<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) MUNICIPAL
BOND FUND
SEMIANNUAL REPORT o FEBRUARY 28, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 26
MFS' Year 2000 Readiness Disclosure ....................................... 31
Trustees and Officers ..................................................... 33
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Since we launched Massachusetts Investors Trust, the nation's first mutual
fund, 75 years ago, MFS has weathered numerous market and economic cycles,
from the occasional recession to long periods of growth and prosperity.
Throughout that time, we have tried to give investors a realistic assessment
of the investment markets and, when necessary, to sound a note of caution --
even when market conditions appear quite favorable.
Although the equity markets have overcome last year's volatility, we still
think stocks are overdue for a correction that will rid them of the excesses
that have developed. Perhaps the most glaring measure of those excesses is the
high level of valuations, that is, the amount equity investors are paying for
each dollar of earnings. By mid-March, the price-to-earnings (P/E) ratio of
the average stock in the Standard & Poor's 500 Composite Index, a popular,
unmanaged index of common stock total return performance, was almost 28%
higher than it was a year ago. While P/E ratios keep going up, earnings have
essentially been flat, and we believe they are likely to stay that way, for a
few months at least. This leaves stock prices vulnerable to negative events
such as a domestic or international crisis, a sudden increase in interest
rates, or a slowing economy, any of which could lead to lower corporate
earnings.
While risks in the overall market have increased, one industry calls for
particular attention. For several months, Internet-related stocks have
exhibited extreme price volatility. The Internet's potential impact on the way
individuals and companies communicate and conduct business is certainly great,
but we feel that most of the recent run-up in the share prices of these
companies is unjustified. Many of them have not yet reported any profits, and
there is no way of knowing which of today's "hot" Internet stocks will be
successful -- or even in existence -- a few years from now. Therefore, we
think the frenzy surrounding even the best-known Internet stocks is purely
speculative.
However, there are some established companies offering Internet-related
products and services that may generate revenue. These include companies that
provide networking equipment, that make servers to store information, and that
help customers make better use of Internet services. Because they already have
profitable businesses as well as the potential to use the Internet to increase
their opportunities to generate revenue, these companies have been the focus
of our research efforts.
Although we think valuations for the overall equity market, and especially for
Internet stocks, are excessive, we see this situation as an opportunity for
our portfolio managers to capitalize on MFS(R) Original Research(SM). This is
a fundamental, company-by-company process that helps us find investments that
we believe are most likely to achieve long-term earnings growth, through both
negative and positive market cycles.
We also rely heavily on our research process when investing in the fixed-
income markets. Last year, turmoil in emerging markets and volatility in the
U.S. stock market helped create a "flight to quality," meaning that investors
moved toward U.S. Treasury securities, which are seen as carrying less risk,
and away from almost everything else. As a result, yields on non-Treasury
securities increased, while yields on Treasuries fell. Some of these yield
spreads, or differentials, have narrowed, but they have not returned to the
levels seen before last year's market turmoil. We think this has created
opportunities for our portfolio managers to find attractive yields in
these markets.
Individual investors, meanwhile, should keep in mind that the tremendous
increases in the broad stock market averages of the past several years
are a historical aberration and do not necessarily indicate future market
performance. If they are not already diversified across a range of
investments, including growth stock funds, value-oriented funds, and fixed-
income funds, investors may want to talk to their financial advisers about
developing well-diversified portfolios with the potential to weather
unexpected changes in the markets. Doing so may help investors more
effectively meet their long-term financial goals. 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)
March 16, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Geoffrey L. Schechter]
Geoffrey L. Schechter
For the six months ended February 28, 1999, Class A shares of the Fund provided
a total return of 2.09% and Class B shares 1.70%. These returns, which include
the reinvestment of distributions but exclude the effects of any sales charges,
compare to a 2.68% return for the Lehman Brothers Municipal Bond Index (the
Lehman Index), an unmanaged index of approximately 40,000 investment-grade
bonds, and to a 1.76% return for the average municipal bond fund as tracked by
Lipper Analytical Services, Inc., an independent firm that reports mutual fund
performance.
Q. WHAT WERE SOME OF THE FACTORS INVOLVED IN THE FUND'S PERFORMANCE OVER THE
PAST SIX MONTHS? SPECIFICALLY, WHAT MAY HAVE CAUSED THE FUND'S
UNDERPERFORMANCE COMPARED TO ITS BENCHMARK?
A. The single largest factor driving returns of a high-grade municipal bond
fund such as ours is the portfolio's sensitivity to interest-rate changes
because as interest rates increase, bond prices decrease. During the past
six months, we saw the difference in rates between long- and short-term
investments widen. This Fund focuses on bonds with maturities ranging
between 15 and 20 years. During the period, there was a modest increase in
rates in the mid-maturity range, which caused a decline in those bond
prices. This hurt our performance in comparison to the Lehman Index, which
focuses more on bonds with shorter-term maturities than those in our
portfolio. Shorter-term bonds saw a decline in rates and an increase in
price. We attribute our Class A shares' overperformance of the Lipper
average to our smaller weighting of bonds with 20- to 30-year maturities,
which suffered an increase in interest rates and acute price erosion. Also,
we feel that our lower weighting of "BBB"-rated bonds helped performance,
as those bonds experienced a slight rise in interest rates during the
period.
Q. HOW WOULD YOU DESCRIBE THE CURRENT CONDITION OF THE MUNICIPAL MARKET IN TERMS
OF FINANCIAL STRENGTH AND QUALITY OF ISSUES?
A. Generally, credit quality, which measures the likelihood that a bond issuer
will be unable to pay interest or repay principal, remained strong. Job
growth, retail sales, auto sales, and housing construction have been
healthy, which is good for the municipal bond market. In addition,
municipalities for the most part have been well-managed and have
experienced strong revenue growth and budget surpluses due to the health of
the domestic economy. However, the hospital sector has experienced a modest
deterioration in credit quality. This is because the Balanced Budget
Reconciliation Act that became effective last year has slowed the rate at
which hospitals are reimbursed by the federal government and insurance
companies for insured medical care. This has had a negative impact on many
hospitals' revenues. Last year, we actually saw more hospital bond issues'
credit ratings downgraded than upgraded. In fact, this was the only market
sector that saw such a broad decline. The Fund has less than 3% of its
assets in this area, not including insured bonds, which are "AAA"-rated. We
will be careful to look for only high-quality bonds or bonds of hospitals
that have strong competitive positions in their regions.
Q. CAN YOU DISCUSS A FEW INVESTMENTS THAT DID PARTICULARLY WELL FOR THE FUND IN
THE PAST SIX MONTHS?
A. One of our best purchases was Long Island Power Authority, a company that
provides transmission and distribution -- not generation -- services for
electric power on Long Island. We purchased zero-coupon bonds due in 2011
that do not pay interest but are sold at a discount. They were inexpensive
because of the profusion of bond issues in the state of New York last year.
Long Island Power has had a very strong competitive position and, as the
market has come to realize this, the bonds have become more sought after,
resulting in increased prices. Other investments that have done well for
the Fund are New York City bonds. Despite having fairly high 5.75% coupons,
they have appreciated in price thanks to the strength of the New York
economy.
Q. HOW ABOUT CREDITS THAT HAVE DISAPPOINTED OVER THE PERIOD?
A. Some of the Fund's lower-rated hospital holdings suffered due to a broad
sell-off of almost all types of "BBB"-rated hospital bonds because of the
issues plaguing the hospital industry that we have discussed. While there
are real problems in the sector, we think the poor performance of hospital
bonds may be the result of an overreaction by the market. Many hospital
holdings in which we still feel confident over the long term have been
painted with the same negative brush.
Q. HAS THE OVERALL CREDIT QUALITY OF THE PORTFOLIO CHANGED IN THE PAST SIX
MONTHS?
A. In today's market, we believe that investors are not adequately compensated
for taking on the added risk of "BBB"-rated bonds. Therefore, over the past
year we have upgraded the overall quality of the Fund and have been highly
selective in our purchases of "BBB"-rated bonds in favor of higher-rated
issues. Eighty percent of Fund assets are in "AAA"- or "AA"-rated bonds.
Q. CAN YOU EXPLAIN HOW MFS' RESEARCH-INTENSIVE INVESTMENT PROCESS BENEFITS
INVESTORS?
A. An interesting example of MFS Original Research in action is the recent
bond offering of a Pennsylvania hospital. Our research showed us that the
project's backers were experiencing financial trouble, despite conventional
wisdom that the organization could resolve its problems. Therefore, we
passed on the opportunity to buy the bonds, and the hospital subsequently
declared bankruptcy.
Our work in the housing market has been another good example of the
importance of research. In a strong market, investors tend to avoid housing
bonds because declining interest rates open up the possibility of prepayment
of bonds at lower rates. However, our intensive research has allowed us to
find housing bonds with minimal prepayment risk. We have found investments in
regions in which older, high-coupon bonds will be prepaid before the ones in
which we have invested. We are confident in the credit quality of the issuers
and are happy with the stable income stream these bonds have offered the
Fund.
Q. WHAT SECTORS, PROJECTS, OR REGIONS ARE PARTICULARLY ATTRACTIVE TO YOU NOW?
A. We continue to focus on essential service bonds such as those issued
to support water and sewer needs, and we are looking for selective
opportunities in the housing market. The nation's economy has remained
strong across the board, though we continue to carefully watch
municipalities that rely on commodities or farming products, which have
been buffeted by declining prices. We are also watching regions that are
closely tied to the weakened economies of Asia and Latin America, although
we have seen remarkably little impact on the domestic municipal bond market
from Asia's economic troubles.
Q. HOW IS THE SUPPLY OF MUNICIPAL BONDS CURRENTLY, AND HOW MIGHT SUPPLY TRENDS
IMPACT THE FUND?
A. Last year we had $284 billion in new municipal bond issues, the second-
highest level in history. This was driven by the strong domestic economy,
which has allowed states, cities, and towns to finance much-needed public
works and other projects. The trend was also supported by low interest
rates, which have enabled municipalities to refinance high-interest debt at
lower rates. While new issuance is down somewhat in 1999, we do expect to
see the traditional boost in new bonds in the spring. Overall, we expect
supply for the year to be lower than last year, and we expect a return to a
more typical balance between supply and demand.
/s/ Geoffrey L. Schechter
Geoffrey L. Schechter
Portfolio Manager
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.
It is not possible to invest directly in an index.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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GEOFFREY L. SCHECHTER IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
AND PORTFOLIO MANAGER OF MFS(R) MUNICIPAL BOND FUND.
MR. SCHECHTER JOINED MFS AS INVESTMENT OFFICER IN 1993 AFTER WORKING AS
A MUNICIPAL CREDIT ANALYST WITH A MAJOR INSURANCE COMPANY. HE WAS NAMED
ASSISTANT VICE PRESIDENT IN 1994 AND VICE PRESIDENT IN 1995. HE BECAME A
PORTFOLIO MANAGER IN 1998. MR. SCHECHTER IS A GRADUATE OF THE UNIVERSITY
OF TEXAS AND HAS AN M.B.A. DEGREE FROM BOSTON UNIVERSITY. HE IS A
CHARTERED FINANCIAL ANALYST AND A CERTIFIED PUBLIC ACCOUNTANT.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS(R) ORIGINAL
RESEARCH(SM), A COMPANY-ORIENTED, BOTTOM UP PROCESS OF SELECTING
SECURITIES.
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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.
<PAGE>
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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.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 16, 1976
CLASS INCEPTION: CLASS A DECEMBER 16, 1976
CLASS B SEPTEMBER 7, 1993
SIZE: $1.6 BILLION NET ASSETS AS OF FEBRUARY 28, 1999
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PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH FEBRUARY 28, 1999
<TABLE>
CLASS A
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.09% +4.79% +17.83% +30.63% +109.00%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +4.79% + 5.62% + 5.49% + 7.65%
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SEC Results -- -0.19% + 3.92% + 4.47% + 7.13%
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</TABLE>
<TABLE>
CLASS B
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +1.70% +3.97% +14.90% +24.86% + 98.56%
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Average Annual Total Return -- +3.97% + 4.74% + 4.54% + 7.10%
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SEC Results -- +0.01% + 3.84% + 4.21% + 7.10%
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</TABLE>
<PAGE>
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. See
the prospectus for details.
<PAGE>
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1999
QUALITY RATINGS
Source: Standard & Poor's and Moody's
"AAA" 63.0%
"AA" 13.3%
"A" 12.6%
"BBB" 6.9%
Other 4.2%
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- February 28, 1999
Municipal Bonds - 93.9%
<CAPTION>
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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<S> <C> <C>
General Obligation - 16.2%
Anchorage, AK, FGIC, 5.125s, 2015 $ 3,505 $ 3,556,839
Chicago, IL, Board of Education, MBIA, 6.25s, 2012 2,500 2,935,850
Chicago, IL, Board of Education, AMBAC, 5.4s, 2017 3,000 3,094,830
Chicago, IL, Board of Education, Capital
Appreciation, AMBAC, 0s, 2011 5,000 2,735,700
Chicago, IL, Board of Education, Capital
Appreciation, FGIC, 0s, 2012 10,000 5,149,100
Chicago, IL, Board of Education, Capital
Appreciation, AMBAC, 0s, 2012 2,550 1,313,020
Clark County, NV, School District, MBIA, 7s, 2010 4,000 4,921,360
Commonwealth of Massachusetts, 6.5s, 2008 6,400 7,472,064
Commonwealth of Massachusetts, FGIC, 7s, 2009 7,000 8,488,200
Commonwealth of Massachusetts, 5s, 2014 5,500 5,619,735
Commonwealth of Massachusetts, 5s, 2017 18,940 19,068,603
Cook County, IL, MBIA, 5.625s, 2016 3,230 3,427,676
Cypress-Fairbanks, TX, Independent School District,
PSF-GTD, 5s, 2018 4,500 4,500,675
Detroit, MI, 6.25s, 2009 5,235 5,774,100
Detroit/Wayne County, MI, Stadium, FGIC, 5.5s, 2017 6,000 6,272,220
District of Columbia, Unrefunded Balance Refunding
A1, 6.5s, 2010 5,705 6,695,616
Florida Board of Education, Capital Outlay, 9.125s, 2014 1,735 2,489,760
Grapevine-Colleyville, TX, Independent School Dist.,
Capital Appreciation Refunding, PSF-GTD, 0s, 2010 5,000 2,964,150
Lewisville, TX, Independent School District, PSF-GTD,
5s, 2018 8,500 8,489,120
Metropolitan Government of Nashville & Davidson
County, TN, 5.125s, 2025 10,410 10,474,334
New York City, NY, 7.5s, 2002 12,500 13,740,875
New York City, NY, 7.5s, 2006 3,625 4,015,485
New York City, NY, 7.65s, 2006 160 177,888
New York City, NY, 7.5s, 2007 15,500 17,147,185
New York City, NY, 7.5s, 2008 10,000 11,062,700
New York City, NY, 7.7s, 2009 60 66,667
New York City, NY, FGIC-TCRS, 5.75s, 2014 9,500 10,337,805
New York City, NY, Series F, FGIC-TCRS, 5.75s, 2015 11,085 11,925,797
New York City, NY, Series G, FGIC-TCRS, 5.75s, 2013 8,500 9,273,330
Philadelphia, PA, FGIC, 5.125s, 2014 3,500 3,589,705
Rockwall, TX, Independent School District, PSF-GTD
0s, 2014 2,000 904,000
San Antonio, TX, Series 2000, 5s, 2020(S)(S) 2,990 2,855,360
State of California, 5.5s, 2013### 8,000 8,790,880
State of California, 5s, 2023 26,455 26,235,688
State of Connecticut, 5.25s, 2014 5,000 5,223,300
State of Florida, Broward County Expressway
Authority,10s, 2014 4,350 6,634,881
State of Washington, 6.75s, 2010 3,880 4,673,344
State of Washington, 6s, 2012 4,360 4,954,573
Virginia Beach, VA, 5.25s, 2012 2,765 2,943,868
Virginia Beach, VA, 5.25s, 2013 1,250 1,320,975
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$ 261,317,258
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State and Local Appropriation - 21.0%
California Public Works Board, Lease Rev
(California State University), 5.3s, 2015 $ 6,655 $ 6,914,279
California Public Works Board, Lease Rev
(California State University), 5.5s, 2015 9,820 10,399,871
California Public Works Board, Lease Rev
(Department of Corrections), AMBAC, 5.25s, 2013 6,795 7,308,090
California Public Works Board, Lease Rev
(University of California), 5.5s, 2014 4,500 4,923,945
Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2009 5,160 5,886,064
Chicago, IL, Board of Education Lease Certificates,
MBIA, 6.25s, 2015 20,295 23,333,567
Delaware Valley, PA, Regional Finance Authority,
AMBAC, 7.719s, 2018(++) 16,250 18,537,837
Indiana Office Building Community Capital Complex
Rev., 6.9s, 2011 9,500 11,342,145
Kansas City, MO, Municipal Assistance, MBIA, 5.125s, 2015 5,545 5,628,619
King County, WA Lease Rev. (King Street Center),
MBIA, 5.125s, 2017 6,975 7,007,155
Los Angeles County, CA, Public Works Financing
Authority (Multiple Capital Facilities), AMBAC,
5.125s, 2017 4,900 4,974,186
Massachusetts Bay Transportation Authority, 6.1s, 2013 10,200 11,560,884
Massachusetts Bay Transportation Authority, 5.875s, 2015 4,500 5,030,235
Massachusetts Bay Transportation Authority, 7s, 2021 10,185 12,728,908
Massachusetts Bay Transportation Authority, FGIC, 5s, 2023 17,970 17,578,613
Metropolitan Government of Nashville & Davidson
County, TN, 7s, 2011 5,280 5,710,056
Metropolitan Transportation Authority, NY, Commuter
Facilities Rev., MBIA, 5.5s, 2011 3,430 3,704,503
Metropolitan Transportation Authority, NY, Service
Contract, 7.375s, 2008 5,000 5,801,050
Metropolitan Transportation Authority, NY, Service
Contract, 5.75s, 2013 5,600 6,163,696
Michigan Building Authority Rev., Refunding
Facilities Program Series 1, 5.25s, 2011 5,000 5,298,600
New York Dormitory Authority Rev., (City University),
5.75s, 2013 25,150 27,681,599
New York Dormitory Authority Rev., (City University),
5.75s, 2013 5,000 5,503,300
New York Dormitory Authority Rev., (State
University), 5.5s, 2013 7,875 8,486,494
New York Dormitory Authority Rev., Mental Health
Services Facilities, 6s, 2007 1,500 1,667,190
New York Dormitory Authority Rev., Mental Health
Services Facilities, 5.75s, 2010 2,000 2,200,960
New York Dormitory Authority Rev., Mental Health
Services Facilities, 5s, 2018 2,500 2,451,775
New York Thruway Authority Service Contract Rev.,
Local Highway & Bridges, 5.25s, 2013 6,000 6,148,080
New York Urban Development Corp., Correctional
Facilities, 5.5s, 2014 5,000 5,345,150
New York Urban Development Corp., Correctional
Facilities, FSA, 5.5s, 2014 4,525 4,937,952
New York Urban Development Corp., Correctional
Facilities, 5.375s, 2015 11,405 11,643,136
New York Urban Development Corp., Senior Lein, 5.5s, 2016 14,690 15,459,168
Ohio Public Facilities Commission, Higher Education
Capital Facilities Series II A, 5s, 2010 8,950 9,291,532
Philadelphia, PA, Municipal Authority, MBIA, 5.4s, 2017 5,000 5,168,700
Rhode Island Convention Center Authority, MBIA,
5.25s, 2015 20,870 21,843,585
San Bernardino, CA, Joint Powers Financing Authority
Lease Rev. (California Dept. of Transportation),
5.5s, 2014 10,000 10,569,700
Santa Clara County, CA, Certificates of
Participation, AMBAC, 6.25s, 2016 8,210 8,761,384
Texas Public Finance Authority Building Rev.,
Department of Criminal Justice, FSA, 5.25s, 2013 5,085 5,265,162
Wayne County, MI, MBIA, 5.25s, 2016 5,750 5,899,155
--------------
$ 338,156,325
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Refunded and Special Obligations - 12.6%
Austin, TX, Utility Systems Rev., 10.75s, 2010 $ 2,615 $ 2,843,734
Chicago, IL, Public Building Commission Mortgage
Rev., MBIA, ETM, 7.125s, 2015 6,590 6,909,154
Clark County, NV, School District, MBIA, 7s, 2009 10,050 10,917,918
Commonwealth of Massachusetts, 6.875s, 2010 4,825 5,280,383
Davenport, IA, Hospital Rev. (St. Luke's Hospital),
AMBAC, 7.4s, 2000 2,715 2,912,109
District of Columbia, Prerefunded Refunding A1, ETM,
6.5s, 2010 295 347,451
Florida Board of Education, Capital Outlay, ETM,
9.125s, 2014 265 375,940
Illinois Health Facilities Authority Rev.,
Prerefunded Series A, MBIA, 5.7s, 2011 1,495 1,679,842
Maryland Health & Higher Education Facilities
Authority Rev. (University of Maryland Medical
System), FGIC, 7s, 2017 7,945 8,726,311
Massachusetts Health & Educational Facilities
Authority, (University Hospital), MBIA, 7.25s, 2019 4,500 4,818,015
Massachusetts Port Authority Rev., "C", ETM, 13s, 2013 3,500 5,851,720
Missouri Regional Convention & Sports Complex
Authority, 6.8s, 2011 8,950 10,078,505
Missouri Regional Convention & Sports Complex
Authority, 6.9s, 2021 21,520 24,274,130
New York City, NY, 7.65s, 2006 4,840 5,442,386
New York City, NY, 7.7s, 2009 3,940 4,435,770
New York City, NY, 8s, 2018 2,475 2,771,456
New York Urban Development Corp., Correctional
Facilities, 7.625s, 2006 7,570 8,274,010
New York Urban Development Corp., Correctional
Facilities, 7.375s, 2018 4,000 4,474,560
Pennsylvania Convention Center Authority Rev., FGIC,
ETM, 6.7s, 2016 41,195 49,755,321
Philadelphia, PA, Municipal Authority Rev., FGIC,
7.1s, 2011 6,000 6,669,000
Philadelphia, PA, School District, MBIA, 7s, 2005 9,440 10,269,965
Rhode Island Depositors Economic Protection Corp.,
FSA, ETM, 5.75s, 2014 9,800 10,872,414
State of Florida, Jacksonville Transportation
Authority, ETM, 9.2s, 2015 2,000 2,871,140
Washington Public Power Supply System Rev., (Nuclear
Project #2), 7.625s, 2010 10,815 11,820,795
--------------
$ 202,672,029
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Airport and Port Revenue - 1.0%
Connecticut Airport Rev., (Bradley International
Airport), FGIC, 7.65s, 2012 $ 5,000 $ 5,851,500
Port of Seattle, WA, FGIC, 5.5s, 2021 4,000 4,165,760
Tucson, AZ, Airport Authority Rev., MBIA, 5.7s, 2013 5,000 5,349,850
--------------
$ 15,367,110
- ------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 17.2%
Austin, TX, Utility Systems Rev., AMBAC, 6.75s, 2012(S)(S) $ 2,500 $ 3,012,875
Georgia Municipal Electric Authority Rev., AMBAC, 6.5s, 2017 8,510 10,026,482
Georgia Municipal Electric Authority Rev., FGIC, 5.5s, 2020 5,045 5,355,671
Intermountain Power Agency, UT, 6.15s, 2014 44,600 49,527,854
Intermountain Power Agency, UT, MBIA, 6s, 2016 10,000 10,959,800
Intermountain Power Agency, UT, AMBAC, 6s, 2021 9,000 10,304,910
Intermountain Power Agency, UT, Refunding Series A,
MBIA, 5s, 2019(S)(S) 9,330 9,188,837
Long Island Power Authority, NY, FSA, 0s, 2010 10,000 5,903,400
Long Island Power Authority, NY, FSA, 0s, 2011 10,000 5,574,800
Long Island Power Authority, NY, FSA, 5s, 2018 5,000 4,987,150
Massachusetts Municipal Wholesale Electric Co., MBIA,
6.75s, 2017 6,030 6,591,695
Mercer County, ND, Pollution Control Rev. (Antelope
Valley Station), AMBAC, 7.2s, 2013 4,000 5,033,440
Michigan Strategic Fund, Limited Obligation Rev
(Detroit Edison), MBIA, 7s, 2008 3,000 3,615,150
North Carolina Municipal Power, MBIA, 5.7s, 2013 7,000 7,672,770
North Carolina Eastern Municipal Power, (Catawba),
MBIA, 5.625s, 2014 7,735 8,370,663
North Carolina Eastern Municipal Power, MBIA, 5.125s, 2017 13,925 14,040,438
North Carolina Eastern Municipal Power, MBIA, 6.5s, 2018 9,250 10,967,910
Northern California Transmission Agency, MBIA, 7s, 2013 4,000 4,971,320
Piedmont, SC, Municipal Power Agency, FGIC, 6.25s, 2021 4,150 4,822,798
Puerto Rico Electric Power Authority, Power Rev.,
FSA, 5.25s, 2015 5,000 5,237,300
Puerto Rico Electric Power Authority, Power Rev.,
FSA, 5.25s, 2016 6,000 6,257,940
San Antonio, TX, Electricity and Gas Rev., 5s, 2018 10,000 9,878,600
Washington Public Power Supply System Rev., (Nuclear
Project #1), MBIA, 5.75s, 2010 13,100 14,293,017
Washington Public Power Supply System Rev., (Nuclear
Project #1), MBIA, 5.75s, 2011 7,500 8,133,825
Washington Public Power Supply System Rev., (Nuclear
Project #1), FSA, 5.125s, 2014 12,500 12,689,000
Washington Public Power Supply System Rev., (Nuclear
Project #2), MBIA, 5.625s, 2010 10,000 10,833,300
Washington Public Power Supply System Rev., (Nuclear
Project #2), MBIA, 5.7s, 2012 15,000 16,090,650
Washington Public Power Supply System Rev., (Nuclear
Project #3), FGIC, 0s, 2005 6,895 5,328,042
Washington Public Power Supply System Rev., (Nuclear
Project #3), 7.125s, 2016 5,145 6,327,321
--------------
$ 275,996,958
- ------------------------------------------------------------------------------------------------------
Health Care Revenue - 2.7%
Bell County, TX, Health Facilities Development Corp.
Rev. (Buckner Retirement Facility), 5.25s, 2019 $ 2,500 $ 2,444,175
Denver, CO, Health & Hospital Rev., 5.375s, 2028 4,350 4,283,793
Elkhart County, IN, Hospital Authority Rev., (Elkhart
General Hospital), 5.25s, 2020 4,345 4,257,231
Illinois Educational Facilities Authority Rev.,
(Centegra Health Systems), 5.25s, 2024 5,500 5,283,960
Indiana Health Facility Hospital Rev., (Floyd
Memorial Hospital & Health Services), 5.25s, 2018 1,400 1,383,298
Indiana Health Facility Hospital Rev., (Floyd
Memorial Hospital & Health Services), 5.25s, 2022 1,000 980,410
Massachusetts Health & Educational Facilities
Authority Rev., Obligation Group A (Caritas
Christi), 5.7s, 2015 2,500 2,503,050
Michigan Hospital Finance Authority Rev., (Genesys
Regional Medical), 5.5s, 2027 9,000 8,625,690
Michigan Hospital Finance Authority Rev., (Mercy
Health Services), 5.625s, 2016 8,375 8,747,185
Peninsula Ports Authority, VA, Refunding Riverside
Health Systems Project, 5.25s, 2011 2,605 2,723,215
Pennsylvania Higher Education Facilities, (University
of Pennsylvania), 5.75s, 2022 2,015 2,100,134
--------------
$ 43,332,141
- ------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.2%
Scioto County, OH, (Norfolk Southern Corp.), 5.3s, 2013 $ 2,500 $ 2,527,525
- ------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 10.5%
Arizona Health Facilities Authority Hospital System
Rev., (Northern Arizona Healthcare Systems), AMBAC,
4.75s, 2018 $ 2,000 $ 1,930,600
District of Columbia Hospital Rev., (Medlantic
Healthcare), MBIA, 5.25s, 2019 6,750 6,844,432
Fredericksburg, VA, Industrial Development (Medicorp
Health Systems), AMBAC, 5.25s, 2023 7,000 7,085,120
Illinois Development Finance Authority Rev., (Provena
Health), MBIA, 5.75s, 2016 5,980 6,406,135
Illinois Educational Facilities Authority Rev., (Holy
Family Medical Center), MBIA, 5.125s, 2017 6,975 6,945,496
Illinois Health Facilities Authority Rev., (Alexian
Brothers Health Systems), FSA, 5.25s, 2011 6,765 7,121,922
Illinois Health Facilities Authority Rev., (Methodist
Medical Center), MBIA, 5.5s, 2010 3,540 3,820,828
Illinois Health Facilities Authority Rev., Unrefunded
Bal. Series A, MBIA, 5.7s, 2011 3,005 3,262,528
Indiana Health Facility Hospital Rev., (Sisters of
St. Francis), MBIA, 5.125s, 2017 7,040 7,056,544
Jefferson Parish, LA, Hospital District 2, FSA,
5.25s, 2012 2,705 2,829,105
Lancaster County, NE, Hospital Authority Rev. (Bryan
Memorial Hospital), MBIA, 5.375s, 2017 4,250 4,380,178
Maryland Health & Higher Educational Facilities,
(Medlantic/Helix Issue Series A), FSA, 5.25s, 2012 1,825 1,920,612
Mesa, AZ, Industrial Development Authority Rev.,
(Lutheran Health Systems), MBIA, 5s, 2019 2,000 1,979,980
Michigan Hospital Finance Authority Rev., (Sisters of
Mercy Hospital), MBIA, 5.375s, 2014 9,000 9,619,740
Montgomery Alabama Special Care Facilities, Series B
(Baptist Health), MBIA, 5.25s, 2013 2,700 2,819,016
New Jersey Health Care Facilities, Refunding Series B
(St. Barnabas Health), MBIA, 5.25s, 2013 5,500 5,761,470
New York Dormitory Authority Rev., (Brookdale
Hospital Medical Center), AMBAC, 5.2s, 2014 4,915 5,083,142
New York Dormitory Authority Rev., (Wyckoff Heights
Medical Center), AMBAC, 5.2s, 2014 2,500 2,585,525
New York Dormitory Authority Rev., Secured Hospital
(Interfaith Medical Center), AMBAC, 5.25s, 2014 4,320 4,486,018
North Central Texas Health Facility Development Corp.
Rev., (Texas Health Resources System), MBIA, 5s, 2017 6,000 5,922,300
North Texas Health Facilities Development Corp.,
(United Regional Health Care Systems, Inc.), MBIA,
5s, 2014 8,980 9,027,055
Peninsula Ports Authority, VA, (Whittaker Memorial),
FHA, 8.7s, 2023 1,595 1,622,386
Pennsylvania Higher Educational Facilities Authority,
(Allegheny Delaware Valley), MBIA, 5.3s, 2006 1,975 2,000,655
Pennsylvania Higher Educational Facility Authority,
(Allegheny Delaware Valley Obligation A), MBIA,
5.875s, 2016 5,000 5,120,700
Sayre, PA, Health Care Facilities Authority Rev
(Guthrie Healthcare Systems), AMBAC, 7s, 2011 6,000 6,443,040
Sierra View, CA, Local Health Care District Rev.,
ACA, 5.25s, 2018 5,000 4,945,450
Spartanburg County, SC, Health Service District,
Inc., MBIA, 5.125s, 2017 6,125 6,172,530
Tarrant County, TX, Health Facilities Development Corp
(Fort Worth Osteopathic), MBIA, 6s, 2021 6,000 6,764,940
Tarrant County, TX, Health Facilities Development Corp
(Texas Health Resources), MBIA, 5.25s, 2018 18,605 18,813,190
Washington County, PA, Hospital Authority Rev
(Washington Hospital), AMBAC, 7.15s, 2017 9,000 9,525,870
--------------
$ 168,296,507
- ------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.5%
California Statewide Community Development Authority,
(Irvine Apartments), 5.25s, 2025 $ 3,500 $ 3,575,355
Colorado Housing Finance Authority, FHA, 8.3s, 2023 4,000 4,270,040
--------------
$ 7,845,395
- ------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.7%
Illinois Dedicated Tax Rev., (Civic Center), AMBAC,
6.25s, 2011 $ 3,640 $ 4,187,856
Illinois Sales Tax Rev., 0s, 2009 8,965 5,673,142
Illinois Sales Tax Rev., 6.5s, 2022 5,000 5,902,750
Metropolitan Atlanta, GA, Rapid Transit Authority,
6.25s, 2018 4,580 5,223,169
New York City, NY, Transitional Finance Authority Rev.,
5.125s, 2021
5,000 5,019,750
Virgin Islands Public Finance Authority, 5.5s, 2022 2,000 2,004,200
--------------
$ 28,010,867
- ------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 2.2%
Colorado Housing Finance Authority, Single Family
Series B3, 6.55s, 2025 $ 1,000 $ 1,097,820
Colorado Housing Finance Authority, Single Family
Series A1, 7.4s, 2027 1,650 1,815,198
Colorado Housing Finance Authority, Single Family
Series D2, 6.35s, 2029 4,500 4,919,670
Colorado Housing Finance Authority, Single Family
Series A2, 6.45s, 2030 3,500 3,839,220
Colorado Housing Finance Authority, Senior Single
Family Series A 3, 6.05s, 2016 1,250 1,358,050
Maryland Community Development Administration, Single
Family 7th Series, 7.3s, 2025 9,000 9,615,870
Mississippi Home Corp. Series F, GNMA, 7.55s, 2027 1,490 1,677,606
Mississippi Home Corp. Single Family, Mortgage Class 5
Series C, GNMA/FNMA, 5s, 2030 4,000 4,316,720
Missouri Housing Development Commission, Mortgage
Rev., Single Family Series D2, 6.3s, 2029 1,150 1,263,919
New Mexico Mortgage Finance Authority, New Mexico
Mortgage Authority A2, GNMA/FNMA, 6.25s, 2030 5,110 5,576,185
--------------
$ 35,480,258
- ------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 0.2%
Northeast Maryland Waste Disposal Authority,
(Southwest County Resource Recovery), MBIA, 7.2s, 2005 $ 3,000 $ 3,467,550
- ------------------------------------------------------------------------------------------------------
Special Assesment District - 0.6%
Chico, CA, Public Finance Authority Rev. (Southeast
Chico Redevelopment), FGIC, 6.625s, 2021 $ 6,435 $ 6,742,915
Port St. Lucie, FL, Special Assessment, Utility
Service Area Number 3 4 A, MBIA, 5s, 2018 2,500 2,498,800
--------------
$ 9,241,715
- ------------------------------------------------------------------------------------------------------
Turnpike Revenue - 2.8%
Florida Turnpike Authority Turnpike Rev., Department
Transportation Series A, FGIC, 5.25s, 2014 $ 8,115 $ 8,452,665
New Jersey Transportation Trust Fund Authority,
5.25s, 2016 8,500 8,726,780
New York Thruway Authority, Highway & Bridge Trust
Fund, FGIC, 5.25s, 2013 5,000 5,246,600
New York Thruway Authority Service Contract Rev.,
Local Highway & Bridges, MBIA, 5.375s, 2014 2,500 2,631,025
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2012 2,200 1,062,446
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2013 7,000 3,179,050
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2014 6,500 2,773,290
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2015 7,300 2,899,852
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2016 1,900 707,332
Texas Turnpike Authority, Dallas North Thruway Rev.,
FGIC, 5.5s, 2015 4,000 4,235,960
Texas Turnpike Authority, Dallas Thruway (President
George Bush Turnpike), AMBAC, 5s, 2016 4,500 4,494,060
--------------
$ 44,409,060
- ------------------------------------------------------------------------------------------------------
Universities - 2.7%
Massachusetts Health & Educational Facilities,
(Harvard University), 6.25s, 2020 17,000 $ 19,973,300
New York Dormitory Authority Rev., (New York
University), MBIA, 5.75s, 2013 3,275 3,681,067
New York Dormitory Authority Rev., (Rockefeller
University), 5.25s, 2011 2,725 2,915,232
New York Dormitory Authority Rev., (Rockefeller
University), 5.25s, 2013 2,275 2,396,258
New York Dormitory Authority Rev., (University of
Rochester), MBIA, 5.25s, 2013 1,160 1,218,220
New York Dormitory Authority Rev., (University of
Rochester), MBIA, 5.25s, 2014 1,795 1,873,765
New York Dormitory Authority Rev., (University of
Rochester), MBIA, 5.25s, 2015 3,825 3,965,607
Pennsylvania Higher Educational Facilities Authority
Rev., (Temple University), MBIA, 5.25s, 2014 2,000 2,074,060
Texas A & M University, Permanent University Fund,
0s, 2007 6,695 4,712,343
--------------
$ 42,809,852
- ------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 1.5%
Detroit, MI, Sewage Disposal Rev., MBIA, 5s, 2022 $ 8,750 $ 8,619,887
Honolulu, HI, City & County Systems, 2nd Bond
Resolution Junior Series, FGIC, 5.25s, 2013 2,935 3,050,933
Houston, TX, Water & Sewer Systems Rev., FGIC, 5s, 2018 10,000 9,875,400
Rio Rancho, NM, Water Systems Rev., Refunding, AMBAC,
4.75s, 2015 1,500 1,464,855
Rio Rancho, NM, Water Systems Rev., Refunding, AMBAC,
4.75s, 2016 2,000 1,946,880
--------------
$ 24,957,955
- ------------------------------------------------------------------------------------------------------
Other - 0.3%
Orange County, CA, California Recovery Certificates, MBIA,
6s, 2026 $ 5,000 $ 5,526,000
- ------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,389,680,900) $1,509,414,505
- ------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 3.8%
- ------------------------------------------------------------------------------------------------------
California Statewide Community Development, Sutter
Health, due 07/01/15 $ 700 $ 700,000
District of Columbia Rev., due 08/15/38 2,100 2,100,000
District of Columbia Rev., Multimodal Medlantic
Series C,
due 08/15/38 1,700 1,700,000
Harris County, TX, Hospital Rev. Methodist Hospital,
due 12/01/25 3,800 3,800,000
Harris County, TX, Industrial Development Corp.,
Adjusted Refunding Baytank Houston, due 12/01/25 16,500 16,500,000
M S R Public Power Agency, CA, San Juan, Adjustment
Adjusted Subordinated Lien Series D, due 07/01/18 8,500 8,500,000
Massachusetts St. Water Resources Authority,
Multimodal Refunding Subordinated, due 11/01/26 6,500 6,500,000
New York City, NY, due 06/15/20 3,500 3,500,000
New York City, NY, Municipal Water Finance Authority,
due 06/15/23 7,800 7,800,000
Pinellas County, FL, Health Facility Authority, due
12/01/15 7,150 7,150,000
St. Lucie County, FL, Polluiton Control Rev. Florida
Power & Light, due 01/01/26 2,400 2,400,000
Uinta County, WY, Pollution Control Rev. Chevron USA,
Inc., due 08/15/20 200 200,000
- ------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Amortized Cost $ 60,850,000
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,450,530,900) $1,570,264,505
Other Assets, Less Liabilities - 2.3% 37,775,192
- ------------------------------------------------------------------------------------------------------
Net assets - 100.0% $1,608,039,697
- ------------------------------------------------------------------------------------------------------
(++) Inverse floating rate security.
(S)(S) When issued security. At February 28, 1999, the Fund had sufficient cash and/or securities at
least equal to the value of the when issued security.
### Security segregated as collateral for an open futures contract.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,450,530,900) $1,570,264,505
Cash 41,394
Receivable for Fund shares sold 12,422,135
Receivable for investments sold 24,680,009
Interest receivable 18,011,890
Other assets 22,006
--------------
Total assets $1,625,441,939
--------------
Liabilities:
Distributions payable $ 2,700,001
Payable for Fund shares reacquired 2,198,825
Payable for investments purchased 2,150
Payable for when-issued investments purchased 12,111,370
Payable for daily variation margin on open futures
contracts 65,094
Payable to affiliates -
Management fee 51,041
Shareholder servicing agent fee 14,732
Distribution and service fee 18,731
Administrative fee 1,844
Accrued expenses and other liabilities 238,454
--------------
Total liabilities $ 17,402,242
--------------
Net assets $1,608,039,697
==============
Net assets consist of:
Paid-in capital $1,457,495,164
Unrealized appreciation on investments 121,811,728
Accumulated undistributed net realized gain on
investments 24,394,394
Accumulated net investment income 4,338,411
--------------
Total $1,608,039,697
==============
Shares of beneficial interest outstanding 146,886,550
===========
Class A shares:
Net asset value and redemption price per share
(net assets of $1,525,825,121 / 139,370,684 shares of
beneficial interest outstanding) $10.95
======
Offering price per share (100 / 95.25) $11.50
======
Class B shares:
Net asset value and offering price per share
(net assets of $82,214,576 / 7,515,866 shares of
beneficial interest outstanding) $10.94
======
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 (Unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
Net investment income:
Interest income $ 44,262,997
------------
Expenses -
Management fee $ 3,140,520
Trustees' compensation 39,145
Shareholder servicing agent fee 920,546
Distribution and service fee (Class B) 326,528
Administrative fee 76,883
Custodian fee 185,261
Printing 3,924
Postage 54,798
Auditing fees 17,930
Legal fees 5,913
Miscellaneous 185,743
------------
Total expenses $ 4,957,191
Fees paid indirectly (193,270)
------------
Net expenses $ 4,763,921
------------
Net investment income $ 39,499,076
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 26,045,304
Futures contracts (3,682,902)
------------
Net realized gain on investments $ 22,362,402
------------
Change in unrealized appreciation (depreciation) -
Investments $(31,566,388)
Futures contracts 4,772,507
------------
Net unrealized loss on investments $(26,793,881)
------------
Net realized and unrealized loss on investments $ (4,431,479)
------------
Increase in net assets from operations $ 35,067,597
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
From net investment income $ 39,499,076 $ 83,801,139
Net realized gain on investments 22,362,402 23,909,104
Net unrealized gain (loss) on investments (26,793,881) 22,847,429
-------------- --------------
Increase in net assets from operations $ 35,067,597 $ 130,557,672
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (37,856,652) $ (81,123,493)
From net investment income (Class B) (1,666,638) (3,212,719)
From net realized gain on investments (Class A) (14,781,390) (28,342,272)
From net realized gain on investments (Class B) (768,647) (1,279,318)
-------------- --------------
Total distributions declared to shareholders $ (55,073,327) $ (113,957,802)
-------------- --------------
Net decrease in net assets from Fund share
transactions $ (92,743,659) $ (32,044,145)
-------------- --------------
Total decrease in net assets $ (112,749,389) $ (15,444,275)
Net assets:
At beginning of period 1,720,789,086 1,736,233,361
-------------- --------------
At end of period (including accumulated
undistributed net investment income of $4,338,411
and $4,362,625, respectively) $1,608,039,697 $1,720,789,086
============== ==============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS TEN MONTHS
ENDED YEAR ENDED AUGUST 31, ENDED YEAR ENDED
FEBRUARY 28, --------------------------------------------------- AUGUST 31, OCTOBER 31,
1999 1998 1997 1996 1995 1994 1993
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $11.09 $10.99 $10.75 $10.83 $10.68 $11.64 $10.73
------ ------ ------ ------ ------ ------ ------
Income from investment
operations# -
Net investment
income $ 0.26 $ 0.54 $ 0.57 $ 0.59 $ 0.60 $ 0.51 $ 0.61
Net realized and
unrealized gain
(loss) on
investments (0.03) 0.28 0.24 (0.09) 0.15 (0.77) 1.14
------ ------ ------ ------ ------ ------ ------
Total from
investment
operations $ 0.23 $ 0.82 $ 0.81 $ 0.50 $ 0.75 $(0.26) $ 1.75
------ ------ ------ ------ ------ ------ ------
Less distributions
declared to sharheolders -
From net investment
income $(0.27) $(0.54) $(0.57) $(0.58) $(0.60) $(0.47) $(0.66)
From net realized
gain on investments (0.10) (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 $(0.37) $(0.72) $(0.57) $(0.58) $(0.60) $(0.70) $(0.84)
------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $10.95 $11.09 $10.99 $10.75 $10.83 $10.68 $11.64
====== ====== ====== ====== ====== ====== ======
Total return(+) 2.09%++ 7.78% 7.75% 4.67% 7.31% (2.33)%++ 16.97%
Ratios (to average net
assets)/
Supplemental data:
Expenses## 0.57%+ 0.60% 0.60% 0.60% 0.61% 0.59%+ 0.59%
Net investment income 4.86%+ 4.90% 5.29% 5.37% 5.70% 5.49%+ 5.63%
Portfolio turnover 12% 79% 91% 84% 90% 74% 56%
Net assets at end of
period
(000,000 omitted) $1,526 $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.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this offset arrangement.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS TEN MONTHS
ENDED YEAR ENDED AUGUST 31, ENDED PERIOD ENDED
FEBRUARY 28, ------------------------------------------------- AUGUST 31, OCTOBER 31,
1999 1998 1997 1996 1995 1994 1993*
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $11.08 $10.99 $10.74 $11.10 $10.67 $11.63 $11.68
------ ------ ------ ------ ------ ------ ------
Income from investment
operations# -
Net investment income $ 0.22 $ 0.45 $ 0.48 $ 0.49 $ 0.49 $ 0.40 $ 0.07
Net realized and
unrealized gain (loss)
on investments (0.04) 0.28 0.25 (0.37) 0.16 (0.77) (0.05)
------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.18 $ 0.73 $ 0.73 $ 0.12 $ 0.65 $(0.37) $ 0.02
------ ------ ------ ------ ------ ------ ------
Less distributions declared
to sharheolders -
From net investment
income $(0.22) $(0.46) $(0.48) $(0.48) $(0.49) $(0.40) $(0.07)
From net realized
gain on investments (0.10) (0.18) -- -- -- (0.16) --
In excess of net
investment income -- -- -- -- -- -- (0.00)(++)
In excess of net
realized gain on
investments -- -- -- -- -- (0.03) --
------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.32) $(0.64) $(0.48) $(0.48) $(0.49) $(0.59) $(0.07)
------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $10.94 $11.08 $10.99 $10.74 $10.83 $10.67 $11.63
------ ------ ------ ------ ------ ------ ------
Total return 1.70%++ 6.85% 6.84% 3.69% 6.35% (3.25)%++ 1.49%+
Ratios (to average net
assets)/Supplemental data:
Expenses## 1.37%+ 1.40% 1.46% 1.55% 1.60% 1.72%+ 1.70%+
Net investment income 4.06%+ 4.10% 4.42% 4.42% 4.68% 4.41%+ 3.85%+
Portfolio turnover 12% 79% 91% 84% 90% 74% 56%
Net assets at end of period
(000,000 omitted) $82 $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.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this offset arrangement.
(++) Per share amount was less than $0.01.
</TABLE>
See notes to financial statements
<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 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 is 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.
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 taxable
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.
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
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares after 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 $12,709 for the
six months ended February 28, 1999.
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
$105,282 for the six months ended February 28, 1999, 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.
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 six months ended February 28, 1999. Fees incurred under the distribution
plan during the six months ended February 28, 1999, 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 six months ended February 28, 1999,
were $16,215 and $112,489 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 serving agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate
of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities and
short-term obligations aggregated $193,485,467 and $391,825,180, 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 $1,450,530,900
--------------
Gross unrealized appreciation $ 120,878,483
Gross unrealized depreciation (1,144,878)
--------------
Net unrealized appreciation $ 119,733,605
==============
(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
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 58,452,954 $ 647,739,236 188,715,710 $ 2,080,177,975
Shares issued to shareholders in
reinvestment of distributions 2,990,342 33,026,410 6,076,636 66,922,592
Shares reacquired (69,880,809) (775,336,420) (197,993,875) (2,184,102,786)
----------- ------------- ------------ ---------------
Net decrease (8,437,513) $ (94,570,774) (3,201,529) $ (37,002,219)
=========== ============= ============ ===============
<CAPTION>
Class B Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 906,419 $ 10,037,153 1,770,410 $ 19,544,891
Shares issued to shareholders in
reinvestment of distributions 138,014 1,522,730 254,719 2,802,449
Shares reacquired (881,224) (9,732,768) (1,576,595) (17,389,266)
----------- ------------- ------------ ---------------
Net increase 163,209 $ 1,827,115 448,534 $ 4,958,074
=========== ============= ============ ===============
</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 six months ended February 28, 1999, was $6,618.
(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
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
- --------------------------------------------------------------------------------
Municipal Bond Index March 1999 235 Long $ (67,292)
U.S. Treasury Bonds March 1999 323 Short 2,145,415
-----------
$2,078,123
==========
At February 28, 1999, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
<PAGE>
<TABLE>
MFS(R) MUNICIPAL BOND FUND
<S> <C>
TRUSTEES CUSTODIAN
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until 1991),
MFS Investment Management INVESTOR INFORMATION
For MFS stock and bond market outlooks, call
Peter G. Harwood - Private Investor toll free: 1-800-637-4458 anytime from a
touch-tone telephone. For information on MFS
J. Atwood Ives - Chairman and Chief Executive mutual funds, call your financial adviser or,
Officer, Eastern Enterprises (diversified for an information kit, call toll free:
services company) 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message
Lawrence T. Perera - Partner, Hemenway anytime).
& Barnes (attorneys)
INVESTOR SERVICE
William J. Poorvu - Adjunct Professor, Harvard MFS Service Center, Inc.
University Graduate School of Business P.O. Box 2281
Administration Boston, MA 02107-9906
Charles W. Schmidt - Private Investor For general information, call toll free:
1-800-225-2606 any business day from
Arnold D. Scott* - Senior Executive 8 a.m. to 8 p.m. Eastern time.
Vice President, Director, and Secretary,
MFS Investment Management For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business day
Jeffrey L. Shames* - Chairman, Chief from 9 a.m. to 5 p.m. Eastern time. (To use
Executive Officer, and Director, this service, your phone must be equipped with
MFS Investment Management a Telecommunications Device for the Deaf.)
Elaine R. Smith - Independent Consultant For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
David B. Stone - Chairman and Director, (1-800-637-8255) anytime from a touch-tone
North American Management Corp. telephone.
(investment advisers)
WORLD WIDE WEB
INVESTMENT ADVISER www.mfs.com
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
Geoffrey L. Schechter*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) MUNICIPAL BOND FUND ------------
BULK RATE
U.S. POSTAGE
[logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
WE INVENTED THE MUTUAL FUND(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MMB-3 4/99 47M 17/217
