupon-Indexed
Security:
New York, NY, PSA Municipal
6.6s, 2016 Swap $4,000,000 $3,940,400 $59,600
-------
<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 February 28, 1995, the related
statement of operations for the six months then ended, the statement of changes
in net assets for the six months then ended, the ten months ended August 31,
1994 and the year ended October 31, 1993, and the financial highlights for the
six months ended February 28, 1995, for the ten months ended August 31, 1994 and
for each of the years in the ten-year period ended October 31, 1993. 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
February 28, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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 February 28, 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
March 31, 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.
<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 the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully before investing or sending money.
<TABLE>
<CAPTION>
STOCK LIMITED MATURITY BOND
<S> <C>
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Emerging Growth Fund WORLD
MFS(R) Gold & Natural Resources Fund MFS(R) World Asset Allocation Fund
MFS(R) Growth Opportunities Fund MFS(R) World Equity Fund
MFS(R) Managed Sectors Fund MFS(R) World Governments Fund
MFS(R) OTC Fund MFS(R) World Growth Fund
MFS(R) Research Fund MFS(R) World Total Return Fund
MFS(R) Value Fund NATIONAL TAX-FREE BOND
STOCK AND BOND MFS(R) Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) Municipal High Income Fund
MFS(R) Utilities Fund (closed to new investors)
BOND MFS(R) Municipal Income Fund
MFS(R) Bond Fund STATE TAX-FREE BOND
MFS(R) Government Mortgage Fund Alabama, Arkansas, California, Florida,
MFS(R) Government Securities Fund Georgia, Louisiana, Maryland, Massachusetts,
MFS(R) High Income Fund Mississippi, New York, North Carolina,
MFS(R) Intermediate Income Fund Pennsylvania, South Carolina Tennessee, Texas,
MFS(R) Strategic Income Fund Virginia, Washington, West Virginia
(formerly MFS(R) Income & Opportunity Fund) MONEY MARKET
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
</TABLE>
<PAGE>
MFS(R) MUNICIPAL [LOGO] BULK RATE
BOND FUND U.S. POSTAGE
P A I D
500 Boylston Street PERMIT # 55638
Boston, MA 02116 BOSTON, MA
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MMB-3 4/95 70M 17/217
