<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[graphic omitted]
MFS(R) MUNICIPAL
BOND FUND
ANNUAL REPORT o AUGUST 31, 1998
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 27
Independent Auditors' Report .............................................. 32
Trustees and Officers ..................................................... 37
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HIGHLIGHTS
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o FOR THE 12 MONTHS ENDED AUGUST 31, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 7.78% AND CLASS B SHARES
6.85%. (PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION.)
o THE FUND FAVORS GENERAL OBLIGATION AND OTHER TAX-BACKED BONDS. THESE
HOLDINGS ARE SECURED BY A WIDE VARIETY OF TAXES, SUCH AS SALES, USE INCOME,
AND EXCISE TAXES. DURING PERIODS OF STRONG ECONOMIC GROWTH, THESE SOURCES
OF TAX REVENUE RISE DRAMATICALLY.
o THE FUND ACTIVELY MANAGES ITS INVESTMENTS TO ENSURE AN APPROPRIATE
RISK-TO-REWARD PROFILE, THUS PROVIDING A MORE CONSERVATIVE APPROACH TO
MUNICIPAL BOND INVESTING.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
In the coming year, MFS will celebrate its 75th anniversary. In 1924, our
Massachusetts Investors Trust, the nation's first mutual fund, opened to the
public and helped launch a revolution in investing that continues today. In
the 75 years since, MFS has grown with its investors not only through bear
markets, economic and political turmoil, wars, and oil shortages, but also
through long periods of growth and prosperity. We are very proud of our record
of investment management and service to shareholders throughout
our history.
One of the best ways for us to serve our shareholders is to help them understand
some of the reasons behind developments in the investment markets and, when
necessary, to take a more cautious outlook. This is particularly important
during periods of market volatility such as we are experiencing this year, when
equity prices do not follow a straight course. In light of this summer's
volatility, it is clear that equity valuations have risen to a point at which
stock prices have become vulnerable to changes in the investment environment
such as a slowing economy, earnings disappointments, and global economic and
political turmoil. While we continue to hold a favorable long-term outlook for
the equity markets, we also believe that this market correction is overdue and
could continue for several months. However, in our view, this is a healthy
near-term event that should rid the financial system of excesses that have
developed.
Currently, equity investors seem to be focused on the slowdown in corporate
earnings and, more recently, on the continuing uncertainty overseas,
particularly in Russia and some of the emerging markets. In the second quarter,
for example, average earnings growth for companies in the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance, was about 3%, well below what people were expecting a year
ago. As a result of this and continuing concerns about Asia and emerging
markets, the stock markets pulled back from the record-high levels set in
mid-July. This retreat has helped correct some -- but not all -- of the
overvaluations that have been building in the markets for some time. Prior to
July, equity prices had been rising without a corresponding increase in
corporate earnings. As a result, price-to-earnings (P/E) ratios, or the amount
investors paid for stocks in relation to companies' earnings per share, also
went up. A year ago this July, the average P/E ratio for stocks in the S&P 500
stood at approximately 23; this July, it was at about 28, and it declined to
approximately 25 by early September. If this summer's downturn helps create more
reasonable valuations, we believe it could provide a sounder long-term
foundation for the equity markets. On another positive note, interest rates have
been relatively stable for several months as inflation has remained low. In an
environment of low interest rates, stocks become more attractive than most
fixed-income investments, while low inflation helps control companies' costs.
Internationally, the economic turmoil in Asia continues to be a concern to us,
while Russia is facing political gridlock and economic uncertainty and Latin
American economies are feeling substantial pressure. We believe the United
States has yet to see the full impact of this crisis. There have been brief
periods of improvement in a few countries but, for the most part, most of
these economies are still very weak and the situation could turn worse before
getting better. At the same time, the Asian turmoil has had the beneficial
effect of moderating U.S. growth and keeping inflation in check, which has
helped establish a favorable interest-rate environment.
Countering the situation in Asia has been the growing strength of European
economies, although European equity markets have also seen some volatility
this summer. But as these countries move toward economic union, they are
benefiting from a convergence of interest rates to lower levels, a rapid
expansion of manufacturing and service businesses, and an increasingly strong
consumer sector. This has helped American exporters offset some of their Asian
losses while providing investment opportunities in developed and emerging
European markets.
Given the uncertainty arising from these conflicting developments, we believe
that it is prudent to remind investors of the need to take a long-term view and
to diversify their investments across a range of asset classes. This includes
portfolios that focus on bond and international investments as well as on the
U.S. stock market. At MFS, we also believe our decades-long commitment to
original, company-by-company research gives us an advantage by helping us find
companies that we think can keep growing or gain market share during periods of
turmoil. To help fulfill this commitment and to provide the broadest possible
coverage of industry sectors and individual companies, MFS continues to increase
its number of full-time research analysts, who thoroughly investigate each
company's earnings potential and position in its industry as well as the overall
prospects for that industry.
We also use active portfolio management on the fixed-income side, using our
extensive research and credit analysis to help reduce the potential for price
declines and enhance the opportunity for appreciation. Every year, both fixed-
income and equity managers meet with thousands of credit issuers and
companies. They also attend many presentations, closely follow sources of
industry research, and keep track of competitors.
As we have for 75 years, we will continue to apply this discipline of
thorough, bottom-up research to both the equity and fixed-income markets
because we believe it offers the best potential for providing favorable long-
term performance for our shareholders -- regardless of changes in the overall
market environment.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 14, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Geoffrey L. Schechter]
Geoffrey L. Schechter
For the 12 months ended August 31, 1998, Class A shares of the Fund provided a
total return of 7.78% and Class B shares 6.85%. These returns, which include
the reinvestment of distributions but exclude the effects of any sales
charges, compare to an 8.60% return for the Lehman Brothers Municipal Bond
Index (the Lehman Index), an unmanaged index of approximately 40,000
investment-grade bonds.
Q. WHAT IS THE INVESTMENT PHILOSOPHY OF THE FUND AND HOW DOES THAT RELATE TO
ACHIEVEMENT OF ITS OBJECTIVE?
A. The Fund seeks the highest level of tax-exempt income while also attempting
to protect shareholders' capital. We try to achieve this objective through
active portfolio management with a strong emphasis on MFS(R) Original
Research(SM). Our focus on research consists of both a systematic,
quantitative process through which we identify the opportunities and risks
that exist in the municipal bond marketplace at any point in time and an
intensive, bottom-up fundamental credit risk analysis of all current or
prospective holdings.
Q. WHAT WERE SOME OF THE FACTORS INVOLVED IN THE FUND'S PERFORMANCE OVER THE
PAST YEAR?
A. We slightly underperformed the Lehman Index this year. This under-
performance was primarily due to an underweighting in "BBB"-rated holdings
and an overweighting in pre-refunded holdings. Currently we have 10% of
assets in "BBB"-rated securities -- though this position ranged between 8%
and 16% during the fiscal year -- which was lower than the average national
municipal bond fund. Due to the tightening of yield spreads between "AAA"-
rated and "BBB"-rated bonds, lower-rated securities were the best
performing sector in the municipal market, during the past twelve months.
However, in light of the uncertain global financial environment and the
recent slowing of domestic economic activity, we do not believe that lower-
rated credits represent value over a long-term horizon. The Fund was
modestly overweighted in pre-refunded bonds which also contributed to the
Fund's underperformance. With interest rates declining by approximately 40
to 45 basis points across the maturity spectrum, shorter-duration bonds,
like pre-refunded bonds, experienced less price appreciation. We elected to
maintain these positions in an effort to address the income objective.
Q. HOW WOULD YOU DESCRIBE THE CURRENT CONDITION OF THE MUNICIPAL MARKET IN TERMS
OF FINANCIAL STRENGTH AND QUALITY OF ISSUES?
A. The current financial strength and credit quality of governmental entities
are as good as they have been in many years. This can be attributed to a
combination of strong revenue growth at the state and local level, the
economic expansion of the past seven years, and municipalities'
conservative fiscal management. This strength is reflected in the number of
credit-quality upgrades versus downgrades -- in 1997 upgrades led
downgrades by a ratio of 7:1, according to Standard & Poor's.
Q. PLEASE DISCUSS THE OVERALL CREDIT QUALITY OF THE PORTFOLIO.
A. The portfolio's credit quality is superb, with 90% of assets currently
rated "A" or better. As we mentioned earlier, credit spreads between
higher-quality bonds and lower-quality bonds have narrowed considerably
during the past year. For the 12 months ended August 31, 1998, the spread
between "AAA"-rated and "BBB"-rated general obligation bonds tightened from
approximately 40 basis points (0.40%) to 25 basis points (0.25%), a
continuation of a trend we have witnessed over the past few years. While
lower-quality securities have performed well recently, the small amount of
current yield they offer compared to higher-quality securities does not
outweigh their risk. We prefer to give up a small amount of yield in an
effort to protect shareholders and upgrade the quality of the portfolio.
Q. HOW WILL YOUR MANAGEMENT STRATEGY CHANGE, IF AT ALL, SHOULD WE ENTER A
PROLONGED DOWNTURN IN THE EQUITY MARKET?
A. We don't anticipate any immediate change in strategy as a result of a
downturn in the stock market. If a downturn in equities begins to filter
into domestic economic activity, affecting consumer confidence and slowing
growth in gross domestic product (GDP), we will become even more vigilant
in monitoring our credit risk. We are well positioned for such an event,
should it occur.
Q. WHAT ROLE DOES RESEARCH PLAY IN THE COMPOSITION AND PERFORMANCE OF THE
PORTFOLIO?
A. Research is a major part of our investment process. Research helps us avoid
unnecessary risk, reduces mistakes, and enables us to decide if we are
being appropriately compensated for the risk we do incur. The few
"BBB"-rated securities that we do own are in the portfolio because we
have done extensive research and feel we are familiar enough with them
to determine if they will hold their value in a down market. In the event
that yield spreads widen enough so that "BBB"-rated bonds become more
attractive, we'll have done our homework in advance to know which of them
are the best investments, and we will be able to act quickly to take
advantage of any opportunities.
Q. HOW IS THIS FUND DIFFERENT FROM OTHER MUNICIPAL BOND FUNDS?
A. The Fund is a very high-quality municipal bond fund. By prospectus, we are
only allowed to invest up to 40% of the assets in securities rated "BBB,"
and we are not allowed to hold any noninvestment-grade securities. Due to
these limitations we feel we are more conservative than the average
municipal bond fund.
Q. WHAT SECTORS, PROJECTS, OR REGIONS ARE PARTICULARLY ATTRACTIVE TO YOU NOW?
A. The South and Southwest areas of the country are benefiting from a boost in
population and increased job growth. In those regions, infrastructure also
tends to be newer, more efficient, and easier to maintain. Texas, Arizona,
and New Mexico are states in which we see a very positive climate for
municipal bonds. Generally, we favor bonds that are backed by tax revenues,
and we've seen good opportunities in water and sewer issues, which are the
last of the essential services that have not been deregulated. Areas in
which we are more cautious are states that have an exposure to exports to
Asia, such as California, Washington, and the manufacturing-oriented states
of the Midwest. These areas may feel pressure from slackening Asian demand,
and we are approaching them carefully as a result.
Q. NEWS REPORTS HAVE STATED THAT THE SUPPLY OF MUNICIPAL BONDS IS UP SHARPLY
THIS YEAR AND THAT YIELD SPREADS BETWEEN MUNICIPALS AND LONG-TERM U.S.
TREASURIES ARE NARROWING. WHAT HAS BEEN THE IMPACT OF THESE DEVELOPMENTS ON
THE FUND?
A. Supply is up sharply, and spreads have narrowed in relation to Treasury
securities. As a result, municipals are as attractive as they have been since
1987, based on their yields relative to U.S. Treasuries. Year-to-date supply
through August 31, 1998, is $192 billion, an increase of about 44% from the
same period in 1997. This surge in supply has overwhelmed demand, causing
yields on municipal bonds to trade at 95% of the yield of U.S. Treasury
securities. What this means for bond investors is that prices are very
attractive and that we can select carefully from a wide variety of issues to
assemble a portfolio that is well focused and tightly managed to seek our
risk-reward objective.
/s/ Geoffrey L. Schechter
Geoffrey L. Schechter
Portfolio Manager
Note to Shareholders: Effective March 4, 1998, the Fund is being managed by
Geoffrey L. Schechter, who succeeds Robert A. Dennis.
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
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PORTFOLIO MANAGER'S PROFILE
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GEOFFREY L. SCHECHTER IS A VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R) AND PORTFOLIO MANAGER OF MFS MUNICIPAL BOND FUND AND MFS
ALABAMA, ARKANSAS, CALIFORNIA, GEORGIA, MARYLAND, MASSACHUSETTS,
MISSISSIPPI, NORTH CAROLINA, PENNSYLVANIA, SOUTH CAROLINA, VIRGINIA, AND
WEST VIRGINIA MUNICIPAL BOND FUNDS.
MR. SCHECHTER JOINED MFS AS AN INVESTMENT OFFICER IN 1993 AFTER WORKING
AS A MUNICIPAL CREDIT ANALYST WITH A MAJOR INSURANCE COMPANY. HE WAS
NAMED AN ASSISTANT VICE PRESIDENT IN 1994 AND A VICE PRESIDENT IN 1995.
HE BECAME MANAGER OF MFS MUNICIPAL BOND FUND IN 1998.
MR. SCHECHTER IS A GRADUATE OF THE UNIVERSITY OF TEXAS AND HAS AN M.B.A.
FROM BOSTON UNIVERSITY. HE IS A CHARTERED FINANCIAL ANALYST AND A
CERTIFIED PUBLIC ACCOUNTANT.
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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
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FUND FACTS
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OBJECTIVE: SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM
FEDERAL INCOME TAXES AS IS CONSISTENT WITH PROTECTION
OF SHAREHOLDERS' CAPITAL.
FUND COMMENCEMENT: DECEMBER 16, 1976
CLASS INCEPTION: CLASS A DECEMBER 16, 1976
CLASS B SEPTEMBER 7, 1993
SIZE: $1.7 BILLION NET ASSETS AS OF AUGUST 31, 1998
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended August 31, 1998)
MFS Municipal Lehman Brothers Consumer Price
Bond Fund Municipal Index
-- Class A Bond Index -- U.S.
-----------------------------------------------------------------
8/93 $ 9,520 $10,000 $10,000
8/94 9,430 10,010 10,290
8/95 10,120 10,900 10,560
8/96 10,600 11,470 10,860
8/97 11,420 12,530 11,110
8/98 12,305 13,617 11,285
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended August 31, 1998)
MFS Municipal Lehman Brothers Consumer Price
Bond Fund Municipal Index
-- Class A Bond Index -- U.S.
-----------------------------------------------------------------
8/88 $ 9,530 $10,000 $10,000
8/90 11,040 11,810 11,060
8/92 13,930 14,680 11,840
8/94 15,690 16,490 12,520
8/96 17,620 18,900 13,220
8/98 20,468 22,428 13,731
AVERAGE ANNUAL TOTAL RETURNS THROUGH AUGUST 31, 1998
CLASS A
1 Year 3 Years 5 Years 10 Years/ Life
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Average Annual Total Return +7.78% +6.72% +5.26% +7.95%
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SEC Results +2.66% +5.01% +4.24% +7.42%
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CLASS B
1 Year 3 Years 5 Years 10 Years/ Life
- --------------------------------------------------------------------------------
Average Annual Total Return +6.85% +5.78% +4.27% +7.44%
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SEC Results +2.85% +4.88% +3.92% +7.44%
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COMPARATIVE INDICES
1 Year 3 Years 5 Years 10 Years/ Life
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Lehman Brothers Municipal
Bond Index+ +8.60% +7.70% +6.37% +8.41%
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Consumer Price Index+# +1.61% +2.24% +2.45% +3.22%
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+ Source: CDA/Wiesenberger.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%.
B results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of B. Because operating expenses
of A are lower than those of B, B performance generally would have been lower
than A performance. The A performance included within the B SEC performance
has been adjusted to reflect the CDSC generally applicable to B rather than
the initial sales charge generally applicable to A.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
A small 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.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1998
QUALITY RATINGS
"AAA" 63.0%
"AA" 9.0%
"A" 18.0%
"BBB" 10.0%
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1998
<TABLE>
<CAPTION>
Municipal Bonds - 99.1%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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<S> <C> <C>
General Obligation - 14.8%
Chicago, IL, Board of Education, AMBAC, 0s, 2011 $ 5,000 $ 2,689,200
Chicago, IL, Board of Education, AMBAC, 0s, 2012 2,550 1,290,708
Chicago, IL, Board of Education, MBIA, 6.25s, 2012 2,500 2,921,375
Chicago, IL, Board of Education, MBIA, 5.4s, 2017 3,000 3,111,360
Clark County, NV, School District, MBIA, 7s, 2010 4,000 4,973,960
Commonwealth of Massachusetts, 6.5s, 2008 6,400 7,501,248
Commonwealth of Massachusetts, FGIC, 7s, 2009 7,000 8,551,830
Commonwealth of Massachusetts, 5s, 2014 5,500 5,562,755
Commonwealth of Massachusetts, 5s, 2017 18,940 18,962,917
Cook County, IL, MBIA, 5.625s, 2016 3,230 3,420,635
Detroit, MI, 6.25s, 2009 5,235 5,702,747
Detroit/Wayne County, MI, Stadium, FGIC, 5.5s, 2017 6,000 6,278,100
District Columbia, Unref Bal Refunding A 1 MBIA
Insured, 6.5s, 2010 5,705 6,649,862
Florida Board of Education, Capital Outlay, 9.125s, 2014 1,735 2,496,578
Lewisville, TX, Independent School District, 5s, 2018 8,500 8,467,870
New York City, NY, 7.5s, 2002 12,500 13,814,375
New York City, NY, 7.5s, 2006 3,625 4,038,685
New York City, NY, 7.65s, 2006 295 330,055
New York City, NY, 7.5s, 2007 15,500 17,268,860
New York City, NY, 7.5s, 2008 10,000 11,127,700
New York City, NY, 7.7s, 2009 320 357,555
New York City, NY, 5.75s, 2013 8,500 9,050,290
New York City, NY, 5.25s, 2014 10,000 10,176,300
New York City, NY, 5.75s, 2014 9,500 10,031,905
New York City, NY, 5.75s, 2015 11,085 11,663,083
Rockwall, TX, Independent School District, 0s, 2014 2,000 881,360
State of California, 5.5s, 2013### 8,000 8,766,160
State of California, 5s, 2023 43,455 43,030,879
State of Connecticut, 5.25s, 2014 5,000 5,204,650
State of Florida, Broward County Expressway
Authority, 10s, 2014 4,350 6,734,496
State of Washington, 6.75s, 2010 3,880 4,682,190
State of Washington, 6s, 2012 4,360 4,990,151
Virginia Beach, VA, 5.25s, 2012 2,765 2,920,808
Virginia Beach, VA, 5.25s, 2013 1,250 1,312,275
--------------
$ 254,962,922
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State and Local Appropriation - 26.4%
California Public Works Board, Lease Rev. (California
Community Colleges), 5.25s, 2013 $ 2,910 $ 3,015,400
California Public Works Board, Lease Rev. (California
State University), 5.3s, 2015 6,655 6,826,034
California Public Works Board, Lease Rev. (California
State University), 5.5s, 2015 9,820 10,247,661
California Public Works Board, Lease Rev. (Department
of Corrections), AMBAC, 5.25s, 2013 6,795 7,281,590
California Public Works Board, Lease Rev. (University
of California), 5.5s, 2014 4,500 4,923,000
Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2009 5,160 5,929,356
Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2015 27,295 31,500,887
Delaware Valley, PA, Regional Finance Authority,
AMBAC, 9.022s, 2018 16,250 17,568,037
Indiana Office Building Community Capital Complex
Rev., 6.9s, 2011 9,500 11,311,080
Kansas City, MO, Municipal Assistance, MBIA,
5.125s, 2015 5,545 5,636,770
King County, IL, Washington Lease Rev. (King Street
Center), MBIA, 5.125s, 2017 6,975 7,083,950
Los Angeles County, CA, Public Works Financing
Authority (Multiple Capital Facilities), AMBAC,
5.125s, 2017 4,900 4,953,753
Massachusetts Bay Transportation Authority,
6.1s, 2013 10,200 11,735,406
Massachusetts Bay Transportation Authority,
5.875s, 2015 4,500 5,046,750
Massachusetts Bay Transportation Authority, 7s, 2021 19,185 24,247,346
Massachusetts Bay Transportation Authority, FGIC,
5s, 2023 17,970 17,872,063
Metropolitan Government of Nashville & Davidson
County, TN, 7s, 2011 5,280 5,769,509
Metropolitan Transportation Authority, NY, Commuter
Facilities Rev., MBIA, 5.5s, 2011 3,430 3,674,044
Metropolitan Transportation Authority, NY, Service
Contract, 7.375s, 2008 5,000 5,889,400
Metropolitan Transportation Authority, NY, Service
Contract, 5.75s, 2013 5,600 6,190,072
New York Dormitory Authority Rev. (City University),
7s, 2009 13,765 16,039,391
New York Dormitory Authority Rev. (City University),
7.5s, 2010 15,650 19,153,722
New York Dormitory Authority Rev. (City University),
5.75s, 2013 25,150 27,800,055
New York Dormitory Authority Rev. (City University),
5.75s, 2013 5,000 5,526,850
New York Dormitory Authority Rev. (Mental Health
Services Facilities), 6s, 2007 1,500 1,661,460
New York Dormitory Authority Rev. (Mental Health
Services Facilities), 5.75s, 2010 2,000 2,184,220
New York Dormitory Authority Rev. (Mental Health
Services Facilities), 5s, 2018 2,500 2,463,150
New York Dormitory Authority Rev. (Secured Hospital
Interfaith Medical Center), 5.25s, 2016 2,845 2,865,740
New York Dormitory Authority Rev. (State University),
7.375s, 2010 16,100 19,610,927
New York Dormitory Authority Rev. (State University),
5.5s, 2013 7,875 8,536,579
New York Dormitory Authority Rev. (State University),
5s, 2015 6,340 6,342,029
New York Dormitory Authority Rev. (State University),
5.25s, 2015 5,100 5,372,901
New York Dormitory Authority Rev. (State University),
5s, 2017 5,000 4,975,350
New York Thruway Authority, Service Contract Rev.
(Local Highway & Bridge), 5.25s, 2013 6,000 6,119,280
New York Urban Development Corp., FSA, 5.5s, 2014 4,525 4,952,974
New York Urban Development Corp., Senior Lein,
5.5s, 2016 14,690 15,456,965
New York Urban Development Corp., Subordinate Lein,
5.5s, 2022 5,000 5,173,850
New York Urban Development Corp. (Correctional
Facilities), 5.5s, 2014 5,000 5,375,750
New York Urban Development Corp. (Correctional
Facilities), 5.375s, 2015 11,405 11,679,975
Philadelphia, PA, Municipal Authority, MBIA,
5.4s, 2017 5,000 5,171,350
Rhode Island Convention Center Authority, MBIA,
5.25s, 2015 20,870 22,060,842
Rhode Island Convention Center Authority, MBIA,
5s, 2023 1,810 1,792,389
San Bernardino, CA, Joint Powers Financing Authority
Lease Rev. (California Dept. of Transportation),
5.5s, 2014 10,000 10,473,900
Santa Clara County, CA, Certificates of
Participation, AMBAC, 6.25s, 2016 8,210 8,700,301
Texas Public Finance Authority Building Rev.
(Department of Criminal Justice), FSA, 5.25s, 2013 5,085 5,257,839
Triborough Bridge & Tunnel Authority, NY (Convention
Center), 7.25s, 2010 22,905 27,378,346
Wayne County, MI, MBIA, 5.25s, 2016 5,750 5,892,313
--------------
$ 454,720,556
- ------------------------------------------------------------------------------------------------------
Refunded and Special Obligations - 13.6%
Austin, TX, Utility Systems Rev., 10.75s, 2000 $ 2,615 $ 2,914,836
Chicago, IL, Public Building Commission Mortgage
Rev., ETM, MBIA, 7.125s, 2015 6,590 6,996,867
Clark County, NV, School District, MBIA, 7s, 2001 10,050 10,978,720
Commonwealth of Massachusetts, 7s, 2001 3,305 3,648,026
Commonwealth of Massachusetts, 7s, 2001 1,285 1,416,546
Commonwealth of Massachusetts, 6.875s, 2001 4,825 5,302,916
Davenport, IA, Hospital Rev. (St. Luke's Hospital),
AMBAC, 7.4s, 2000 2,715 2,945,585
District Columbia, Prerefunded Refunding A 1 MBIA
Insured, 6.5s, 2010 295 346,864
Florida Board of Education, Capital Outlay, ETM,
9.125s, 2014 265 377,967
Maryland Health & Higher Education Facilities
Authority Rev. (University of Maryland Medical
System), FGIC, 7s, 2001 7,945 8,769,611
Massachusetts Port Authority Rev., "C", ETM,
13s, 2013 3,500 5,985,630
Metropolitan Transportation Authority, NY, Service
Contract, 7.4s, 2001 4,075 4,417,300
Missouri Regional Convention & Sports Complex
Authority, 6.8s, 2003 8,950 10,107,861
Missouri Regional Convention & Sports Complex
Authority, 6.9s, 2003 21,520 24,348,374
New York City, NY, 7.65s, 2002 4,705 5,338,011
New York City, NY, 7.7s, 2002 3,680 4,180,922
New York City, NY, 8s, 2001 2,475 2,797,888
New York Urban Development Corp. (Correctional
Facilities), 7.625s, 2001 7,570 8,361,746
New York Urban Development Corp. (Correctional
Facilities), 7.375s, 2002 4,000 4,510,640
Pennsylvania Convention Center Authority Rev., FGIC,
6.7s, 2016 51,195 62,094,415
Philadelphia, PA, Municipal Authority Rev. (Justice
Lease), FGIC, 7.1s, 2001 6,000 6,693,360
Philadelphia, PA, Municipal Authority Rev. (Justice
Lease), FGIC, 7.125s, 2001 4,500 5,023,395
Philadelphia, PA, School District, MBIA, 7s, 2001 9,440 10,321,602
Rhode Island Depositors Economic Protection Corp.,
FSA, 5.75s, 2014 5,035 5,616,190
State of Florida, Jacksonville Transportation
Authority, ETM, 9.2s, 2015 2,000 2,888,900
Tarrant County, TX, Health Facilities Development
Corp. (Harris Methodist Health), AMBAC, 5.125s,
2018 5,000 5,046,900
Washington Public Power Supply System Rev. (Nuclear
Project #2), 7.625s, 2001 10,815 11,933,271
Washington Public Power Supply System Rev. (Nuclear
Project #2), 7.375s, 2000 10,000 10,826,300
--------------
$ 234,190,643
- ------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 2.6%
Connecticut Airport Rev. (Bradley International
Airport), FGIC, 7.65s, 2012 $ 5,000 $ 5,931,000
Phoenix, AZ, Civic Improvement Corporation, 5s, 2025 5,000 5,002,250
Port of Seattle, WA, FGIC, 5.5s, 2021 4,000 4,164,920
Tucson, AZ, Airport Authority Rev., MBIA, 5.7s, 2013 5,000 5,310,400
Wayne County, MI, Charter Airport Rev. (Detroit
Metropolitan Wayne County), MBIA, 5s, 2022 12,300 12,079,953
Wayne County, MI, Charter Airport Rev. (Detroit
Metropolitan Wayne County), MBIA, 5s, 2028 12,300 11,983,890
--------------
$ 44,472,413
- ------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 17.4%
Austin, TX, Utility Systems Rev., AMBAC, 6.75s, 2012 $ 2,500 $ 3,003,025
Georgia Municipal Electric Authority Rev., AMBAC,
6.5s, 2017 8,510 10,190,895
Georgia Municipal Electric Authority Rev., MBIA,
5.5s, 2020 22,190 23,787,680
Georgia Municipal Electric Authority Rev., FGIC,
5.5s, 2020 5,045 5,429,076
Intermountain Power Agency Utah Revenue, Refunding
Series A,MBIA, 5s, 2019## 9,330 9,047,394
Intermountain Power Agency, UT, Power Supply Rev.,
6.15s, 2014+ 44,600 49,108,168
Intermountain Power Agency, UT, Power Supply Rev.,
AMBAC, 6s, 2021 9,000 9,903,600
Intermountain Power Agency, UT, Power Supply Rev.,
MBIA, 6s, 2016 10,000 10,975,900
Long Island Power Authority, NY, Electric Systems
Rev., FSA, 0s, 2010 10,000 5,683,300
Long Island Power Authority, NY, Electric Systems
Rev., FSA, 0s, 2011 10,000 5,392,400
Long Island Power Authority, NY, Electric Systems
Rev., 5.25s, 2026 10,000 10,012,700
Massachusetts Municipal Wholesale Electric Co., MBIA,
6.75s, 2017 6,030 6,661,823
Mercer County, ND, Pollution Control Rev. (Antelope
Valley Station), AMBAC, 7.2s, 2013 4,000 5,058,680
Michigan Strategic Fund, Limited Obligation Rev.
(Detroit Edison), MBIA, 7s, 2008 3,000 3,628,320
North Carolina Eastern Municipal Power, MBIA,
5.7s, 2013 7,000 7,614,320
North Carolina Eastern Municipal Power, MBIA,
5.625s, 2014 7,735 8,337,789
North Carolina Eastern Municipal Power, MBIA,
5.125s, 2017 18,925 19,226,475
North Carolina Eastern Municipal Power, MBIA,
6.5s, 2018 9,250 11,177,515
Northern California Transmission Agency, MBIA,
7s, 2013 4,000 4,995,560
Piedmont, SC, Municipal Power Agency, Electric Rev.,
FGIC, 6.25s, 2021 4,150 4,893,597
Puerto Rico Electric Power Authority, Power Rev.,
FSA, 5.25s, 2015 5,000 5,222,250
Puerto Rico Electric Power Authority, Power Rev.,
FSA, 5.25s, 2016 6,000 6,266,700
Washington Public Power Supply System Rev. (Nuclear
Project #1), MBIA, 5.75s, 2010 13,100 14,292,493
Washington Public Power Supply System Rev. (Nuclear
Project #1), MBIA, 5.75s, 2011 7,500 8,182,725
Washington Public Power Supply System Rev. (Nuclear
Project #1), FSA, 5.125s, 2014 12,500 12,738,750
Washington Public Power Supply System Rev. (Nuclear
Project #2), MBIA, 5.625s, 2010 10,000 10,828,700
Washington Public Power Supply System Rev. (Nuclear
Project #2), MBIA, 5.7s, 2012 15,000 15,967,500
Washington Public Power Supply System Rev. (Nuclear
Project #3), FGIC, 0s, 2005 6,895 5,165,458
Washington Public Power Supply System Rev. (Nuclear
Project #3), 7.125s, 2016 5,145 6,397,139
--------------
$ 299,189,932
- ------------------------------------------------------------------------------------------------------
Health Care Revenue - 2.3%
Bell County, TX, Health Facilities Development Corp.
Rev. (Buckner Retirement Facility), 5.25s, 2019 $ 2,500 $ 2,484,025
Denver, CO, Health & Hospital Rev., 5.375s, 2028 4,350 4,349,652
Illinois Educational Facilities Authority Rev.
(Centegra Health Systems), 5.25s, 2024 5,500 5,446,870
Indiana Health Facility Hospital Rev., (Floyd
Memorial Hospital & Health Services), 5.25s, 2018 1,400 1,402,996
Indiana Health Facility Hospital Rev., (Floyd
Memorial Hospital & Health Services), 5.25s, 2022 1,000 997,380
Massachusetts Health & Educational Facilities (Jordan
Hospital), 5.25s, 2018 4,000 3,941,120
Michigan Hospital Finance Authority Rev. (Genesys
Regional Medical), 5.5s, 2027 9,000 9,057,420
Michigan Hospital Finance Authority Rev. (Mercy
Health Services), 5.625s, 2016 8,375 8,829,344
Pennsylvania Higher Education Facilities, Health
Services Rev. (University of Pennsylvania),
5.75s, 2022 2,015 2,123,205
--------------
$ 38,632,012
- ------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.2%
Scioto County, OH (Norfolk Southern Corp.),
5.3s, 2013 $ 2,500 $ 2,548,000
- ------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 9.5%
District of Columbia Hospital Rev. (Medlantic
Healthcare), MBIA, 5.25s, 2019 $ 6,750 $ 6,819,862
Fredericksburg, VA, Industrial Development (Medicorp
Health Systems), AMBAC, 5.25s, 2023 7,000 7,094,360
Illinois Development Finance Authority Rev. (Provena
Health), MBIA, 5.75s, 2016 5,980 6,393,338
Illinois Educational Facilities Authority Rev.
(Advocate Health Care), MBIA, 5.7s, 2011 4,500 4,913,955
Illinois Educational Facilities Authority Rev. (Holy
Family Medical Center), MBIA, 5.125s, 2017 6,975 7,033,799
Illinois Educational Facilities Authority Revenues,
Refunding Metodist Med Center, MBIA, 5.5s, 2010 2,540 2,723,464
Indiana Health Facility Hospital Rev. (Sisters Of St.
Francis), MBIA, 5.125s, 2017 7,040 7,069,357
Lancaster County, NE, Hospital Authority Rev. (Bryan
Memorial Hospital), MBIA, 5.375s, 2017 4,250 4,403,765
Lehigh County, PA, General Purpose Authority
(Hospital Lehigh Valley), MBIA, 5s, 2028 10,835 10,622,959
Massachusetts Health & Educational Facilities
Authority (University Hospital), MBIA, 7.25s, 2019 4,500 4,861,980
Michigan Hospital Finance Authority Rev. (Sisters of
Mercy Hospital), MBIA, 5.375s, 2014 9,000 9,519,390
New York Dormitory Authority Rev., AMBAC, 5.2s, 2014 4,915 5,054,144
New York Dormitory Authority Rev. (Secured Hospital
Interfaith Medical Center), AMBAC, 5.25s, 2014 4,320 4,461,091
New York Dormitory Authority Rev. (Wyckoff Heights
Medical Center), AMBAC, 5.2s, 2014 2,500 2,570,775
North Central Texas Health Facility Development Corp.
Rev. (Texas Health Resources System), MBIA,
5s, 2017 6,000 6,013,140
North Texas Health Facilities Development Corp.
(United Regional Health Care Systems, Inc.), MBIA,
5s, 2014 8,980 9,059,563
Peninsula Ports Authority, VA, Hospital Facilities
Rev. (Whittaker Memorial), FHA, 8.7s, 2023 1,595 1,622,913
Pennsylvania Higher Educational Facilities Authority,
Health Services Rev. (Allegheny Delaware Valley),
MBIA, 5.3s, 2006 1,975 2,038,674
Pennsylvania Higher Educational Facility, Allegheny
Delaware Valley Obligation A, MBIA, 5.875s, 2016 5,000 5,130,300
Sayre, PA, Health Care Facilities Authority Rev.
(Guthrie Healthcare Systems), AMBAC, 7s, 2011 6,000 6,496,140
Sierra View, CA, Local Health Care District Rev.,
ACA, 5.25s, 2018 5,000 4,969,000
Spartanburg County, SC, Health Service District,
Inc., MBIA, 5.125s, 2017 6,125 6,207,626
Tarrant County, TX, Health Facilities Development
Corp. (Fort Worth Osteopathic), MBIA, 6s, 2021 6,000 6,953,520
Tarrant County, TX, Health Facilities Development
Corp. (Texas Health Resources), MBIA, 5.25s, 2018 18,605 18,869,377
Washington County, PA, Hospital Authority Rev.
(Washington Hospital), AMBAC, 7.15s, 2017 9,000 9,641,790
Wisconsin Health & Educational Facilities Authority
Rev. (Children's Hospital of WI, Inc.), AMBAC,
5s, 2018 3,355 3,321,886
--------------
$ 163,866,168
- ------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.5%
California Statewide Community, Development Authority
(Irvine Apartments), 5.25s, 2025 $ 3,500 $ 3,559,220
Colorado Housing Finance Authority, FHA, 8.3s, 2023 4,000 4,302,640
--------------
$ 7,861,860
- ------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.7%
Illinois Dedicated Tax Rev. (Civic Center), AMBAC,
6.25s, 2011 $ 3,640 $ 4,278,893
Illinois Sales Tax Rev., 0s, 2009 8,965 5,501,910
Illinois Sales Tax Rev., 6.5s, 2022 5,000 6,077,550
Metropolitan Atlanta, GA, Rapid Transit Authority,
6.25s, 2018 4,580 5,339,685
Rhode Island Depositors Economic Protection Corp.,
5.75s, 2014 4,765 5,326,412
Virgin Islands Public Finance Authority, 5.5s, 2022 2,000 2,025,620
--------------
$ 28,550,070
- ------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 0.1%
Colorado Housing Finance Authority, 6.55s, 2025 $ 1,000 $ 1,106,340
Missouri Housing Development Commission, Mortgage
Rev., 6.3s, 2029 1,150 1,267,841
--------------
$ 2,374,181
- ------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 0.2%
Northeast Maryland Waste Disposal Authority
(Southwest County Resource Recovery), MBIA,
7.2s, 2005 $ 3,000 $ 3,485,400
- ------------------------------------------------------------------------------------------------------
Special Assesment District - 0.5%
Chico, CA, Public Finance Authority Rev. (Southeast
Chico Redevelopment), FGIC, 6.625s, 2021 $ 6,435 $ 6,792,078
Northern Palm Beach County, FL, Water Control &
Improvement, MBIA, 5s, 2014 1,650 1,708,526
--------------
$ 8,500,604
- ------------------------------------------------------------------------------------------------------
Toll Road and Transit - 3.9%
E 470 Public Highway Authority Colorado Revenue,
Capital Appreciation Senior Series B, MBIA,
0s, 2018 $11,000 $ 4,100,140
E 470 Public Highway Authority Colorado Revenue,
Capital Appreciation Senior Series B, MBIA,
0s, 2023 20,000 5,781,200
Florida Turnpike Authority Turnpike Rev., Department
Transportation Series A, FGIC, 5.25s, 2014 8,115 8,444,712
New Jersey Transportation Trust Fund Authority,
5.25s, 2016 8,500 8,699,835
New York Thruway Authority, Highway & Bridge Trust
Fund, FGIC, 5.25s, 2013 5,000 5,218,750
Pennsylvania Turnpike Commission, Oil Franchise Tax
Rev., AMBAC, 5s, 2023 6,150 6,080,936
Pennsylvania Turnpike Commission, Oil Franchise Tax
Rev., AMBAC, 5s, 2023 9,840 9,757,147
Pocahontas Parkway Assn., VA, Toll Road Rev.,
0s, 2012 2,200 1,040,182
Pocahontas Parkway Assn., VA, Toll Road Rev.,
0s, 2013 7,000 3,111,640
Pocahontas Parkway Assn., VA, Toll Road Rev.,
0s, 2014 6,500 2,713,815
Pocahontas Parkway Assn., VA, Toll Road Rev.,
0s, 2015 7,300 2,836,269
Pocahontas Parkway Assn., VA, Toll Road Rev.,
0s, 2016 1,900 691,657
Texas Turnpike Authority, Dallas North Thruway Rev.,
FGIC, 5.5s, 2015 4,000 4,244,400
Texas Turnpike Authority, Dallas Thruway (President
George Bush Turnpike), AMBAC, 5s, 2016 4,500 4,524,075
--------------
$ 67,244,758
- ------------------------------------------------------------------------------------------------------
Universities - 2.7%
Massachusetts Health & Educational Facilities
(Harvard University), 6.25s, 2020 $17,000 $ 20,319,420
New York Dormitory Authority Rev. (New York
University), MBIA, 5.75s, 2013 3,275 3,676,024
New York Dormitory Authority Rev. (New York
University), MBIA, 5.75s, 2015 3,500 3,932,565
New York Dormitory Authority Rev. (Rockefeller
University), 5.25s, 2011 2,725 2,875,420
New York Dormitory Authority Rev. (Rockefeller
University), MBIA, 5.25s, 2013 2,275 2,361,495
New York Dormitory Authority Rev. (University of
Rochester), MBIA, 5.25s, 2013 1,160 1,210,495
New York Dormitory Authority Rev. (University of
Rochester), MBIA, 5.25s, 2014 1,795 1,864,879
New York Dormitory Authority Rev. (University of
Rochester), 5.25s, 2015 3,825 3,945,985
Pennsylvania Higher Educational Facilities Authority
Rev. (Temple University), MBIA, 5.25s, 2014 2,000 2,069,460
Texas A & M University (Permanent University Fund),
0s, 2007 6,695 4,634,346
--------------
$ 46,890,089
- ------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 2.4%
Cleveland, OH, Waterworks Rev., FSA, 5s, 2023 $11,480 $ 11,448,774
Cleveland, OH, Waterworks Rev., FSA, 5s, 2028 4,100 4,069,619
Detroit, MI, Sewage Disposal Rev., MBIA, 5s, 2022 12,750 12,743,753
Houston, TX, Water & Sewer Systems Rev., FGIC,
5s, 2018 10,000 10,012,300
Houston, TX, Water & Sewer Systems Rev., FSA,
0s, 2020 10,000 3,285,100
--------------
$ 41,559,546
- ------------------------------------------------------------------------------------------------------
Other - 0.3%
Orange County, CA, California Recovery Certificates,
MBIA, 6s, 2026 $ 5,000 $ 5,470,700
- ------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,553,219,861) $1,704,519,854
- ------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.2%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------
Allegheny County, PA, due 09/01/98 $ 2,475 $ 2,475,000
Allegheny County, PA, Hospital Development Rev.
Presbyterian University Hospital, due 09/01/98 1,605 1,605,000
Bartow County, GA, Development Authority Pollution
Control Rev. Georgia Power Co., due 09/01/98 3,400 3,400,000
Coweta County Georgia Development Authority, Daily
Georgia Power Company Plant Yates Project,
due 09/01/98 9,600 9,600,000
Georgia Hospital Financing Authority Rev. (Hospital
Loan Program), due 09/01/98 700 700,000
New York City Municipal Water Finance Authority,
due 09/01/98 1,200 1,200,000
New York City Municipal Water Finance Authority,
due 09/01/98 3,950 3,950,000
Pinellas County, FL, Health Facility Authority,
due 09/01/98 12,100 12,100,000
Putnam County, GA, Pollution Control Rev. (Georgia
Power Co.), due 09/01/98 2,100 2,100,000
- ------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Cost $ 37,130,000
- ------------------------------------------------------------------------------------------------------
Non-Floating Rate Demand Note - 0.3%
- ------------------------------------------------------------------------------------------------------
New York City Municipal Water Finance Authority,
3.3s, 1998, at Cost 6,000 $ 6,000,000
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,596,349,861) $1,747,649,854
Other Assets, Less Liabilities - (1.6)% (26,860,768)
- ------------------------------------------------------------------------------------------------------
Net assets - 100.0% $1,720,789,086
- ------------------------------------------------------------------------------------------------------
+ SEC Rule 144A restriction.
## When-issued.
### Security segregated as collateral for an open futures contract.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------
AUGUST 31, 1998
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,596,349,861) $1,747,649,854
Cash 24,262
Receivable for Fund shares sold 23,200,874
Receivable for investments sold 19,049,966
Interest receivable 20,269,199
Other assets 10,654
--------------
Total assets $1,810,204,809
--------------
Liabilities:
Distributions payable $ 2,814,771
Payable for Fund shares required 1,908,907
Payable for investments purchased 74,322,585
Payable for when-issued investments purchased 9,040,583
Payable for daily variation margin on open futures
contracts 913,813
Payable to affiliates -
Management fee 55,131
Administrative fee 1,949
Shareholder servicing agent fee 15,687
Distribution and service fee 14,980
Accrued expenses and other liabilities 327,317
--------------
Total liabilities $ 89,415,723
--------------
Net assets $1,720,789,086
==============
Net assets consist of:
Paid-in capital $1,550,238,823
Unrealized appreciation on investments 148,605,609
Accumulated undistributed net realized gain on
investments 17,582,029
Accumulated undistributed net investment income 4,362,625
--------------
Total $1,720,789,086
==============
Shares of beneficial interest outstanding 155,160,854
===========
Class A shares:
Net asset value and redemption price per share
(net assets of $1,639,304,608 / 147,808,197 shares of
beneficial interest outstanding) $11.09
======
Offering price per share (100 / 95.25) $11.64
======
Class B shares:
Net asset value and offering price per share
(net assets of $81,484,478 / 7,352,657 shares of
beneficial interest outstanding) $11.08
======
On sales of $100,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 94,589,556
-------------
Expenses -
Management fee $ 6,706,665
Trustees' compensation 87,851
Shareholder servicing agent fee 2,040,832
Distribution and service fee (Class B) 615,624
Administration 225,937
Custodian fee 381,305
Postage 146,073
Printing 54,631
Auditing fees 39,765
Interest 9,430
Legal fees 4,664
Miscellaneous 837,352
-------------
Total expenses $ 11,150,129
Fees paid indirectly (361,712)
-------------
Net expenses $ 10,788,417
-------------
Net investment income $ 83,801,139
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 34,616,059
Futures contracts (10,706,955)
-------------
Net realized gain on investments $ 23,909,104
-------------
Change in unrealized appreciation (depreciation) -
Investments $ 25,596,724
Futures contracts (2,749,295)
-------------
Net unrealized gain on investments $ 22,847,429
-------------
Net realized and unrealized gain on investments $ 46,756,533
-------------
Increase in net assets from operations $ 130,557,672
=============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
From net investment income $ 83,801,139 $ 96,106,390
Net realized gain on investments 23,909,104 30,858,117
Net unealized gain on investments 22,847,429 13,108,443
-------------- --------------
Increase in net assets from operations $ 130,557,672 $ 140,072,950
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (81,123,493) $ (92,663,173)
From net investment income (Class B) (3,212,719) (3,251,831)
From net realized gain on investments (Class A) (28,342,272) --
From net realized gain on investments (Class B) (1,279,318) --
-------------- --------------
Total distributions declared to shareholders $ (113,957,802) $ (95,915,004)
-------------- --------------
Net decrease in net assets from Fund share transactions $ (32,044,145) $ (176,515,366)
-------------- --------------
Total decrease in net assets $ (15,444,275) $ (132,357,420)
Net assets:
At beginning of period 1,736,233,361 1,868,590,781
-------------- --------------
At end of period (including accumulated undistributed
net investment income of $4,362,625 and $3,311,266,
respectively) $1,720,789,086 $1,736,233,361
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
TEN MONTHS
YEAR ENDED AUGUST 31, ENDED YEAR ENDED
--------------------------------------------------- AUGUST 31, OCTOBER 31,
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
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 $10.99 $10.75 $10.83 $10.68 $11.64 $10.73
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.54 $ 0.57 $ 0.59 $ 0.60 $ 0.51 $ 0.61
Net realized and unrealized gain
(loss) on investments 0.28 0.24 (0.09) 0.15 (0.77) 1.14
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.82 $ 0.81 $ 0.50 $ 0.75 $(0.26) $ 1.75
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.54) $(0.57) $(0.58) $(0.60) $(0.47) $(0.66)
From net realized gain on
investments (0.18) -- -- -- (0.16) (0.15)
In excess of net investment income -- -- -- -- (0.04) (0.03)
In excess of net realized gain on
investments -- -- -- -- (0.03) --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.72) $(0.57) $(0.58) $(0.60) $(0.70) $(0.84)
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.09 $10.99 $10.75 $10.83 $10.68 $11.64
====== ====== ====== ====== ====== ======
Total return(+) 7.78% 7.75% 4.67% 7.31% (2.33)%++ 16.97%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.60% 0.60% 0.60% 0.61% 0.59%+ 0.59%
Net investment income 4.90% 5.29% 5.37% 5.70% 5.49%+ 5.63%
Portfolio turnover 79% 91% 84% 90% 74% 56%
Net assets at end of period
(000,000 omitted) $1,639 $1,660 $1,798 $1,949 $2,031 $2,195
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $10.80 $10.11 $10.53 $10.57 $ 9.71
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.66 $ 0.68 $ 0.68 $ 0.72 $ 0.73
Net realized and unrealized gain (loss) on
investments 0.09 0.69 (0.13) 0.04 0.86
------ ------ ------ ------ ------
Total from investment operations $ 0.75 $ 1.37 $ 0.55 $ 0.76 $ 1.59
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.66) $(0.68) $(0.69) $(0.72) $(0.73)
From net realized gain on investments (0.16) -- (0.27) -- --
In excess of net investment income -- -- -- (0.08) --
From paid-in capital -- -- (0.01) -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.82) $(0.68) $(0.97) $(0.80) $(0.73)
------ ------ ------ ------ ------
Net asset value - end of period $10.73 $10.80 $10.11 $10.53 $10.57
====== ====== ====== ====== ======
Total return(+) 7.35% 13.85% 5.42% 7.54% 16.95%
Ratios (to average net assets)/Supplemental data:
Expenses 0.57% 0.59% 0.60% 0.64% 0.65%
Net investment income 6.12% 6.47% 6.69% 6.87% 7.16%
Portfolio turnover 87% 98% 160% 199% 190%
Net assets at end of period (000,000
omitted) $1,878 $1,715 $1,409 $1,259 $1,003
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------------------------------
TEN MONTHS
YEAR ENDED AUGUST 31, ENDED PERIOD ENDED
------------------------------------------------- AUGUST 31, OCTOBER 31,
1998 1997 1996 1995 1994 1993*
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $10.99 $10.74 $11.10 $10.67 $11.63 $11.68
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.45 $ 0.48 $ 0.49 $ 0.49 $ 0.40 $ 0.07
Net realized and unrealized gain
(loss) on investments 0.28 0.25 (0.37) 0.16 (0.77) (0.05)
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.73 $ 0.73 $ 0.12 $ 0.65 $(0.37) $ 0.02
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.46) $(0.48) $(0.48) $(0.49) $(0.40) $(0.07)(++)
From net realized gains on
investments (0.18) -- -- -- (0.16) --
In excess of net realized gain on
investments -- -- -- -- (0.03) --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.64) $(0.48) $(0.48) $(0.49) $(0.59) $(0.07)
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.08 $10.99 $10.74 $10.83 $10.67 $11.63
====== ====== ====== ====== ====== ======
Total return 6.85% 6.84% 3.69% 6.35% (3.25)%++ 1.49%+
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.40% 1.46% 1.55% 1.60% 1.72%+ 1.70%+
Net investment income 4.10% 4.42% 4.42% 4.68% 4.41%+ 3.85%+
Portfolio turnover 79% 91% 84% 90% 74% 56%
Net assets at end of period (000,000
omitted) $81 $76 $71 $56 $45 $10
* For the period from the inception of Class B, September 7, 1993, through October 31, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(++) Amount includes a per share distribution in excess of net investment income of $0.002.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Municipal Bond Fund (the Fund) is a diversified series of MFS Series Trust
IV (the Trust). The Trust is organized as a Massachusetts business trust and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) Significant Accounting Policies
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 and forward
contracts, 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 listed on commodities
exchanges are reported at market value using closing settlement prices.
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 with the broker 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 contract, and are recorded for financial statement purposes as
unrealized gains or losses by the Fund. The Fund's investment in futures
contracts is designed to hedge against anticipated future changes in interest
rates or securities prices. Investments in interest rate futures for purposes
other than hedging may be made to modify the duration of the portfolio without
incurring the additional transaction costs involved in buying and selling the
underlying securities. Should interest rates or security 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. Some
securities may be purchased on a "when-issued" or "forward delivery" basis,
which means that the securities will be delivered to the fund at a future
date, usually beyond customary settlement time.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. The Fund files a tax return annually
using tax accounting methods required under provisions of the Code, which may
differ from generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may differ
from that reported on the Fund's tax return and, consequently, the character
of distributions to shareholders reported in the financial highlights may
differ from that reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be 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 net realized gains. During
the year ended August 31, 1998, $1,586,432 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain on
investments due to differences between book and tax accounting for market
discount on tax-exempt obligations. This change had no effect on the net
assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers both Class
A and Class B shares, which differ in their respective distribution and
service fees. All shareholders bear the common expenses of the Fund based on
the value of 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. Class B
shares will convert to class A shares approximately eight years after
purchase.
(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 the following annual
rates:
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
------------------------------------- ---------------------------------
First $200 million 0.220% First $16 million 4.12%
Next $1.8 billion 0.187% Next $144 million 3.51%
In excess of $2 billion 0.168% In excess of $160 million 3.16%
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 its independent Trustees and Mr. Bailey. Included
in Trustees' compensation is a net periodic pension expense of $28,761 for the
year ended August 31, 1998.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$235,283 for the year ended August 31, 1998, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted a
distribution plan for Class B shares pursuant to Rule 12b-1 of the Investment
Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B shares.
Except in the case of the 0.25% per annum Class B service fee paid by the Fund
in connection with the sale of Class B shares, payment of the Class B service
fee will be suspended until such date as the trustees of the Trust may
determine. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
shares. The service fee is intended to be 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, no amounts were retained for
the year ended August 31, 1998. Fees incurred under the distribution plan
during the year ended August 31, 1998, were 0.80% of average daily net assets
attributable to Class B shares on an annualized basis.
Purchases over $1 million of Class A shares and certain purchases by
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 1998, were
$14,689 and $188,693 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 0.1125%. Prior to January 1, 1998, the fee was calculated as a
percentage of the average daily net assets at an effective annual rate of
0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities and
short-term obligations aggregated $1,319,115,665 and $1,310,473,777,
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 $1,596,349,861
--------------
Gross unrealized appreciation $ 152,442,732
Gross unrealized depreciation (1,142,739)
--------------
Net unrealized appreciation $ 151,299,993
==============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 188,701,226 $ 2,080,177,975 184,758,268 $2,004,238,212
Shares issued to
shareholders in
reinvestment of
distributions 6,076,636 66,922,592 5,291,900 57,558,122
Shares reacquired (197,997,596) (2,184,102,786) (206,226,168) (2,241,605,376)
------------ --------------- ------------ --------------
Net decrease (3,219,734) $ (37,002,219) (16,176,000) $ (179,809,042)
============ =============== ============ ==============
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,770,410 $ 19,544,891 2,698,839 $ 29,287,408
Shares issued to
shareholders in
reinvestment of
distributions 254,719 2,802,449 179,440 1,952,061
Shares reacquired (1,576,595) (17,389,266) (2,574,149) (27,945,793)
------------ --------------- ------------ --------------
Net increase 448,534 $ 4,958,074 304,130 $ 3,293,676
============ =============== ============ ==============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended August 31, 1998, was $2,101.
(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.
Future Contracts
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bond Index September 1998 827 Short $(1,486,502)
Municipal Bond Index December 1998 305 Short (192,180)
Municipal Bond Index December 1998 405 Long 213,091
U.S. Treasury Bonds September 1998 792 Short (1,073,933)
U.S. Treasury Bonds December 1998 95 Short (154,860)
-----------
$(2,694,384)
===========
</TABLE>
At August 31, 1998, the fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust IV and Shareholders of MFS Municipal Bond
Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Municipal Bond Fund (one of
the series consituting MFS Series Trust IV) as of August 31, 1998, the related
statement of operations for the year then ended, the statement of changes in
net assets for the years ended August 31, 1998 and 1997, and the financial
highlights for each of the years in the four-year period ended August 31,
1998, the ten months ended August 31, 1994 and each of the years in the six-
year period ended October 31, 1993. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 1998 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Municipal Bond
Fund at August 31, 1998, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 9, 1998
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
THE FUND HAS DESIGNATED $27,250,868 AS A CAPITAL GAIN DISTRIBUTION.
<PAGE>
MFS(R) Municipal Bond Fund
<TABLE>
<S> <C>
Trustees Secretary
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management Assistant Secretary
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
Custodian
J. Atwood Ives - Chairman and Chief Executive State Street Bank and Trust Company
Officer, Eastern Enterprises (diversified services
company) Auditors
Deloitte & Touche LLP
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) Investor Information
For MFS stock and bond market outlooks,
William J. Poorvu - Adjunct Professor, Harvard call toll free: 1-800-637-4458 anytime from
University Graduate School of Business a touch-tone telephone.
Administration
For information on MFS mutual funds, call your
Charles W.Schmidt - Private Investor financial adviser or, for an information kit, call
toll free: 1-800-637-2929 any business day from 9
Arnold D. Scott* - Senior Executive a.m. to 5 p.m. Eastern time (or leave a message
Vice President, Director, and Secretary, anytime).
MFS Investment Management
Investor Service
Jeffrey L. Shames* - Chairman, Chief MFS Service Center, Inc.
Executive Officer, and Director, P.O. Box 2281
MFS Investment Management Boston, MA 02107-9906
Elaine R. Smith - Independent Consultant For general information, call toll free:
1-800-225-2606 any business day from
David B. Stone - Chairman and Director, 8 a.m. to 8 p.m. Eastern time.
North American Management Corp.
(investment advisers) For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from 9
Investment Adviser a.m. to 5 p.m. Eastern time. (To use this service,
Massachusetts Financial Services Company your phone must be equipped with a
500 Boylston Street Telecommunications Device for the Deaf.)
Boston, MA 02116-3741
For share prices, account balances, and exchanges,
Distributor call toll free: 1-800-MFS-TALK (1-800-637-8255)
MFS Fund Distributors, Inc. anytime from a touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 World Wide Web
www.mfs.com
Portfolio Manager
Geoffrey L. Schechter*
Treasurer
W. Thomas London*
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
----------------
MFS(R) MUNICIPAL BOND FUND Bulk Rate
U.S. Postage
Paid
MFS
[Logo] MFS(R) ----------------
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MMB-2 10/98 60M 17/217
