[MFS INVESTMENT MANAGEMENT LOGO]
Semiannual Report
February 28, 1997
MFS(R) Municipal Bond Fund
[silhouette of two people in front of window]
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter from the Chairman ............ 1
Portfolio Manager's Overview ......... 2
Portfolio Manager's Profile ......... 4
Fund Facts ........................... 4
Performance Summary .................. 5
Portfolio of Investments ............ 6
Financial Statements ............... 16
Notes to Financial Statements ...... 22
The MFS Family of Funds[Reg] ......... 28
Trustees and Officers ............... 29
</TABLE>
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Highlights
(bullet) For the six months ended February 28, 1997, Class A shares of the Fund
provided a total return at net asset value of 3.95%, while Class B
shares returned 3.39%.
(bullet) The municipal bond market has seen many more ratings upgrades recently
than downgrades, reflecting the strong national economy as well as
conservative budgetary practices by municipal officials.
(bullet) The Fund's credit structure is very strong, with 68% of the portfolio
invested in bonds rated either "AAA" or "AA" by Standard & Poor's, and
with 45% of the portfolio enhanced by bond insurance.
(bullet) The Fund's largest sector holdings are in general obligation and other
tax-backed bonds, essential service utility revenue bonds, and
pre-refunded bonds backed by an escrow fund of U.S. Treasuries.
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<PAGE>
Letter from the Chairman
[GRAPHIC OMITTED]
Dear Shareholders:
After more than six years of expansion, the U.S.
economy appears to be experiencing another year of
moderate growth in 1997, although a few signs point
to the possibility of a modest rise in inflation
during the year. On the positive side, the pattern
of moderate growth and inflation set over the past
few years now seems fairly well entrenched in the
economy and, short of a major international or
domestic crisis, appears to have enough momentum to
remain on track for some time. Also, gains in such
important sectors as housing, automobiles,
industrial production, and exports indicate a fair
amount of underlying strength in the economy.
However, some reason for caution can be seen in the
continuing high levels of consumer debt and rising
personal bankruptcies, as well as in the ongoing
tightness in labor markets, which could add some
inflationary pressures to the economy. Given these
somewhat conflicting indicators, we expect real
(inflation-adjusted) growth to revolve around 2% in
1997, which would represent a modest decline from
1996.
In the bond markets, conflicting signals over the strength of the economy have
created near-term volatility, while comments by Federal Reserve Board Chairman
Alan Greenspan late in 1996 and earlier this year created some uncertainty about
the Federal Reserve's next move. However, we expect the Fed to maintain its
anti-inflationary stance should signs of more rapid economic growth and,
particularly, higher inflation resurface. While inflationary forces largely
remained in check in 1996, the continued strength in the labor market means that
a pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product, is
now less than 2%, which we consider a positive development for the bond markets.
Although interest rates may move higher over the coming months, we believe that,
at current levels, fixed-income markets remain equitably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
March 12, 1997
1
<PAGE>
Portfolio Manager's Overview
[GRAPHIC OMITTED]
Dear Shareholders:
On February 28, 1997, yields of long-term,
high-grade municipal bonds were 20 basis points
(0.20%) lower than on August 31, 1996. This
observation, however, masks the fact that this
period saw a continuation of dramatic interest rate
volatility. The course of interest rates changed
numerous times as investors' perceptions about the
strength of the economy, inflation, and the
prospects for Federal Reserve Board action changed
Robert A. Dennis frequently. The range of long-term municipal yields
from low to high was about 40 basis points (0.40%).
For the six months ended February 28, 1997, Class A shares of the Fund provided
a total return of 3.95%, while Class B shares returned 3.39%. These returns,
which assume the reinvestment of distributions but exclude the effects of any
sales charges, compare to average returns of 4.79% for general municipal bond
funds as reported by Lipper Analytical Services and 5.13% for the Lehman
Brothers Municipal Bond Index, an unmanaged index of about 8,000
investment-grade, mostly long-term bonds.
As seen by the fact that the municipal bond market significantly outperformed
the taxable market over the past year, the municipal market is in very good
shape. Supply rose somewhat in 1996 over 1995 but is still very moderate by
recent historical standards. Demand, primarily from casualty insurance companies
and direct retail purchases, has been consistently more than sufficient to
absorb the supply. In terms of credits, the market has seen many more upgrades
of ratings than downgrades, reflecting the strong national economy as well as
conservative budgetary practices by municipal officials. Indeed, the overall
level of surplus balances enjoyed by state and local governments is the
strongest in years.
One of the most dramatic trends in the municipal market has been the continued
rise in the penetration of bond insurance. Almost half of 1996's new issuance
was enhanced by bond insurance. The role of bond insurance -- in conjunction
with the very healthy condition of municipal credits and the relatively low
absolute level of interest rates -- has contributed to the continued narrowing
of already very low yield spreads among
2
<PAGE>
Portfolio Manager's Overview - continued
qualities in the municipal market. Accordingly, no one sector, state, or region
represents unusual value in today's market, and investors are generally not
being adequately compensated for investing in lower-grade bonds.
Thus, the Fund's credit structure is very strong, with 68% of the portfolio
invested in bonds rated either "AAA" or "AA" by Standard & Poor's, and with 45%
of the portfolio enhanced by bond insurance. The Fund's largest sector holdings
are in general obligation and other tax-backed bonds, essential service utility
revenue bonds, and pre-refunded bonds backed by an escrow fund of U.S. Treasury
securities. Portfolio structure is also characterized by excellent call
protection, with 33% of the portfolio invested in noncallable bonds and most
callable bonds having eight to 10 years of protection.
The year 1996 proved to be one of disappointing results. The lagging
performance was not due to underperformance by specific credits, sectors, or
bond structures, nor did the Fund engage in any investment strategies that had
not been successfully employed in the past. As noted previously, the bond market
has been very volatile, with numerous changes of direction in interest rates,
and the Fund's duration, or interest rate sensitivity, was frequently adjusted
in an effort to position the Fund for what we thought to be the near-term trend
in rates. Unfortunately, these efforts largely proved untimely as the Fund's
duration often proved to be either somewhat too long or somewhat too short in
the context of the actual moves in interest rates.
We regret the Fund's recent underperformance. Going forward, we plan to seek to
make the Fund less vulnerable to unexpected interest rates moves. We have
re-evaluated the efficiency of various instruments, such as futures contracts,
that we have used for hedging purposes. Furthermore, we intend to add value to
the Fund by concentrating on our department's strengths -- experience in finding
market aberrations and intensive credit research. Indeed, the Fund's performance
during the first two months of 1997 already indicates more favorable results,
although past performance is no guarantee of future results.
The expertise of our municipal credit research staff should prove valuable in
the months ahead as municipal issuers face a number of challenges, including
coping with the new federal welfare reform law, possible cutbacks in federal
Medicare and Medicaid payments, other possible federal aid cutbacks arising from
further efforts to reduce the budget deficit, and the
3
<PAGE>
Portfolio Manager's Overview - continued
competitive challenges facing electric utilities as a result of deregulation
trends.
Respectfully,
/S/ Robert A. Dennis
Robert A. Dennis
Portfolio Manager
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Portfolio Manager's Profile
Robert A. Dennis is Senior Vice President of MFS Investment Management and
Portfolio Manager of MFS(reg) Municipal Bond Fund and MFS(reg) Municipal Limited
Maturity Fund. Mr. Dennis, who joined MFS in 1980, was named Assistant Vice
President-Investments in 1981, Vice President-Investments in 1983, and Senior
Vice President in 1986. He is a graduate of Massachusetts Institute of
Technology and its Sloan School of Management.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund Facts
Strategy: 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 and
protection of shareholders' capital.
Commencement of
investment operations: Class A: December 16, 1976
Class B: September 7, 1993
Size: $1.77 billion net assets as of February 28, 1997
- --------------------------------------------------------------------------------
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)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.95% +3.30% +40.19% +101.74%
- ---------------------------- ------- ------- --------- ---------
Average Annual Total Return -- +3.30% + 6.99% + 7.27%
- ---------------------------- ------- ------- --------- ---------
SEC Results -- -1.58% + 5.95% + 6.75%
- ---------------------------- ------- ------- --------- ---------
</TABLE>
Class B Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.39% +2.35% +35.28% +94.52%
- ---------------------------- ------- ------- --------- ---------
Average Annual Total Return -- +2.35% + 6.23% + 6.88%
- ---------------------------- ------- ------- --------- ---------
SEC Results -- -1.57% + 5.91% + 6.88%
- ---------------------------- ------- ------- --------- ---------
</TABLE>
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.
Class A SEC results include the maximum 4.75% sales charge. Class B SEC results
reflect the applicable contingent deferred sales charge (CDSC), which declines
over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class B shares have
higher annual fees and expenses than Class A shares.
Class B share performance includes the performance of the Fund's Class A shares
for periods prior to the commencement of offering of Class B shares on September
7, 1993. Sales charges and operating expenses for Class A and Class B shares
differ. The Class A share performance, which is included within the Class B
share SEC results, has been adjusted to reflect the CDSC generally applicable to
Class B shares rather than the initial sales charge generally applicable to
Class A shares. Class B share performance has not been adjusted, however, to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class A shares.
Fund results reflect any applicable expense subsidies and waivers, without which
the performance results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details.
5
<PAGE>
Portfolio of Investments (Unaudited) - February 28, 1997
Municipal Bonds - 94.0%
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<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------- ------------------ ---------------
<S> <C> <C>
General Obligation - 10.9%
Chicago, IL, AMBAC, 5.5s, 2018 $11,800 $ 11,682,708
Chicago, IL, Board of Education, MBIA, 6.25s, 2012 2,500 2,742,075
Clark County, NV, Las Vegas Convention & Visitors
Authority, MBIA, 5.5s, 2021 7,500 7,303,725
Clark County, NV, School District, MBIA, 7s, 2010 4,000 4,655,640
Commonwealth of Massachusetts, 7s, 2007 1,285 1,414,952
Commonwealth of Massachusetts, 6.5s, 2008 6,400 7,180,736
Commonwealth of Massachusetts, FGIC, 7s, 2009 7,000 8,215,690
Detroit, MI, 6.25s, 2009 5,235 5,463,298
Florida Board of Education, Capital Outlay, 9.125s,
2014 1,735 2,456,968
Florida Board of Education, Capital Outlay, 6.4s, 2019 5,000 5,316,200
New York City, NY, 7.5s, 2002 12,500 13,816,625
New York City, NY, 7.5s, 2006 5,000 5,471,200
New York City, NY, 7.65s, 2006 5,000 5,665,049
New York City, NY, 7.5s, 2007 15,500 17,315,050
New York City, NY, 7.5s, 2008 10,000 11,124,800
New York City, NY, 7.7s, 2009 4,000 4,575,597
New York City, NY, 5.75s, 2013 9,000 8,716,770
New York City, NY, 5.75s, 2014 9,500 9,168,830
New York City, NY, 5.75s, 2015 11,085 10,662,883
New York City, NY, 6.6s, 2016[sec] 4,000 3,993,880
State of California, 5.5s, 2013### 5,000 5,067,450
State of California, 5.25s, 2019 10,200 9,644,712
State of California, 5.25s, 2020 7,770 7,290,280
State of Florida, Broward County Expressway
Authority, 10s, 2014 4,350 6,526,349
State of Washington, 6.75s, 2010 3,880 4,450,088
State of Washington, 6s, 2012 4,360 4,665,026
State of Washington, 5s, 2017 5,000 4,656,000
Virginia Public School Authority, School Financing,
5.125s, 2017 5,000 4,764,850
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$194,007,431
-------------
State and Local Appropriation - 26.2%
California Public Works Board, Lease Rev. (California
State University), AMBAC, 5.375s, 2017 $10,000 $ 9,702,300
California Public Works Board, Lease Rev. (Department
of Corrections), AMBAC, 5.25s, 2013 6,795 6,667,118
California Public Works Board, Lease Rev. (Department
of Corrections), AMBAC, 5.5s, 2014 8,000 7,980,560
California Public Works Board, Lease Rev. (Department
of Corrections), AMBAC, 5.5s, 2017 10,305 10,156,608
California Public Works Board, Lease Rev. (Department
of Corrections), MBIA, 5.375s, 2019### 10,055 9,554,161
California Public Works Board, Lease Rev. (University
of California), 5.5s, 2014 7,000 6,952,050
California Public Works Board, Lease Rev. (University
of California), 5s, 2023 10,000 8,902,600
</TABLE>
6
<PAGE>
Portfolio of Investments (Unaudited) - continued
Municipal Bonds - continued
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<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ----------------------------------------------------------- ------------------ -------------
<S> <C> <C>
State and Local Appropriation - continued
Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2009 $5,160 $5,649,374
Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2015 27,295 29,661,204
Collier County, FL, Certificates of Participation (FSA),
5s, 2016 7,000 6,487,950
Hamilton Southeastern, Indiana School Building Corp.,
First Mortgage, AMBAC, 5.5s, 2019 5,000 4,857,100
Indiana Office Building Community Capital Complex
Rev., 6.9s, 2011 9,500 10,842,825
Massachusetts Bay Transportation Authority, 6.1s, 2013 10,200 11,001,006
Massachusetts Bay Transportation Authority, 5.875s,
2015 4,500 4,738,050
Massachusetts Bay Transportation Authority, 7s, 2021 19,185 22,829,766
Massachusetts Bay Transportation Authority, 5.625s,
2026 20,000 19,543,800
Massachusetts Bay Transportation Authority, FSA,
5.25s, 2020 4,000 3,780,520
Metropolitan Government of Nashville & Davidson
Counties, TN, 7s, 2011 5,280 5,764,546
Metropolitan Transportation Authority, NY, Service
Contract, 7.4s, 2001 4,075 4,462,044
Metropolitan Transportation Authority, NY, Service
Contract, 7.375s, 2008 5,000 5,719,150
Metropolitan Transportation Authority, NY, Service
Contract, 5.75s, 2013 5,600 5,609,016
Metropolitan Transportation Authority, NY, Service
Contract, 5.5s, 2017 10,850 10,423,703
New York Dormitory Authority Rev. (City University),
5.75s, 2009 10,000 10,124,100
New York Dormitory Authority Rev. (City University),
7s, 2009 13,765 15,506,548
New York Dormitory Authority Rev. (City University),
7.5s, 2010 15,650 18,407,060
New York Dormitory Authority Rev. (City University),
5.75s, 2013 30,150 30,198,541
New York Dormitory Authority Rev. (City University),
AMBAC, 5.5s, 2016 7,840 7,746,783
New York Dormitory Authority Rev. (Department of
Health), 5.75s, 2017 3,000 2,922,000
New York Dormitory Authority Rev. (State
University), 7.375s, 2010 16,100 18,731,384
New York Dormitory Authority Rev. (State
University), 5.5s, 2013 7,875 7,681,275
New York Medical Care Facilities Finance Agency
(Mental Health Services), 8.875s, 2007 3,745 3,908,244
New York Medical Care Facilities Finance Agency
(Mental Health Services), 5.25s, 2019 4,100 3,731,082
</TABLE>
7
<PAGE>
Portfolio of Investments (Unaudited) - continued
Municipal Bonds - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------- ------------------ --------------
<S> <C> <C>
State and Local Appropriation - continued
New York Medical Care Facilities Finance Agency
(Mental Health Services), 7.875s, 2020 $2,920 $ 3,218,074
New York Urban Development Corp., 5.5s, 2015 31,200 29,820,336
New York Urban Development Corp., MBIA, 5.5s,
2019 3,500 3,451,420
New York Urban Development Corp. (Correctional
Facilities), 5.75s, 2013 10,530 10,480,930
New York Urban Development Corp. (Correctional
Facilities), 5.5s, 2014 5,000 4,848,150
New York Urban Development Corp. (Correctional
Facilities), 5.375s, 2015 10,000 9,484,500
New York Urban Development Corp. (Correctional
Facilities), 5.25s, 2021 24,700 22,390,550
Rhode Island Convention Center Authority, MBIA,
5.25s, 2015 18,280 17,551,359
Rhode Island Convention Center Authority, MBIA, 5s,
2023 21,110 18,873,396
San Bernardino, CA, Joint Powers Financing Authority
Lease Rev. (California Department of Transportation),
5.5s, 2014 10,000 9,819,800
San Bernardino, CA, Joint Powers Financing Authority
Lease Rev. (California Department of Transportation),
5.5s, 2020 4,000 3,855,920
------------
$464,036,903
------------
Refunded and Special Obligations - 24.3%
Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000 $16,765 $18,833,801
Alameda County, CA, Certificates of Participation,
BIGI, 7.25s, 2000+ 9,330 10,481,322
Austin, TX, Utility Systems Rev., 10.75s, 2000 2,615 3,104,476
Austin, TX, Water, Sewer & Electric Rev., 14.25s,
1997 1,305 1,331,700
Chicago, IL, Metropolitan Water Reclamation District
(Capital Improvement), 6.8s, 2008 5,000 5,417,150
Chicago, IL, Public Building Commission Mortgage
Rev., ETM, MBIA, 7.125s, 2015 6,590 7,059,340
Clark County, NV, School District, MBIA, 7s, 2001 10,050 11,133,088
Commonwealth of Massachusetts, 6.875s, 2001 4,825 5,380,068
Commonwealth of Massachusetts, Consolidated Loan
Series D, 7s, 2007 3,305 3,694,362
Commonwealth of Massachusetts, FGIC, 7.25s, 2000 11,220 12,353,220
Delaware County, PA, Hospital Rev. (Keystone Health
System), MBIA, 7.2s, 1999 5,440 5,933,462
Detroit, MI, Water Supply System Rev., FGIC, 7.25s,
2000 4,575 5,075,231
Eden Township, CA, Health Facilities Authority (Eden
Hospital), 7.8s, 1998 4,000 4,288,320
</TABLE>
8
<PAGE>
Portfolio of Investments (Unaudited) - continued
Municipal Bonds - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Refunded and Special Obligations - continued
Florida Board of Education Administration, Capital
Outlay, ETM, 9.125s, 2014 $ 265 $ 376,358
Indianapolis, IN, Local Public Improvement Rev., 7.4s,
2000 3,710 4,126,596
Maryland Health & Higher Education Facilities
Authority Rev. (University of Maryland Medical
System), FGIC, 7s, 2001 7,945 8,897,685
Massachusetts Port Authority Rev., ETM, 13s, 2013 3,500 5,930,155
Massachusetts Water Resources Authority, 7.5s, 2000 15,850 17,596,829
Massachusetts Water Resources Authority, 7.625s,
2000 15,760 17,553,015
Metropolitan Transportation Authority, NY, Service
Contract, 7.5s, 2000 4,350 4,858,994
Michigan Hospital Finance Authority Rev. (Oakwood
Hospital), FGIC, 7.1s, 2000 4,000 4,418,960
Michigan Hospital Finance Authority Rev. (Oakwood
Hospital), FGIC, 7.2s, 2015 18,590 20,632,855
Michigan Municipal Bond Authority Rev. (Wayne
County), FGIC, 7s, 2000 10,000 10,997,500
Missouri Regional Convention & Sports Complex
Authority, 6.8s, 2003 8,950 10,090,140
Missouri Regional Convention & Sports Complex
Authority, 6.9s, 2003 21,520 24,380,654
New York City, NY, 8s, 2001 2,475 2,861,620
New York Dormitory Authority Rev. (City University),
7.875s, 2000 10,600 11,962,206
New York Medical Care Facilities Finance Agency
(Mental Health Services), 8.875s, 1997 4,205 4,367,565
New York Medical Care Facilities Finance Agency
(Mental Health Services), 7.875s, 2000 6,690 7,574,953
New York Urban Development Corp. (Correctional
Facilities), 7.625s, 2001 7,570 8,562,124
New York Urban Development Corp. (Correctional
Facilities), 7.375s, 2002 4,000 4,567,080
Pennsylvania Convention Center Authority Rev., FGIC,
6.7s, 2016 51,195 58,754,966
Philadelphia, PA, Municipal Authority Rev. (Justice
Lease), FGIC, 7.1s, 2001 6,000 6,777,600
Philadelphia, PA, Municipal Authority Rev. (Justice
Lease), FGIC, 7.125s, 2001 4,500 5,087,925
Philadelphia, PA, School District, MBIA, 7s, 2005 9,440 10,473,869
San Diego, CA, Regional Building Authority Lease
Rev. (San Miguel), MBIA, 7.25s, 2000 4,000 4,397,920
Santa Clara County, CA, Certificates of Participation
(American Baptist Homes West), CA-MTG-INS, 8s,
1998 5,200 5,518,032
Southern California Public Power Authority Rev., 12s,
1997 2,400 2,465,616
</TABLE>
9
<PAGE>
Portfolio of Investments (Unaudited) - continued
Municipal Bonds - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ----------------------------------------------------------- ------------------ --------------
<S> <C> <C>
Refunded and Special Obligations - continued
State of Florida, Jacksonville Transportation Authority,
ETM, 9.2s, 2015 $2,000 $ 2,763,900
Sullivan County, TN, Health, Educational and Housing
Facilities Board Rev. (Holston Valley Health Care),
MBIA, 7.25s, 2000 4,000 4,399,360
Washington Public Power Supply System Rev., Nuclear
Project #2, 7.375s, 2000 28,845 32,062,083
Washington Public Power Supply System Rev., Nuclear
Project #2, 7.625s, 2001 10,815 12,211,865
Washington Public Power Supply System Rev., Nuclear
Project #3, 7.25s, 2000 20,000 21,905,200
------------
$430,659,165
------------
Airport and Port Revenue - 3.6%
Chicago, IL, O'Hare International Airport Rev.,
AMBAC, 5.625s, 2014 $6,345 $ 6,344,111
Connecticut Airport Rev. (Bradley International
Airport), FGIC, 7.65s, 2012 5,000 5,776,400
Denver, CO, City & County Airport Rev., MBIA,
5.75s, 2016 10,000 10,062,700
Denver, CO, City & County Airport Rev., MBIA, 5.6s,
2020 31,530 31,040,024
Port of Seattle, WA, FGIC, 5.5s, 2021 10,000 9,789,700
------------
$ 63,012,935
------------
Electric and Gas Utility Revenue - 12.7%
Austin, TX, Utility Systems Rev., AMBAC, 6.75s,
2012 $2,500 $ 2,693,450
Intermountain Power Agency, UT, Power Supply Rev.,
6.15s, 2014## 44,600 46,690,848
Intermountain Power Agency, UT, Power Supply Rev.,
AMBAC, 6s, 2021 5,000 5,067,200
Intermountain Power Agency, UT, Power Supply Rev.,
MBIA, 6s, 2016 10,000 10,335,600
Intermountain Power Agency, UT, Power Supply Rev.,
MBIA, 5.7s, 2017 12,000 12,053,520
M S R Public Power Agency, CA, MBIA, 5.375s, 2014 3,000 2,967,660
Massachusetts Municipal Wholesale Electric Co.,
MBIA, 6.75s, 2017 6,030 6,526,993
Municipal Electric Authority of Georgia, Special
Obligation, AMBAC, 6.5s, 2017 8,510 9,617,917
Municipal Electric Authority of Georgia, Special
Obligation, FGIC, 5.5s, 2020 5,045 5,064,373
Municipal Electric Authority of Georgia, Special
Obligation, MBIA, 5.5s, 2020 17,190 17,345,913
North Carolina Eastern Municipal Power, MBIA, 5.7s,
2013 7,000 7,123,340
North Carolina Eastern Municipal Power, MBIA,
5.625s, 2014 7,735 7,761,067
</TABLE>
10
<PAGE>
Portfolio of Investments (Unaudited) - continued
Municipal Bonds - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------- ------------------ --------------
<S> <C> <C>
Electric and Gas Utility Revenue - continued
Northern California Transmission Agency (Oregon
Transmission), MBIA, 7s, 2013 $4,000 $ 4,745,880
Piedmont, SC, Municipal Power Agency, Electric Rev.,
FGIC, 6.25s, 2021 4,150 4,549,064
Southern California Public Power Authority Rev.,
Transmission Project Rev., 0s, 2005 9,465 5,719,321
Southern California Public Power Authority Rev. (San
Juan Unit Power), MBIA, 5.25s, 2014 14,940 14,497,626
Washington Public Power Supply System Rev. (Nuclear
Project #1), MBIA, 5.75s, 2010 13,100 13,388,986
Washington Public Power Supply System Rev. (Nuclear
Project #1), MBIA, 5.5s, 2015 4,000 3,855,920
Washington Public Power Supply System Rev. (Nuclear
Project #1), MBIA, 5.5s, 2017 12,860 12,296,989
Washington Public Power Supply System Rev. (Nuclear
Project #2), MBIA, 5.625s, 2010 10,000 10,107,700
Washington Public Power Supply System Rev. (Nuclear
Project #2), MBIA, 5.7s, 2012 5,000 5,030,600
Washington Public Power Supply System Rev. (Nuclear
Project #2), 7s, 2012 6,000 6,600,240
Washington Public Power Supply System Rev. (Nuclear
Project #3), FGIC, 0s, 2005 6,895 4,496,368
Washington Public Power Supply System Rev. (Nuclear
Project #3), 7.125s, 2016 5,145 5,943,658
------------
$224,480,233
------------
Health Care Revenue - 1.6%
Cuyahoga County, OH, Hospital Rev. (Cleveland
Clinic), 8s, 2015 $8,550 $ 8,868,488
Maryland Health & Higher Education Facilities
Authority Rev. (The Johns Hopkins Hospital), 5s,
2023 13,095 11,918,938
Michigan Hospital Finance Authority Rev. (Henry
Ford), 5.25s, 2020 4,000 3,777,120
Pennsylvania Higher Education Facilities, Health
Services Rev. (University of Pennsylvania), 5.75s,
2022 4,515 4,528,545
------------
$ 29,093,091
------------
Industrial Revenue (Corporate Guarantee) - 1.0%
Farmington, NM, Pollution Control Rev. (Public
Service Co. of New Mexico), AMBAC, 5.7s, 2016 $9,250 $ 9,226,597
Mercer County, ND, Pollution Control Rev. (Antelope
Valley Station), AMBAC, 7.2s, 2013 4,000 4,773,880
Michigan Strategic Fund Limited Obligation Rev.
(Detroit Edison), MBIA, 7s, 2008 3,000 3,485,730
------------
$17,486,207
------------
</TABLE>
11
<PAGE>
Portfolio of Investments (Unaudited) - continued
Municipal Bonds - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ----------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Insured Health Care Revenue - 4.9%
Chatham County, GA, Hospital Authority Rev.
(Memorial Medical Center), AMBAC, 5.25s,
2016 $3,000 $2,868,060
Davenport, IA, Hospital Rev. (St. Luke's Hospital),
AMBAC, 7.4s, 2020 2,715 2,962,363
Deerfield, IL (Jewish Federation), AMBAC, 5.375s,
2020 8,000 7,586,320
Harris County, TX, Health Facilities (Memorial
Hospital), 5.5s, 2017 4,500 4,308,480
Illinois Health Facilities Authority Rev. (Advocate
Health System), MBIA, 5.7s, 2011 4,500 4,594,905
Illinois Health Facilities Authority (Methodist Health
Care Center), MBIA, 9.983s, 2021[dbldag][dbldag] 3,000 3,460,890
Maryland Health & Higher Education Facilities
Authority Rev. (Francis Scott Key Medical Center),
FGIC, 5s, 2013 3,200 3,047,360
Massachusetts Health & Education Facilities Authority
(University Hospital), MBIA, 7.25s, 2019[dbldag][dbldag] 4,500 4,909,815
Medical Center Hospital Authority, GA, 8.851s,
2010 4,000 4,485,640
Michigan Hospital Finance Authority Rev. (Sisters of
Mercy Hospital), MBIA, 5.375s, 2014 9,000 8,923,050
New York Medical Care Facilities Financing Agency
Rev. (Hospital and Nursing Home FHA Mortgage),
7.625s, 2023 3,500 3,667,650
Peninsula Ports Authority, VA, Hospital Facilities Rev.
(Whittaker Memorial), FHA, 8.7s, 2023 1,595 1,649,326
Salt Lake City, UT, Hospital Rev. (Intermountain
Health Care Hospitals, Inc.), AMBAC, 9.743s,
2020[dbldag][dbldag] 2,000 2,280,020
Sayre, PA, Health Care Facilities Authority Rev.
(Guthrie Healthcare Systems), AMBAC, 7s, 2011 6,000 6,495,840
Tarrant County, TX, Health Facilities Development
Corp. (Fort Worth Osteopathic), MBIA, 6s, 2021 6,000 6,373,920
Washington County, PA, Hospital Authority Rev.
(Washington Hospital), AMBAC, 7.15s, 2017 9,000 9,754,740
Wisconsin Health & Educational Facilities (Sisters of
the Sorrowful Mothers), MBIA, 5.7s, 2026 5,000 4,944,250
Wisconsin Health & Educational Facilities (United
Health Group, Inc.), MBIA, 5.5s, 2020 5,600 5,398,120
-----------
$87,710,749
-----------
Multi-Family Housing Revenue - 0.5%
Colorado Housing Finance Authority, FHA, 8.3s, 2023 $4,000 $ 4,210,400
New York Housing Finance Agency Rev., FSA, 6.125s,
2020 4,000 4,095,280
-----------
$8,305,680
-----------
</TABLE>
12
<PAGE>
Portfolio of Investments (Unaudited) - continued
Municipal Bonds - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Sales and Excise Tax Revenue - 1.9%
Illinois Dedicated Tax Rev. (Civic Center), AMBAC,
6.25s, 2011 $3,640 $ 4,045,824
Illinois Sales Tax Rev., 6.5s, 2022 5,000 5,606,200
Illinois Sales Tax Rev. (Public Improvement), 0s,
2009 8,965 4,593,845
Metropolitan Atlanta, GA, Rapid Transit Authority,
6.25s, 2018 4,580 4,989,818
Rhode Island Depositors Economic Protection Corp.,
FSA, 5.75s, 2014 14,800 15,158,160
--------------
$ 34,393,847
--------------
Solid Waste Revenue - 0.4%
Northeast Maryland, Waste Disposal Authority
(Southwest County Resource Recovery), MBIA, 7.2s,
2005 $3,000 $ 3,429,480
York County, PA, Industrial Development Rev., 8.2s,
2014 4,250 4,485,280
--------------
$ 7,914,760
--------------
Special Assessment District - 0.3%
Chico, CA, Public Finance Authority Rev. (Southeast
Chico Redevelopment), FGIC, 6.625s, 2021 $5,000 $ 5,320,300
--------------
Turnpike Revenue - 2.2%
Chicago, IL, Skyway Toll Bridge, MBIA, 5.375s, 2016 $4,500 $ 4,326,480
New Jersey Transportation Trust Fund Authority,
Transport Systems, 5.25s, 2015 5,000 4,833,550
Texas Turnpike Authority, Dallas Thruway (President
George Bush Turnpike), AMBAC, 5s, 2016 4,500 4,172,445
Triborough Bridge & Tunnel Authority, NY, 7.25s,
2010 22,905 25,944,952
--------------
$ 39,277,427
-------------
Universities - 2.5%
Massachusetts Health & Education Facilities (Harvard
University), 6.25s, 2020 $32,200 $ 35,522,396
Pennsylvania Higher Educational Facilities Authority,
College & University Rev. (Hahnemann University),
MBIA, 7.2s, 2019 4,015 4,365,429
Texas A & M University (Permanent University Fund),
0s, 2007 6,695 3,968,595
--------------
$ 43,856,420
--------------
Water and Sewer Utility Revenue - 1.0%
Dade County, FL, Water & Sewer Systems Rev., FGIC,
5.375s, 2016 $10,000 $ 9,778,900
East Bay, CA, Municipal Utility District (Water
Systems Rev.), MBIA, 5s, 2014 7,900 7,444,724
--------------
$ 17,223,624
-------------
Total Municipal Bonds (Identified Cost, $1,535,356,884) $1,666,778,772
- ------------------------------------------------------------------------------- --------------
</TABLE>
13
<PAGE>
Portfolio of Investments (Unaudited) - continued
Floating Rate Demand Notes - 5.2%
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Allegheny County, PA, Hospital Development
Authority Rev. (Presbyterian Health), due 2020 $12,340 $12,340,000
Burke County, GA, Development Authority, Pollution
Control Rev. (Vogtle), due 2020 1,200 1,200,000
Charleston County, SC, Industrial Rev. (Massey Coal),
due 2007 1,900 1,900,000
Dade County, FL, Industrial Development Authority,
Pollution Control Rev. (Florida Power & Light Co.),
due 2020 3,435 3,435,000
East Baton Rouge Parish, LA, Pollution Control Rev.
(Exxon), due 2019 4,000 4,000,000
Harris County, TX, Health Facilities Development
Corp. (Methodist Hospital), due 2025 300 300,000
Harris County, TX, Industrial Development Corp.,
Pollution Control Rev. (Exxon), due 2024 2,600 2,600,000
Hillsborough County, FL, Pollution Control Rev.
(Tampa Electric Co.), due 2018 6,100 6,100,000
Jackson County, MS, Pollution Control Rev. (Chevron
USA, Inc.), due 2023 5,600 5,600,000
Jacksonville, FL, Pollution Control Rev. (Florida Power
& Light Co.), due 2029 2,500 2,500,000
Lincoln County, WY, Pollution Control Rev. (Exxon),
due 2014 5,400 5,400,000
Lubbock, TX, Health Facilities Development Corp.
Rev. (St. Joseph Health System), due 2013 800 800,000
Maricopa County, AZ, Industrial Development
Authority (Samaritan Health Services Hospital), due
2008 100 100,000
Massachusetts Health & Education Facilities Authority
Rev., due 2035 4,700 4,700,000
New York City, NY, due 2035 4,800 4,800,000
New York City, NY, City Municipal Water Finance
Authority, due 2024 3,600 3,600,000
Peninsula Ports Authority, VA (Shell Oil Co.), due
2005 4,235 4,235,000
St. Lucie County, FL, Pollution Control Rev. (Florida
Power & Light Co.), due 2027 7,300 7,300,000
</TABLE>
14
<PAGE>
Portfolio of Investments (Unaudited) - continued
Floating Rate Demand Notes - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ----------------------------------------------------- ------------------ ----------------
<S> <C> <C>
Uinta County, WY, Pollution Control Rev. (Chevron
USA, Inc.), due 2020 $20,500 $ 20,500,000
- ---------------------------------------------------- -------- -------------
Total Floating Rate Demand Notes, at Identified Cost $ 91,410,000
- ---------------------------------------------------------------------------- -------------
Total Investments (Identified Cost, $1,626,766,884) $1,758,188,772
- ---------------------------------------------------- --------------
Other Assets, Less Liabilities - 0.8% 14,590,551
- ---------------------------------------------------- --------------
Net Assets - 100.0% $1,772,779,323
- ---------------------------------------------------- --------------
</TABLE>
[sec]Indexed security.
[dbldag][dbldag]Inverse floating rate security.
+Restricted security.
##SEC Rule 144A restriction.
###Security segregated as collateral for an open futures contract.
See notes to financial statements
15
<PAGE>
Financial Statements
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28, 1997
- ------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $1,626,766,884) $1,758,188,772
Cash 29,852
Receivable for Fund shares sold 2,171,856
Receivable for investments sold 31,011,567
Interest receivable 23,393,587
Other assets 22,187
--------------
Total assets $1,814,817,821
--------------
Liabilities:
Distributions payable $ 3,283,028
Payable for Fund shares reacquired 1,892,434
Payable for investments purchased 36,447,728
Payable for daily variation margin on open futures contracts 79,594
Payable to affiliates -
Management fee 20,995
Shareholder servicing agent fee 6,370
Distribution fee 1,505
Accrued expenses and other liabilities 306,844
--------------
Total liabilities $ 42,038,498
--------------
Net assets $1,772,779,323
--------------
Net assets consist of:
Paid-in capital $1,638,757,854
Unrealized appreciation on investments 131,768,474
Accumulated undistributed net realized gain on investments 3,261,270
Accumulated distributions in excess of net investment income (1,008,275)
--------------
Total $1,772,779,323
--------------
Shares of beneficial interest outstanding 162,965,847
-------------
Class A shares:
Net asset value and redemption price per share
(net assets of $1,699,439,178(divided by)156,220,194 shares of beneficial interest
outstanding)
$10.88
---------
Offering price per share (100/95.25) $11.42
---------
Class B shares:
Net asset value and offering price per share
(net assets of $73,340,145(divided by)6,745,653 shares of beneficial interest
outstanding) $10.87
---------
</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)
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended February 28, 1997
- -----------------------------------------------------
<S> <C>
Net investment income:
Interest income $ 56,242,366
------------
Expenses -
Management fee $ 3,784,795
Trustees' compensation 41,715
Shareholder servicing agent fee 388,575
Shareholder servicing agent fee (Class A) 706,577
Shareholder servicing agent fee (Class B) 53,868
Distribution and service fee (Class B) 301,295
Custodian fee 240,531
Printing 46,713
Auditing fees 26,446
Postage 19,288
Legal fees 3,054
Administration 681
Miscellaneous 285,128
------------
Total expenses $ 5,898,666
Fees paid indirectly (166,371)
------------
Net expenses $ 5,732,295
------------
Net investment income $ 50,510,070
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 23,704,466
Futures contracts (18,802,799)
------------
Net realized gain on investments $ 4,901,667
------------
Change in unrealized appreciation (depreciation) -
Investments $ 20,560,589
Futures contracts (1,441,852)
------------
Net unrealized gain on investments $ 19,118,737
------------
Net realized and unrealized gain on investments $ 24,020,404
------------
Increase in net assets from operations $ 74,530,475
------------
</TABLE>
See notes to financial statements
17
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
February 28, 1997 Year Ended
(Unaudited) August 31, 1996
------------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 50,510,071 $ 105,338,973
Net realized gain on investments 4,901,667 24,385,079
Net unrealized gain (loss) on investments 19,118,737 (33,508,051)
--------------- ---------------
Increase in net assets from operations $ 74,530,475 $ 96,216,001
--------------- ---------------
Distributions declared to shareholders -
From net investment income (Class A) $ (48,664,857) $ (101,464,492)
From net investment income (Class B) (1,636,596) (2,800,303)
--------------- ---------------
Total distributions declared to shareholders $ (50,301,453) $ (104,264,795)
--------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 1,258,814,639 $ 1,980,944,467
Net asset value of shares issued to
shareholders in reinvestment of
distributions 33,306,246 60,332,570
Cost of shares reacquired (1,412,161,365) (2,169,208,109)
--------------- ---------------
Decrease in net assets from Fund share
transactions $ (120,040,480) $ (127,931,072)
--------------- ---------------
Total decrease in net assets $ (95,811,458) $ (135,979,866)
Net assets:
At beginning of period 1,868,590,781 2,004,570,647
--------------- ---------------
At end of period (including accumulated
distributions in excess of net investment
income of $1,008,275 and $1,216,893,
respectively) $ 1,772,779,323 $ 1,868,590,781
--------------- ---------------
</TABLE>
See notes to financial statements
18
<PAGE>
Financial Statements - continued
Financial Highlights
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended August 31, Ten Year Ended October
Ended Months 31,
February 28, --------------------- Ended --------------------
1997 August 31,
(Unaudited 1996 1995 1994 1993 1992
--------------- ---------- ---------- ---------------- ---------- ---------
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 $ 10.75 $10.83 $10.68 $ 11.64 $10.73 $10.80
-------- ------ ------ --------- ------ ------
Income from investment operation# -
Net investment income $ 0.29 $ 0.59 $ 0.60 $ 0.51 $ 0.61 $ 0.66
Net realized and unrealized gain
(loss) on investments 0.13 (0.09) 0.15 (0.77) 1.14 0.09
-------- ------ ------ --------- ------ ------
Total from investment
operations $ 0.42 $ 0.50 $ 0.75 $ (0.26) $ 1.75 $ 0.75
-------- ------ ------ --------- ------ ------
Less distributions declared to
shareholders -
From net investment income $ (0.29) $(0.58) $(0.60) $ (0.47) $(0.66) $(0.66)
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) $(0.58) $(0.60) $ (0.70) $(0.84) $(0.82)
-------- ------ ------ --------- ------ ------
Net asset value - end of period $ 10.88 $10.75 $10.83 $ 10.68 $11.64 $10.73
-------- ------ ------ --------- ------ ------
Total return[dbldag] 3.95%++ 4.67% 7.31% (2.33)%++ 6.97% 7.35%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.57%+ 0.60% 0.61% 0.59%+ 0.59% 0.57%
Net investment income 5.36%+ 5.37% 5.70% 5.49%+ 5.63% 6.12%
Portfolio turnover 42% 84% 90% 74% 56% 87%
Net assets at end of period
(000,000 omitted) $ 1,699 $1,798 $1,949 $ 2,031 $2,195 $1,878
+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.
[dbldag]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
19
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31, 1991 1990 1989 1988 1987 1986
- --------------------------------- ---------- ---------- ---------- --------- ---------- ---------
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 $10.11 $10.53 $10.57 $ 9.71 $ 11.00 $10.02
------ ------ ------ ------ ------- ------
Income from investment
operations -
Net investment income $ 0.68 $ 0.68 $ 0.72 $ 0.73 $ 0.72 $ 0.78
Net realized and unrealized
gain (loss) on investments 0.69 (0.13) 0.04 0.86 (0.90) 1.27
------ ------ ------ ------ ------- ------
Total from investment
operations $ 1.37 $ 0.55 $ 0.76 $ 1.59 $ (0.18) $ 2.05
------ ------ ------ ------ ------- ------
Less distributions declared to
shareholders -
From net investment income $(0.68) $(0.69) $(0.72) $(0.73) $ (0.72) $(0.78)
In excess of net investment
income -- -- (0.08) -- (0.39) (0.29)
From net realized gain on
investments -- (0.27) -- -- -- --
From paid-in capital -- (0.01) -- -- -- --
------ ------ ------ ------ ------- ------
Total distributions declared
to shareholders $(0.68) $(0.97) $(0.80) $(0.73) $ (1.11) $(1.07)
------ ------ ------ ------ ------- ------
Net asset value - end of period $10.80 $10.11 $10.53 $10.57 $ 9.71 $11.00
------ ------ ------ ------ ------- ------
Total return[dbldag] 13.85% 5.42% 7.54% 16.95% (1.98)% 21.79%
Ratios (to average net assets)/
Supplemental data:
Expenses 0.59% 0.60% 0.64% 0.65% 0.61% 0.64%
Net investment income 6.47% 6.69% 6.87% 7.16% 6.96% 7.45%
Portfolio turnover 98% 160% 199% 190% 218% 164%
Net assets at end of period
(000,000 omitted) $1,715 $1,409 $1,259 $1,003 $ 903 $ 844
[dbldag]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
20
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, ----------------------
1997
(Unaudited) 1996 1995
--------------- ---------- ----------
Class B
-------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.74 $11.10 $10.67
-------- ------ ------
Income from investment operations# -
Net investment income $ 0.24 $ 0.49 $ 0.49
Net realized and unrealized gain
(loss) on investments 0.13 (0.37) 0.16
-------- ------ ------
Total from investment
operations $ 0.37 $ 0.12 $ 0.65
-------- ------ ------
Less distributions declared to
shareholders -
From net investment income $ (0.24) $(0.48) $(0.49)
From net realized gain on
investments -- -- --
In excess of net realized gain on
investments -- -- --
-------- ------ ------
Total distributions declared to
shareholders $ (0.24) $(0.48) $(0.49)
-------- ------ ------
Net asset value - end of period $ 10.87 $10.74 $10.83
-------- ------ ------
Total return 3.39%++ 3.69% 6.35%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.46%+ 1.55% 1.60%
Net investment income 4.47%+ 4.42% 4.68%
Portfolio turnover 42% 83% 90%
Net assets at end of period
(000,000 omitted) $ 73 $ 71 $ 56
<CAPTION>
Ten
Months Period
Ended Ended
August 31, October 30,
1994 1993**
---------------- ------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding
Net asset value - beginning of period $ 11.63 $ 11.68
--------- ---------
Income from investment operations# -
Net investment income $ 0.40 $ 0.07
Net realized and unrealized gain
(loss) on investments (0.77) (0.05)
--------- ---------
Total from investment
operations $ (0.37) $ 0.02
--------- ---------
Less distributions declared to
shareholders -
From net investment income $ (0.40) $(0.07)[dbldag][dbldag]
From net realized gain on
investments (0.16) --
In excess of net realized gain on
investments (0.03) --
--------- ---------
Total distributions declared to
shareholders $ (0.59) $ (0.07)
--------- ---------
Net asset value - end of period $ 10.67 $ 11.63
--------- ---------
Total return (3.25)%++ 1.49%+
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.72%+ 1.70%+
Net investment income 4.41%+ 3.85%+
Portfolio turnover 74% 56%
Net assets at end of period $ 45 $ 10
(000,000 omitted)
</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.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to October 31, 1993.
[dbldag][dbldag]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
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. 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.
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 currency futures for purposes other than hedging may be made to
change the Fund's relative position in one or more currencies without buying and
selling portfolio assets. Should interest rates or securities prices move
22
<PAGE>
Notes to Financial Statements (Unaudited) - continued
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
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 tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
23
<PAGE>
Notes to Financial Statements (Unaudited) - continued
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
distribution and service fees. 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.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.19% of average daily net assets and 3.59% of investment income.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain 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 $11,677 for the period ended
February 28, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$89,649 for the period ended February 28, 1997, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted a
distribution plan relating solely to Class B shares pursuant to Rule 12b-1 of
the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B shares. 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 28, 1997. Payment of the 0.25% per annum service fee will
commence on such date as the Trustees of the Trust may determine. Fees incurred
under the distribution plan during the period ended February 28, 1997 were 0.81%
of average daily net assets attributable to Class B shares on an annualized
basis.
Purchases over $1 million of Class A shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
such purchase. A contingent deferred sales charge is imposed on
24
<PAGE>
Notes to Financial Statements (Unaudited) - continued
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 28, 1997 were $3,826 and $109,289 for Class A and Class B shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was calculated as a percentage of the
average daily net assets of each class of shares at an effective annual rate of
up to 0.15% and up to 0.22% attributable to Class A and Class B shares,
respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$745,965,819 and $962,683,640, 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:
<TABLE>
<S> <C>
Aggregate cost $1,626,766,884
--------------
Gross unrealized appreciation $ 132,237,927
Gross unrealized depreciation (816,039)
--------------
Net unrealized appreciation $ 131,421,888
--------------
</TABLE>
(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:
Class A Shares
<TABLE>
<CAPTION>
Six Months Year Ended
February 28, 1997 August 31, 1996
------------------------------------ -------------------------------------
Shares Amount Shares Amount
----------------- ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Shares sold 114,729,890 $ 1,243,477,396 178,715,545 $ 1,948,177,673
Shares issued to shareholders in
reinvestment of distributions 2,972,804 32,324,322 5,345,853 58,555,788
Shares reacquired (128,686,431) (1,397,407,216) (196,714,962) (2,150,166,037)
------------- --------------- ------------- ---------------
Net decrease (10,983,737) $ (121,605,498) (12,653,564) $ (143,432,576)
------------- --------------- ------------- ---------------
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
Six Months Year Ended
February 28, 1997 August 31, 1996
--------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 1,415,235 $ 15,337,243 2,997,177 $ 32,766,794
Shares issued to shareholders in
reinvestment of distributions 90,266 981,924 162,309 1,776,782
Shares reacquired (1,359,841) (14,754,149) (1,734,057) (19,042,072)
----------- ------------ ----------- ------------
Net increase 145,660 $ 1,565,018 1,425,429 $ 15,501,504
----------- ------------ ----------- ------------
</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 $400 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
28, 1997 was $12,865.
(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 do
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.
Futures Contracts
<TABLE>
<CAPTION>
Unrealized
Appreciation
Description Expiration Contracts Position (Depreciation)
- --------------------- ------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Municipal Bonds March 1997 221 Short $(61,474)
U.S. Treasury Bonds March 1997 200 Short 408,060
--------
$346,586
--------
</TABLE>
At February 28, 1997, 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 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, 1997:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Description Index (000 Omitted) Value Depreciation
- --------------------------- --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Coupon-Indexed Security: PSA Municipal
New York, NY, 6.6s, 2016 Swap $4,000 $3,993,880 $(6,120)
---------
</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 28,
1997, the Fund owned the following restricted securities (constituting 0.59% of
net 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 or, if not available, in
good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Date of Par
Description Acquisition Amount Cost Value
- ---------------------------------- -------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alameda County, CA, Certificates
of Participation, BIGI, 7.25s,
2000 9/19/90 - 9/21/90 $9,330,000 $9,116,087 $10,481,322
------------
</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>
The MFS Family of Funds[Reg]
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 1-800-225-2606
any business day from 8 a.m. to 8 p.m. Eastern time. This material should be
read carefully before investing or sending money.
Stock
- ------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS [Reg] Capital Growth Fund
MFS [Reg] Emerging Growth Fund
MFS [Reg] Gold & Natural Resources Fund
MFS [Reg] Growth Opportunities Fund
MFS [Reg] Managed Sectors Fund
MFS [Reg] OTC Fund
MFS [Reg] Research Fund
MFS [Reg] Research Growth and Income Fund
MFS [Reg] Strategic Growth Fund
MFS [Reg] Value Fund
Stock and Bond
- ------------------------------------
MFS [Reg] Total Return Fund
MFS [Reg] Utilities Fund
Bond
- ------------------------------------
MFS [Reg] Bond Fund
MFS [Reg] Government Mortgage Fund
MFS [Reg] Government Securities Fund
MFS [Reg] High Income Fund
MFS [Reg] Intermediate Income Fund
MFS [Reg] Strategic Income Fund
Limited Maturity Bond
- ------------------------------------
MFS [Reg] Government Limited Maturity Fund
MFS [Reg] Limited Maturity Fund
MFS [Reg] Municipal Limited Maturity Fund
World
- ------------------------------------
MFS [Reg]/Foreign & Colonial Emerging
Markets Equity Fund
MFS [Reg]/Foreign & Colonial International
Growth Fund
MFS [Reg]/Foreign & Colonial International
Growth and Income Fund
MFS [Reg] World Asset Allocation Fund SM
MFS [Reg] World Equity Fund
MFS [Reg] World Governments Fund
MFS [Reg] World Growth Fund
MFS [Reg] World Total Return Fund
National Tax-Free Bond
- ------------------------------------
MFS [Reg] Municipal Bond Fund
MFS [Reg] Municipal High Income Fund
MFS [Reg] Municipal Income Fund
State Tax-Free Bond
- ------------------------------------
Alabama, Arkansas, California, Florida, Georgia, Maryland, Massachusetts,
Mississippi, New York, North Carolina, Pennsylvania, South Carolina, Tennessee,
Virginia, West Virginia
Money Market
- ------------------------------------
MFS [Reg] Cash Reserve Fund
MFS [Reg] Government Money Market Fund
MFS [Reg] Money Market Fund
28
<PAGE>
MFS (Reg) 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
*Affiliated with the Investment Adviser
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.
World Wide Web
www.mfs.com
- --------------------------------------------------------------------------------
[DALBAR LOGO]
For the third year in a row, MFS earned a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office Operations Service Quality Category. The firm
achieved a 3.48 overall score on a scale of 1 to 4 in the 1996 survey. A total
of 110 firms responded, offering input on the quality of service they received
from 29 mutual fund companies nationwide. The survey contained questions about
service quality in 15 categories, including "knowledge of phone service
contacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
- --------------------------------------------------------------------------------
29
<PAGE>
MFS(R) Municipal [DALBAR LOGO] ----------------
Bond Fund Bulk Rate
U.S. Postage
P A I D
500 Boylston Street Permit #55638
Boston, MA 02116-3741 Boston, MA
----------------
[MFS Investment Management Logo]
We invented the mutual fund(SM)
(C) 1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MMB-3 4/97 53M 17/217
