MFS MUNICIPAL BOND FUND
(A SERIES OF MFS SERIES TRUST IV)
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS 02116-3741
617 o 954-5000
April 25, 1996
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 the requirements of Section 30(b) of the Investment Company Act
of 1940 and Rule 30b2-1 thereunder, we hereby file a copy of the Semiannual
Report to Shareholders dated February 29, 1996 of MFS Municipal Bond Fund.
Very truly yours,
JOHN F. MCNAMARA
John F. McNamara
Production Editor
<PAGE>
[LOGO] MFS(R) Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS February 29, 1996
MFS(R) Municipal Bond Fund
[PHOTO]
<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;
Director, Cambridge Bancorp; Director,
Cambridge Trust 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, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director,
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
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.
[LOGO]
Top-Rated Service
For the second year in a row, MFS earned a #1
ranking in DALBAR, Inc.'s Broker/Dealer
Survey, Main Office Operations Service
Quality category. The firm achieved a 3.49
overall score - on a scale of 1 to 4 - in the
1995 survey. A total of 71 firms responded,
offering input on the quality of service they
receive from 36 mutual fund companies
nationwide. The survey contained questions
about service quality in 17 categories,
including "knowledge of phone service
contacts," "accuracy of transaction
processing," and "overall ease of doing
business with the firm."
*Affiliated with the Investment Adviser
<PAGE>
Letter to Shareholders
Dear Shareholders:
Although interest rates backed up somewhat during February as an apparent
firming of the economy diminished investors' hopes of further monetary easing by
the Federal Reserve Board, the municipal market performed very well over the six
months ended February 29, 1996. Long-term, high-grade municipal bond yields
declined by about 40 basis points (0.40%), compared to a drop of 20 basis points
(0.20%) by long-term U.S. Treasuries over the same period (although principal
value and interest on Treasury securities are guaranteed by the U.S. government
if held to maturity). During this period, Class A shares of the Fund provided a
total return of 5.33%, while Class B shares had a total return of 4.74%. 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 page five of this report.
Economic Environment
We believe the U.S. economy will continue to grow in 1996 - although "subdued"
may be the best way to describe this growth. One factor holding growth in check
is the continued sluggishness of the consumer sector, an area that represents
approximately two-thirds of the economy. Going into this year, consumers have
been left in a somewhat weakened position, due in part to an increase in
consumer installment debt of some 30% over the past two years. A second reason
for the economy's weakness is the "lag effect" of increases in short-term
interest rates by the Federal Reserve in 1994 and into 1995. This lag effect can
last up to two years, although a series of reductions in short-term rates by the
Fed, which began late last year, could provide some support to the economy
through 1996. A third reason for weakness is the ongoing economic doldrums in
Europe and Japan, important markets for U.S. exports. Here again, we are seeing
a few signs, particularly in Japan, of modest recoveries that could lead to
improved prospects for U.S. exporters. Also, we believe lower interest rates
will give a boost to the U.S. housing market, an important segment of the
economy since it also affects such industries as major appliances, furniture,
and building-supply companies. Finally, although the first few weeks of 1996 saw
some signs of inflationary pressures, caused primarily by rising energy prices
and followed by an upward movement in gold, we believe inflation will remain
under control this year, due mainly to the subdued level of economic growth.
Interest Rates
Persistent signs of economic weakness led to decreases in short-term interest
rates by the Federal Reserve in late 1995 and early 1996 and, we believe, will
lead to some additional reductions as the year progresses. In the beginning of
the year, bond markets were trading in a narrow range as investors shifted
between concern about the lack of a budget resolution in Washington and hopes
that sluggish economic reports and low inflation might lead to lower interest
rates.
1
<PAGE>
Letter to Shareholders - continued
In the recent trading period not covered by this report, the fixed-income
markets have reacted to conflicting signals regarding the strength of the
economy with more volatile trading patterns marked by an upward bias in interest
rates. However, we believe the fundamentals of moderate economic growth and low
inflation will continue to benefit long-term investors. Barring an unexpected
shock, we anticipate that the still-cheap dollar, low interest rates, and strong
total employment will likely cushion the economy from a sharp decline. Still,
given the subdued state of the economy, we believe that some additional interest
rate reductions by the Fed are possible, although their timing and magnitude is
uncertain, and that bonds continue to represent good value.
Municipal Bond Market
Supply in the new-issue municipal bond market continued to be manageable during
the past six months. Volume in 1995 declined 5% from the previous year and
represented only slightly more than half the issuance of 1993's record level.
Barring a sharp further decline in interest rates, issuance is not expected to
increase significantly during 1996. Besides generally favorable technicals, the
municipal market's outperformance relative to Treasuries can also be attributed
to an apparent diminishing of investors' fears concerning major tax reform. As
the "flat-tax" concept became an issue during the early presidential primaries,
it became clear that there was significant political opposition to some of its
controversial elements, such as the elimination of popular deductions and making
all investment income tax exempt. With the flat-tax concept facing significant
questions of both fairness and revenue neutrality, investors began to feel that
municipals would not lose their unique tax-exempt status and that any future tax
reform would be incremental, practical, and moderate. Accordingly, the yield
ratio of 30-year AAA-rated municipals to Treasuries declined from 87% to 84%
over the six-month period.
Portfolio
Performance and Strategy The total return of 5.33% for the Fund's Class A shares
for the six-month period ended February 29, 1996 exceeded both the 4.87% return
of the Lehman Brothers Municipal Bond Index (the Lehman Index), an unmanaged
index of municipal bonds rated Baa or better, and the 4.98% average return
reported by Lipper Analytical Services, Inc. (an independent firm which reports
mutual fund performance) for its general municipal debt category. Class B
shares, meanwhile, slightly underperformed these indices. Although the Fund
underperformed during the first two months of 1996, its above-average interest
rate sensitivity contributed to its favorable results over the entire six-month
period. Since there have been no significant changes in sector trading
relationships, performance results have been predominantly attributed to
decisions affecting portfolio duration.
2
<PAGE>
Letter to Shareholders - continued
While we will be closely monitoring economic developments, the Fund remains
structured in a way that we believe will allow it to perform well during a
period of stable to declining interest rates. More than 30% of the Fund's assets
are invested in long-term, non-callable bonds, and much of the balance of the
portfolio also consists of bonds that are structured to benefit from a declining
interest rate environment.
Yield differentials between high- and low-quality bonds remain very narrow
despite the fact that several sectors of municipal finance face serious future
challenges. General obligation bonds, for example, would be affected by
declining federal aid for local programs; issuers of electric revenue bonds face
an environment of increasing competition; and hospitals struggle in an industry
marked by continuing cost pressures. Thus, we believe the Fund's 70% weighting
of securities rated AA or higher by Standard & Poor's Corporation to be very
appropriate.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[PHOTO] [PHOTO]
/s/ A. Keith Brodkin /s/ Robert A. Dennis
A. Keith Brodkin Robert A. Dennis
Chairman and President Portfolio Manager
March 14, 1996
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 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. A portion of income
may be subject to state, federal, and/or alternative minimum tax. Capital gains,
if any, are subject to a capital gains tax. 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 temporary 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.
4
<PAGE>
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 and Class B shares for the applicable time
periods.
Average Annual and Cumulative Total Rates of Return
Class A Investment Results
(net asset value change
including reinvested distributions) 6 Months 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Cumulative Total Return* +5.33% +9.80% +49.94% +119.95%
- --------------------------------------------------------------------------------
Average Annual Total Return* -- +9.80% +8.44% +8.20%
- --------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC), with all distributions reinvested and reflecting the maximum sales
charge of 4.75% on the initial investment for the 1-, 5- and 10-year periods
ended December 31, 1995, were +11.77%, +7.97% and +8.68%, respectively.
Class B Investment Results
(net asset value change including 9/07/93+-
reinvested distributions) 6 Months 1 Year 2/29/96
- --------------------------------------------------------------------------------
Cumulative Total Return++ +4.74% +8.80% +8.01%
- --------------------------------------------------------------------------------
Average Annual Total Return++ -- +8.80% +3.16%
- --------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the contingent deferred sales charge (CDSC) of 4% for
the 1-year period ended December 31, 1995, and 3% for the period from September
7, 1993+ to December 31, 1995, were +12.18% and +2.62%, respectively.
All results represent past performance and are not 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.
+ Commencement of offering of this class of shares.
* 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.
5
<PAGE>
Portfolio of Investments (Unaudited) -- February 29, 1996
<TABLE>
<CAPTION>
Municipal Bonds -- 97.3%
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
General Obligation -- 21.0%
<S> <C> <C> <C>
AAA Chicago, IL, AMBAC, 5.5s, 2018 $ 7,500 $ 7,509,075
AAA Chicago, IL, AMBAC, 5.125s, 2025 5,000 4,615,700
AAA Chicago, IL, FGIC, 5.125s, 2016 11,985 11,277,525
AAA Chicago, IL, FGIC, 5.25s, 2018 14,090 13,267,426
AAA Chicago, IL, FGIC, 5.125s, 2025 15,000 9,298,600
AAA Clark County, NV, School District, MBIA, 7s, 2010 4,000 4,774,840
A+ Commonwealth of Massachusetts, 7s, 2007 4,590 5,121,063
A+ Commonwealth of Massachusetts, 6.5s, 2008 6,400 7,256,768
AAA Commonwealth of Massachusetts, FGIC, 7s, 2009 7,000 8,308,930
BBB Detroit, MI, 6.25s, 2009 5,235 5,394,825
AAA District of Columbia, MBIA, 6s, 2011 6,000 6,323,040
AA Florida Board of Education, Capital Outlay, 9.125s, 2014 1,735 2,479,506
AA Florida Board of Education, Capital Outlay, 5.5s, 2019 10,000 9,743,300
AA Florida Board of Education, Capital Outlay, 5s, 2020 18,295 16,846,951
AA Florida Board of Education, Capital Outlay, 5.5s, 2021 30,200 29,397,284
AA- Los Angeles County, CA, Public Works Financing
Authority Rev. (Capital Construction), 5s, 2017 33,995 30,901,795
BBB+ New York City, NY, 7.5s, 2002 12,500 13,822,250
BBB+ New York City, NY, 7.75s, 2004 780 870,815
BBB+ New York City, NY, 7.5s, 2006 5,000 5,477,300
BBB+ New York City, NY, 7.65s, 2006 5,000 5,634,900
BBB+ New York City, NY, 7.5s, 2007 15,500 16,979,630
BBB+ New York City, NY, 7.5s, 2008 10,000 10,928,300
BBB+ New York City, NY, 6.75s, 2009 3,000 3,229,770
BBB+ New York City, NY, 7.7s, 2009 4,000 4,436,240
BBB+ New York City, NY, 6.375s, 2012 5,000 5,064,450
BBB+ New York City, NY, 8.25s, 2013 60 69,191
BBB+ New York City, NY, 6.625s, 2014 10,000 10,350,000
BBB+ New York City, NY, 8.25s, 2015 240 278,554
BBB+ New York City, NY, 6.6s, 2016** 4,000 4,083,200
BBB+ New York City, NY, 5.75s, 2017 2,250 2,119,253
BBB+ New York City, NY, 8s, 2018 25 28,521
BBB+ New York City, NY, 5.75s, 2020 5,000 4,691,150
A State of California, 5.5s, 2011 3,750 3,766,350
A State of California, 5.5s, 2013 5,000 5,042,550
AAA State of California, AMBAC, 5.5s, 2014 10,485 10,471,789
AAA State of California, FGIC, 5.5s, 2015 10,980 10,838,797
AAA State of California, MBIA, 5.5s, 2012 14,500 14,558,145
AA State of Florida, Broward County Expressway
Authority, 10s, 2014 4,350 6,494,028
AAA State of Illinois, FGIC, 5.125s, 2016 6,000 5,623,380
AAA State of Illinois, FGIC, 5.25s, 2020 18,000 16,954,380
AA State of Nevada, 6.8s, 2012 85 92,642
AA State of Nevada, 5.5s, 2020 10,040 9,815,004
AA State of Texas, 5s, 2014 25,450 24,286,935
AA State of Washington, 6.75s, 2010 3,880 4,481,090
AA State of Washington, 5.75s, 2012 5,000 5,267,400
AA State of Washington, 6s, 2012 4,360 4,708,015
</TABLE>
6
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
General Obligation -- continued
<S> <C> <C> <C>
AA State of Washington, 5s, 2017 $ 5,000 $ 4,653,150
AA State of Washington, 6.4s, 2017 8,900 10,005,558
AA State of Washington, 5.5s, 2018 3,700 3,742,698
AA State of Washington (Motor Vehicle Fuel Tax),
6.125s, 2017 6,400 6,970,816
--------------
$ 408,352,879
- ------------------------------------------------------------------------------------------------------------
State and Community Lease Revenue -- 27.8%
A- California Public Works Board, Lease Rev.
(Community College Projects), 5.625s, 2013 $ 12,605 $ 12,386,681
A- California Public Works Board, Lease Rev.
(Community College Projects), 5.625s, 2018 3,750 3,653,363
A- California Public Works Board, Lease Rev.
(Department of Corrections), 5.5s, 2019 5,000 4,790,800
AAA California Public Works Board, Lease Rev.
(Department of Corrections), AMBAC, 5.25s, 2013 6,795 6,670,448
AAA California Public Works Board, Lease Rev.
(Department of Corrections), MBIA, 5.375s, 2019 10,055 9,619,116
A- California Public Works Board, Lease Rev.
(University of California Projects), 5.25s, 2013 4,200 3,976,140
A- California Public Works Board, Lease Rev.
(University of California Projects), 5.5s, 2014 7,000 6,856,360
A- California Public Works Board, Lease Rev.
(University of California Projects), 5.5s, 2014 5,000 4,842,150
A- California Public Works Board, Lease Rev.
(University of California Projects), 5.5s, 2019 13,345 12,786,645
A- California Public Works Board, Lease Rev.
(University of California Projects), 5s, 2023 19,000 16,977,450
AAA Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2009 5,160 5,659,230
AAA Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2015 27,295 29,944,526
A+ Indiana Office Building Community Capital
Complex Rev., 6.9s, 2011 9,500 10,958,535
AAA Indiana Office Building Community Capital
Complex Rev., AMBAC, 5.25s, 2015 6,195 5,855,762
A+ Massachusetts Bay Transportation Authority, 6.1s, 2013 10,200 10,997,334
A+ Massachusetts Bay Transportation Authority, 5.875s, 2015 4,500 4,675,185
A+ Massachusetts Bay Transportation Authority, 7s, 2021 19,185 22,295,848
AAA Massachusetts Bay Transportation Authority,
AMBAC, 5.25s, 2013 3,825 3,743,795
AAA Massachusetts Bay Transportation Authority,
AMBAC, 5.375s, 2025 13,970 13,351,828
A Metropolitan Government of Nashville & Davidson
Counties, TN, 7s, 2011 5,280 5,840,630
BBB Metropolitan Transportation Authority, NY,
Service Contract, 7.4s, 2001 4,075 4,529,770
BBB Metropolitan Transportation Authority, NY,
Service Contract, 7.375s, 2008 5,000 5,678,150
</TABLE>
7
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
State and Community Lease Revenue -- continued
<S> <C> <C> <C>
BBB Metropolitan Transportation Authority, NY,
Service Contract, 5.75s, 2013 $ 5,600 $ 5,597,648
BBB Metropolitan Transportation Authority, NY,
Service Contract (Commuter Facility), 5.5s, 2017 4,500 4,335,030
BBB Metropolitan Transportation Authority, NY,
Service Contract (Transport Facility), 5.5s, 2017 6,350 6,117,209
BBB New York Dormitory Authority Rev.
(City University), 5.75s, 2009 10,000 10,029,500
BBB New York Dormitory Authority Rev.
(City University), 7s, 2009 13,765 15,507,649
BBB New York Dormitory Authority Rev.
(City University), 7.375s, 2010 16,100 18,744,264
BBB New York Dormitory Authority Rev.
(City University), 7.5s, 2010 15,650 18,358,233
BBB New York Dormitory Authority Rev.
(City University), 5.75s, 2013 22,150 21,853,190
BBB+ New York Dormitory Authority Rev.
(Court Facilities Lease), 5.375s, 2016 4,000 3,686,000
BBB- New York Dormitory Authority Rev.
(Department of Health), 5.5s, 2025 4,250 3,947,358
AAA New York Dormitory Authority Rev.
(Mental Health Facilities), FGIC, 5.375s, 2014 9,750 9,480,315
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), 5.5s, 2019 5,000 4,772,500
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), 5.25s, 2021 7,875 7,245,551
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), 5.4s, 2023 12,125 11,184,949
BBB+ New York Dormitory Authority Rev. (State University
Educational Facilities), "A", 5.25s, 2015 8,125 7,554,950
AAA New York Dormitory Authority Rev. (State University
Educational Facilities), AMBAC, 5.3s, 2024 3,800 3,649,558
BBB+ New York Medical Care Facilities Finance Agency
(Mental Health Services), 8.875s, 2007 4,205 4,533,242
BBB+ New York Medical Care Facilities Finance Agency
(Mental Health Services), 7.875s, 2020 4,050 4,556,696
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), FGIC, 5.25s, 2019 20,200 19,142,126
BBB New York Urban Development Corp., 5.75s, 2011 2,500 2,481,150
BBB New York Urban Development Corp., 5.7s, 2020 3,000 2,927,040
BBB New York Urban Development Corp.
(Correctional Facilities), 5.75s, 2013 10,530 10,193,672
BBB New York Urban Development Corp.
(Correctional Facilities), 5.5s, 2014 5,000 4,816,350
BBB New York Urban Development Corp.
(Correctional Facilities), 5.5s, 2015 31,200 29,306,472
</TABLE>
8
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
State and Community Lease Revenue -- continued
<S> <C> <C> <C>
BBB New York Urban Development Corp.
(Correctional Facilities), 5.5s, 2016 $ 9,000 $ 8,498,880
BBB New York Urban Development Corp.
(Correctional Facilities), 5.625s, 2017 8,600 8,206,894
BBB New York Urban Development Corp.
(Correctional Facilities), 5.375s, 2025 17,000 15,507,230
AAA New York Urban Development Corp.
(Correctional Facilities), MBIA, 5.5s, 2025 8,210 8,036,194
BBB New York Urban Development Corp.
(Youth Facilities), 6s, 2015 5,000 4,964,750
AAA Rhode Island Convention Center Authority,
MBIA, 5.25s, 2015 15,500 14,863,725
AAA Rhode Island Convention Center Authority,
MBIA, 5s, 2023 31,110 27,957,624
A San Bernardino, CA, Joint Powers Financing Authority
Lease Rev. (California Department of Transportation),
5.5s, 2020 5,000 4,728,450
BBB+ St. Louis County, MO, Regional Convention and
Sports Complex Authority, 5.75s, 2021 4,760 4,623,864
AAA Vallejo, CA, Sanitation and Flood Control District,
Certificates of Participation, FGIC, 5s, 2019 7,000 6,533,870
--------------
$ 540,031,879
- ------------------------------------------------------------------------------------------------------------
Refunded and Special Obligations* -- 23.8%
AAA Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000+ $ 3,000 $ 3,445,470
AAA Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000 3,805 4,370,004
AAA Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000++ 4,560 5,237,114
AAA Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000++ 4,770 5,478,297
AAA Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000 4,990 5,730,965
AAA Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000 5,000 5,742,450
AAA Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000 3,775 4,335,550
AAA Austin, TX, Utility Systems Rev., 10.75s, 2000 2,615 3,250,027
AAA Austin, TX, Water, Sewer & Electric Rev., 14.25s, 1997 1,305 1,465,045
AA Chicago, IL, Metropolitan Water Reclamation District
(Capital Improvement), 6.8s, 2000 5,000 5,530,200
AAA Chicago, IL, Public Building Commission Rev., "A", ETM,
MBIA, 7.125s, 2015 6,590 7,265,080
AAA Clark County, NV, School District, "A", MBIA, 7s, 2001 10,050 11,364,942
A+ Commonwealth of Massachusetts, 6.875s, 2001 4,825 5,486,990
AAA Commonwealth of Massachusetts, FGIC, 7.25s, 2000 7,520 8,481,658
AAA Commonwealth of Massachusetts, FGIC, 7.25s, 2000 3,700 4,173,156
</TABLE>
9
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
Refunded and Special Obligations* -- continued
<S> <C> <C> <C>
AAA Delaware County, PA, Hospital Rev.
(Keystone Health System), MBIA, 7.2s, 1999 $ 5,440 $ 6,089,699
AAA Detroit, MI, Water Supply System Rev., FGIC, 7.25s, 2000 4,575 5,197,337
A Eden Township, CA, Health Facilities Authority
(Eden Hospital), 7.8s, 1998 4,000 4,425,400
AAA Florida Board of Education Administration,
Capital Outlay, ETM, 9.125s, 2014 265 384,213
NR Indianapolis, IN, Local Public Improvement Rev., 7.4s, 2000 3,710 4,228,547
AAA Maryland Health & Higher Education Facilities Authority Rev.
(University of Maryland Medical System), FGIC, 7s, 2001 7,945 9,081,850
AAA Massachusetts Port Authority Rev., ETM, 13s, 2013 3,500 5,858,090
AAA Massachusetts Water Resources Authority, 7.5s, 2000 15,850 18,056,003
AAA Massachusetts Water Resources Authority, 7.625s, 2000 15,760 18,026,446
AAA Metropolitan Transportation Authority, NY, Service
Contract, 7.5s, 2000 4,350 5,002,979
AAA Michigan Hospital Finance Authority Rev. (Oakwood
Hospital), FGIC, 7.1s, 2000 4,000 4,520,640
AAA Michigan Hospital Finance Authority Rev. (Oakwood
Hospital), FGIC, 7.2s, 2000 18,590 21,120,285
AAA Michigan Municipal Bond Authority (Wayne County),
FGIC, 7s, 2000 10,000 11,243,700
AAA Missouri Regional Convention & Sports Complex
Authority, 6.8s, 2003 8,950 10,270,125
AAA Missouri Regional Convention & Sports Complex
Authority, 6.9s, 2003 21,520 24,829,130
BBB+ New York City, NY, 8s, 2001 2,475 2,951,314
BBB+ New York City, NY, 8.25s, 2001 2,940 3,529,676
BBB+ New York City, NY, 7.75s, 2004 8,240 9,434,470
BBB New York Dormitory Authority Rev.
(City University), 7.875s, 2000 10,600 12,347,198
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), 8.875s, 1997 3,745 4,100,026
AAA New York Medical Care Facilities Finance Agency
(Mental Health Services), 7.875s, 2000 5,590 6,532,586
NR New York Urban Development Corp. (Correctional
Facilities), 7.625s, 2001 7,570 8,814,357
NR New York Urban Development Corp. (Correctional
Facilities), 7.375s, 2002 4,000 4,689,680
AAA Pennsylvania Convention Center Authority Rev.,
FGIC, 6.7s, 2016 51,195 60,023,066
AAA Philadelphia, PA, Municipal Authority Rev.,
FGIC, 7.8s, 1998 385 422,106
AAA Philadelphia, PA, Municipal Authority Rev.,
FGIC, 7.8s, 2000 3,765 4,259,759
AAA Philadelphia, PA, Municipal Authority Rev.,
FGIC, 7.1s, 2001 6,000 6,917,700
AAA Philadelphia, PA, Municipal Authority Rev.,
FGIC, 7.125s, 2001 4,500 5,193,900
</TABLE>
10
<PAGE>
Portfolio of Investments (Unaudited)-- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
Refunded and Special Obligations* -- continued
<S> <C> <C> <C>
AAA Philadelphia, PA, School District, MBIA, 7s, 2001 $ 9,440 $ 10,691,366
AAA San Diego, CA, Regional Building Authority Lease
Rev., MBIA, 7.25s, 2000 4,000 4,502,160
AAA Santa Clara County, CA, Certificates of Participation
(American Baptist Homes West), CA-MTG-INS, 8s, 1998 5,200 5,721,612
AAA Southern California Public Power Authority Rev., 12s, 1997 2,400 2,659,416
AAA State of Florida, Jacksonville Transportation Authority,
ETM, 9.2s, 2015 2,000 2,784,640
AA State of Florida (Roads), 7.375s, 1999 4,000 4,492,560
AAA Sullivan County, TN, Health, Educational and Housing
Facilities Board Rev., MBIA, 7.25s, 2000 4,000 4,507,000
AAA Washington Public Power Supply System Rev.,
Nuclear Project #2, 7.375s, 2000 28,845 32,848,398
AA Washington Public Power Supply System Rev.,
Nuclear Project #2, 7.625s, 2001 10,815 12,515,551
AA Washington Public Power Supply System Rev.,
Nuclear Project #3, 7.25s, 2000 20,000 22,435,000
--------------
$ 462,064,933
- ------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue -- 0.2%
NR Colorado Housing Finance Authority, FHA, 8.3s, 2023 $ 4,000 $ 4,215,920
- ------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue -- 6.7%
AAA California Statewide Communities Development Authority
Rev. (St. Joseph Health System), AMBAC, 5.5s, 2014$ 18,735 $ 18,391,587
AAA Colorado Health Facilities Authority Rev. (Sisters of
Charity Health Care), AMBAC, 6.25s, 2010 3,045 3,349,378
AAA Davenport, IA, Hospital Rev. (St. Lukes Hospital),
AMBAC, 7.4s, 2020 2,715 3,005,668
AAA Deerfield, IL, Rev. (Jewish Federation of
Metropolitan Chicago), AMBAC, 5.375s, 2020 15,270 14,503,446
AAA Hanover County, VA, Industrial Development
Authority Hospital Rev. (Bon Secours Health
System Project), MBIA, 5.5s, 2025 5,780 5,568,568
AAA Illinois Health Facilities Authority (Methodist
Healthcare Center), AMBAC, 7s, 2021*** 3,000 3,582,090
AAA Indiana Health Facilities Financing Authority Rev.
(Community Hospital Projects), MBIA, 5.7s, 2022 4,000 3,888,560
AAA Maryland Health & Higher Education Facilities
Authority Rev. (Francis Scott Key Medical Center),
FGIC, 5s, 2013 3,200 3,035,072
AAA Massachusetts Health & Education Facilities Authority
(Massachusetts General Hospital), AMBAC, 5.25s, 2023 7,285 6,882,285
AAA Massachusetts Health & Education Facilities Authority
(University Hospital), MBIA, 7.25s, 2019 4,500 5,034,285
AAA Medical Center Hospital Authority, GA, Rev., MBIA,
8.293s, 2010*** 4,000 4,589,560
AAA Metropolitan Health Facilities Development Corp.,
TX (Wilson N. Jones Memorial Hospital),
Connie Lee, 5.6s, 2017 4,250 4,213,323
</TABLE>
11
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue -- continued
<S> <C> <C> <C>
AAA Michigan Hospital Finance Authority Rev.
(Sisters of Mercy), MBIA, 5.375s, 2014 $ 9,000 $ 8,920,800
AA New York Medical Care Facilities Financing Agency
Rev. (Hospital and Nursing Home FHA
Mortgage), 7.625s, 2023 3,500 3,762,115
AAA Oklahoma Industrial Authority Rev. (Integris Baptist
Health System), AMBAC, 5s, 2014 10,000 9,302,500
AAA Peninsula Ports Authority, VA, Hospital Facilities
Rev. (Wittaker Memorial), FHA, 8.7s, 2023 1,595 1,701,737
AAA Salt Lake City, UT, Hospital Rev. (Intermountain
Health Care), AMBAC, 9.16s, 2020*** 2,000 2,352,300
AAA Sayre, PA, Health Care Facilities Authority Rev.
(Guthrie Healthcare Systems), AMBAC, 7s, 2011 6,000 6,535,200
AAA Tarrant County, TX, Health Educational and Housing
Finance Authority Rev., MBIA, 6s, 2021 6,000 6,415,440
AAA Tarrant County, TX, Health Facilities Development Corp.
(Harris Methodist Health System), AMBAC, 5.125s, 2018 5,000 4,631,800
AAA Washington County, PA, Hospital Authority (Washington
Hospital), AMBAC, 7.15s, 2017 9,000 9,880,740
--------------
$ 129,546,454
- ------------------------------------------------------------------------------------------------------------
Health Care Revenue -- 0.8%
AA- Cuyahoga County, OH, Hospital Rev. (Cleveland Clinic),
8s, 2015 $ 8,550 $ 9,106,434
AA- Maryland Health & Higher Education Facilities
Authority Rev. (The Johns Hopkins Hospital), 5s, 2023 7,595 6,941,602
--------------
$ 16,048,036
- ------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue -- 6.0%
AAA Georgia Municipal Electric Authority, AMBAC, 7.8s, 2020 $ 7,000 $ 7,458,150
AAA Georgia Municipal Electric Authority, MBIA, 6.375s, 2016 5,000 5,505,000
AA- Intermountain Power Agency, Utah Power Supply
Rev., 5s, 2021 10,000 9,066,800
AA Intermountain Power Agency, Utah Power Supply
Rev., 5s, 2023 4,675 4,224,377
AAA Intermountain Power Agency, Utah Power Supply
Rev., MBIA, 5.7s, 2017 10,000 9,769,400
AAA Municipal Electric Authority of Georgia, Special
Obligation, AMBAC, 6.5s, 2017 8,510 9,500,479
AAA New York Energy Research and Development
Authority, Gas Facilities Rev. (Brooklyn Union Gas
Co. Project), MBIA, 5.5s, 2021 18,650 18,205,384
AAA North Carolina Municipal Power Agency Rev.
(Catawba Electric), "A", AMBAC, 5.375s, 2020 5,000 4,808,150
AAA Northern California Transmission Agency
(Oregon Transmission), MBIA, 7s, 2013 4,000 4,704,640
AAA Piedmont Municipal Power Agency, SC, Electric
Rev., FGIC, 6.25s, 2021 4,150 4,527,401
A+ Southern California Public Power Authority,
Transmission Project Rev., 0s, 2005 11,185 6,942,306
</TABLE>
12
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue -- continued
<S> <C> <C> <C>
AAA Southern California Public Power Authority Rev.
(San Juan Unit Power Project), MBIA, 5.25s, 2014 $ 14,940 $ 14,499,121
AA- Southern California Public Power Authority Rev.,
"A", 5s, 2015 5,000 4,596,800
AAA Washington Public Power Supply System Rev.,
Nuclear Project #1, FGIC, 0s, 2005 6,895 4,310,823
AA Washington Public Power Supply System Rev.,
Nuclear Project #2, 7s, 2012 6,000 6,515,880
AAA Washington Public Power Supply System Rev.,
Nuclear Project #3, BIGI, 0s, 2010 5,860 2,656,865
--------------
$ 117,291,576
- ------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue -- 2.5%
AAA Chicago, IL, Wastewater Transmission Rev., FGIC,
5.125s, 2025 $ 13,140 $ 12,111,532
AAA Chicago, IL, Water Rev., FGIC, 5s, 2025 10,750 9,778,953
AAA East Bay, CA, Municipal Utilities District
(Water Systems Rev.), MBIA, 5s, 2014 7,900 7,394,953
AAA Los Angeles County, CA, Sanitation Districts Financing
Authority Rev. (Capital Projects), MBIA, 5.25s, 2019 16,630 15,644,506
AAA Philadelphia, PA, Water & Wastewater Rev.,
Cap Guaranty, 5s, 2016 4,500 4,169,160
--------------
$ 49,099,104
- ------------------------------------------------------------------------------------------------------------
Turnpike Revenue -- 1.7%
BBB- Foothill/Eastern Transportation Corridor Agency Rev.
(California Toll Road), 6s, 2034 $ 7,500 $ 7,157,475
BBB Triborough Bridge & Tunnel Authority, NY, 7.25s, 2010 22,905 26,424,353
--------------
$ 33,581,828
- ------------------------------------------------------------------------------------------------------------
Airport and Port Revenue -- 0.8%
AAA Connecticut Airport Rev., FGIC, 7.65s, 2012 $ 5,000 $ 5,917,150
AAA Dade County, FL (Seaport), MBIA, 5.125s, 2016 4,050 3,858,800
AAA Dade County, FL (Seaport), MBIA, 5.125s, 2026 6,250 5,862,688
--------------
$ 15,638,638
- ------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue -- 2.6%
AAA Chico, CA, Public Financing Authority Rev. (Southeast
Chico Redevelopment Project), FGIC, 6.625s, 2021 $ 5,000 $ 5,380,900
AAA Illinois Dedicated Tax Rev. (Civic Center),
AMBAC, 6.25s, 2011 3,640 3,944,668
AAA Illinois Sales Tax Rev., 6.5s, 2022 5,000 5,677,550
AAA Illinois Sales Tax Rev. (Public Improvement), 0s, 2009 8,965 4,436,061
AA- Metropolitan Atlanta, GA, Rapid Transit
Authority, 6.25s, 2018 4,580 5,024,855
AAA Rhode Island Depositors Economic Protection Corp.,
"A", FSA, 5.75s, 2014 14,800 15,101,920
AAA Rhode Island Depositors Economic Protection Corp.,
"A", FSA, 5.75s, 2019 10,000 10,168,000
--------------
$ 49,733,954
- ------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Municipal Bonds -- continued
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) -- 0.6%
<S> <C> <C> <C>
AAA Mercer County, ND, Pollution Control (Antelope Valley
Station), AMBAC, 7.2s, 2013 $ 4,000 $ 4,838,720
AAA Michigan State Strategic Fund Rev. (Detroit Edison),
MBIA, 7s, 2008 3,000 3,516,930
AA- York County, PA, Industrial Development Rev., 8.2s, 2014 4,250 4,626,210
--------------
$ 12,981,860
- ------------------------------------------------------------------------------------------------------------
Universities -- 2.6%
AAA Massachusetts Health and Education Facilities
Authority Rev. (Harvard University), 6.25s, 2020 $ 32,200 $ 36,346,070
AA+ Massachusetts Health and Education Facilities Authority
Rev. (Massachusetts Institute of Technology), 5s, 2023 3,000 2,846,520
AAA Pennsylvania Higher Educational Facilities Authority,
College & Universities Rev. (Hahnemann University
Project), MBIA, 7.2s, 2019 4,015 4,333,347
AA+ Texas A & M University (Permanent University Fund),
0s, 2007 6,695 3,831,814
AA+ Texas A & M University (Permanent University Fund),
0s, 2008 7,175 3,862,517
--------------
$ 51,220,268
- ------------------------------------------------------------------------------------------------------------
Special Assessment District
AAA Culver City, CA, Redevelopment Finance Authority,
AMBAC, 7.1s, 2010 $ 560 $ 615,053
- ------------------------------------------------------------------------------------------------------------
Solid Waste -- 0.2%
AAA Northeast Maryland, Waste Disposal Authority (Harford
County Resource Recovery), MBIA, 7.2s, 2005 $ 3,000 $ 3,483,570
- ------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,734,189,300) $1,893,905,952
- ------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes -- 0.5%
- ------------------------------------------------------------------------------------------------------------
NR East Baton Rouge, LA, Pollution Control, due 2019 $ 600 $ 600,000
NR Grand Rapids, MI, Water Supply System, due 2020 1,800 1,800,000
NR Hillsborough County, FL, Pollution Control Rev.
(Tampa Electric Co.), due 2015 800 800,000
A1+ Lincoln County, WY, Pollution Control (Exxon),
due 2014 600 600,000
NR Perry County, MS, Pollution Control Rev., due 2002 1,700 1,700,000
NR Uinta County, WY, Pollution Control Rev.
(Chevron), due 2020 3,500 3,500,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes (Identified Cost, $9,000,000) $ 9,000,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Warrant -- 0.2%
- ------------------------------------------------------------------------------------------------------------
S & P Principal Amount
Bond Rating Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NR Intermountain Power Agency, Utah Power Supply Rev.,
expires 5/30/96# $ 20,000 $ 2,925,000
- ------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,744,459,300) $1,905,830,952
Other Assets, Less Liabilities -- 2.0% 38,444,457
- ------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,944,275,409
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Dates indicated are refunding dates.
**Indexed security.
***Inverse floating rate security.
+Security segregated as collateral for an open futures contract.
++Restricted security.
#SEC Rule 144A restriction.
See notes to financial statements
15
<PAGE>
Financial Statements
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (identified cost, $1,744,459,300) $ 1,905,830,952
Cash 75,787
Receivable for daily variation margin on open futures contracts 15,562
Receivable for investments sold 36,716,334
Receivable for Fund shares sold 1,672,764
Interest and dividends receivable 26,624,742
Other assets 26,627
---------------
Total assets $ 1,970,962,768
---------------
Liabilities:
Distributions payable $ 3,454,078
Payable for investments purchased 21,991,112
Payable for Fund shares reacquired 867,881
Payable to affiliates -
Management fee 21,432
Shareholder servicing agent fee 6,259
Distribution fee 9,920
Accrued expenses and other liabilities 336,677
---------------
Total liabilities $ 26,687,359
---------------
Net assets $ 1,944,275,409
---------------
Net assets consist of:
Paid-in capital $ 1,772,915,076
Unrealized appreciation on investments 161,395,277
Accumulated undistributed net realized gain on investments 14,692,141
Accumulated distributions in excess of net investment income (4,727,085)
---------------
Total $ 1,944,275,409
---------------
Shares of beneficial interest outstanding 174,981,976
---------------
Class A shares:
Net asset value and redemption price per share
(net assets of $1,880,142,255/169,206,731 shares
of beneficial interest outstanding) $11.11
------
Offering price per share (100/95.25) $11.66
------
Class B shares:
Net asset value and offering price per share
(net assets of $64,133,154/5,775,245 shares
of beneficial interest outstanding) $11.10
------
</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
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended February 29, 1996
- --------------------------------------------------------------------------------
Net investment income:
Interest income $ 59,293,369
-------------
Expenses -
Management fee $ 4,020,266
Trustees' compensation 48,867
Shareholder servicing agent fee (Class A) 1,102,218
Shareholder servicing agent fee (Class B) 67,539
Distribution and service fee (Class B) 256,656
Custodian fee 259,495
Postage 64,855
Auditing fees 31,255
Legal fees 1,857
Miscellaneous 235,088
-------------
Total expenses $ 6,088,096
Fees paid indirectly (87,997)
-------------
Net expenses $ 6,000,099
-------------
Net investment income $ 53,293,270
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 38,280,981
Futures contracts (235,692)
-------------
Net realized gain on investments $ 38,045,289
-------------
Change in unrealized appreciation (depreciation) -
Investments $ 15,251,364
Futures contracts (13,875)
-------------
Net unrealized gain on investments $ 15,237,489
-------------
Net realized and unrealized gain on investments $ 53,282,778
-------------
Increase in net assets from operations $ 106,576,048
=============
See notes to financial statements
17
<PAGE>
Financial Statements -- continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Six Months Ended
February 29, 1996 Year Ended
(Unaudited) August 31, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 53,293,270 $ 111,803,151
Net realized gain (loss) on investments 38,045,289 (16,663,804)
Net unrealized gain on investments 15,237,489 47,294,564
--------------- ---------------
Increase in net assets from operations $ 106,576,048 $ 142,433,911
--------------- ---------------
Distributions declared to shareholders -
From net investment income (Class A) $ (51,616,303) $ (109,114,422)
From net investment income (Class B) (1,336,634) (2,258,122)
In excess of net investment income (Class A) (107,882) --
In excess of net investment income (Class B) (2,794) --
--------------- ---------------
Total distributions declared to shareholders $ (53,063,613) $ (111,372,544)
--------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 694,477,288 $ 1,013,395,465
Net asset value of shares issued to shareholders
in reinvestment of distributions 30,990,307 65,324,925
Cost of shares reacquired (839,275,268) (1,180,849,407)
--------------- ---------------
Decrease in net assets from Fund share transactions $ (113,807,673) $ (102,129,017)
--------------- ---------------
Total decrease in net assets $ (60,295,238) $ (71,067,650)
Net assets:
At beginning of period 2,004,570,647 2,075,638,297
--------------- ---------------
At end of period (including accumulated distributions in
excess of net investment income of $4,727,085 and
$4,956,742, respectively) $ 1,944,275,409 $ 2,004,570,647
=============== ===============
</TABLE>
See notes to financial statements
18
<PAGE>
Financial Statements -- continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ten Months
February 29, Ended Ended Year Ended October 31,
1996 August 31, August 31, ----------------------------------
(Unaudited) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.83 $10.68 $11.64 $10.73 $10.80 $10.11
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.29 $ 0.60 $ 0.51 $ 0.61 $ 0.66 $ 0.68
Net realized and unrealized gain
(loss) on investments 0.28 0.15 (0.77) 1.14 0.09 0.69
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.57 $ 0.75 $(0.26) $ 1.75 $0.75 $ 1.37
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.29) $(0.60) $(0.47) $(0.66) $(0.66) $(0.68)
In excess of net investment income -- -- (0.04) (0.03) -- --
From net realized gain on investments -- -- (0.16) (0.15) (0.16) --
In excess of net realized gain
on investments -- -- (0.03) -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.29) $(0.60) $(0.70) $(0.84) $(0.82) $(0.68)
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.11 $10.83 $10.68 $11.64 $10.73 $10.80
------ ------ ------ ------ ------ ------
Total return++ 5.33%++ 7.31% (2.33)%++ 16.97% 7.35% 13.85%
Ratios (to average net assets)/Supplemental data:
Expenses## 0.58%+ 0.61% 0.59%+ 0.59% 0.57% 0.59%
Net investment income 5.29%+ 5.70% 5.49%+ 5.63% 6.12% 6.47%
Portfolio turnover 42% 90% 74% 56% 87% 98%
Net assets at end of period (000,000 omitted) $1,880 $1,949 $2,031 $2,195 $1,878 $1,715
</TABLE>
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
++ Total returns for Class A shares do not include the applicable sales
charge. If the charge had been included, the results would have been lower.
See notes to financial statements
19
<PAGE>
Financial Statements - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31,
-----------------------------------------------------------------------------
1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------------
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 $10.53 $10.57 $ 9.71 $11.00 $10.02 $ 9.12
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.68 $ 0.72 $ 0.73 $ 0.72 $ 0.78 $ 0.82
Net realized and unrealized gain (loss)
on investments (0.13) 0.04 0.86 (0.90) 1.27 0.89
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.55 $ 0.76 $ 1.59 $(0.18) $ 2.05 $ 1.71
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.69) $(0.72) $(0.73) $(0.72) $(0.78) $(0.81)
In excess of net investment income -- -- -- (0.39) -- --
From net realized gain on investments (0.27) (0.08) -- -- (0.29) --
From paid-in capital (0.01) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.97) $(0.80) $(0.73) $(1.11) $(1.07) $(0.81)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.11 $10.53 $10.57 $ 9.71 $11.00 $10.02
------ ------ ------ ------ ------ ------
Total return++ 5.42% 7.54% 16.95% (1.98)% 21.79% 19.64%
Ratios (to average net assets)/Supplemental data:
Expenses 0.60% 0.64% 0.65% 0.61% 0.64% 0.69%
Net investment income 6.69% 6.87% 7.16% 6.96% 7.45% 8.50%
Portfolio turnover 160% 199% 190% 218% 164% 225%
Net assets at end of period (000,000 omitted) $1,409 $1,259 $1,003 $903 $844 $469
</TABLE>
++ 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.
See notes to financial statements
20
<PAGE>
Financial Statements - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ten Months Year
February 29, Ended Ended Ended
1996 August 31, August 31, October 31,
(Unaudited) 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.83 $10.67 $11.63 $11.68
------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.24 $ 0.49 $ 0.40 $ 0.07
Net realized and unrealized gain (loss)
on investments 0.26 0.16 (0.77) (0.05)
------ ------ ------ ------
Total from investment operations $ 0.50 $ 0.65 $(0.37) $ 0.02
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.23) $(0.49) $(0.40) $(0.07)(s)
From net realized gain on investments -- -- (0.16) --
In excess of net realized gain
on investments -- -- (0.03) --
------ ------ ------ ------
Total distributions declared
to shareholders $(0.23) $(0.49) $(0.59) $(0.07)
------ ------ ------ ------
Net asset value - end of period $11.10 $10.83 $10.67 $11.63
------ ------ ------ ------
Total return 4.74%++ 6.35% (3.25)%++ 1.49%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.52%+ 1.60% 1.72%+ 1.70%+
Net investment income 4.35%+ 4.68% 4.41%+ 3.85%+
Portfolio turnover 42% 90% 74% 56%
Net assets at end of period (000,000 omitted) $ 64 $ 56 $ 45 $ 10
</TABLE>
* For the period from the commencement of offering of Class B shares,
September 7, 1993 to October 31, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
(s) Includes a per share distribution in excess of net investment income of
$0.002.
See notes to financial statements
21
<PAGE>
Notes to Financial Statements (Unaudited)
(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.
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.
Investments in equity-indexed contracts, or contracts on related options, for
purposes other than hedging may be made when the Fund has cash on hand and
wishes to participate in anticipated market appreciation while the cash is being
invested. 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.
Interest payments received in additional securities are recorded on the
ex-interest date in an amount equal to the value of the security on such date.
Fees Paid Indirectly -- The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
22
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions -- The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. The Fund files a tax return annually
using tax accounting methods required under provisions of the Code which may
differ from generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may differ
from that reported on the Fund's tax return and, consequently, the character of
distributions to shareholders reported in the financial highlights may differ
from that reported to shareholders on Form 1099-DIV.
Distributions 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.
At August 31, 1995, the Fund, for federal income tax purposes, had a capital
loss carry-forward 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 both Class
A and Class B shares. The two classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. All shareholders
bear the common expenses of the Fund pro rata based on 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.
23
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(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 0.21% 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 $11,968 for the period ended
February 29, 1996.
Distributor -- MFD, a wholly owned subsidiary of MFS, as distributor, received
$159,663 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 currently suspended on Class B shares held over one year. MFD will pay to
securities dealers that enter into a sales agreement with MFD all or a portion
of the service fee attributable to Class B shares. The service fee is intended
to be additional consideration for services rendered by the dealer with respect
to Class B shares. MFD retains the service fee for accounts not attributable to
a securities dealer, which amounted to $0 for Class B shares for the period
ended February 29, 1996. Fees incurred under the distribution plan during the
period ended February 29, 1996 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 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the period ended February 29, 1996 were $118 and $179,716
for Class A and Class B shares, respectively.
24
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
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
$815,537,114 and $862,926,672, 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 $1,744,459,300
--------------
Gross unrealized appreciation $ 167,339,203
Gross unrealized depreciation (5,967,551)
--------------
Net unrealized appreciation $ 161,371,652
--------------
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Period Ended Year Ended
February 29, 1996 August 31, 1995
------------------------------------- -------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 60,819,304 $ 676,803,945 93,895,405 $ 988,178,343
Shares issued to shareholders in
reinvestment of distributions 2,708,482 30,135,179 6,046,921 63,804,833
Shares reacquired (74,178,549) (827,370,424) (110,192,105) (1,164,453,444)
--------------- --------------- --------------- ---------------
Net decrease (10,650,763) $ (120,431,300) (10,249,779) $ (112,470,268)
--------------- --------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Period Ended Year Ended
February 29, 1996 August 31, 1995
------------------------------------- -------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,594,436 $ 17,673,343 2,382,993 $ 25,217,122
Shares issued to shareholders in
reinvestment of distributions 76,899 855,128 143,928 1,520,092
Shares reacquired (1,070,654) (11,904,844) (1,559,038) (16,395,963)
--------------- --------------- --------------- ---------------
Net increase 600,681 $ 6,623,627 967,883 $ 10,341,251
--------------- --------------- --------------- ---------------
</TABLE>
25
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(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 period ended February
29, 1996 was $25,069.
(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 February 29, 1996, is as
follows:
Futures Contracts
Unrealized
Expiration Contracts Position Appreciation
- --------------------------------------------------------------------------------
March 1996 35 Municipal Bonds Long $13,125
March 1996 48 Municipal Bonds Long 10,500
-------
$23,625
-------
At February 29, 1996, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
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 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 29, 1996:
<TABLE>
<CAPTION>
Principal Unrealized
Description Index Amount Value Appreciation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Coupon-Indexed Security:
New York, NY, 6.6s, 2016 PSA municipal swap $4,000,000 $4,083,200 $83,200
-------
</TABLE>
26
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(8) Restricted Securities
The Fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At February 29,
1996, the Fund owned the following restricted securities (constituting 0.70% of
total assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers.
<TABLE>
<CAPTION>
Share
Date of Par
Description Acquisition Amount Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alameda County, CA, Certificates of
Participation, BIGI, 7.25s, 2000 9/21/90 $34,560,000 $4,448,690 $ 5,237,114
Alameda County, CA, Certificates of
Participation, BIGI, 7.25s, 2000 9/19/90 4,770,000 4,667,397 5,478,297
Intermountain Power Agency,
Utah Power Supply Rev,
Warrants, expires 5/30/96. 3/16/95 20,000,000 1,270,000 2,925,000
-----------
$13,640,411
-----------
</TABLE>
- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
27
<PAGE>
MFS Investment Opportunities
Mutual Funds
The MFS Family of Funds(R), shown on the facing page, falls into the eight
general categories below. All offer full-time professional management, a
diversified portfolio, and a wide array of shareholder services.
Stock funds seek growth of capital rather than income through investments in
stocks.
Stock and bond funds seek current income and growth of capital through
investments in both stocks and bonds.
Bond funds seek current income through investments in debt securities.
World funds seek stock, balanced, and bond fund objectives through investments
in U.S. and foreign stocks and bonds.
Limited-maturity funds seek current income and preservation of capital through
investments in debt securities with remaining maturities of five years or less.
National tax-free bond funds seek current income exempt from federal income tax
through investments in debt securities issued by states and municipalities.1
State tax-free bond funds seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state and
its municipalities.1
Money market funds seek preservation of capital and current income through
investments in short-term debt securities.2
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information for
literature3 on MFS products and services: 1-800-637-2929, from 9 a.m. to 5 p.m.
Eastern time any business day (leave a message anytime).
1 A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
2 Investments in money market funds are not issued or guaranteed by the U.S.
government and there is no assurance that the fund will be able to maintain
a stable net asset value.
3 Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
28
<PAGE>
The MFS Family of Funds(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or leave a message
anytime). 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
- --------------------------------------------------------------------------------
Limited Maturity Bond
- --------------------------------------------------------------------------------
MFS(R) Government Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS(R) Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS(R) Municipal Limited Maturity Fund
- --------------------------------------------------------------------------------
World
- --------------------------------------------------------------------------------
MFS(R)/Foreign & Colonial Emerging
Markets Equity Fund
- --------------------------------------------------------------------------------
MFS(R)/Foreign & Colonial International
Growth Fund
- --------------------------------------------------------------------------------
MFS(R)/Foreign & Colonial International
Growth and Income Fund
- --------------------------------------------------------------------------------
MFS(R) World Asset Allocation Fund(SM)
- --------------------------------------------------------------------------------
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
Bond Fund
[LOGO]
500 Boylston Street
Boston, MA 02116
[LOGO] M F S
THE FIRST NAME IN MUTUAL FUNDS
---------------
Bulk Rate
U.S. Postage
PAID
Permit #55638
Boston, MA
---------------
MMB-3 4/96 60M 17/217
