<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1995
1940 ACT FILE NO. 811-4096
1933 ACT FILE NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MFS MUNICIPAL SERIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
500 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-954-5000
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With a Copy to: With a Copy to:
STEPHEN E. CAVAN, ESQ. JEREMIAH J. BRESNAHAN, ESQ. JOHN M. LODER, ESQ.
Massachusetts Financial Bingham, Dana & Gould Ropes & Gray
Services Company 150 Federal Street One International Place
500 Boylston Street Boston, MA 02110 Boston, MA 02110
Boston, MA 02116
(NAME AND ADDRESS OF AGENT FOR
SERVICE)
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Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the registration statement.
NO FILING FEE IS REQUIRED BECAUSE AN INDEFINITE NUMBER OF SHARES HAVE PREVIOUSLY
BEEN REGISTERED PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940.
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT RELATES TO SHARES PREVIOUSLY
REGISTERED ON FORM N-1A (FILE NO. 2-92915).
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON
MARCH 26, 1995 PURSUANT TO RULE 488.
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MFS NEW YORK MUNICIPAL BOND FUND
A SERIES OF
MFS MUNICIPAL SERIES TRUST
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CROSS-REFERENCE SHEET
ITEMS REQUIRED BY FORM N-14
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PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- --------- ------------ ------------------
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1. Beginning of Registration Statement and Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Synopsis Information and Risk Factors Summary; Special Factors
4. Information about the Transaction Proposal to Approve Agreement and Plan
of Reorganization
5. Information about the Registrant Prospectus Cover Page; Summary; Business
of the MFS Fund; Available Information
6. Information about the Company being Prospectus Cover Page; Introduction;
Acquired Summary; Business of the Advantage
Fund; Available Information
7. Voting Information Prospectus Cover Page; Notice of Special
Meeting of Shareholders; Summary;
Voting Rights and Required Vote;
Manner of Voting Proxies
8. Interest of Certain Persons and Experts None
9. Additional Information Required for Not Applicable
Re-offering by Persons Deemed to be
Underwriters
PART B
ITEM NO.
- ---------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information about the Additional Information about the MFS
Registrant Fund
13. Additional Information about the Company Additional Information about the
being Acquired Advantage Fund
14. Financial Statements Not Applicable
PART C
ITEM NO.
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15. Indemnification Indemnification
16. Exhibits Exhibits
17. Undertakings Undertakings
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<PAGE> 3
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THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
MARCH , 1995
MESSAGE FROM THE PRESIDENT OF THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Dear Shareholder:
The attached proxy statement and prospectus describes a proposed transaction in
which the assets of The New York Portfolio (the "Advantage Fund") of The
Advantage Municipal Bond Fund would be combined with the assets of the MFS New
York Municipal Bond Fund (the "MFS Fund"). As a result of the transaction,
shareholders of the Advantage Fund would become shareholders of the MFS Fund.
Following the transaction, the Advantage Fund would cease operations.
The MFS Fund is sponsored by Massachusetts Financial Services Company ("MFS").
The MFS organization has been in the mutual fund business since 1924, and
currently manages 109 mutual funds with over $30 billion in assets.
The Trustees of The Advantage Municipal Bond Fund have unanimously approved the
proposed transaction. The transaction also requires approval by vote of the
shareholders of the Advantage Fund at a shareholder meeting to be held on April
27, 1995.
Your Trustees recommend that you vote FOR the proposed transaction, by signing
and returning the enclosed proxy card in the enclosed postage-paid envelope. You
are also cordially invited to attend the April 27 shareholders' meeting.
Sincerely,
Robert L. Thomas
President
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THE NEW YORK PORTFOLIO
A SERIES OF
THE ADVANTAGE MUNICIPAL BOND FUND
100 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 1995
A Special Meeting of Shareholders of The New York Portfolio (the "Advantage
Fund"), a series of The Advantage Municipal Bond Fund, a Massachusetts business
trust (the "Advantage Trust"), will be held at the offices of Ropes & Gray, One
International Place, 36th Floor, Boston, Massachusetts, on Thursday, April 27,
1995, at 11:30 a.m. for the following purposes:
ITEM 1. To consider and act upon a proposal to approve an Agreement and Plan of
Reorganization (the "Agreement") between MFS Municipal Series Trust, a
Massachusetts business trust (the "MFS Trust"), on behalf of MFS New
York Municipal Bond Fund, a series of the MFS Trust (the "MFS Fund"),
and the Advantage Trust, on behalf of the Advantage Fund, providing for
the transfer of all of the assets of the Advantage Fund to the MFS Fund
in exchange solely for shares of beneficial interest of the MFS Fund
designated as Class B shares (the "MFS Fund Shares") and the assumption
by the MFS Fund of the stated liabilities of the Advantage Fund, the
distribution of the MFS Fund Shares to the shareholders of the
Advantage Fund in liquidation of the Advantage Fund and the termination
of the Advantage Trust.
ITEM 2. To transact such other business as may properly come before the meeting
and any adjournments thereof.
YOUR TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF ITEM 1.
Only shareholders of record on March 20, 1995 will be entitled to vote at the
Meeting.
DAVID A. HOROWITZ, Secretary
March 29, 1995
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED PROXY, WHICH WILL HELP IN AVOIDING THE ADDITIONAL EXPENSE
OF A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE
AND IS INTENDED FOR YOUR CONVENIENCE.
<PAGE> 5
MFS(R) NEW YORK MUNICIPAL BOND FUND
PROXY STATEMENT AND PROSPECTUS DATED MARCH 29, 1995
500 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
TELEPHONE 617-954-5000
SECURITIES OFFERED HEREBY
This Proxy Statement and Prospectus relates to shares of beneficial interest
designated as Class B shares, no par value, of MFS New York Municipal Bond Fund
(the "MFS Fund"), a series of MFS Municipal Series Trust (the "MFS Trust"), to
be issued in exchange for all of the assets of The New York Portfolio (the
"Advantage Fund"), a series of The Advantage Municipal Bond Fund (the "Advantage
Trust"). The number of the MFS Fund's shares of beneficial interest designated
as Class B shares (the "MFS Fund Shares") to be issued to the Advantage Fund
will be that number of MFS Fund Shares having an aggregate net asset value equal
to the aggregate value of the Advantage Fund's assets, less liabilities assumed,
transferred to the MFS Fund. Following receipt of the MFS Fund Shares, the
Advantage Fund will be liquidated, the MFS Fund Shares will be distributed to
the former shareholders of the Advantage Fund and the Advantage Trust will be
terminated. The terms and conditions of these transactions are more fully
described in this Proxy Statement and Prospectus and in the Agreement and Plan
of Reorganization attached as Exhibit A hereto.
The MFS Trust is an open-end, management investment company of the series type.
The MFS Trust currently has 19 separate series, one of which is the MFS Fund, a
non-diversified series of the Trust. The investment objective of the MFS Fund is
to provide current income exempt from federal income taxes and from the personal
income taxes of the State of New York. As a matter of fundamental policy, the
MFS Fund seeks to achieve its investment objective by investing primarily (i.e.,
at least 80% of its net assets under normal circumstances) in municipal bonds
and notes and other debt instruments, the interest on which is exempt from
federal income taxes and from the personal income taxes, if any, of the State of
New York ("Municipal Obligations" or "tax-exempt securities"). The MFS Fund may
invest up to 33 1/3% of its assets in Municipal Obligations rated lower than the
three highest grades of recognized rating agencies and in comparable unrated
Municipal Obligations, including Municipal Obligations commonly known as "junk
bonds," that entail greater risks, including default risks, than those found in
higher rated Municipal Obligations. The MFS Fund Shares may be redeemed at any
time at net asset value subject to any applicable contingent deferred sales
charge.
The Advantage Fund's principal place of business is 100 Federal Street, Boston,
Massachusetts 02110 and its telephone number is 617-348-3100.
This Proxy Statement and Prospectus sets forth concisely the information that a
shareholder of the Advantage Fund should know before voting on the proposed
transaction described above. It should be read and retained for future
reference.
A Statement of Additional Information dated March 29, 1995 (the "Combined SAI")
relating to the MFS Fund and the Advantage Fund, including historical financial
statements, and the Prospectus and Statement of Additional Information for the
Advantage Fund, each dated April 18, 1994, as supplemented (the "Advantage Fund
Prospectus and SAI"), are on file with the Securities and Exchange Commission.
The Advantage Fund Annual Report for the fiscal year ended December 31, 1994
(the "Advantage Fund Annual Report") has previously been sent to shareholders of
the Advantage Fund. The Prospectus and a Statement of Additional Information,
each dated June 1, 1994, as supplemented, of the MFS Fund (the "MFS Fund
Prospectus and SAI") are also on file with the Securities and Exchange
Commission. The MFS Fund Semi-Annual Report for the six-month period ended
September 30, 1994 (the "MFS Fund Semi-Annual Report"), together with the MFS
Fund Prospectus, are enclosed with this Proxy Statement and Prospectus. The
other documents identified above are available, upon oral or written request,
and at no charge, from Advest Transfer Services, Inc. at 280 Trumbull Street,
Hartford, Connecticut 06103, telephone number 800-544-9268. The Combined SAI is
incorporated by reference into this Proxy Statement and Prospectus. The
Advantage Fund Prospectus and SAI, the financial statements from the Advantage
Fund Annual Report, the MFS Fund Prospectus and SAI and the financial statements
from the MFS Fund Semi-Annual Report are also incorporated by reference into
this Proxy Statement and Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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ITEM 1: PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION..................... 2
SUMMARY.......................................................................... 2
SPECIAL FACTORS.................................................................. 10
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION......................... 17
DESCRIPTION OF AGREEMENT......................................................... 18
CAPITALIZATION................................................................... 19
TAX CONSIDERATIONS............................................................... 20
COMPARATIVE PERFORMANCE INFORMATION.............................................. 21
BUSINESS OF THE MFS FUND......................................................... 22
BUSINESS OF THE ADVANTAGE FUND................................................... 23
NO APPRAISAL RIGHTS.............................................................. 24
LEGAL MATTERS.................................................................... 24
EXPERTS.......................................................................... 24
AVAILABLE INFORMATION............................................................ 25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE MFS AND
ADVANTAGE FUNDS................................................................. 25
VOTING RIGHTS AND REQUIRED VOTE.................................................. 25
SECURITY OWNERSHIP OF THE ADVANTAGE FUND.............................................. 25
MANNER OF VOTING PROXIES.............................................................. 26
SUBMISSION OF CERTAIN PROPOSALS....................................................... 26
ADDITIONAL INFORMATION................................................................ 26
EXHIBITS
A -- Agreement and Plan of Reorganization dated February 23, 1995 by and between
the MFS Trust, on behalf of the MFS Fund, and the Advantage Trust, on behalf of
the Advantage Fund.............................................................. A-1
ENCLOSURES
Prospectus of the MFS Fund, dated June 1, 1994, as supplemented.
Semi-Annual Report of the MFS Fund for the period ended September 30, 1994.
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<PAGE> 7
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus (the "Proxy Statement and Prospectus") is
furnished in connection with the solicitation of proxies by and on behalf of the
Board of Trustees of The Advantage Municipal Bond Fund (the "Advantage Trust")
to be used at the Special Meeting of Shareholders of The New York Portfolio (the
"Advantage Fund"), a series of the Advantage Trust, to be held at the offices of
Ropes & Gray, One International Place, 36th Floor, Boston, Massachusetts, on
April 27, 1995, for the purposes set forth in the accompanying Notice (the
"Meeting"). If the enclosed form of proxy is executed and returned, it may
nevertheless be revoked prior to its exercise by a signed writing filed with the
transfer agent, Advest Transfer Services, Inc. ("ATS"), 280 Trumbull Street,
Hartford Connecticut 06103, or delivered at the Meeting. On March 20, 1995,
there were outstanding shares of the Advantage Fund. Shareholders of
record at the close of business on March 20, 1995 will be entitled to one vote
for each share held. This Proxy Statement and Prospectus includes and
incorporates by reference the Prospectus (which is enclosed) and Statement of
Additional Information of the MFS New York Municipal Bond Fund (the "MFS Fund"),
a series of the MFS Municipal Series Trust (the "MFS Trust"), each dated June 1,
1994, as supplemented (the "MFS Fund Prospectus and SAI") and incorporates by
reference the Prospectus and Statement of Additional Information of the
Advantage Fund, each dated April 18, 1994, as supplemented (the "Advantage Fund
Prospectus and SAI"). This Proxy Statement and Prospectus also includes and
incorporates by reference the financial statements from the MFS Fund Semi-Annual
Report for the period ended September 30, 1994 (which is enclosed) (the "MFS
Fund Semi-Annual Report") and the financial statements from the Advantage Fund
Annual Report for the year ended December 31, 1994 (the "Advantage Fund Annual
Report"). This Proxy Statement and Prospectus is being sent to shareholders of
the Advantage Fund on or before March 29, 1995. The mailing address of the
Advantage Fund is 100 Federal Street, Boston, Massachusetts 02110. The MFS Fund
and the Advantage Fund are sometimes referred to herein individually as a "Fund"
and collectively as the "Funds."
The information concerning the MFS Fund in this Proxy Statement and Prospectus
has been supplied by the MFS Fund, and the information regarding the Advantage
Fund in this Proxy Statement and Prospectus has been supplied by the Advantage
Fund.
ITEM 1--PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement and Prospectus and is qualified by reference to the more
complete information contained herein and in the attached Exhibit as well as in
the Advantage Fund Prospectus and the enclosed MFS Fund Prospectus. Shareholders
should read this entire Proxy Statement and Prospectus carefully.
OVERVIEW OF PROPOSED REORGANIZATION
The Board of Trustees of the Advantage Trust has reviewed various alternatives
and determined that it is in the best interest of the Advantage Fund and its
shareholders that Advantage Fund shareholders become shareholders of the MFS
Fund. The MFS Fund, like the Advantage Fund, invests to provide current income
exempt from federal income taxes and from the personal income taxes, if any, of
the State of New York. The investment adviser of the Advantage Fund is Boston
Security Counsellors, Inc. ("BSC"), a wholly-owned subsidiary of The Advest
Group, Inc., a publicly-owned holding company. The investment adviser of the MFS
Fund is Massachusetts Financial Services Company ("MFS"), a wholly-owned
subsidiary of Sun Life Assurance Company of Canada (U.S.), which in turn is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada. The investment
adviser of each Fund is sometimes referred to herein as that Fund's "Adviser."
If the transaction is consummated, shareholders of the Advantage Fund will
become holders of Class B shares of the MFS Fund ("MFS Fund Shares"). Class B
shares of the MFS Fund are not subject to a front-end sales charge but may be
subject upon redemption to a contingent deferred sales charge (a "CDSC"). No new
sales charges will apply to the MFS Fund Shares issued to Advantage Fund
shareholders in this transaction, but, if any Advantage Fund shares on the date
the transaction is consummated are subject to a CDSC, the MFS Fund Shares
acquired in respect
2
<PAGE> 8
of such Advantage Fund shares will be subject to a CDSC in accordance with the
MFS Fund CDSC schedule as described under "Other Significant Fees" below. For
purposes of calculating the CDSC and determining when any MFS Fund Shares issued
in the Reorganization will convert to Class A shares of the MFS Fund (which are
subject to a lower distribution fee than Class B shares), the MFS Fund Shares
will be treated as if purchased forty-two months prior to the date the
transaction is consummated. Therefore, assuming that the transaction is
consummated on May 1, 1995 as scheduled, the MFS Fund Shares received by
Advantage Fund shareholders will be treated as if purchased on November 1, 1991,
and, with respect to such MFS Fund Shares issued in respect of Advantage Fund
shares which are subject to a CDSC on the date the transaction is consummated,
will be treated as held during the fourth year after purchase and subject to a
3% CDSC until November 30, 1995, which will decline thereafter to 2% after
November 30, 1995, 1% after November 30, 1996 and 0% after November 30, 1997,
and with respect to all MFS Shares issued in the transaction, will convert to
Class A shares of the MFS Fund on or about November 1, 1999 (approximately four
and a half years after consummation of the transaction).
The Class B shares of the MFS Fund are subject to a 0.75% annual distribution
fee and a 0.25% annual service fee payable pursuant to a distribution plan (a
"Distribution Plan") adopted pursuant to Section 12(b) of the Investment Company
Act of 1940, as amended (the "1940 Act") and Rule 12b-1 thereunder. Shares of
the Advantage Fund are currently subject to a 0.40% annual distribution fee and
a 0.10% annual service fee payable under a Distribution Plan with respect to
such shares.
The Boards of Trustees of the Advantage Trust and the MFS Trust have each
approved the acquisition of the assets of the Advantage Fund by the MFS Fund,
and the Advantage Trust and the MFS Trust have entered into an Agreement and
Plan of Reorganization on behalf of the Advantage Fund and the MFS Fund,
respectively. See Exhibit A hereto. The consummation of the transaction,
however, is subject to the approval of the Advantage Fund's shareholders and
certain other conditions. See "Description of Agreement" below.
As noted below, the transaction provides for the transfer of all the assets of
the Advantage Fund in exchange for MFS Fund Shares and the assumption by the MFS
Fund of the Advantage Fund's stated liabilities, as set forth in a schedule of
assets and liabilities delivered by the Advantage Trust to the MFS Trust on the
date the transaction is consummated. The MFS Fund Shares will then be
distributed to the Advantage Fund's shareholders (the "Reorganization"). Each
Advantage Fund shareholder will receive MFS Fund Shares that will have an
aggregate net asset value equal to the aggregate net asset value of his or her
shares of the Advantage Fund on the date the Reorganization occurs. The
Reorganization is being structured as a tax-free reorganization, and the
consummation of the Reorganization is subject to the receipt of an opinion from
legal counsel to this effect.
Class B shares of the MFS Fund may be exchanged for Class B shares of certain
other funds advised by MFS (if available for sale) or may be redeemed at net
asset value less any applicable CDSC. No CDSC is imposed upon any such exchange;
rather, the CDSC is carried over to the shares received in the exchange. There
are currently 49 funds advised by MFS which are available for exchange
privileges with the MFS Fund. Advantage Fund shareholders may redeem (subject to
any applicable CDSC) or may exchange their Advantage Fund shares for shares of
certain other funds sponsored by Advest, Inc. ("Advest"), the Advantage Fund's
distributor, at any time prior to the consummation of the Reorganization. There
are currently eight other Advantage funds, including the two other series of the
Advantage Trust, sponsored by Advest which are available for exchange privileges
with the Advantage Fund. Prior to the Reorganization, Advantage Fund
shareholders may also redeem their Advantage Fund Shares and invest the proceeds
in the Advantage Insured Account (the "AIA"), which is a money market deposit
account maintained at Advest Bank. Deposits of up to $100,000 in the AIA are
insured by the Federal Deposit Insurance Corporation (the "FDIC"). Withdrawals
from the AIA may be subject to a CDSC, as described in the Advantage Fund
prospectus under "Shareholder Services." Any redemption or exchange from the MFS
Fund or the Advantage Fund would be a taxable event on which a shareholder may
recognize a gain or loss under applicable income tax provisions.
Upon consummation of the Reorganization and the Related Reorganizations (as
defined below under "Description of Agreement -- Conditions Precedent to
Closing"), MFS will pay $1.2 million to The Advest Group, Inc.
The Board of Trustees of the Advantage Trust believes that the proposed
Reorganization will be advantageous to the shareholders of the Advantage Fund in
several respects which they considered in approving the Reorganization. The
Reorganization will permit the shareholders of the Advantage Fund to become
shareholders of a fund with a similar investment objective and similar
investment policies that has in the past generally achieved a higher total
return than
3
<PAGE> 9
the Advantage Fund. See "Comparative Performance Information" below. Also, to
the extent that the MFS Fund has a substantially larger asset base than the
Advantage Fund as a result of the Reorganization, its investment portfolio can
be spread over a greater number of securities. Greater diversification is
beneficial to shareholders because it reduces the negative effect which the
adverse performance of any one portfolio security may have on the performance of
the entire portfolio. Finally, as shareholders of the MFS Fund, shareholders
will enjoy exchange privileges with 49 other funds advised by MFS.
BUSINESS OF THE ADVANTAGE FUND
The Advantage Trust is an open-end, diversified, management investment company
organized as a Massachusetts business trust under a Declaration of Trust dated
February 25, 1993. The investment objective of the Advantage Fund is to earn a
high level of current income exempt from federal, New York state and local
income taxes by investing in a diversified group of obligations, including
bonds, notes and commercial paper, the interest on which is exempt from federal,
New York state and local income taxes ("Municipal Obligations"). The Advantage
Fund commenced investment operations on July 1, 1993.
As of March 24, 1995, the Advantage Fund's net assets were approximately
$ .
BUSINESS OF THE MFS FUND
The MFS Trust is an open-end, management investment company organized as a
Massachusetts business trust under an amended and restated Declaration of Trust
dated February 3, 1995. The MFS Fund is a non-diversified series of the MFS
Trust. The investment objective of the MFS Fund is to provide current income
exempt from federal income taxes and from the personal income taxes of the State
of New York. The MFS Fund commenced investment operations on June 6, 1988. Class
B shares of the MFS Fund were first offered to the public on September 7, 1993.
As of March 24, 1995, the MFS Fund's net assets were approximately
$ .
COMPARISON OF THE ADVANTAGE FUND AND THE MFS FUND
The investment objectives of the Advantage Fund and MFS Fund are substantially
similar.
The policy of each of the Advantage Fund and the MFS Fund is to invest at least
80% of its assets in Municipal Obligations. The Advantage Fund has a
non-fundamental policy, which can be changed by the Advantage Trust Trustees
without a shareholder vote, that at least 65% of the total assets of the
Advantage Fund will be invested in Municipal Obligations which are bonds. Each
Fund invests primarily in Municipal Obligations which are rated "investment
grade" (rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's")
or AAA, AA, A or BBB or A, by Standard and Poor's Ratings Group ("S&P")),
comparable unrated Municipal Obligations and securities which are guaranteed,
backed or secured by the U.S. Government. The MFS Fund may also invest up to
33 1/3% of its assets in Municipal Obligations rated lower than A by Moody's or
S&P and in comparable unrated Municipal Obligations. The Advantage Fund may
invest up to 10% of its assets in Municipal Obligations rated Ba or B by Moody's
or BB or B by S&P and in comparable unrated Municipal Obligations. Municipal
Obligations rated lower than Baa by Moody's or BBB by S&P and comparable unrated
Municipal Obligations are commonly known as "junk bonds," which entail greater
risks, including default risks, than those found in higher rated securities.
Because the MFS Fund may invest a higher percentage of its assets in junk bonds
than the Advantage Fund, an investment in the MFS Fund entails greater risk and
may be subject to greater volatility than an investment in the Advantage Fund.
However, investing a higher percentage of assets in lower rated securities
generally offers an opportunity to earn higher levels of income. It is not the
policy of either Fund to rely exclusively on ratings issued by established
credit agencies but rather to supplement such ratings with its Adviser's own
individual and ongoing review of credit quality.
Both the Advantage Fund and the MFS Fund may, within certain limits, enter into
repurchase agreements, purchase securities on a "when-issued basis, and invest
in certain restricted and illiquid securities. Both Funds may also invest in
floating or variable rate instruments, zero coupon bonds, options on securities,
futures contracts, options on futures contracts, municipal lease obligations
and, for defensive purposes, short-term investments. The MFS Fund may purchase
inverse floating rate obligations, combinations of options known as "straddles,"
futures contracts for non-hedging purposes, participation interests and deferred
interest bonds. The Advantage Fund may invest in money market investment
companies and make loans of its portfolio securities.
4
<PAGE> 10
See "Special Factors -- Investment Objectives, Policies and Restrictions" below.
FORM OF ORGANIZATION
Both the Advantage Trust and the MFS Trust are business trusts organized under
the laws of The Commonwealth of Massachusetts. The Advantage Fund commenced
investment operations in 1993 and the MFS Fund commenced investment operations
in 1988. Each Fund is permitted to issue an unlimited number of shares of
beneficial interest and each share represents an equal proportionate beneficial
interest in such Fund.
SHARES OF THE ADVANTAGE FUND
The Advantage Fund has only one class of shares, which is offered at net asset
value without a sales charge but subject to a CDSC, as described in the
Advantage Fund Prospectus, if redeemed within four years of purchase, and
subject to a Distribution Plan providing for a combined 0.50% annual
distribution fee and service fee.
CLASSES OF SHARES OF THE MFS FUND
The MFS Fund currently offers two classes of shares, Class A and Class B shares,
and may in the future offer additional classes of shares. Class A shares are
offered at net asset value plus an initial sales charge (or a CDSC in the case
of certain purchases of $1 million or more) and subject to a Distribution Plan
providing for a distribution fee of up to 0.10% per annum (which is currently
being waived), and a service fee of up to 0.25% per annum, of the average daily
net assets attributable to the class. Class B shares are offered at net asset
value without a sales charge but subject to a CDSC, as described below under
"Other Significant Fees," if redeemed within six years of purchase, and a
Distribution Plan providing for a distribution fee of up to 0.75% per annum, and
service fee of up to 0.25% per annum, of the average daily net assets
attributable to the class. Class B shares convert to Class A shares
approximately eight years after purchase. No sales charge is applicable upon
conversion of the Class B shares to Class A shares. Class B shares were first
offered to the public on September 7, 1993.
Advantage Fund shareholders will be issued Class B shares (i.e., MFS Fund
Shares) in the Reorganization, which will not be subject to an initial sales
charge but may be subject to a CDSC upon redemption (as noted under "Other
Significant Fees" below). As noted above, the MFS Fund Shares will also be
subject to a 0.75% annual distribution fee and a 0.25% annual service fee, and,
assuming that the Reorganization is consummated on May 1, 1995, will convert to
Class A shares approximately four and a half years after consummation of the
Reorganization.
Each share of the MFS Fund, regardless of class, will share pro rata in the
assets and income of the MFS Fund and will share pro rata in the MFS Fund
expenses, except for differences resulting from different class Distribution
Plan expenses and certain other class specific expenses. Shares of all classes
of the MFS Fund will vote together on all matters affecting the MFS Fund, except
for certain matters, such as approval of a Distribution Plan, affecting only a
particular class or classes. See "Business of the MFS Fund -- MFS Fund Shares
and Purchase of MFS Fund Shares" below.
ADVISER AND ADVISORY FEES
The MFS Fund employs MFS as its investment adviser. The Advantage Fund employs
BSC as its investment adviser.
On July 1, 1994, the MFS Fund commenced paying MFS an annual management fee,
computed and paid monthly, in an amount equal to 0.55% of the MFS Fund's average
daily net assets. Prior to October 1, 1993, MFS voluntarily reduced advisory
fees due from the MFS Fund to 0.35% per annum of the MFS Fund's average daily
net assets, which increased by 0.05% per annum each quarter commencing in the
fourth quarter of 1993, up to 0.55% per annum of the MFS Fund's average daily
net assets. For the fiscal year ended January 31, 1994, MFS received management
fees under the Advisory Agreement of $575,578, equivalent on an annualized basis
to 0.35% of the MFS Fund's average daily net assets. The amount of advisory fees
that would have been received by MFS absent this waiver for this period is
$916,193. The MFS Fund changed its fiscal year end from January 31 to March 31
in 1994. For the two-month period from February 1, 1994 through March 31, 1994,
MFS received management fees under the Advisory Agreement of $138,429,
equivalent on an annualized basis to 0.45% of the MFS Fund's average daily net
assets. The amount of advisory fees that would have been received by MFS absent
this waiver for this period is $168,692. For the six month period ended
September 30, 1994, MFS received management fees under the
5
<PAGE> 11
Advisory Agreement of $443,063, equal on an annualized basis to 0.525% of the
MFS Fund's average daily net assets. The amount of advisory fees that would have
been received by MFS absent this waiver for this period is $464,122.
The Advantage Fund's fees and expenses were and are being voluntarily waived or
reimbursed by BSC, Advest and their affiliates to the extent necessary to keep
the Advantage Fund's total operating expenses no greater than 0.70% per annum
through June 30, 1994, and no greater than 1.00% per annum from April 30, 1994
through June 30, 1995. While the Advantage Fund is obligated to pay BSC a
management fee equal to, on an annual basis, 0.45% of the Advantage Fund's
average daily net assets, pursuant to this expense waiver and reimbursement
arrangement, for the period from July 1, 1993 (commencement of investment
operations) through December 31, 1993, BSC waived all advisory fees due from the
Advantage Fund, and, for the fiscal year ended December 31, 1994, BSC waived a
portion of advisory fees due from the Advantage Fund and received $33,215 in
advisory fees from the Advantage Fund (equal to 0.24% per annum of the Advantage
Fund's average daily net assets). The amount of advisory fees that would have
been received by BSC absent these waivers for these periods is $19,210 and
$61,697, respectively.
DISTRIBUTION PLAN FEES
The Class B Distribution Plan of the MFS Fund provides that the MFS Fund will
pay MFS Fund Distributors, Inc. ("MFD") (as the MFS Fund's distributor) a daily
distribution/service fee payable monthly and equal to, on an annual basis, 1.00%
of such Fund's average daily net assets attributable to Class B shares (0.75% of
which constitutes the distribution fee and 0.25% of which constitutes the
service fee). The Distribution Plan also provides that MFD will receive all
CDSCs, including CDSCs imposed upon redemption of MFS Fund Shares issued in the
Reorganization, as described below under "Other Significant Fees." MFD pays
commissions to dealers of 3.75% of the purchase price of MFS Fund Class B shares
purchased through dealers. MFD, on behalf of the MFS Fund, will also pay dealers
a service fee equal to 0.25% per annum on that portion of the MFS Fund's average
daily net assets attributed to Class B shares of the MFS Fund owned by investors
for whom the dealer is the holder or the dealer of record. MFD may advance to
dealers the first year service fee at a rate of up to 0.25% of the purchase
price of such shares and, as compensation therefor, MFD may retain the service
fee paid by the MFS Fund with respect to such shares for the first year after
purchase.
The Distribution Plan of the Advantage Fund provides that the Advantage Fund
will pay Advest (as the Advantage Fund's distributor) a daily
distribution/service fee payable monthly equal to, on an annual basis, 0.50% of
the Advantage Fund's average daily net assets (0.40% of which constitutes the
distribution fee and 0.10% of which constitutes the service fee). The
Distribution Plan also provides that Advest will receive all CDSCs imposed upon
redemption of Advantage Fund shares. No CDSC will be imposed in connection with
effecting the Reorganization. Advest pays commissions to its registered
representatives at the time of purchase of Advantage Fund shares, and pays
service fees to such registered representatives on an ongoing basis while such
shares are outstanding.
Distribution/service fees paid by each Fund under its respective Distribution
Plan are charged to, and therefore reduce, income.
OTHER SIGNIFICANT FEES
Both the MFS Fund and the Advantage Fund pay additional fees in connection with
their operations, including legal, accounting, shareholder servicing agent and
custodial fees, except to the extent such fees are borne by either Fund's
Adviser, as described below.
The MFS Fund's ratio of expenses to average net assets for Class B shares was
1.86% (annualized) for the six month period ended September 30, 1994, 1.87%
(annualized) for the two month fiscal period ended March 31, 1994, and 1.79%
(annualized) for the period commencing September 7, 1993 (commencement of
offering of Class B shares) through January 31, 1994. Had MFS not elected to
waive its advisory fee as described above under "Adviser and Advisory Fees" the
MFS Fund's annualized ratio of expenses to average net assets for these period
would have been 1.89%, 1.97% and 2.00%, respectively.
The Advantage Fund's ratio of expenses to average net assets was, after expense
waivers and reimbursements described above under "Adviser and Advisory Fees" and
after the expense reimbursement described below, 0.52% for the fiscal year ended
December 31, 1994 and 0.36% (annualized) for the period from July 1, 1993
6
<PAGE> 12
(commencement of investment operations) through December 31, 1993. Advest
voluntarily reimbursed $92,166 and $45,637 of the Advantage Fund's expenses for
the fiscal year ended December 31, 1994 and the fiscal period ended December 31,
1993, respectively. Had BSC not elected to waive its advisory fee and had Advest
not elected to reimburse expenses, the Advantage Fund's annualized ratio of
expenses to average net assets for these periods would have been 1.40% and
1.87%, respectively. Had the Reorganization occurred on December 31, 1993, the
ratio of expenses to average net assets for Class B shares of the MFS Fund for
the year ended December 31, 1994 would have been 1.88% taking into account the
MFS advisory fee waiver described above, and 1.92% without giving effect to this
MFS advisory fee waiver.
<TABLE>
The MFS Fund imposes a CDSC as a percentage of redemption proceeds as follows:
<CAPTION>
CONTINGENT
DEFERRED
YEAR OF REDEMPTION SALES
AFTER PURCHASE CHARGE
- ------------------ ----------
<S> <C>
First....................................................................... 4%
Second...................................................................... 4%
Third....................................................................... 3%
Fourth...................................................................... 3%
Fifth....................................................................... 2%
Sixth....................................................................... 1%
Seventh and Following....................................................... 0%
</TABLE>
<TABLE>
The Advantage Fund imposes a CDSC as a percentage of redemption proceeds as
follows:
<CAPTION>
CONTINGENT
DEFERRED
YEAR OF REDEMPTION SALES
AFTER PURCHASE CHARGE
- ------------------ ----------
<S> <C>
First....................................................................... 4%
Second...................................................................... 3%
Third....................................................................... 2%
Fourth...................................................................... 1%
Fifth and Following......................................................... 0%
</TABLE>
With respect to both the Class B shares of the MFS Fund and the shares of the
Advantage Fund, no CDSC is imposed on shares acquired through reinvestment of
dividends and distributions or amounts derived from increases in either Fund's
net asset value per share. In determining whether a CDSC will be payable and, if
so, the percentage charge applicable, shares acquired through reinvestment and
then shares held the longest are considered the first to be redeemed by both the
MFS Fund and the Advantage Fund, thus resulting in the lowest possible CDSC. For
purposes of calculating the appropriate CDSC, Class B shares of the MFS Fund are
aggregated on a calendar month basis, meaning that all transactions made during
a calendar month, regardless of when during the month they have occurred, will
age one year at the close of business on the last day of such month in the
following calendar year and each subsequent year, while shares of the Advantage
Fund age one year from the date of purchase in each subsequent year.
No new sales charges will apply to the MFS Fund Shares acquired by the Advantage
Fund shareholders in the Reorganization, but, if any Advantage Fund shares are,
on the date the Reorganization is consummated, subject to a CDSC, the MFS Fund
Shares acquired in respect of such Advantage Fund shares will be subject to a
CDSC in accordance with the MFS Fund CDSC schedule, as described above, and, for
purposes of calculating the CDSC and determining when any MFS Fund Shares issued
in the Reorganization will convert to Class A shares of the MFS Fund (but not
for calculating the holding period for tax purposes), the MFS Fund Shares will
be treated as if purchased forty-two months prior to the date the Reorganization
is consummated. Therefore, assuming that Advantage Fund shareholders approve the
Agreement (as defined under "Reorganization" below) and that the Reorganization
is consummated as scheduled on May 1, 1995, the MFS Fund Shares received by
Advantage Fund shareholders will be treated as if purchased on November 1, 1991.
Thus, the MFS Fund Shares issued in respect of Advantage Fund shares which are
subject to a CDSC on the date the Reorganization is consummated will be treated
as if held during the fourth year after purchase and will be subject to a CDSC
of 3%, which will decline to 2% on December 1, 1995, to 1% on December 1, 1996
and to 0% on December 1, 1997 and will remain at 0% thereafter, and all MFS Fund
Shares issued in the Reorganization will convert to Class A shares of the MFS
Fund on or about November 1, 1999.
7
<PAGE> 13
The MFS Fund does not anticipate that, following the Reorganization, its
portfolio turnover rate (and the expenses related thereto) will be significantly
higher than its current portfolio turnover rate (and the expenses related
thereto). However, the portfolio turnover rate (and expense related thereto) of
the MFS Fund following the Reorganization is likely to be significantly higher
than that of the Advantage Fund. Therefore, transaction costs incurred by, and
realized gains and losses of, the MFS Fund may be higher than that of the
Advantage Fund.
<TABLE>
COMPARISON OF THE EXPENSES OF THE MFS FUND AND ADVANTAGE FUND
SHAREHOLDER TRANSACTION EXPENSES:
<CAPTION>
MFS FUND PRO FORMA CLASS B
CLASS B ADVANTAGE FUND OF MFS FUND
---------- ----------------- ------------------
<S> <C> <C> <C>
Maximum CDSC (as a percentage of original purchase
price or redemption proceeds, as applicable)....... 4.00% 4.00% 4.00%
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
<CAPTION>
MFS FUND PRO FORMA CLASS B
CLASS B(1) ADVANTAGE FUND(1) OF MFS FUND(2)
----------- ----------------- -------------------
<S> <C> <C> <C>
Advisory Fees (after applicable waivers and
reimbursements)................................... 0.51%(3) 0.24 %(4) 0.51%(3)
Rule 12b-1 Fees..................................... 1.00% 0.50 % 1.00%
Other Expenses (after applicable waivers and
reimbursements)................................... 0.37% (0.22)%(4) 0.35%
---- ----- ----
Total Operating Expenses (after applicable waivers
and reimbursements)............................... 1.88%(3) 0.52 %(4) 1.86%(3)
<FN>
- ---------------
(1) For the year ended December 31, 1994.
(2) For the year ended December 31, 1994, assuming the Reorganization occurred
on December 31, 1993.
(3) MFS waived a portion of its advisory fees as described above under "Adviser
and Advisory Fees." Absent this waiver, "Advisory Fees" and "Total Operating
Expenses" would be 0.55% and 1.92%, respectively, for the MFS Fund Class B
shares, and 0.55% and 1.90%, respectively, for Pro Forma MFS Fund Class B
shares.
(4) The Advantage Fund's fees and expenses were and are being voluntarily waived
or reimbursed by BSC, Advest and their affiliates to the extent necessary to
keep "Total Operating Expenses" no greater than 0.70% per annum through June
30, 1994 and no greater than 1.00% per annum from July 1, 1994 through April
30, 1995. If these voluntary expense limitations were not in effect,
"Advisory Fees," "Other Expenses" and "Total Operating Expenses" would be
0.45%, 0.45% and 1.40%, respectively, for the Advantage Fund.
</TABLE>
PURCHASES AND EXCHANGES
Class B shares of the MFS Fund and shares of the Advantage Fund are available
through certain authorized dealers at the effective public offering price, which
is based on the effective net asset value per share. The MFS Fund, with respect
to Class B shares, and the Advantage Fund each receive 100% of the dollars
invested in each Fund without any deduction for sales charges. The minimum
initial investment per account for Class B shares of the MFS Fund and for shares
of the Advantage Fund is $1,000, and the minimum additional investment is $50
for Class B shares of the MFS Fund and $500 for shares of the Advantage Fund,
except in certain instances as described in each Fund's Prospectus. Class B
shareholders of the MFS Fund may exchange their shares for Class B shares of
certain other funds advised by MFS (currently, 49 funds advised by MFS are
available for exchange privileges with the MFS Fund) provided the exchange
involves shares with an aggregate net asset value of $1,000 or more or all of
the shares in the account. Shareholders of the Advantage Fund may exchange their
shares for shares of eight other Advantage Funds sponsored by Advest, including
the other two series of the Advantage Trust, subject to the minimum investment
requirements of the fund or series into which the exchange is being made.
Shareholders of the Advantage Fund may also redeem their Advantage Fund shares
and invest the proceeds in the AIA (see "Overview of Proposed Reorganization"
above), in which case any applicable CDSC will not be imposed but will be
carried over to the AIA. AIA depositors may withdraw money from the AIA and
invest in shares of a series of the Advantage Trust, or receive cash upon
withdrawal, in which case a CDSC may be imposed. The MFS Fund will not maintain
this relationship with the AIA or have exchange privileges with the funds
sponsored by Advest, and an AIA depositor who desires to withdraw money from the
AIA, or a shareholder of any such other fund sponsored by Advest who desires to
redeem shares of such fund, and invest the proceeds of such withdrawal or
redemption in Class B shares of the MFS Fund, will be treated like any other new
purchaser of shares and accordingly will be subject to the CDSC schedule set
forth in the MFS Fund Prospectus. Each exchange and redemption represents a sale
of shares, which may produce a gain or loss for tax purposes.
8
<PAGE> 14
DISTRIBUTION OPTIONS
The shareholders of both the MFS Fund and the Advantage Fund have available the
following distribution options: (i) dividends and capital gain distributions
reinvested in additional shares (this option will be assigned if no other option
is specified); and (ii) dividends and capital gain distributions paid in cash.
In addition, shareholders of the MFS Fund may elect to receive dividends in cash
and have capital gain distributions reinvested in additional shares.
Reinvestments (net of any tax withholding) of dividends and capital gain
distributions will be made in additional full and fractional shares at the net
asset value in effect at the close of business on the record date.
REDEMPTION PROCEDURES
Class B shares of the MFS Fund are redeemable at any time at a price equal to
the net asset value of the shares next determined after receipt by its transfer
agent, MFS Service Center, Inc. ("MFSC"), of a written or telephonic redemption
request in good order reduced by the amount of any applicable CDSC and the
amount of any income tax required to be withheld. Shares of the Advantage Fund
are redeemable at any time at a price equal to the net asset value of the shares
next determined after receipt by its transfer agent, ATS, of a written
redemption request in good order reduced by the amount of any applicable CDSC
and the amount of any income tax required to be withheld. Alternatively, Class B
shareholders of the MFS Fund and shareholders of the Advantage Fund may sell
their shares through securities dealers, who may charge a fee. No such fees will
be incurred in the proposed Reorganization.
REORGANIZATION
EFFECT OF THE REORGANIZATION
Pursuant to the terms of the Agreement and Plan of Reorganization (the
"Agreement") between the MFS Trust, on behalf of the MFS Fund, and the Advantage
Trust, on behalf of the Advantage Fund, the proposed Reorganization will consist
of (i) the transfer of all of the assets of the Advantage Fund to the MFS Fund
in exchange solely for Class B shares of the MFS Fund (the "MFS Fund Shares")
and the assumption by the MFS Fund of the stated liabilities of the Advantage
Fund, (ii) the distribution of the MFS Fund Shares to the shareholders of the
Advantage Fund in liquidation of the Advantage Fund as provided in the Agreement
and (iii) the termination of the Advantage Trust. These transactions are
referred to as the "Reorganization."
The Reorganization will become effective as soon as practicable after the
shareholder approval noted under "Conditions Precedent to Closing" is obtained
(see "Description of Agreement" below), but in no event later than June 30, 1995
(the "Closing Date"). The assets of the Advantage Fund will be valued on the
last business day immediately preceding the Closing Date (the "Valuation Date").
The Agreement provides that, except to the extent that, pursuant to an agreement
dated February 7, 1995, MFS and The Advest Group, Inc. have agreed to bear
certain expenses in connection with the Reorganization which would otherwise be
borne by the MFS Fund and the Advantage Fund (see "Description of the Agreement"
below), the MFS Fund and the Advantage Fund will each be liable for its own
expenses incurred in connection with the Reorganization, whether or not the
Reorganization is consummated.
TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the receipt of an opinion
of legal counsel, satisfactory to the MFS Fund and the Advantage Fund,
substantially to the effect that for federal income tax purposes: (i) the
acquisition by the MFS Fund of all of the assets of the Advantage Fund solely in
exchange for the MFS Fund Shares and the assumption by the MFS Fund of the
stated liabilities of the Advantage Fund, followed by the distribution by the
Advantage Fund of the MFS Fund Shares in complete liquidation to the
shareholders of the Advantage Fund in exchange for their shares of beneficial
interest of the Advantage Fund and the termination of the Advantage Trust, will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the Advantage Fund and the
MFS Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Advantage Fund upon the transfer of all of its assets to the MFS Fund solely in
exchange for the MFS Fund Shares and the assumption by the MFS Fund of the
stated liabilities of the Advantage Fund or upon the distribution to the
shareholders of the Advantage Fund of such MFS Fund Shares pursuant to the
Agreement; (iii) no gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the Advantage Fund solely in exchange for the MFS Fund
Shares and the
9
<PAGE> 15
assumption by the MFS Fund of the stated liabilities of the Advantage Fund as
set forth on a schedule of assets and liabilities delivered by the Advantage
Trust to the MFS Trust on the Closing Date; (iv) the basis of the assets of the
Advantage Fund acquired by the MFS Fund will be, in each instance, the same as
the basis of those assets in the hands of the Advantage Fund immediately prior
to the transfer; (v) the holding period of the assets of the Advantage Fund in
the hands of the MFS Fund will include, in each instance, the holding period of
such assets in the hands of the Advantage Fund; (vi) the shareholders of the
Advantage Fund will not recognize gain or loss upon the exchange of all of their
shares of beneficial interest of the Advantage Fund solely for the MFS Fund
Shares as part of the transaction; (vii) the basis of the MFS Fund Shares to be
received by each Advantage Fund shareholder will be, in the aggregate, the same
as the basis, in the aggregate, of the shares of beneficial interest of the
Advantage Fund surrendered by such shareholder in exchange therefor; and (viii)
the holding period of the MFS Fund Shares to be received by each Advantage Fund
shareholder will include the holding period of the shares of beneficial interest
of the Advantage Fund surrendered by such shareholder in exchange therefor,
provided the shares of the Advantage Fund were held by such shareholder as
capital assets on the date of the exchange.
VOTE REQUIRED FOR APPROVAL
The Reorganization was approved by the Trustees of the Advantage Trust on
February 23, 1995. Approval of the Reorganization by the Advantage Fund's
shareholders requires the affirmative vote of not less than two thirds of the
shares of the Advantage Fund outstanding and entitled to vote at the Meeting.
RECOMMENDATION OF THE BOARD OF TRUSTEES OF THE ADVANTAGE TRUST
THE TRUSTEES OF THE ADVANTAGE TRUST UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE
IN FAVOR OF THE REORGANIZATION AS SET FORTH IN ITEM 1.
SPECIAL FACTORS
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives and Policies. The Advantage Fund seeks to provide a high
level of current income exempt from federal, New York State and New York City
income taxes by investing in a diversified portfolio of Municipal Obligations.
The MFS Fund seeks to provide current income exempt from federal income taxes
and from the personal income taxes, if any, of the State of New York.
The investment policies of both the Advantage Fund and the MFS Fund are
described above under "Summary" and certain of these policies are described to a
greater extent below.
Municipal Obligations: Each Fund will invest primarily (i.e., at least 80% of
its net assets under normal circumstances) in "Municipal Obligations," which are
debt obligations issued by New York and its political subdivisions,
municipalities, agencies, public authorities and instrumentalities, as well as
other qualifying issuers, to obtain funds for various public and private
purposes. Each Fund may also invest in Municipal Obligations the interest on
which is exempt from federal income taxes but would be subject to the personal
income taxes, if any, of the State of New York during periods when market
conditions limit the availability of New York Municipal Obligations. Municipal
Obligations include industrial revenue bonds issued by state and local agencies
to finance various public projects, as well as revenue bonds issued for housing,
health care facilities or electric utilities. Each Fund may also invest in
municipal lease obligations, which are undivided interests in a portion of a
Municipal Obligation in the form of a lease or installment purchase which are
issued by state and local governments to acquire equipment and facilities. The
Advantage Fund may invest in substantial amounts of long-term (maturities of 10
years or greater) Municipal Obligations, which are more susceptible to
fluctuations in their market price. See Appendix B in the MFS Fund Prospectus
for more information including the risks associated therewith.
Lower Rated Securities: Each Fund may invest to a limited extent in lower rated
Municipal Obligations or securities which are unrated but considered by the
Fund's Adviser to be of comparable quality. While these securities offer the
current income sought by the Funds, they entail greater risk of principal and
income and greater price volatility than investments in higher rated securities.
Such high yielding, lower rated securities also tend to reflect economic
changes, short-term corporate and industry developments and the market's
perception of their credit quality to a
10
<PAGE> 16
greater extent than higher rated securities. The market for these obligations
may also be less liquid than for investment grade securities because there are
fewer investors in lower quality securities. The Advantage Fund may invest up to
10% of its assets in securities rated Ba or B by Moody's or BB or B by S&P and
comparable unrated securities, while the MFS Fund may invest up to 33 1/3% of
its assets in securities rated Baa or lower by Moody's or BBB or lower by S&P
and comparable unrated securities. Securities rated below Baa by Moody's or BBB
by S&P and comparable unrated securities are commonly known as "junk bonds."
Because the MFS Fund may invest a higher percentage of its assets in lower rated
securities than the Advantage Fund, an investment in the MFS Fund entails
greater risk and may be subject to greater volatility than an investment in the
Advantage Fund. However, investing a higher percentage of assets in lower rated
securities generally offers an opportunity to earn higher levels of income. See
"Investment Objective and Policies" in the MFS Fund Prospectus for more
information including the risks associated therewith. The tables below show the
percentages of the MFS Fund's and the Advantage Fund's assets at December 31,
1994 invested in Municipal Obligations assigned to the various rating categories
by S&P and Moody's (provided only for Municipal Obligations not rated by S&P)
and in unrated securities determined by the respective Adviser to be of
comparable quality:
<TABLE>
MFS FUND
- ------------------------------------------------------------------------------------------------
<CAPTION>
UNRATED SECURITIES
RATING S&P MOODY'S OF COMPARABLE QUALITY TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA/Aaa
- ------------------------------------------------------------------------------------------------
AA/Aa
- ------------------------------------------------------------------------------------------------
A/A
- ------------------------------------------------------------------------------------------------
BBB/Baa
- ------------------------------------------------------------------------------------------------
BB/Ba
- ------------------------------------------------------------------------------------------------
B/B
- ------------------------------------------------------------------------------------------------
CCC/Caa
- ------------------------------------------------------------------------------------------------
CC/Ca
- ------------------------------------------------------------------------------------------------
C/C
- ------------------------------------------------------------------------------------------------
Default
- ------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
ADVANTAGE FUND
- ------------------------------------------------------------------------------------------------
<CAPTION>
UNRATED SECURITIES
RATING S&P MOODY'S OF COMPARABLE QUALITY TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA/Aaa
- ------------------------------------------------------------------------------------------------
AA/Aa
- ------------------------------------------------------------------------------------------------
A/A
- ------------------------------------------------------------------------------------------------
BBB/Baa
- ------------------------------------------------------------------------------------------------
BB/Ba
- ------------------------------------------------------------------------------------------------
B/B
- ------------------------------------------------------------------------------------------------
CCC/Caa
- ------------------------------------------------------------------------------------------------
CC/Ca
- ------------------------------------------------------------------------------------------------
C/C
- ------------------------------------------------------------------------------------------------
Default
- ------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------
</TABLE>
These charts do not necessarily indicate what the composition of either Fund's
portfolio will be in subsequent years. Rather, each Fund's investment objective,
policies and restrictions indicate the extent to which the Fund may purchase
securities in the various categories.
11
<PAGE> 17
Illiquid Securities: Each Fund may invest up to 15% of its net assets in
illiquid securities. Such securities may include Municipal Obligations issued in
private placements, repurchase agreements maturing in more than seven days,
over-the-counter options and other securities subject to legal or contractual
restrictions on resale. Each Fund may also purchase securities that are not
registered under the Securities Act of 1933, including those that can be offered
and sold to "qualified buyers" under Rule 144A under the Act. The MFS Trust's
Board of Trustees determines, based upon a continuing review of the trading
markets for a specific Rule 144A security, whether the security is illiquid and
thus subject to the MFS Fund's limitation on investing not more than 15% of its
net assets in illiquid securities, or liquid and not subject to this limitation.
While the Advantage Fund may invest up to 15% of its net assets in illiquid
securities, it may only invest up to 10% of its total assets in restricted
securities not subject to Rule 144A. The Funds may not be able to sell these
securities when the applicable Adviser wishes to do so, or might have to sell
them at less than fair value. Additionally, market quotations are less readily
available. Therefore, the judgment of the Adviser may at times play a greater
role in valuing these securities than in the case of liquid securities. See
"Investment Objective and Policies" in the MFS Fund Prospectus for more
information including the risks associated therewith.
Short-Term Investments for Defensive Purposes: During periods of unusual market
conditions when its Adviser believes that investing for defensive purposes is
appropriate, each Fund may make temporary investments in cash or cash
equivalents. Cash equivalents include obligations of banks having assets of $1
billion or more, commercial paper, short-term notes, obligations issued or
guaranteed by the U.S. Government or any of its agencies, authorities or
instrumentalities and related repurchase agreements. The MFS Fund may not invest
more than 50% of its total assets in cash and cash equivalents. See Appendix B
to the MFS Fund Prospectus for a description of U.S. Government obligations and
certain short-term investments.
Repurchase Agreements: Each Fund may invest in repurchase agreements either for
temporary defensive purposes due to adverse market conditions or to generate
income from cash balances. Under a repurchase agreement, a Fund acquires
securities subject to the seller's agreement to repurchase the securities at a
specified time and price. Repurchase agreements maturing more than seven days in
the future are considered illiquid and are, therefore, subject to the Funds'
restrictions on investing in illiquid securities. The MFS Fund may not invest
more than 10% of its total assets in repurchase agreements maturing more than
seven days in the future. The MFS Fund may only enter into repurchase agreements
with member banks of the Federal Reserve System and broker-dealers and only with
respect to U.S. Government securities. See "Investment Objective, Policies and
Restrictions" in the MFS Fund SAI for more information including risks
associated therewith.
When-Issued Securities: Each Fund may purchase securities on a "when-issued" or
on a "forward delivery" basis, which means that the obligations will be
delivered at a future date usually beyond customary settlement time. When-issued
securities involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. See "Investment Objective and Policies"
in the MFS Fund Prospectus and "Investment Objective, Policies and Restrictions"
in the MFS Fund SAI for more information including risks associated therewith.
Zero Coupon Bonds and Deferred Interest Bonds: Each Fund may invest in zero
coupon bonds, which are debt obligations that do not pay periodic interest and
are issued or purchased at a significant discount from face value. The MFS Fund
may also invest in deferred interest bonds, which provide for a period of delay
before the regular payment of interest begins, and are also issued at a
significant discount from face value. The discount approximates the total amount
of interest the bond will accrue and compound over the period until maturity or
the first interest payment date at a rate of interest reflecting the market rate
of the security at the time of issuance. The prices of these securities are
affected to a greater extent by interest rate fluctuations and tend to be more
volatile than securities that pay interest periodically and in cash. Each Fund
accrues income on such investments for tax and accounting purposes, which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
the Fund's distribution obligations. See "Characteristics of Municipal
Obligations" in the MFS Fund Prospectus for more information including the risks
associated therewith.
Options on Securities: Each Fund may write (sell) covered call and put options
on fixed income securities in order to increase its return on such securities
and/or protect the value of its portfolio. If a Fund writes an option which
expires unexercised or is closed out by the Fund at a profit, it will retain the
premium paid for the option which will
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<PAGE> 18
offset, in part, the reduced value of a portfolio security in connection with
which the option may have been written or the increased cost of portfolio
securities to be acquired. If the price of the underlying security moves
adversely to the Fund's position, however, the option may be exercised and the
Fund will be required to purchase or sell the underlying security at a
disadvantageous price, which may only be partially offset by the amount of the
premium.
The MFS Fund may also write combinations of put and call options on the same
security, known as "straddles." These transactions can generate additional
premium income but also present increased risk. The MFS Fund may also purchase
detachable call options on Municipal Obligations, which are options issued by an
issuer of the underlying Municipal Obligations giving the purchaser the right to
purchase the Obligations at a fixed price, at a stated time in the future, or in
some cases, on a future date.
Each Fund may purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that the Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, each Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The risk assumed by the Funds in connection with such
transactions is limited to the amount of the premium and related transaction
costs associated with the option, although the Funds may be required to forfeit
such amounts in the event that the prices of securities underlying the options
do not move in the direction or to the extent anticipated. Each Fund is
restricted from purchasing put and call options on securities, indices and
Futures Contracts (see "Options on Futures Contracts" below) if, as a result,
more than 5% of its total assets would be invested in such options. In addition,
each Fund may write and purchase uncovered options on securities only for
hedging purposes. See "Investment Objective, Policies and Restrictions" in the
MFS Fund SAI for more information including risks associated therewith.
Futures Contracts: Each Fund may enter into interest rate futures contracts on
fixed income securities and indexes of such securities for hedging purposes
(collectively "Futures Contracts"). These transactions will be used to protect
the Fund's current or intended investments from the effects of interest rate
fluctuations. In the event that an anticipated decrease in the value of
portfolio securities occurs as a result of a general increase in interest rates,
the adverse effects of such changes may be offset, in whole or in part, by gains
on the sale of Futures Contracts. Conversely, the increased cost of portfolio
securities to be acquired, caused by a general decline in interest rates, may be
offset, in whole or in part, by gains on Futures Contracts purchased by each
Fund.
The MFS Fund may also enter into futures contracts for non-hedging purposes, to
the extent permitted by applicable law, in order to increase portfolio returns.
Non-hedging transactions in such investments involve greater risks and may
result in losses which may not be offset by increases in the value of portfolio
securities.
The Funds will incur brokerage fees when they purchase and sell Futures
Contracts, and will be required to maintain margin deposits. Although each
Adviser believes that use of such contracts will benefit the Funds, if its
investment judgment about the general direction of interest rates is incorrect,
the Funds' overall performance may be worse than if they had not entered into
the contract and result in a loss. Accordingly, it is the policy of the
Advantage Fund not to enter into Futures Contracts and Options on Futures
Contracts (see below), if, immediately thereafter, more than 5% of the Advantage
Fund's net assets will be committed to initial margin deposits and premiums paid
on open Options or if more than 30% of its total assets would be set aside as an
offset to the Futures Contract and Options on Futures Contracts. The MFS Fund
will not enter into Futures Contracts if, immediately thereafter, the value of
securities and other obligations underlying all such Futures Contracts would
exceed 50% of the value of the MFS Fund's total assets. In addition, the MFS
Fund will not enter into Futures Contracts or Options on Futures Contracts (see
below) for non-hedging purposes if the initial margins and premiums on such
non-hedging positions are greater than 5% of its total assets. See "Investment
Objective, Policies and Restrictions" in the MFS Fund SAI for more information
including risks associated therewith.
Options on Futures Contracts: Each Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts"). These instruments are used
to protect against anticipated changes in interest rates which otherwise might
adversely affect either the value of the Fund's portfolio securities or the
price of securities to be acquired. The MFS Fund may also invest in Options on
Futures Contracts for non-hedging purposes, to the extent permitted by
applicable law. Purchases of Options on Futures Contracts may present less risk
in hedging the Fund's portfolio than the purchase or sale of the underlying
Futures Contracts since the potential loss is limited to the amount of the
premium plus related transaction costs, although it may be necessary to exercise
the option to realize
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<PAGE> 19
any profit, which results in the establishment of a futures position. The
writing of Options on Futures Contracts, however, does not present less risk
than the trading of Futures Contracts and will constitute only a partial hedge,
up to the amount of the premium received. If an option is exercised, the Fund
may suffer a loss on the transaction. Accordingly, it is the policy of the
Advantage Fund not to enter into Futures Contracts and Options on Futures
Contracts if, immediately thereafter, more than 5% of the Advantage Fund's net
assets will be committed to initial margin deposits and premiums paid on open
Options or if more than 30% of its total assets would be set aside as an offset
to the Futures Contracts and Options on Futures Contracts. In addition, the MFS
Fund will not enter into Futures Contracts or Options on Futures Contracts (see
below) for non-hedging purposes if the initial margins and premiums on such
non-hedging positions are greater than 5% of its total assets. Moreover, the MFS
Fund will not purchase Options on Futures Contracts if, as a result, more than
5% of the total assets of the MFS Fund would be invested in such Options. See
"Investment Objective, Policies and Restrictions" in the MFS Fund SAI for more
information including risks associated therewith.
Variable and Floating Rate Obligations: Each Fund may invest in floating or
variable rate instruments, which may provide for interest rate adjustments at
specified intervals. Variable rate obligations have an interest rate which is
adjusted at pre-designated periods and interest on floating rate obligations is
adjusted whenever there is a change in the market rate of interest on which the
payable interest rate is based. See "Investment Objective, Policies and
Restrictions" in the MFS Fund SAI for more information concerning these
obligations.
Inverse Floating Rate Obligations: The MFS Fund may invest in "inverse floating
rate obligations," "residual interest" bonds, or other obligations or
certificates structured to have similar features. Such obligations generally
have floating or variable interest rates that move in the opposite direction of
short-term interest rates and generally increase or decrease in value in
response to changes in short-term interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term tax-exempt securities
increase or decrease in response to such changes. As a result, such obligations
have the effect of providing investment leverage and may be more volatile than
long-term fixed rate tax-exempt obligations. See "Investment Objective, Policies
and Restrictions" in the MFS Fund SAI for more information concerning these
obligations.
Participation Interests. The MFS Fund may purchase from banks participation
interests in all or part of specific holdings of Municipal Obligations. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of the selling bank. Participation interests will only be purchased if, in the
opinion of counsel, interest income on such interests will be tax-exempt when
distributed as dividends to shareholders of the Fund.
Money Market Investment Companies: The Advantage Fund may from time-to-time
invest up to 5% of its assets in money market investment companies sponsored by
a third party for short-term liquidity purposes. See "Investment Techniques" in
the Advantage Fund Prospectus and "Investment Restrictions" in the Advantage
Fund SAI for more information concerning these securities.
Lending of Portfolio Securities: The Advantage Fund may make loans of its
portfolio securities to the extent such loans do not, in the aggregate, exceed
33 1/3% of the Fund's total assets. Such loans will usually be made only to
member banks of the Federal Reserve System and member firms and subsidiaries of
the New York Stock Exchange or borrowers considered by its Adviser to be
creditworthy. Loans of portfolio securities must be secured continuously by
collateral at an amount at least equal to the market value of the securities
loaned. Income from securities loaned will be taxable when distributed to
Advantage Fund shareholders. See "Other Investment Policies and Techniques" in
the Advantage Fund Prospectus for more information including risks associated
therewith.
------------------------
The investment objectives and policies of the Advantage Fund and the MFS Fund
described above may be changed without shareholder approval.
Fundamental Investment Restrictions. The investment restrictions summarized
below are fundamental and may not be changed without the approval of the holders
of a majority of outstanding shares (as defined in the 1940 Act) of the
Advantage Fund or the MFS Fund, as applicable.
Neither Fund may borrow money except as a temporary measure for extraordinary or
emergency purposes. Each Fund must maintain asset coverage of at least 300% for
all such borrowings. The MFS Fund may not pledge, mortgage or hypothecate more
than 33 1/3% of its assets to secure permitted borrowings (for the purpose of
this
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<PAGE> 20
restriction, collateral arrangements with respect to Options, Futures Contracts
and Options on Futures Contracts and payment of initial and variation margin in
connection therewith are not considered a pledge of assets).
Neither Fund may underwrite securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security.
Neither Fund may make any investment in real estate, commodities or commodity
contracts, except each Fund may (a) purchase or sell readily marketable
securities which are secured by interests in real estate or issued by companies
which deal in real estate, including, with respect to the Advantage Fund, real
estate investment trusts and mortgage investment trusts; and (b) engage in
certain options, Futures Contracts, and Options on Futures Contracts in the
ordinary course of business. It is also the fundamental policy of the MFS Fund
not to purchase interests in oil, gas or mineral leases. The MFS Fund reserves
the freedom of action to hold and to sell real estate acquired as a result of
the ownership of securities.
Neither Fund may make loans to other persons except that each Fund may (a)
purchase obligations in which the Fund is authorized to invest and (b) invest in
repurchase agreements. The Advantage Fund may lend its portfolio securities in
amounts up to one-third of the market or other fair value of its total assets.
Not more than 10% of the MFS Fund's total assets (taken at market value) may be
subject to repurchase agreements maturing in more than seven days.
Neither Fund may purchase the securities of any issuer if, as a result, more
than 10% of the outstanding voting securities of the issuer would be held by the
Fund. Up to 25% of the Advantage Fund's total assets may be invested without
regard to this limitation.
Neither Fund may issue any senior security as that term is defined in the 1940
Act, except with respect to permitted borrowings. Collateral arrangements with
respect to options, Futures Contracts and Options on Futures Contracts and
collateral arrangements with respect to initial and variation margins are not
deemed to be the issuance of a senior security.
The Advantage Fund may not:
(i) Concentrate its investments in any particular industry, provided,
however, that there is no limitation with respect to investments or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and
(ii) Purchase the securities of any one issuer (except U.S. Government
securities) if, as a result, more than 5% the Fund's total assets would be
invested in that issuer. Up to 25% of the Fund's total assets may be
invested without regard to this limitation.
The MFS Fund may not:
(i) Purchase any securities or evidences of interest therein on
margin, except that the Fund may obtain such short-term credit as may be
necessary for the clearance or purchases and sales of securities and the
Fund may make margin deposits in connection with Futures Contracts, Options
on Futures Contracts, and options; and
(ii) Purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent the purchase, ownership,
holding or sale of Futures Contracts or the writing, purchasing and selling
of puts, calls or combinations thereof with respect to securities or
Futures Contracts.
Non-fundamental Investment Policies. As described below, each Fund has certain
operating policies which are not fundamental and may be changed without
shareholder approval.
The Advantage Fund may not borrow money in excess of 5% of its total
assets taken at market value. The MFS Fund may not borrow money in excess
of 10% of its assets taken at cost. The MFS Fund may not purchase any
securities at any time or at which borrowings exceed 5% of the MFS Fund's
total assets taken at market value.
Neither Fund may invest more than 15% of its net assets in illiquid
securities, including repurchase agreements maturing in more than seven
days, that cannot be disposed of within the normal course of business at
approximately the amount at which the Fund has valued the securities.
Securities that are not registered
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<PAGE> 21
under the 1933 Act and that are sold in reliance on Rule 144A thereunder,
but are determined to be liquid by the MFS Trust's Board of Trustees (or
its delegee), will not be subject to this 15% limitation with respect to
the MFS Fund.
The Advantage Fund may not purchase securities of any issuer with a
record of less than three years of continuous operation, including
predecessors, except U.S. Government securities and obligations issued or
guaranteed by any foreign government or its agencies or instrumentalities,
if such purchase would cause the investments of the Advantage Fund in all
such issuers to exceed 5% of the total assets of the Advantage Fund taken
at market value. The MFS Fund may not invest more than 5% of its total
assets in unsecured obligations of issuers which, including predecessors,
controlling persons, general partners and guarantors, have a record of less
than three years' continuous business operation or relevant business
experience.
Neither Fund may invest in securities of any issuer if any officer or
trustee of the Advantage Trust or the MFS Trust or any officers or director
of the Fund's respective Adviser owns more than 1/2 of 1% of the
outstanding securities of the issuer and such officers, directors and
trustees own in the aggregate more than 5% of the securities of such
issuer.
Neither Fund may purchase securities of any investment company except
by purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase or except when such purchase, though
not made in the open market, is part of a plan of merger, consolidation,
reorganization or acquisition of assets. Neither Fund may purchase more
than 3% of the outstanding voting securities of another investment company,
and the Advantage Fund may not invest more than 5% of its total assets in
any single investment company. Neither Fund may invest more than 10% of its
total assets in other investment companies in the aggregate. The MFS Fund
may not purchase securities issued by any open-end investment company.
Neither Fund may make short sales, unless, by virtue of its ownership
of other securities, the Fund has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is conditional,
the sale is made upon the same conditions, except, with respect to the
Advantage Fund, in connection with arbitrage transactions.
The Advantage Fund may not:
(i) Pledge, mortgage or hypothecate in excess of 5% of its total
assets. The deposit or payment by the Fund of initial or maintenance margin
in connection with Futures Contracts and Options on Futures Contracts is
not considered a pledge or hypothecation of assets;
(ii) Purchase more than 10% of the voting securities of any one
issuer, except U.S. Government securities;
(iii) Purchase securities on margin, except the Fund may obtain such
short-term credits as may be necessary for the clearing of purchases and
sales of securities. The deposit or payment by the Fund of initial or
maintenance margin in connection with Futures Contracts or Options on
Futures Contracts is not considered the purchase of a security on margin;
(iv) Write put and call options unless the options are covered and the
Fund invests though premium payments no more than 5% of its total assets in
options transactions other than Options on Futures Contracts;
(v) Purchase and sell Futures Contracts and Options on Futures
Contracts unless the sum of margin deposits on all Futures Contracts held
by the Fund (other than bona fide hedging positions) and premiums paid on
related options held by the Fund does not exceed 5% of the Fund's assets.
(In the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing this 5% test.);
(vi) Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers which own or invest
in such interests);
(vii) Purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of the
Fund's net assets or if warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable listing
requirements taken at the lower of cost
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<PAGE> 22
or market value would represent more than 2% of the value of the Fund's net
assets. (For this purpose, warrants attached to securities will be deemed
to have no value.);
(viii) Purchase securities which are not publicly traded and which the
Fund is restricted from selling to the public without registration under
the Securities Act of 1933 if by reason thereof the value of its aggregate
investment in such classes will exceed 10% of its total assets (not
including for these purposes securities sold pursuant to Rule 144A under
the Securities Act of 1933), or
(ix) Invest in interests of real estate limited partnerships.
The MFS Fund may not:
(i) Invest for the purpose of exercising control or management;
(ii) Purchase securities (other than bonds, notes, and obligations
issued by the United States or any agency or instrumentality of the United
States, which may be purchased without limitation) if as a result, at the
close of any quarter in the Fund's taxable year, more than 25% of the
Fund's total assets would be invested in securities of any one issuer; or
(iii) Enter into repurchase agreements unless they are with member
banks of the Federal Reserve System and broker-dealers and then only for
U.S. Government securities.
RISK FACTORS
Due to the similarities in the investment objectives and techniques of the
Advantage Fund and the MFS Fund, the risks involved in investing in the Funds,
as referred to in the subsection entitled "Investment Objectives, Policies and
Restrictions" of this "Special Factors" section, can be considered similar. It
should be noted, however, that the Advantage Fund may invest in money market
investment companies and make loans of its portfolio securities, while the MFS
Fund may invest in combinations of options known as "straddles," Futures
Contracts for non-hedging purposes, inverse floating rate obligations,
participation interests and deferred interest bonds. THE MFS FUND MAY ALSO
INVEST A LARGER PERCENTAGE OF ITS ASSETS (33 1/3% OF ITS ASSETS) IN LOWER
QUALITY SECURITIES (INCLUDING JUNK BONDS) THAN THE ADVANTAGE FUND (10% OF ITS
ASSETS), AND THUS AN INVESTMENT IN THE MFS FUND ENTAILS GREATER RISK AND MAY BE
SUBJECT TO GREATER VOLATILITY THAN AN INVESTMENT IN THE ADVANTAGE FUND.
Additionally, the MFS Fund is a non-diversified series of the MFS Trust, which
means that more than 5% of the assets of the Fund may be invested in the
obligations of each of one or more issuers, subject to the diversification
requirements of the Code. Since a relatively high percentage of the assets of
the MFS Fund may be invested in the obligations of a limited number of issuers,
the value of shares of the MFS Fund may be more susceptible to any single
economic, political or regulatory occurrence than the shares of the Advantage
Fund, which is a diversified series of the Advantage Trust.
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION
GENERAL
The shareholders of the Advantage Fund are being asked to approve the Agreement
between the MFS Trust, on behalf of the MFS Fund, and the Advantage Trust, on
behalf of the Advantage Fund. A copy of the Agreement is attached as Exhibit A.
Detailed information with respect to the MFS Fund is set forth in the MFS Fund
Prospectus, which is enclosed with this Proxy Statement and Prospectus. The
Reorganization will consist of (i) the transfer of all of the assets of the
Advantage Fund to the MFS Fund in exchange solely for the MFS Fund Shares and
the assumption by the MFS Fund of the stated liabilities of the Advantage Fund
as set forth on a schedule of assets and liabilities delivered by the Advantage
Trust to the MFS Trust on the Closing Date, (ii) the distribution of the MFS
Fund Shares to the shareholders of the Advantage Fund in liquidation of the
Advantage Fund, as provided in the Agreement, and (iii) the termination of the
Advantage Trust. The number of MFS Fund Shares to be issued upon the
consummation of the Reorganization will be calculated on the basis of the net
asset value of the Advantage Fund, less liabilities assumed, and the net asset
value of the Class B shares of the MFS Fund, as more fully described under
"Description of Agreement."
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<PAGE> 23
The Agreement and the transactions provided for therein were approved by the
Board of Trustees of the Advantage Trust and of the MFS Trust, the MFS Trust or
their Advisers, on February 23, 1995 and February 2, 1995, respectively. In the
event that the Reorganization is not consummated, the Advantage Fund will
continue to engage in business as a series of an open-end, registered investment
company.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees of the Advantage Trust believes that the proposed
Reorganization will be to the advantage of the shareholders of the Advantage
Fund.
In determining to approve the Reorganization, the Trustees considered a variety
of factors, including the following:
First, Advest has informed the Trustees that it is in the process of withdrawing
generally from the business of sponsoring and advising mutual funds. Advest has
announced that sponsorship of the other mutual funds in the Advantage Family of
Funds will be assumed by another organization, subject to approval by the
shareholders of those funds and satisfaction of certain other conditions. Upon
consummation of that transaction, the Advantage Trust would be the only
remaining mutual fund sponsored by Advest.
Second, the Advantage Fund and the other portfolios of the Advantage Trust have
relatively low levels of net assets. At these low asset levels, the Portfolios
would be unable to earn a competitive investment return in the absence of
voluntary fee waivers and expense assumptions by BSC and Advest. BSC and Advest
have no obligation to continue subsidizing the operations of the Advantage
Trust, and have indicated that they would not expect to continue such
subsidization indefinitely.
Third, the Trustees considered the advantages and disadvantages of the
Reorganization to the shareholders of the Advantage Fund. These considerations
included the following, among others:
(1) Following the Reorganization, shareholders would, as shareholders of the MFS
Fund, be shareholders of a fund with a larger asset base. This larger asset
base may permit enhanced portfolio management flexibility and greater
portfolio diversification. The Trustees also considered, however, that there
can be no assurance that a greater asset base will in fact result in
enhanced investment performance. The Trustees also considered that the MFS
Fund has an advisory fee rate and total expense ratio significantly higher
than the Advantage Fund's.
(2) As shareholders of the MFS Fund, shareholders will enjoy exchange privileges
into a much larger range of funds (49 other MFS Funds, as compared to 8
other Advantage Funds).
(3) Although Class B shares of the MFS Fund are subject to significantly higher
Rule 12b-1 fees than are shares of the Advantage Fund, this extra cost may,
for long-term shareholders, be offset by the benefits of conversion from
Class B to Class A shares of the MFS Fund. For shares of the Advantage Fund
outstanding at the time of the Reorganization, such conversion is scheduled
to occur on or about November 1, 1999. Class A shares of the MFS Fund are
subject to Rule 12b-1 fees at the annual rate of 0.35% of net assets, as
compared to the 0.50% rate for the Advantage Fund and the 1.00% rate for
Class B shares of the MFS Fund.
DESCRIPTION OF AGREEMENT
The following explanation of the Agreement is a summary, does not purport to be
complete, and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Agreement. A copy of the Agreement is
attached hereto as Exhibit A to this Proxy Statement and Prospectus and should
be read in its entirety. Paragraph references are to the numbered paragraphs of
the Agreement.
METHOD OF CARRYING OUT REORGANIZATION. If shareholders of the Advantage Fund
holding at least a majority (as described in the section entitled "Voting Rights
and Required Vote" below) of the outstanding shares of the Advantage Fund
approve the Agreement, the Reorganization will be consummated promptly after all
the various conditions to the obligations of each of the parties are satisfied
(see Agreement paragraphs 4 through 8). The Reorganization will be effected as
soon as practicable after this shareholder approval is obtained, but in no event
later than June 30, 1995 (the "Closing Date").
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<PAGE> 24
On the Closing Date, the Advantage Fund will transfer all of its assets to the
MFS Fund in exchange for (i) MFS Fund Shares having an aggregate net asset value
equal to the value of the assets, less the stated liabilities of the Advantage
Fund as set forth on a schedule of assets and liabilities delivered by the
Advantage Trust to the MFS Trust on the Closing Date, determined as of the close
of business on the last business day preceding the Closing Date (the "Valuation
Date") and (ii) the assumption by the MFS Fund of all of the Advantage Fund's
stated liabilities as set forth on such schedule (see Agreement paragraphs 1 and
2). The Advantage Fund will distribute as of the Closing Date such MFS Fund
Shares pro rata to its shareholders of record, determined as of the Valuation
Date, in exchange for their shares of the Advantage Fund.
The net asset value of the MFS Fund Shares and the value of the Advantage Fund's
assets and the amount of its liabilities will be determined in accordance with
the valuation procedures set forth in the Declarations of Trust and By-laws of
the MFS Trust and the Advantage Trust and each Fund's current Prospectus and
Statement of Additional Information (see "Net Asset Value" in the MFS Fund
Prospectus and "Purchase of Shares" in the Advantage Fund Prospectus). The
valuation procedures used by the Advantage Fund are not materially different
from those of the MFS Fund. No initial sales charge will be imposed on the MFS
Fund Shares delivered in exchange for the assets of the Advantage Fund.
SURVIVAL OF CONTINGENT DEFERRED SALES CHARGE AND CONVERSION TO CLASS A
SHARES. The MFS Fund Shares issued in connection with the Reorganization will
not be subject to any initial sales charge; however, if any Advantage Fund
shares are at the Closing Date subject to a CDSC, the MFS Fund Shares issued in
respect of such Advantage Fund Shares may be subject, upon redemption, to a CDSC
imposed by the MFS Fund in accordance with the MFS Fund CDSC schedule, and, for
purposes of calculating the CDSC with respect to such MFS Fund Shares and
determining when all MFS Fund Shares will convert to Class A shares of the MFS
Fund (but not for calculating the holding period for tax purposes), the MFS Fund
Shares will be treated as if purchased 42 months prior to the date the
Reorganization is consummated. Therefore, assuming that Advantage Fund
shareholders approve the Agreement and that the Reorganization is consummated on
May 1, 1995, the MFS Fund Shares received by Advantage Fund shareholders will be
treated as if purchased on November 1, 1991, and therefore, with respect to
those MFS Fund Shares issued in respect of Advantage Fund Shares which are
subject to a CDSC on the Closing Date, will be treated as if held during the
fourth year after purchase and will be subject to a CDSC of 3%, which will
decline to 2% on December 1, 1995, to 1% on December 1, 1996 and to 0% on
December 1, 1997 and will remain at 0% thereafter, and, with respect to all such
MFS Fund Shares will convert to Class A shares of the MFS Fund on or about
November 1, 1999.
SURRENDER OF SHARE CERTIFICATES. Shareholders of the Advantage Fund whose
shares of beneficial interest are represented by one or more share certificates
should, prior to the Closing Date, either surrender such certificates to the
Advantage Fund or deliver to the Advantage Fund an affidavit with respect to
lost certificates, in such form and accompanied by such surety bonds as the
Advantage Fund may require (collectively, an "Affidavit"). On the Closing Date,
all certificates which have not been so surrendered will be deemed to be
cancelled, will no longer evidence ownership of shares of the Advantage Fund and
will not evidence ownership of the MFS Fund Shares. Shareholders of the
Advantage Fund who have not surrendered their certificates or delivered an
Affidavit may not redeem or transfer the MFS Fund Shares received in the
Reorganization until such certificates are surrendered or an Affidavit is
received by MFSC, the MFS Fund's shareholder servicing agent. Such shareholders
will, however, receive distributions payable by the MFS Fund. The MFS Fund will
not issue share certificates except in connection with pledges and assignments
and in certain other limited circumstances.
CONDITIONS PRECEDENT TO CLOSING. The obligation of the Advantage Fund to
transfer its assets to the MFS Fund pursuant to the Agreement is subject, at its
election, to the satisfaction of certain conditions precedent, including
performance by the MFS Fund of all acts and undertakings required to be
performed under the Agreement, the receipt of certain documents from the MFS
Fund, the receipt of an opinion of Stephen E. Cavan, Senior Vice President and
General Counsel of MFS, and the receipt of all consents, orders and permits
necessary to consummate the Reorganization (see Agreement paragraphs 4 through
8).
The MFS Fund's obligation to consummate the Reorganization is subject, at its
election, to the satisfaction of certain conditions precedent, including the
performance by the Advantage Fund of all acts and undertakings to be performed
under the Agreement, the receipt of certain documents and financial statements
from the Advantage Fund, the
19
<PAGE> 25
receipt of an opinion of counsel to the Advantage Fund and the receipt of all
consents, orders and permits necessary to consummate the Reorganization (see
Agreement paragraphs 4 through 8).
The obligations of both Funds are subject to the receipt of approval and
authorization of the Agreement by the vote of not less than a majority of the
shares of the Advantage Fund outstanding and entitled to vote (as defined in the
section entitled "Voting Rights and Required Vote" below) (see Agreement
paragraph 8.1) and the receipt of a favorable opinion of legal counsel as to the
federal income tax consequences of the transaction (see Agreement paragraph
8.6). In addition, the obligations of both Funds are subject to the receipt of
approval and authorization of separate agreements and plans of reorganization
(the "Related Agreements") by the vote of not less than a majority of the
outstanding shares of The National Portfolio and The Pennsylvania Portfolio
(each of which is a separate series of the Advantage Trust), respectively,
which, subject to such approvals and the satisfaction of certain other
conditions, will transfer all of their respective assets to the MFS Municipal
Income Fund and the MFS Pennsylvania Municipal Bond Fund (each of which is a
separate series of the MFS Trust), respectively, in separate transactions, which
are substantially similar to the Reorganization, scheduled to occur
contemporaneously with the Reorganization (the "Related Reorganizations").
EXPENSES OF THE REORGANIZATION. Except to the extent that, pursuant to an
agreement dated February 7, 1995, (i) The Advest Group, Inc. has agreed to pay
all of the following expenses associated with the Reorganization: (a)
typesetting the MFS Fund registration statement on Form N-14 filed with the
Securities and Exchange Commission, of which this Proxy Statement and Prospectus
is a part; (b) printing this Proxy Statement and Prospectus and the Advantage
Fund Prospectus and SAI; (c) mailing this Proxy Statement and Prospectus, the
MFS Fund Prospectus, the MFS Fund Semi-Annual Report and, if requested, the MFS
Fund SAI and the Advantage Fund Prospectus and SAI to shareholders of the
Advantage Fund in connection with the Meeting; and (d) any solicitation and
meeting expenses associated with the Meeting; and (ii) The Advest Group, Inc.
and MFS have each agreed to pay 50% of the reasonable legal expenses of the MFS
Fund and the Advantage Fund incurred in connection with the Reorganization,
provided that MFS' maximum obligation in relation to the Reorganization and the
Related Reorganizations is limited to $25,000 in the aggregate, the MFS Fund and
the Advantage Fund will each be liable for its own expenses incurred in
connection with entering into and carrying out the provisions of the Agreement
whether or not the Reorganization is consummated.
<TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the MFS Fund (with respect
to Class B shares) and the Advantage Fund as of December 31, 1994, and the pro
forma combined capitalization of both Funds as if the Reorganization had
occurred on that date. The table reflects a pro forma exchange ratio of
approximately 0.860113 of an MFS Fund Share being issued for each share of the
Advantage Fund. If the Reorganization is consummated, the actual exchange ratio
on the Closing Date may vary from the ratio indicated below due to changes in
the market value of the portfolio securities of both the MFS Fund and the
Advantage Fund between December 31, 1994 and the Valuation Date, changes in the
relative asset sizes of each Fund, and changes in the amount of undistributed
net investment income of the MFS Fund and the Advantage Fund during that period
resulting from income and distributions and changes in the accrued liabilities
of the MFS Fund and the Advantage Fund during the same period.
DECEMBER 31, 1994 (UNAUDITED)
<CAPTION>
THE MFS FUND THE ADVANTAGE PRO FORMA
CLASS B FUND COMBINED
------------ ------------- -----------
<S> <C> <C> <C>
Net Assets........................................ $ 10,397,961 $ 14,867,552 $25,265,513
Net Asset Value per Share......................... $ 9.97 $ 8.58 $ 9.97
Shares Outstanding................................ 1,043,044 1,733,759 2,534,273(1)
Shares Authorized................................. Unlimited Unlimited Unlimited
</TABLE>
20
<PAGE> 26
- ---------------
(1) If the Reorganization had taken place on December 31, 1994, the Advantage
Fund would have received 1,491,229 MFS Fund Shares, which would be available
for distribution to its shareholders. No assurances can be given as to the
number of MFS Fund Shares the Advantage Fund will receive on the Closing
Date. The foregoing is merely an example of what the Advantage Fund would
have received and distributed had the Reorganization been consummated on
December 31, 1994, and should not be relied upon to reflect the amount that
will actually be received on or after the Closing Date.
TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the receipt of a favorable
opinion of Ropes & Gray, counsel to the Advantage Fund, substantially to the
effect that for federal tax purposes:
(i) the acquisition by the MFS Fund of all of the assets of the
Advantage Fund solely in exchange for MFS Fund Shares and the assumption by
the MFS Fund of the Advantage Fund's stated liabilities as set forth on a
schedule of assets and liabilities delivered by the Advest Trust to the MFS
Trust on the Closing Date, followed by the distribution by the Advantage
Fund of MFS Fund Shares in complete liquidation to shareholders of the
Advantage Fund in exchange for their shares of the Advantage Fund and the
termination of the Advantage Trust, will constitute a reorganization within
the meaning of Section 368(a) of the Code, and the Advantage Fund and the
MFS Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the Advantage Fund upon the
transfer of all of its assets to the MFS Fund solely in exchange for MFS
Fund Shares and the assumption by the MFS Fund of the Advantage Fund's
stated liabilities as set forth on a schedule of assets and liabilities
delivered by the Advest Trust to the MFS Trust on the Closing Date or upon
the distribution to the shareholders of the Advantage Fund of such MFS Fund
Shares pursuant to the Agreement;
(iii) no gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the Advantage Fund solely in exchange for MFS Fund
Shares and the assumption by the MFS Fund of the Advantage Fund's stated
liabilities as set forth on a schedule of assets and liabilities delivered
by the Advest Trust to the MFS Trust on the Closing Date;
(iv) the basis of the assets of the Advantage Fund acquired by the MFS
Fund will be, in each instance, the same as the basis of those assets in
the hands of the Advantage Fund immediately prior to the transfer;
(v) the holding period of the assets of the Advantage Fund in the
hands of the MFS Fund will include, in each instance, the holding period of
such assets in the hands of the Advantage Fund;
(vi) the shareholders of the Advantage Fund will not recognize gain or
loss upon the exchange of all of their Advantage Fund shares solely for MFS
Fund Shares as part of the transaction;
(vii) the basis of the MFS Fund Shares to be received by each
Advantage Fund shareholder will be, in the aggregate, the same as the
basis, in the aggregate, of the shares of the Advantage Fund surrendered by
such shareholder in exchange therefor; and
(viii) the holding period of the MFS Fund Shares to be received each
Advantage Fund shareholder will include the holding period of the shares of
the Advantage Fund surrendered by such shareholder in exchange therefor,
provided the shares of the Advantage Fund were held by such shareholder as
capital assets on the date of the exchange.
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The table below indicates the total return (with capital gains and all dividends
and distributions reinvested) on a hypothetical investment of $1,000 in shares
of the Advantage Fund and Class B shares of the MFS Fund covering the indicated
periods.
21
<PAGE> 27
<TABLE>
VALUE OF A $1,000 INVESTMENT IN THE ADVANTAGE FUND
<CAPTION>
NET ASSET NET ASSET
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT ON INVESTMENT ON GIVING EFFECT NOT GIVING
DECEMBER 31, 1994 DECEMBER 31,1994 TO CDSC* EFFECT TO CDSC
INVESTMENT INVESTMENT AMOUNT OF GIVING EFFECT TO NOT GIVING EFFECT ----------------------- -----------------------
PERIOD DATE INVESTMENT CDSC* TO CDSC CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ---------- ----------------- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 1,
1993+ to
December 31,
1994........ 7/1/93 $1,000 $ 904 $ 930 -9.61% -6.51% -7.03% -4.74%
1 Year ended
December 31,
1994........ 1/1/94 $1,000 $ 857 $ 890 -14.34% -14.34% -10.97% -10.97%
<FN>
- ---------------
* Based on the CDSC schedule described under "Other Significant Fees" above with respect to the Advantage Fund.
+ Commencement of investment operations.
</TABLE>
The total return of the Advantage Fund as reflected in this table would have
been lower had BSC not agreed to waive its advisory fee and Advest had not
agreed to bear certain Advantage Fund expenses, as described under "Adviser and
Advisory Fees" and "Other Significant Fees" above.
<TABLE>
VALUE OF A $1,000 INVESTMENT IN CLASS B SHARES OF THE MFS FUND
<CAPTION>
NET ASSET
NET ASSET VALUE OF
VALUE OF INVESTMENT ON TOTAL RETURN TOTAL RETURN
INVESTMENT ON DECEMBER 31, 1994 GIVING EFFECT NOT GIVING EFFECT
DECEMBER 31, 1994 NOT GIVING TO CDSC* TO CDSC
INVESTMENT INVESTMENT AMOUNT OF GIVING EFFECT TO EFFECT TO ----------------------- -----------------------
PERIOD DATE INVESTMENT CDSC* CDSC CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ---------- ----------------- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 7,
1993+ to
December 31,
1994........ 9/7/93 $1,000 $ 905 $ 940 -9.47% -7.29% -5.91% -4.53%
1 Year ended
December 31,
1994........ 1/1/94 $1,000 $ 895 $ 930 -10.46% -10.46% -6.92% -6.92%
<FN>
- ---------------
* Based on CDSC schedule described under "Other Significant Fees" above with respect to the MFS Fund.
+ Commencement of offering Class B shares.
</TABLE>
The total return on Class B shares of the MFS Fund as reflected in this table
would have been lower had MFS not agreed to waive a portion of its advisory fee,
as described under "Adviser and Advisory Fees" above.
Each Fund calculates its total rate of return for a certain period by
determining the average annual compounded rates of return over the period that
would cause an investment of $1,000 (made at net asset value with all
distributions reinvested) to reach the value of that investment at the end of
the period. If the total rate of return gives effect to the CDSC, then the
investment of $1,000 will be reduced by the applicable CDSC.
YIELD
The yield for Advantage Fund shares for the 30-day period ended December 31,
1994 was 5.73%. Had the waiver and reimbursement arrangements described above
under "Adviser and Advisory Fees" and "Other Significant Fees" not been in
effect, the yield for Advantage Fund shares for this period would have been
4.85%. The yield for Class B shares of the MFS Fund for the 30-day period ended
December 31, 1994 was 4.97%.
Yield is calculated by dividing the net investment income per share earned
during the period by the public offering price per share on the last day of the
period. The resulting figure is then annualized.
TAX EQUIVALENT YIELD
The tax-equivalent yield for Advantage Fund shares for the 30-day period ended
December 31, 1994 was 8.64% (assuming a tax-bracket of 28%) and 9.01% (assuming
a tax-bracket of 31%). Had the waiver and reimbursement arrangements described
above under "Adviser and Advisory Fees" and "Other Significant Fees" not been in
effect,
22
<PAGE> 28
the tax-equivalent yield for Advantage Fund shares for this period would have
been 7.31% (assuming a tax-bracket of 28%) and 7.63% (assuming a tax-bracket of
31%). The tax-equivalent yield for Class B shares of the MFS Fund for the 30-day
period ended December 31, 1994 was 7.49% (assuming a tax-bracket of 28%) and
7.82% (assuming a tax-bracket of 31%).
Tax-equivalent yield is calculated by determining the rate of return that would
have to be achieved on a fully taxable investment to produce the after-tax
equivalent of that yield. The calculation of tax-equivalent yields assumes
certain federal tax brackets for shareholders and does not take into account
state taxes.
For further information as to the manner in which total return, yield and tax
equivalent yield are calculated, see "Information Concerning Shares of the Fund
- -- Performance Information" in the MFS Fund Prospectus, and "Determination of
Net Assets; Performance Information" in the MFS Fund SAI.
BUSINESS OF THE MFS FUND
FINANCIAL INFORMATION
For the Condensed Financial Information of the MFS Fund, see "Condensed
Financial Information" in the MFS Fund Prospectus, and the MFS Fund Semi-Annual
Report.
GENERAL
For a discussion of the organization and operation of the MFS Fund, see
"Synopsis" and "Information Concerning Shares of the Trust -- Description of
Shares, Voting Rights and Liabilities" in the MFS Fund Prospectus, and "MFS Fund
Shares and Purchase of MFS Fund Shares" below.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of the MFS Fund's investment objective and policies, see
"Synopsis" and "Investment Objective and Policies" in the MFS Fund Prospectus.
TRUSTEES
For a discussion of the responsibilities of the MFS Trust's Board of Trustees,
see "Synopsis" and "Management of the Trust" in the MFS Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For information concerning the MFS Fund's investment adviser and distributor,
see "Synopsis," "Management of the Trust," "Information Concerning Shares of the
Trust -- Purchases" and "Information Concerning Shares of the Trust --
Distribution Plans" in the MFS Fund Prospectus.
EXPENSES
For a discussion of the MFS Fund's expenses, see "Synopsis," "Condensed
Financial Information," "Management of the Trust" and "Information Concerning
Shares of the Trust -- Distribution Plans" in the MFS Fund Prospectus, and the
MFS Fund Semi-Annual Report.
CUSTODIAN AND TRANSFER AGENT
For a description of the MFS Trust's custodian and transfer agent, see
"Shareholder Services" and the back cover of the MFS Fund Prospectus.
MFS FUND SHARES AND PURCHASE OF MFS FUND SHARES
For a description of MFS Fund Shares, see "Condensed Financial Information" and
"Information Concerning Shares of the Trust -- Description of Shares, Voting
Rights and Liabilities" in the MFS Fund Prospectus.
23
<PAGE> 29
For a description of how shares of the MFS Fund may be purchased or exchanged,
see "Information Concerning Shares of the Trust -- Purchases," "Information
Concerning Shares of the Trust -- Exchanges" and "Shareholder Services" in the
MFS Fund Prospectus.
REDEMPTION OF THE MFS FUND SHARES
For a discussion of how the MFS Fund Shares may be redeemed, see "Information
Concerning Shares of the Trust -- Redemptions and Repurchases" in the MFS Fund
Prospectus. Shareholders of the Advantage Fund whose shares are represented by
certificates will be required to surrender their certificates for cancellation
or deliver an Affidavit to the Advantage Fund or MFSC, the MFS Fund's transfer
agent, in order to redeem or transfer the MFS Fund Shares received in the
Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For information concerning the MFS Fund's policy with respect to dividends,
distributions and taxes, see "Information Concerning Shares of the Trust --
Distributions," "Information Concerning Shares of the Trust -- Tax Status" and
"Shareholder Services" in the MFS Fund Prospectus.
BUSINESS OF THE ADVANTAGE FUND
FINANCIAL INFORMATION
For the condensed financial information of the Advantage Fund, see "Financial
Highlights" in the Advantage Fund Prospectus, and the Advantage Fund Annual
Report.
GENERAL
For a discussion of the organization and operation of the Advantage Fund, see
"The Fund and its Shares" in the Advantage Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of the Advantage Fund's investment objective and policies, see
"Investment Objectives and Policies," "Risk Factors," "Types of Municipal
Obligations" and "Other Investment Policies and Techniques" in the Advantage
Fund Prospectus.
TRUSTEES
For a discussion of the responsibilities of the Advantage Trust's Board of
Trustees, see "The Fund and its Shares" in the Advantage Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For information concerning the Advantage Fund's investment adviser and
distributor, see "Investment Adviser" and "Distributor and Rule 12b-1 Plans" in
the Advantage Fund Prospectus.
EXPENSES
For a discussion of the Advantage Fund's expenses, see "Summary of Expenses,"
"Financial Highlights," "Investment Adviser" and "Distributor and Rule 12b-1
Plans" in the Advantage Fund Prospectus, and the Advantage Fund Annual Report.
CUSTODIAN AND TRANSFER AGENT
For a description of the Advantage Fund's custodian and transfer agent, see
"Custodian; Transfer Agent and Dividend Disbursing Agent" and the back cover of
the Advantage Fund Prospectus.
24
<PAGE> 30
ADVANTAGE FUND SHARES AND PURCHASE OF THE ADVANTAGE FUND SHARES
For a description of the Advantage Fund's shares, see "Financial Highlights" and
"The Fund and its Shares" in the Advantage Fund Prospectus.
For a description of how the Advantage Fund shares may be purchased or
exchanged, see "Purchase of Shares" and "Shareholder Services" in the Advantage
Fund Prospectus.
REDEMPTION OF THE ADVANTAGE FUND SHARES
For a discussion of how the Advantage Fund shares may be redeemed, see
"Redemption of Shares" in the Advantage Fund Prospectus.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For information concerning the Advantage Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Distributions; Taxes" in
the Advantage Fund Prospectus.
NO APPRAISAL RIGHTS
Shareholders are not entitled to any rights of share appraisal under the
Advantage Trust's Declaration of Trust or under the laws of The Commonwealth of
Massachusetts in connection with the Reorganization. Shareholders have, however,
the right to redeem from the Advantage Fund their Advantage Fund shares at net
asset value subject to any applicable CDSC until the Closing Date of the
Reorganization, and thereafter shareholders may redeem from the MFS Fund the
Class B shares issued to them in the Reorganization subject to any applicable
CDSC, as described herein.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the MFS Fund Shares
will be passed upon for the MFS Fund by Stephen E. Cavan, Senior Vice President
and General Counsel of Massachusetts Financial Services Company, the Adviser to
the MFS Fund, and for the Advantage Fund by Ropes & Gray, its legal counsel.
EXPERTS
The financial statements of the MFS Fund incorporated in this Proxy Statement
and Prospectus by reference to the Annual Report to Shareholders for the year
ended March 31, 1994, and by reference to the Annual Report to Shareholders for
the year ended January 31, 1994, have been so incorporated in reliance on the
reports of Deloitte & Touche LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of the Advantage Fund incorporated in this Proxy
Statement and Prospectus by reference to the Annual Report to Shareholders for
the year ended December 31, 1994, and by reference to the Fund's SAI dated April
18, 1994, as supplemented, into which the Annual Report to Shareholders for the
year ended December 31, 1993 was incorporated by reference, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Advantage Fund and the MFS Fund are subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information filed by the
Advantage Fund and the MFS Fund can be inspected and copied at the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., and at the following regional offices: Chicago (Room 1204,
Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago,
Illinois); and New York (Room 1102, Federal Building, 26 Federal Plaza, New
York, New York). Copies of such material can also be obtained by mail from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
25
<PAGE> 31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF THE MFS AND ADVANTAGE FUNDS
[To the knowledge of the MFS Fund, as of March 24, 1995, no person owned of
record or beneficially 5% or more of the outstanding shares of the MFS Fund. To
the knowledge of the Advantage Fund, as of March 24, 1995, no person owned of
record or beneficially 5% or more of the outstanding shares of the Advantage
Fund.]
[As of March 24, 1995, the Trustees and officers of the MFS Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the MFS Fund].
VOTING RIGHTS AND REQUIRED VOTE
The Reorganization, having been approved by the Trustees of the Advantage Trust
on February 23, 1995, requires the approval of the Advantage Fund's shareholders
by the affirmative vote of not less than two thirds of the shares of the
Advantage Fund outstanding and entitled to vote at the Meeting.
Consummation of the Reorganization will require both the approval of the
Advantage Fund's shareholders as described above and the approval of
substantially similar transactions with two other series of the MFS Trust by the
shareholders of the two other series of the Advantage Trust as described above.
See "Description of Agreement -- Conditions Precedent to Closing."
<TABLE>
SECURITY OWNERSHIP OF THE ADVANTAGE FUND
The following table presents certain information regarding the shares of the
Advantage Fund owned beneficially by the officers and Trustees of the Advantage
Trust.
<CAPTION>
SHARES OF
FUND OWNED
BENEFICIALLY
AS OF
MARCH 24, PERCENT OF
NAME OF TRUSTEE 1995(1) CLASS(2)
- --------------- ---------- ----------
<S> <C> <C>
ROBERT L. THOMAS.................................................... 0 0%
GEOFFREY NUNES...................................................... 0 0%
RICHARD C. FARR..................................................... 0 0%
LINDA G. SPRAGUE.................................................... 0 0%
ALLEN WEINTRAUB..................................................... 0 0%
All Trustees and officers as a group................................ 0 0%
<FN>
- ---------------
(1) Numbers are approximate and include, where applicable, shares owned by a
Trustee or officer's spouse or minor children or shares which were otherwise
reported by the Trustee or officer as "beneficially owned" in the light of
pertinent SEC rules.
(2) Percentage of shares outstanding on March 24, 1995. All shares are held with
sole voting and investment power, except to the extent that such powers may
be shared by a family member or a trustee of a family trust (see Note 1).
</TABLE>
MANNER OF VOTING PROXIES
All proxies received by the management will be voted on all matters presented at
the Meeting, and, if not limited to the contrary, will be voted for Item 1.
The management of the Advantage Trust knows of no other matters to be brought
before the Meeting. If, however, because of any unexpected occurrence, any
matters properly come before the Meeting, it is the management's intention that
proxies not limited to the contrary will be voted in accordance with the
judgment of the persons named in the enclosed form of proxy.
26
<PAGE> 32
All proxies voted, including abstentions, will be counted toward establishing a
quorum. Passage of any proposal being considered at the Meeting will occur only
if a sufficient number of votes are cast FOR the proposal. With respect to the
proposal described in Item 1, abstentions and broker non-votes have the effect
of a negative vote on the proposal.
If sufficient votes to approve Item 1 are not received, the persons named as
proxies may propose one or more adjournments of the Meeting with respect to such
Item to permit further solicitation of proxies. Any such adjournment with
respect to Item 1 will require the affirmative vote of a majority of those
shares which are voted on the motion to adjourn present in person or by proxy at
the session of the Meeting to be adjourned. When voting on a proposed
adjournment, the persons named as proxies will vote FOR the proposed adjournment
all shares that they are entitled to vote with respect to such Item, unless
directed to vote AGAINST the Item, in which case such shares will be voted
against the proposed adjournment with respect to Item 1.
SUBMISSION OF CERTAIN PROPOSALS
If the Reorganization is not consummated, proposals of shareholders which are
intended to be presented at a future meeting of shareholders must be received by
the Advantage Fund a reasonable amount of time prior to the Advantage Fund's
solicitation of proxies relating to such future meeting.
ADDITIONAL INFORMATION
Upon the consummation of the Reorganization and the Related Reorganizations, MFS
shall pay The Advest Group, Inc. $1.2 million; provided, however, that if the
Agreement and the Related Agreements have not been approved by the shareholders
of the Advantage Fund, The National Portfolio and The Pennsylvania Portfolio, as
the case may be, MFS will not make such payment and The Advest Group, Inc. shall
promptly reimburse or pay the costs and expenses incurred by the MFS Fund, the
MFS Municipal Income Fund and the MFS Pennsylvania Municipal Bond Fund and by
MFS in relation to matters contemplated by the Agreement and the Related
Agreements. See "Description of Agreement -- Conditions Precedent to Closing"
above.
The Advantage Trust, solely on behalf of the Advantage Fund, and The Advest
Group, Inc. have agreed, jointly and severally, to indemnify and hold harmless
the MFS Trust, its trustees and officers, each person who controls the MFS Fund
within the meaning of applicable federal securities laws, and MFS, its
wholly-owned subsidiaries and the directors, officers and employees of MFS and
such subsidiaries, against any loss, claim, damage and expense, paid or
incurred, arising out of (i) any untrue statement or alleged untrue statement of
material fact contained in the Notice of Special Meeting or this Proxy Statement
and Prospectus or in the registration statement of the MFS Trust containing this
Proxy Statement and Prospectus filed with the Securities and Exchange Commission
(the "SEC") with respect thereto, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to untrue statements or
omissions in or from those sections thereof identified as being the
responsibility of the Advantage Fund; (ii) any breach of any representation,
warranty or covenant of the Advantage Trust or the Advantage Fund set forth in
the Agreement or set forth in any certificate provided by the Advantage Trust in
connection with the consummation of the Reorganization (including, without
limitation, any certificate provided by the Advantage Trust in support of the
legal opinion required pursuant to Section 8.6 of the Agreement); (iii) the
failure of the Advantage Fund or its designee to timely file all federal, state
and other tax returns, forms and reports when due by the Advantage Fund with
respect to all periods up to and including the Closing Date or to pay any taxes
due by the Advantage Fund to any taxing authority with respect to all such
periods, including, without limitation, any failure to pay such taxes due in a
timely manner; and (iv) non-compliance of the Advantage Fund with any applicable
federal or state securities laws or with applicable provisions of the Internal
Revenue Code of 1986, as amended, or with the investment policies and
restrictions contained in the Advantage Fund's prospectus and statement of
additional information, as in effect from time to time.
The MFS Trust, solely on behalf of the MFS Fund, has agreed to indemnify and
hold harmless the Advantage Trust, its trustees and officers, each person who
controls the Advantage Fund within the meaning of applicable federal securities
laws, and The Advest Group, Inc., its wholly-owned subsidiaries and the
directors, officers and employees of The Advest Group, Inc. and such
subsidiaries, against any loss, claim, damage and expense, paid or incurred,
27
<PAGE> 33
arising out of any untrue statement or alleged untrue statement of material fact
contained in the Notice of Special Meeting or this Proxy Statement and
Prospectus or in the registration statement of the MFS Trust containing this
Proxy Statement and Prospectus filed with the SEC with respect thereto, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, but only
with respect to untrue statements of omissions in or from those sections thereof
identified as not being the responsibility of the Advantage Fund or as not being
the responsibility of either the Advantage Fund or the MFS Fund.
To obtain the necessary representation at the Meeting, solicitations may be made
by mail, telephone or interview by [ ] or its agents as well as by
officers of the Advantage Trust and employees of The Advest Group, Inc. and its
subsidiaries. It is anticipated that the total cost of any such solicitations,
if made by [ ] or its agents, would be approximately $[ ] plus
out-of-pocket expenses, and if made by any other party, would be nominal.
The expense of solicitations as well as of the preparation, printing and mailing
of the enclosed form of proxy, and this Notice and Proxy Statement, will be
borne by The Advest Group, Inc.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
<TABLE>
<S> <C>
THE NEW YORK
March 29, 1995 PORTFOLIO
a series of
THE ADVANTAGE
MUNICIPAL
BOND FUND
</TABLE>
28
<PAGE> 34
THE NEW YORK PORTFOLIO
a series of
THE ADVANTAGE MUNICIPAL BOND FUND
100 Federal Street
Boston, MA 02110
<PAGE> 35
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 23rd
day of February, 1995, by and between the Advantage Municipal Bond Fund, a
Massachusetts business trust (the "Advantage Trust"), with its principal place
of business at 100 Federal Street, Boston, Massachusetts 02110, on behalf of The
New York Portfolio, a series thereof (the "Advantage Fund"), and MFS Municipal
Series Trust, a Massachusetts business trust (the "MFS Trust"), with its
principal place of business at 500 Boylston Street, Boston, Massachusetts 02116,
on behalf of MFS New York Municipal Bond Fund, a series thereof (the "MFS
Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368(a) of the United States Internal
Revenue Code of 1986, as amended (the "Code"). The reorganization will consist
(i) of the transfer of all of the assets of the Advantage Fund to the MFS Fund
in exchange solely for the assumption by the MFS Fund of the stated liabilities
of the Advantage Fund and the issuance to the Advantage Fund of shares of
beneficial interest of the MFS Fund designated as Class B shares (the "MFS Fund
Shares"), (ii) the distribution, promptly after the Closing Date hereinafter
referred to, of the MFS Fund Shares to the shareholders of the Advantage Fund in
liquidation of the Advantage Fund as provided herein, and (iii) the termination
of the Advantage Trust, all upon the terms and conditions hereinafter set forth
in this Agreement.
All representations, warranties, covenants and obligations of the MFS Fund and
the Advantage Fund contained herein shall be deemed to be representations,
warranties, covenants and obligations of the MFS Trust and the Advantage Trust,
respectively, acting on behalf of the MFS Fund and the Advantage Fund,
respectively, and all rights and benefits created hereunder in favor of the MFS
Fund and the Advantage Fund shall inure to the MFS Trust and the Advantage
Trust, respectively, and shall be enforceable by the MFS Trust and the Advantage
Trust, respectively, acting on behalf of the MFS Fund and the Advantage Fund,
respectively.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ADVANTAGE FUND IN EXCHANGE FOR THE MFS FUND SHARES
AND LIQUIDATION OF THE ADVANTAGE FUND
1.1 The Advantage Fund will transfer its assets (consisting, without
limitation, of portfolio securities and instruments, dividend and interest
receivables, cash and other assets) as set forth in the statement of assets and
liabilities as of the Valuation Date (as defined in paragraph 1.4 hereof)
delivered by the Advantage Trust to the MFS Trust pursuant to paragraph 7.2
hereof (the "Statement of Assets and Liabilities") to the MFS Fund, free and
clear of all liens and encumbrances, except as otherwise provided herein, in
exchange for (a) the assumption by the MFS Fund of all of the stated liabilities
of the Advantage Fund as set forth in the Statement of Assets and Liabilities
and (b) the issuance and delivery by the MFS Fund to the Advantage Fund, for
distribution in accordance with paragraph 1.4 hereof pro rata to the Advantage
Fund shareholders as of the close of business on the Valuation Date, of a number
of the MFS Fund Shares having an aggregate net asset value equal to the value of
the assets, less such liabilities (herein referred to as the "net value of the
assets"), of the Advantage Fund so transferred, assigned and delivered, all
determined as provided in paragraph 2 and as of a date and time as specified
therein. Such transactions shall take place at the closing provided for in
paragraph 3.1 hereof (the "Closing"). All computations for the Advantage Fund
shall be provided by State Street Bank and Trust Company (the "Custodian"), as
custodian and pricing agent for the Advantage Fund, and all computations for the
MFS Fund shall be provided by the Custodian, as custodian and pricing agent for
the MFS Fund. The determinations of the Custodian shall be conclusive and
binding on all parties in interest.
1.2 The Advantage Fund has provided the MFS Fund with a list of the current
securities holdings of the Advantage Fund as of the date of execution of this
Agreement. The Advantage Fund reserves the right to sell any of these securities
(except to the extent sales may be limited by representations made in connection
with issuance of the tax opinion described in paragraph 8.6 hereof) but will
not, without the prior approval of the MFS Fund, acquire any additional
securities other than securities of the type in which the MFS Fund is permitted
to invest.
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<PAGE> 36
1.3 Except to the extent that another party has agreed to bear certain expenses
in connection with the transactions contemplated by this Agreement, the MFS
Trust and the Advantage Trust shall each bear its own expenses in connection
with the transactions contemplated by this Agreement.
1.4 On or as soon after the closing date established in paragraph 3.1 hereof
(the "Closing Date") as is conveniently practicable (the "Liquidation Date"),
the Advantage Fund will liquidate and distribute pro rata to shareholders of
record ("Advantage Fund shareholders"), determined as of the close of business
on the last business day preceding the Closing Date (the "Valuation Date"), the
MFS Fund Shares received by the Advantage Fund pursuant to paragraph 1.1 in
actual or constructive exchange for the shares of the Advantage Fund held by the
Advantage Fund shareholders. Such liquidation and distribution will be
accomplished by the transfer of the MFS Fund Shares then credited to the account
of the Advantage Fund on the books of the MFS Fund, to open accounts on the
share records of the MFS Fund in the names of the Advantage Fund shareholders
and representing the respective pro rata number of the MFS Fund Shares due such
shareholders. The MFS Fund will not issue share certificates representing the
MFS Fund Shares in connection with such exchange, except in connection with
pledges and assignments and in certain other limited circumstances.
1.5 Advantage Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Advantage Fund shall surrender
such certificates or deliver an affidavit with respect to lost certificates, in
such form and accompanied by such surety bonds as the Advantage Fund may require
(collectively, an "Affidavit"), to the Advantage Fund prior to the Closing Date.
Any Advantage Fund certificate which remains outstanding on the Closing Date
shall be deemed to be cancelled, shall no longer evidence ownership of shares of
beneficial interest of the Advantage Fund and shall not evidence ownership of
the MFS Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered, dividends and
other distributions payable by the MFS Fund subsequent to the Closing Date with
respect to the MFS Fund Shares allocable to the holders of such certificate(s)
shall be paid to the holder of such certificate(s), but such shareholder may not
redeem or transfer the MFS Fund Shares received in the Reorganization.
1.6 Any transfer taxes payable upon issuance of the MFS Fund Shares in a name
other than the registered holder of the MFS Fund Shares on the books of the
Advantage Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such MFS Fund Shares are to be issued
and transferred.
1.7 The Advantage Trust shall be terminated promptly following the later of (i)
the Liquidation Date, and (ii) the date that the other two series of the
Advantage Trust liquidate and distribute the MFS Shares received by such series
pursuant to the terms of separate Agreements and Plans of Reorganization entered
into by the Advantage Trust, on behalf of such series, and MFS Municipal Series
Trust, on behalf of two of its other series, dated the date hereof.
2. VALUATION
2.1 The net asset value of the MFS Fund Shares and the net value of the assets
of the Advantage Fund to be transferred shall in each case be determined as of
the close of business on the Valuation Date. The net asset value of the MFS Fund
Shares shall be computed by the Custodian in the manner set forth in the MFS
Trust's Declaration of Trust or By-laws and the MFS Fund's then current
prospectus and statement of additional information and shall be computed to not
less than two decimal places. The net value of the assets of the Advantage Fund
to be transferred shall be computed by the Custodian by calculating the value of
the assets transferred by the Advantage Fund and by subtracting therefrom the
amount of the liabilities assigned and transferred to the MFS Fund, said assets
and liabilities to be valued in the manner set forth in the Advantage Trust's
Declaration of Trust or By-laws and the Advantage Fund's then current prospectus
and statement of additional information.
2.2 The number of MFS Fund Shares to be issued (including fractional shares, if
any) in exchange for the Advantage Fund's assets shall be determined by dividing
the net value of the Advantage Fund assets by the net asset value per MFS Fund
Share, both as determined in accordance with paragraph 2.1.
2.3 All computations of value shall be made by the Custodian in accordance with
its regular practice as pricing agent for the MFS Fund and the Advantage Fund,
as applicable.
A-2
<PAGE> 37
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be as soon as practicable after the reorganization
described above is approved by shareholders of the Advantage Fund, but in no
event later than June 30, 1995. The Closing shall be held at 10:00 a.m., Boston
time, at the offices of the MFS Fund, 500 Boylston Street, Boston, Massachusetts
02116, or at such other time and/or place as the parties may agree.
3.2 Portfolio securities shall be delivered by the Advantage Fund to the
Custodian for the account of the MFS Fund on the Closing Date, duly endorsed in
proper form for transfer, in such condition as to constitute good delivery
thereof in accordance with the custom of brokers, and shall be accompanied by
all necessary federal and state stock transfer stamps or a check for the
appropriate purchase price thereof. The cash delivered shall be in the form of
currency, certified or official bank check in Boston funds or federal fund wire,
payable to the order of "State Street Bank and Trust Company, Custodian for MFS
New York Municipal Bond Fund" or in the name of any successor organization.
3.3 In the event that on the proposed Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the net value of the assets of the MFS
Fund or the Advantage Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored; provided that if trading shall
not be fully resumed and reporting restored on or before June 30, 1995, this
Agreement may be terminated by the MFS Fund or the Advantage Fund upon the
giving of written notice to the other party.
3.4 The Advantage Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding and
nonresident alien withholding status of the Advantage Fund shareholders and the
number of outstanding shares of beneficial interest of the Advantage Fund owned
by each such shareholder, all as of the close of business on the Valuation Date
(the "Shareholder List"). The MFS Fund shall issue and deliver to the Advantage
Fund a confirmation evidencing the MFS Fund Shares to be credited on the
Liquidation Date, or provide evidence satisfactory to the Advantage Fund that
such MFS Fund Shares have been credited to the Advantage Fund's account on the
books of the MFS Fund. At the Closing each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Advantage Trust and the Advantage Fund represent and warrant to the MFS
Trust and the MFS Fund as follows:
(a) The Advantage Trust is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts and has the power to own all of its properties and assets
and, subject to approval by the shareholders of the Advantage Fund, to
carry out the Agreement. Neither the Advantage Trust nor the Advantage Fund
is required to qualify to do business in any other jurisdiction. The
Agreement has been duly authorized by the Advantage Trust, subject to the
approval of the shareholders of the Advantage Fund. The Advantage Trust has
all necessary federal, state and local authorizations to own all of the
properties and assets of the Advantage Trust and to carry on its business
as now being conducted;
(b) The Advantage Trust is a duly registered investment company
classified as a management company of the open-end, diversified type and
its registration with the Securities and Exchange Commission (the
"Commission") as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), is in full force and effect;
(c) The Advantage Trust is not, and the execution, delivery and
performance of this Agreement by the Advantage Trust will not result, in
violation of any provision of the Declaration of Trust or By-Laws of the
Advantage Trust or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Advantage Trust is a party or by which
the Advantage Trust or the Advantage Fund is bound;
(d) The Advantage Trust has no material contracts or other commitments
(other than this Agreement) which will not be terminated without liability
to the Advantage Fund at or prior to the Closing Date;
A-3
<PAGE> 38
(e) Except as otherwise disclosed in writing to and accepted by the
MFS Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or threatened as
to the Advantage Trust or any of its properties or assets. The Advantage
Trust knows of no facts which might form the basis for the institution of
such proceedings, and the Advantage Trust is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The statement of assets and liabilities, including the schedule of
portfolio investments, of the Advantage Fund as of December 31, 1994 and
the related statement of operations for the year ended December 31, 1994,
and the statement of changes in net assets for the year ended December 31,
1994 and the period ended December 31, 1993 (copies of which have been
furnished to the MFS Fund) have been audited by Price Waterhouse LLP,
independent accountants, and present fairly in all material respects the
financial position of the Advantage Fund as of December 31, 1994 and the
results of its operations and changes in net assets for the respective
stated periods in accordance with generally accepted accounting principles
consistently applied, and there are no known actual or contingent
liabilities of the Advantage Fund as of the respective dates thereof not
disclosed therein;
(g) Since December 31, 1994, there has not been any material adverse
change in the Advantage Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Advantage Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the MFS Fund. For the purposes of this
subparagraph (g), a decline in net asset value per share of beneficial
interest of the Advantage Fund as a result of losses upon the disposition
of investments or from changes in the value of investments held by the
Advantage Fund, or a distribution or a payment of dividends shall not
constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Advantage Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been paid
so far as due, and to the best of the Advantage Fund's knowledge no such
return is currently under audit and no assessment has been asserted with
respect to such returns or reports;
(i) The Advantage Fund has elected to be treated as a regulated
investment company for federal tax purposes, has qualified as such for each
taxable year of its operation and will qualify as such as of the Closing
Date;
(j) The authorized capital of the Advantage Trust consists of an
unlimited number of shares of beneficial interest, no par value, divided
into three series, all of one class, at the date hereof. All issued and
outstanding shares of beneficial interest attributable to the Advantage
Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Advantage Trust. All of
the issued and outstanding shares of beneficial interest attributable to
the Advantage Fund will, at the time of Closing, be held by the persons and
in the amounts set forth in the Shareholder List. The Advantage Trust does
not have outstanding any options, warrants or other rights to subscribe for
or purchase any shares of beneficial interest attributable to the Advantage
Fund, nor is there outstanding any security convertible into any shares of
beneficial interest attributable to the Advantage Fund;
(k) Except as previously disclosed to the MFS Fund, at the Closing
Date the Advantage Trust will have good and marketable title to the assets
attributable to the Advantage Fund to be transferred to the MFS Fund
pursuant to paragraph 1.1, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery and
payment for such assets, the MFS Fund will acquire good and marketable
title thereto subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the Securities Act of
1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the Advantage
Trust (with the exception of the approval of this Agreement by Advantage
Fund shareholders holding at least two-thirds of the issued and outstanding
Advantage Fund
A-4
<PAGE> 39
shares), and this Agreement constitutes a valid and binding obligation of
the Advantage Trust enforceable in accordance with its terms, subject to
the approval of the Advantage Fund shareholders;
(m) The information to be furnished by the Advantage Fund for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply fully
with federal securities and other laws and regulations thereunder
applicable thereto;
(n) The proxy statement of the Advantage Fund (the "Proxy Statement")
to be included in the Registration Statement referred to in paragraph 5.7
(other than written information furnished by the MFS Fund for inclusion
therein, as covered by the MFS Fund's warranty in paragraph 4.2(n)), on the
effective date of the Registration Statement, on the date of the meeting of
the Advantage Fund shareholders and on the Closing Date, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Advantage
Trust and the Advantage Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act, and such as may be required under state securities laws;
(p) All of the issued and outstanding shares of beneficial interest of
the Advantage Trust attributable to the Advantage Fund have been offered
for sale and sold in conformity with all applicable federal and state
securities laws, except as may have been previously disclosed in writing to
the MFS Fund; and
(q) The current prospectus and statement of additional information of
the Advantage Fund, each dated April 18, 1994 as supplemented and updated
from time to time (the "Advantage Fund Prospectus"), will conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission thereunder on the
date of the Proxy Statement, on the date of the meeting of Advantage Fund
shareholders and on the Closing Date and will not on such dates include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.2 The MFS Trust and the MFS Fund represent and warrant to the Advantage Trust
and the Advantage Fund as follows:
(a) The MFS Trust is a business trust duly organized, validly existing
and in good standing under the laws of The Commonwealth of Massachusetts
and has the power to own all of its properties and assets and to carry out
the Agreement. Neither the MFS Trust nor the MFS Fund is required to
qualify to do business in any other jurisdiction. The Agreement has been
duly authorized by the MFS Trust. The MFS Trust has all necessary federal,
state and local authorization to own all of its properties and assets and
to carry on its business as now being conducted;
(b) The MFS Trust is a duly registered investment company classified
as a management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The current prospectus and statement of additional information of
the MFS Fund, each dated June 1, 1994, as supplemented and updated from
time to time (the "MFS Fund Prospectus"), and the Registration Statement
referred to in paragraph 5.7 (other than written information furnished by
the Advantage Fund for inclusion therein as covered by the Advantage Fund's
warranty in paragraph 4.1(m)) will conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder on the date of the Proxy
Statement, on the date of the meeting of the Advantage Fund shareholders
and on the Closing Date and will not on such dates include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
A-5
<PAGE> 40
(d) At the Closing Date, the MFS Trust, will have good and marketable
title to the assets of the MFS Fund;
(e) The MFS Trust is not, and the execution, delivery and performance
of this Agreement will not result, in violation of any provisions of its
Declaration of Trust or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the MFS Trust is a party or
by which the MFS Trust or the MFS Fund is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the MFS Trust or any of its properties or
assets, except as previously disclosed in writing to the Advantage Fund.
The MFS Trust knows of no facts which might form the basis for the
institution of such proceedings, and the MFS Trust is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transaction herein contemplated;
(g) The statement of assets and liabilities, including the schedule of
portfolio investments, of the MFS Fund as of March 31, 1994, and the
related statements of operations for the two months then ended and the year
ended January 31, 1994, and the statements of changes in net assets for the
two months ended March 31, 1994, the year ended January 31, 1994 and the
year ended January 31, 1993 (copies of which have been furnished to the
Advantage Fund), have been audited by Deloitte & Touche LLP, independent
auditors. The statement of assets and liabilities, including the schedule
of portfolio investments, of the MFS Fund as of September 30, 1994, and the
related statements of operations and changes in net assets for the six
months ended September 30, 1994 (copies of which have been furnished to the
Advantage Fund), are unaudited. These audited and unaudited financial
statements present fairly in all material respects the financial position
of the MFS Fund as of their respective dates and the results of its
operations and changes in net assets for the respective stated periods in
accordance with generally accepted accounting principles consistently
applied (with respect to the unaudited financial statements, subject to
normal year-end adjustments), and there are no known actual or contingent
liabilities of the MFS Fund as of the respective dates thereof not
disclosed therein;
(h) Since September 30, 1994, there has not been any material adverse
change in the MFS Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business or
any incurrence by the MFS Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed
to the Advantage Fund. For the purposes of this subparagraph (h), a decline
in net asset value per share of beneficial interest of the MFS Fund
resulting from losses upon the disposition of investments or from changes
in the value of investments held by the MFS Fund, or a distribution or a
payment of dividends, shall not constitute a material adverse change;
(i) The MFS Fund has elected to be treated as a regulated investment
company for federal tax purposes, has qualified as such for each taxable
year of its operation, and will qualify as such as of the Closing Date;
(j) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the MFS Fund required by law to have been filed or furnished
by such dates shall have been filed or furnished, and all federal, state
and other taxes, interest and penalties shall have been paid so far as due,
or provision shall have been made for the payment thereof, and to the best
of the MFS Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns or reports;
(k) The authorized capital of the MFS Trust consists of an unlimited
number of shares of beneficial interest, no par value, divided into
nineteen series and, with respect to the MFS Fund, into two classes, at the
date hereof. All issued and outstanding shares of beneficial interest
attributable to the MFS Fund are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and nonassessable by the MFS
Trust. The MFS Trust does not have outstanding any options, warrants or
other rights to subscribe for or purchase any shares of beneficial interest
attributable to the MFS Fund, nor is there outstanding any security
convertible into any shares of beneficial interest attributable to the MFS
Fund;
A-6
<PAGE> 41
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the MFS Trust,
and this Agreement constitutes a valid and binding obligation of the MFS
Trust enforceable in accordance with its terms;
(m) The MFS Fund Shares to be issued and delivered to the Advantage
Trust pursuant to the terms of this Agreement will have been duly
authorized at the Closing Date, and when so issued and delivered, will be
duly and validly issued MFS Fund Shares and will be fully paid and
nonassessable by the MFS Trust;
(n) The information to be furnished by the MFS Fund for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply fully
with federal securities and other laws and regulations applicable thereto;
(o) The MFS Trust agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations and the operations of the MFS Fund after
the Closing Date;
(p) All of the MFS Trust's issued and outstanding shares of beneficial
interest attributable to the MFS Fund have been offered for sale and sold
in conformity with all applicable federal and state securities laws, except
as may have been previously disclosed in writing to the Advantage Fund; and
(q) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the MFS Trust of
the transactions contemplated by the Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may
be required under state securities laws.
5. COVENANTS
5.1 The Advantage Fund and the MFS Fund each will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions.
5.2 The Advantage Trust will call a meeting of shareholders of the Advantage
Fund (the "Meeting") to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions contemplated
herein.
5.3 The Advantage Trust covenants that the MFS Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.4 The Advantage Trust will provide such information as the MFS Trust
reasonably requests concerning the ownership of the Advantage Fund's shares of
beneficial interest, including the information specified in paragraph 3.4.
5.5 Subject to the provisions of this Agreement, the Advantage Trust and the
MFS Trust each will take, or cause to be taken, all action, and do or cause to
be done all things, reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 The Advantage Trust shall furnish to the MFS Trust on the Closing Date the
Statement of Assets and Liabilities of the Advantage Fund as of the Valuation
Date, which statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Advantage Trust's Treasurer or Assistant Treasurer. As promptly as practicable,
but in any case within 60 days after the Closing Date, the Advantage Trust or
its designee shall furnish to the MFS Trust, in such form as is reasonably
satisfactory to the MFS Trust, a statement of the earnings and profits of the
Advantage Fund for federal income tax purposes, and of any capital loss
carryovers and other items that the MFS Fund will succeed to and take into
account as a result of Section 381 of the Code.
5.7 The MFS Trust will prepare and file with the Securities and Exchange
Commission a Registration Statement on Form N-14 (the "Registration Statement"),
in compliance with the 1933 Act and the 1940 Act, in connection with the
issuance of the MFS Fund Shares as contemplated herein.
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<PAGE> 42
5.8 The MFS Trust will prepare a Proxy Statement, to be included in the
Registration Statement in compliance with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder (collectively, the "Acts") in
connection with the Meeting of Advantage Fund shareholders to consider approval
of this Agreement. The Advantage Trust agrees to provide the MFS Trust with
information applicable to the Advantage Trust and Advantage Fund required under
the Acts for inclusion in the Proxy Statement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ADVANTAGE TRUST
The obligations of the Advantage Trust to consummate the transactions provided
for herein shall be, at its election, subject to the performance by the MFS
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date, and, in addition thereto, the following further conditions:
6.1 All representations and warranties of the MFS Trust and the MFS Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2 The MFS Trust shall have delivered to the Advantage Trust a certificate
executed in its name by its President, Vice President, Secretary or its
Assistant Secretary and its Treasurer or Assistant Treasurer, in form
satisfactory to the Advantage Trust and dated as of the Closing Date, to the
effect that the representations and warranties of the MFS Trust and the MFS Fund
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Advantage Trust shall reasonably
request; and
6.3 The Advantage Trust shall have received on the Closing Date a favorable
opinion from Stephen E. Cavan, General Counsel and Senior Vice President of
Massachusetts Financial Services Company ("MFS"), the MFS Trust's investment
adviser, dated as of the Closing Date, in a form satisfactory to Ropes & Gray,
counsel to the Advantage Trust, to the effect that:
(a) The MFS Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and has power
to own all of its properties and assets and to carry on its business as
currently conducted, as described in the Registration Statement; (b) the
Agreement has been duly authorized, executed and delivered by the MFS Trust
and, assuming that the MFS Fund Prospectus contained in the Registration
Statement, the Registration Statement, and Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and assuming the due authorization, execution and delivery of
the Agreement by the Advantage Trust, is a valid and binding obligation of
the MFS Trust enforceable against the MFS Trust in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles; (c) the MFS
Fund Shares to be issued to the Advantage Fund shareholders as provided by
this Agreement are duly authorized and upon such delivery will be validly
issued and outstanding and fully paid and nonassessable by the MFS Trust,
and no shareholder of the MFS Fund has any preemptive right to subscription
or purchase in respect thereof pursuant to any federal or Massachusetts law
or the Declaration of Trust or By-laws of the MFS Trust; (d) the execution
and delivery of the Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the MFS Trust's
Declaration of Trust or By-Laws, or any material provision of any agreement
(known to such counsel) to which the MFS Trust is a party or by which it or
the MFS Fund is bound; (e) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by the MFS Trust of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act, and such as may be required under state
securities laws; (f) the descriptions in the Registration Statement of
statutes, legal and governmental proceedings and contracts and other
documents, if any, only insofar as they relate to the MFS Trust and the MFS
Fund, are accurate in all material respects; (g) such counsel does not know
of any legal or governmental proceedings existing on or before the date of
mailing of the Proxy Statement or the Closing Date, only insofar as they
relate to the MFS Trust or the MFS Fund, required to be described in the
Registration Statement which are not described as required; (h) to the
knowledge of such counsel, the MFS Trust is a duly registered investment
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<PAGE> 43
company and its registration with the Securities and Exchange Commission as
an investment company under the 1940 Act is in full force and effect; and
(i) to the best knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body
currently is pending or threatened as to the MFS Trust or the MFS Fund or
any of the MFS Trust's properties or assets, and the MFS Trust is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely affects its
business or its ability to consummate the transactions contemplated hereby.
Such opinion shall also state that while such counsel has not verified, and
is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement, he generally reviewed and discussed certain of such
statements with certain officers of the MFS Trust and that in the course of
such review and discussion no facts came to the attention of such counsel
which led him to believe that, on the effective date of the Registration
Statement or on the date of the Advantage Fund shareholders' meeting and
only insofar as such statements relate to the MFS Trust and the MFS Fund,
the Registration Statement contained any statement which, in the light of
the circumstances under which it was made, was false or misleading with
respect to any material fact or which omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not false or misleading. Such opinion may state that such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data, or as to the information relating to the
Advantage Trust or the Advantage Fund, contained in the Proxy Statement or
Registration Statement. Such opinion may also state that such opinion is
solely for the benefit of the Advantage Trust, its Board of Trustees and
its officers and of the Advantage Fund. Such opinion shall also include
such other matters incidental to the transaction contemplated hereby as the
Advantage Trust may reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST
The obligations of the MFS Trust to complete the transactions provided for
herein shall be, at its election, subject to the performance by the Advantage
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Advantage Trust and the Advantage
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
7.2 The Advantage Trust shall have delivered to the MFS Trust the Statement of
Assets and Liabilities, together with a list of the Advantage Fund's portfolio
securities showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Advantage Trust;
7.3 The Advantage Trust shall have delivered to the MFS Trust on the Closing
Date a certificate executed in its name by its President, Vice President,
Secretary or its Assistant Secretary and its Treasurer or Assistant Treasurer,
in form and substance satisfactory to the MFS Trust and dated as of the Closing
Date, to the effect that the representations and warranties of the Advantage
Trust in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the MFS Trust shall reasonably
request;
7.4 The MFS Trust shall have received on the Closing Date a favorable opinion
from Ropes & Gray, counsel to the the Advantage Trust, in a form satisfactory to
the MFS Trust to the effect that:
(a) the Advantage Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and has power
to own all of its properties and assets and to carry on its business as
currently conducted; (b) the Agreement has been duly authorized, executed
and delivered by the Advantage Trust and, assuming that the MFS Fund
Prospectus, the Registration Statement and the Proxy Statement comply with
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and assuming due authorization, execution and delivery of the
Agreement by the MFS Trust, is a valid and binding obligation of the
Advantage Trust enforceable against the Advantage Trust and the Advantage
Fund in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable principles;
(c) the
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execution and delivery of the Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate the Advantage
Trust's Declaration of Trust or By-Laws, or any material provision of any
agreement (known to such counsel) to which the Advantage Trust is a party
or by which it or the Advantage Fund is bound; (d) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Advantage
Trust of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may
be required under state securities laws; (e) the descriptions in the Proxy
Statement of statutes, legal and governmental proceedings and contracts and
other documents, if any, only insofar as they relate to the Advantage Trust
and the Advantage Fund, are accurate in all material respects; (f) such
counsel does not know of any legal or governmental proceedings existing on
or before the date of mailing the Proxy Statement or the Closing Date, only
insofar as they relate to the Advantage Trust or the Advantage Fund,
required to be described in the Proxy Statement which are not described as
required; (g) to the knowledge of such counsel, the Advantage Trust is a
duly registered investment company and its registration with the Securities
and Exchange Commission as an investment company under the 1940 Act is in
full force and effect; and (h) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before any
court or governmental body is currently pending or threatened as to the
Advantage Trust or any of its properties or assets and the Advantage Trust
is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and adversely
affects its business or its ability to consummate the transactions
contemplated hereby. Such opinion shall also state that while such counsel
have not verified, and are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Proxy Statement, they generally reviewed and discussed
certain of such statements with certain officers of the Advantage Trust and
that in the course of such review and discussion no facts came to the
attention of such counsel which led them to believe that, on the effective
date of the Registration Statement or on the date of the Advantage Fund
shareholders' meeting and only insofar as such statements relate to the
Advantage Trust or the Advantage Fund, the Proxy Statement contained any
statement which, in the light of the circumstances under which it was made,
was false or misleading with respect to any material fact or which omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not false or misleading. Such opinion may state
that such counsel does not express any opinion or belief as to the
financial statements or other financial or statistical data, or as to the
information relating to the MFS Trust and the MFS Fund, contained in the
Proxy Statement or Registration Statement. Such opinion may also state that
such opinion is solely for the benefit of the MFS Trust, its Board of
Trustees and its officers and of the MFS Fund. Such opinion shall also
include such other matters incident to the transaction contemplated hereby
as the MFS Trust may reasonably request; and
7.5 Any shares of the Advantage Fund issued in order to provide the initial
capital of the Advantage Trust as required by Section 14(a) of the 1940 Act and
outstanding as of the date of this Agreement shall have been redeemed and the
proceeds of such redemption reduced by the amount of any unamortized
organizational expenses allocated to the Advantage Fund prior to the Valuation
Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST AND ADVANTAGE
TRUST
The obligations of the Advantage Trust hereunder are, at the option of the MFS
Trust, and the obligations of the MFS Trust hereunder are, at the option of the
Advantage Trust, each subject to the further conditions that on or before the
Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Advantage Fund in accordance with the provisions of
the Advantage Trust's Declaration of Trust and By-Laws, and certified copies of
the resolutions evidencing such approval shall have been delivered to the MFS
Trust;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein;
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8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities, including "no-
action" positions of such federal or state authorities) deemed necessary by the
MFS Trust or the Advantage Trust to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
MFS Fund or the Advantage Fund, provided that either the MFS Trust or the
Advantage Trust may waive any such conditions for itself or for the MFS Fund or
the Advantage Fund, respectively;
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 The Advantage Fund shall have distributed to its shareholders all of the
excess of (i) its investment income excludable from gross income under Section
103(a) of the Code over (ii) its deductions disallowed under Sections 265 and
171(a)(2) of the Code, all of its investment company taxable income as defined
in Section 852(b)(2) of the Code and all of its net capital gain as such term is
used in Section 852(b)(3)(C) of the Code, after reduction by any capital loss
carryforward, in each case for its taxable year ending December 31, 1994 and its
short taxable year ending on the Closing Date;
8.6 The parties shall have received an opinion of Ropes & Gray, satisfactory to
the Advantage Trust and the MFS Trust, substantially to the effect that for
federal income tax purposes:
(a) The acquisition by the MFS Fund of all of the assets of the
Advantage Fund, solely in exchange for MFS Fund Shares and the assumption
by the MFS Fund of the stated liabilities of the Advantage Fund, followed
by the MFS Fund, followed by the distribution by the Advantage Fund of the
MFS Fund Shares in complete liquidation to the shareholders of the
Advantage Fund in exchange for their Advantage Fund shares of beneficial
interest and the termination of the Advantage Trust, will constitute a
reorganization within the meaning of Section 368(a) of the Code, and the
Advantage Fund and the MFS Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Advantage Fund upon the
transfer of all of its assets to the MFS Fund solely in exchange for MFS
Fund Shares and the assumption by the MFS Fund of the stated liabilities of
the Advantage Fund or upon the distribution to the Advantage Fund
shareholders of such MFS Fund Shares pursuant to the Agreement;
(c) No gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the Advantage Fund solely in exchange for MFS Fund
Shares and the assumption by the MFS Fund of the stated liabilities of the
Advantage Fund;
(d) The basis of the assets of the Advantage Fund acquired by the MFS
Fund will be, in each instance, the same as the basis of those assets in
the hands of the Advantage Fund immediately prior to the transfer;
(e) The holding period of the assets of the Advantage Fund in the
hands of the MFS Fund will include, in each instance, the holding period of
such assets in the hands of the Advantage Fund;
(f) The shareholders of the Advantage Fund will not recognize gain or
loss upon the exchange of all of their Advantage Fund shares of beneficial
interest solely for MFS Fund Shares as part of the transaction;
(g) The basis of the MFS Fund Shares to be received by each Advantage
Fund shareholder will be, in the aggregate, the same as the basis, in the
aggregate, of the Advantage Fund shares of beneficial interest surrendered
by such shareholder in exchange therefor; and
(h) The holding period of the MFS Fund Shares to be received by each
Advantage Fund shareholder will include the holding period of the Advantage
Fund shares of beneficial interest surrendered by such shareholder in
exchange therefor, provided the Advantage Fund shares were held by such
shareholder as capital assets on the date of the exchange.
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The MFS Trust and the Advantage Trust each agree to make and provide
representations with respect to the MFS Fund and the Advantage Fund,
respectively, which are reasonably necessary to enable legal counsel to deliver
an opinion substantially as set forth in this paragraph 8.6. Notwithstanding
anything herein to the contrary, the MFS Trust and the Advantage Trust may not
waive in any material respect the conditions set forth in this paragraph 8.6;
and
8.7 Separate agreements and plans of reorganization shall be approved by the
vote of not less than a majority of the outstanding shares of The National
Portfolio and The Pennsylvania Portfolio (each of which is a separate series of
the Advantage Trust), respectively, which, subject to such approvals and the
satisfaction of certain other conditions, will transfer all of their respective
assets to the MFS Municipal Income Fund and the MFS Pennsylvania Municipal Bond
Fund (each of which is a separate series of the MFS Trust), respectively, in
separate transactions, which are substantially similar to the Reorganization,
scheduled to occur contemporaneously with the Reorganization (the "Related
Reorganizations").
9. BROKERAGE FEES AND EXPENSES; CONTINGENT DEFERRED SALES CHARGES; CERTAIN TAX
MATTERS; CERTAIN RECORDS
9.1 The MFS Trust and the Advantage Trust each represents and warrants to the
other that there are no brokers or finders entitled to receive any payments from
either party to this Agreement in connection with the transactions provided for
herein.
9.2 Except to the extent that, pursuant to an agreement dated February 7, 1995,
(i) The Advest Group, Inc. has agreed to pay all of the following expenses
associated with the Reorganization: (a) typesetting the Registration Statement;
(b) printing the Proxy Statement and the Advantage Fund Prospectus; (c) mailing
the Proxy Statement, the MFS Fund Prospectus, other than the MFS Fund Statement
of Additional Information (the "MFS Fund SAI"), the MFS Fund Semi-Annual Report
for the six month period ended September 30, 1994 and, if requested, the MFS
Fund SAI and the Advantage Fund Prospectus to shareholders of the Advantage Fund
in connection with the Meeting; and (d) any solicitation and Meeting expenses
associated with the Meeting; and (ii) The Advest Group, Inc. and Massachusetts
Financial Services Company ("MFS") have each agreed to pay 50% of the reasonable
legal expenses of the MFS Fund and the Advantage Fund incurred in connection
with the Reorganization, provided that MFS' maximum obligation in relation to
the Reorganization and the Related Reorganizations is limited to $25,000 in the
aggregate; the MFS Fund and the Advantage Fund will each be liable for its own
expenses incurred in connection with entering into and carrying out the
provisions of this Agreement whether or not the Reorganization is consummated.
9.3 MFS Fund Shares issued in connection with the transactions contemplated
herein will not be subject to any initial sales charge; however, if any
Advantage Fund shares are at the Closing Date subject to a contingent deferred
sales charge ("CDSC"), the MFS Fund CDSC schedule for shares purchased on or
after September 1, 1993 and the methodology of aging such shares as set forth in
the MFS Fund Prospectus will apply to the MFS Fund Shares issued in respect of
such Advantage Fund shares and the MFS Fund Shares received by Advantage Fund
shareholders pursuant to paragraph 1.4 hereof will, for purposes of calculating
the CDSC, if applicable, and determining when the MFS Fund Shares will convert
to Class A shares of the MFS Fund, be treated as if purchased by the Advantage
Fund shareholders forty-two months prior to the Closing Date.
9.4 The Advantage Trust agrees that it or its designee shall, on behalf of the
Advantage Fund, file or furnish all federal, state and other tax returns, forms
and reports, including information returns and payee statements, if applicable,
of the Advantage Fund required by law to be filed or furnished by such dates as
required by law to be filed or furnished, and shall provide such other federal
and state tax information to shareholders of the Advantage Fund as has been
customarily provided by the Advantage Fund, all with respect to the fiscal
period commencing January 1, 1995 and ending on the Closing Date.
9.5 The Advantage Trust agrees that it or its designee shall, on behalf of the
Advantage Fund, deliver to MFS on the Closing Date or as soon thereafter as
possible: (i) Advantage Fund shareholder statements and tax forms (i.e., Forms
1099) for the year ended December 31, 1993, the year ended December 31, 1994 and
the period commencing January 1, 1995 through the Closing Date (all on microfilm
or microfiche, if available); (ii) detailed records indicating the status of all
certificates representing ownership of Advantage Fund shares issued since
inception of the Advantage Fund (e.g., indicating whether the certificates are
outstanding or cancelled); and (iii) for
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each Advantage Fund shareholder as of the Valuation Date, a record indicating
the dollar amount of such shareholder's Advantage Fund share holdings as of such
Date representing that portion of such holdings subject to a CDSC as of such
Date and that portion of such holdings not subject to a CDSC as of such Date,
together with such other information with respect thereto as MFS may reasonably
request.
10. ENTIRE AGREEMENT
The MFS Trust and the Advantage Trust agree that neither party has made any
representation, warranty or covenant not set forth herein or referred to in
paragraph 4 hereof or required in connection with paragraph 8.6 hereof and that
this Agreement constitutes the entire agreement between the parties.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the MFS Trust
and the Advantage Trust. In addition, either party may at its option terminate
this Agreement at or prior to the Closing Date because of:
(a) a material breach by the other of any representation, warranty or
agreement contained herein to be performed at or prior to the Closing Date;
or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party which has not been met and which reasonably appears
will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either the MFS Trust or the Advantage Trust, or their
respective trustees or officers, to the other party or its trustees or officers,
but each shall bear the expenses incurred by it incidental to the preparation
and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the authorized officers of the Advantage
Trust and the MFS Trust; provided, however, that following the meeting of
shareholders called by the Advantage Trust pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of MFS Fund Shares to be issued to the Advantage Fund
shareholders under this Agreement to the detriment of such shareholders without
their further approval; and provided further that nothing contained in this
Article 12 shall be construed to prohibit the parties from amending this
Agreement to change the Closing Date or the Valuation Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the MFS Trust, 500 Boylston Street,
Boston, Massachusetts 02116, Attention: President, or to the Advantage Trust,
100 Federal Street, Boston, Massachusetts 02110, Attention: President, in either
case with a copy to Stephen E. Cavan, General Counsel, MFS, 500 Boylston Street,
Boston, Massachusetts 02116, and to Ropes & Gray, One International Place,
Boston, Massachusetts 02110, Attention: John M. Loder, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed
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<PAGE> 48
to confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
14.5 A copy of the MFS Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Advantage Trust
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the MFS Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the MFS Trust in accordance with its proportionate interest hereunder. The
Advantage Trust further acknowledges that the assets and liabilities of each
series of the MFS Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property of
the series on whose behalf the MFS Trust has executed this instrument.
14.6 A copy of the Advantage Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The MFS Trust
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Advantage Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Advantage Trust in accordance with its proportionate interest
hereunder. The MFS Trust further acknowledges that the assets and liabilities of
each series of the Advantage Trust are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon the
assets or property of the series on whose behalf the Advantage Trust has
executed this instrument.
14.7 Notwithstanding Article 12 of the Agreement, but subject to the first
proviso contained therein, either party to this Agreement, with the consent of
its President, Vice President, Secretary or its Assistant Secretary, may waive
any condition or covenant to which the other party is subject or may modify such
condition or covenant in a manner deemed appropriate by any such officer.
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<PAGE> 49
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its Chairman or President and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: THE ADVANTAGE MUNICIPAL BOND FUND,
on its behalf and on behalf of THE
NEW YORK PORTFOLIO, one of its
series
DAVID A. HOROWITZ ROBERT L. THOMAS
____________________________ By:______________________________
DAVID A. HOROWITZ, SECRETARY ROBERT L. THOMAS, PRESIDENT
AND NOT INDIVIDUALLY AND NOT INDIVIDUALLY
Attest: MFS MUNICIPAL SERIES TRUST, on its
behalf and on behalf of MFS NEW
YORK MUNICIPAL BOND FUND, one of
its series
STEPHEN E. CAVAN A. KEITH BRODKIN
___________________________ By:______________________________
STEPHEN E. CAVAN, SECRETARY A. KEITH BRODKIN, PRESIDENT
AND NOT INDIVIDUALLY AND NOT INDIVIDUALLY
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<PAGE> 50
THE NEW YORK PORTFOLIO, A SERIES OF THE ADVANTAGE MUNICIPAL BOND FUND
PROXY BALLOT
PROXY FOR A MEETING OF SHAREHOLDERS, APRIL 27, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE FUND.
The undersigned hereby appoints Robert Thomas, David A. Horowitz and John M.
Loder, and each of them separately, proxies, with power of substitution, and
hereby authorizes them to represent and to vote, as designated below, at the
Meeting of Shareholders of The New York Portfolio, a Series of the Advantage
Municipal Bond Fund on April 27, 1995 at 11:30 a.m., Boston time, and at any
adjournments thereof, all of the shares of the Fund which the undersigned would
be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such. If a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
PLEASE FOLD AT PERFORATION BEFORE DETACHING
THE ADVANTAGE MUNICIPAL BOND FUND
CHANGE OF ADDRESS NOTIFICATION. Please use this form to inform us of any
change in address or telephone number or to provide us with your comments.
Detach this form from the Proxy Ballot and return it with your executed Proxy
in the enclosed envelope.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
Telephone
<PAGE> 51
Please mark your choice [x] in blue or black ink.
<TABLE>
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW.
<S> <C>
PROPOSAL: For Against Abstain
1. Approval of the Agreement [ ] [ ] [ ]
Dear Shareholder: and Plan of Reorganization providing for the transfer of all of the assets
of The New York Portfolio, a Series of the Advantage Municipal Bond Fund
YOUR VOTE IS IMPORTANT. Please (the "Advantage Fund") to MFS New York Municipal Bond Fund, a Series of the
help us to eliminate the expense MFS Municipal Series Trust (the "MFS Fund") in exchange for shares of
of follow-up mailings by executing beneficial interest designated as Class B shares of the MFS Fund and the
and returning this Proxy as soon assumption by the MFS Fund of the stated liabilities of the Advantage Fund,
as possible. A postage-paid and the distribution of such Class B shares to the shareholders of the
business reply envelope is Advantage Fund in liquidation of the Advantage Fund and the termination of
enclosed for your convenience. the Advantage Trust.
Thank you!
Please be sure to sign and date this Proxy. Date ___________________
_____________________ _______________________
Shareholder sign here Co-owner sign here
Please fold at perforation before
detaching
</TABLE>
-2-
<PAGE> 52
<TABLE>
<S> <C>
MFS(R) ALABAMA MUNICIPAL BOND FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) ARKANSAS MUNICIPAL BOND FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) CALIFORNIA MUNICIPAL BOND FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) FLORIDA MUNICIPAL BOND FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GEORGIA MUNICIPAL BOND FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) LOUISIANA MUNICIPAL BOND FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) MARYLAND MUNICIPAL BOND FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) MISSISSIPPI MUNICIPAL BOND FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
</TABLE>
SUPPLEMENT TO BE AFFIXED TO THE CURRENT PROSPECTUS FOR DISTRIBUTION IN MISSOURI
The trust intends to fully manage the portfolio of each Series by buying
and selling securities, as well as holding securities to maturity. The annual
portfolio turnover rate of a Series generally should not exceed 200% (excluding
turnover of obligations having a maturity of one year or less). A high turnover
rate may involve greater expenses to the Trust. The portion of income
distributions not designated as tax exempt and any distributions from net
short-term capital gains are taxable to shareholders as ordinary income for
federal tax purposes.
THE DATE OF THIS SUPPLEMENT IS JUNE 1, 1994.
MST-16M0-6/94/XXM
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C>
MFS(R) TOTAL RETURN FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) EMERGING GROWTH FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) WORLD GROWTH FUND MFS(R) MUNICIPAL INCOME FUND
MFS(R) OTC FUND MFS(R) RESEARCH FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) WORLD ASSET ALLOCATION FUND
MASSACHUSETTS INVESTORS TRUST
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from January 3, 1995 through April 28, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the funds'
principal underwriter), MFD will pay A. G. Edwards and Sons, Inc., ("A. G.
Edwards") 100% of the applicable sales charge on sales of Class A shares of each
of the funds listed above (the "Funds") sold for investment in Individual
Retirement Accounts ("IRAs") (excluding SEP-IRAs). In addition, MFD will pay A.
G. Edwards an additional commission equal to 0.50% of the net asset value of all
of the Class B shares of the Funds sold by A. G. Edwards during the Sales
Period.
THE DATE OF THIS SUPPLEMENT IS JANUARY 3, 1995.
MFS-16AG-1/95/3.5M
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C>
MFS(R) MANAGED SECTORS FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) CASH RESERVE FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) WORLD ASSET ALLOCATION FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) EMERGING GROWTH FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) MONEY MARKET FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MONEY MARKET FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) MUNICIPAL BOND FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) OTC FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) TOTAL RETURN FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) RESEARCH FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) GROWTH OPPORTUNITIES FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) GOVERNMENT MORTGAGE FUND
MFS(R) WORLD GROWTH FUND MFS(R) GOVERNMENT SECURITIES FUND
MFS(R) BOND FUND MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS(R) LIMITED MATURITY FUND MFS(R) GOVERNMENT LIMITED MATURITY FUND
MASSACHUSETTS INVESTORS TRUST
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
Effective as of January 1, 1995, MFS Fund Distributors, Inc. ("MFD") has
replaced MFS Financial Services, Inc. ("FSI") as the Fund's distributor. Both
MFD and FSI are wholly-owned subsidiaries of Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser.
-----------------------------------------------
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) The sponsoring organization must demonstrate to the satisfaction of
MFD that either (a) the employer has at least 25 employees or (b) the
aggregate purchases by the retirement plan of Class A shares of the
Funds will be in an amount of at least $250,000 within a reasonable
period of time, as determined by MFD in its sole discretion; and
(ii) A contingent deferred sales charge of 1% will be imposed on such
purchases in the event of certain redemption transactions within 12
months following such purchases.
-----------------------------------------------
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale.
-----------------------------------------------
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an
administrative services agreement with MFD or one or more of its affiliates to
perform certain administrative services, subject to certain operational
requirements specified from time to time by MFD or one or more of its
affiliates.
-----------------------------------------------
(Over)
<PAGE> 55
Class A shares of the Fund (except of the MFS municipal bond funds
identified above) may be purchased at net asset value by retirement plans
qualified under Section 401(k) of the Code through certain broker-dealers and
other financial institutions which have entered into an agreement with MFD which
includes certain minimum size qualifications for such retirement plans and
provides that the broker-dealer or other financial institution will perform
certain administrative services with respect to the plan's account.
-----------------------------------------------
The CDSC on Class A and Class B shares will be waived upon redemption by a
retirement plan where the redemption proceeds are used to pay expenses of the
retirement plan or certain expenses of participants under the retirement plan
(e.g., participant account fees), provided that the retirement plan's sponsor
subscribes to the MFS Fundamental 401(k) Plan(sm) or another similar
recordkeeping system made available by MFS Service Center, Inc. (the
"Shareholder Servicing Agent").
-----------------------------------------------
The CDSC on Class A and B shares will be waived upon the transfer of
registration from shares held by a retirement plan through a single account
maintained by the Shareholder Servicing Agent to multiple Class A and B share
accounts, respectively, maintained by the Shareholder Servicing Agent on behalf
of individual participants in the retirement plan, provided that the retirement
plan's sponsor subscribes to the MFS Fundamental 401(k) Plan(sm) of another
similar recordkeeping system made available by the Shareholder Servicing Agent.
-----------------------------------------------
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
-----------------------------------------------
The current Prospectus discloses that "Class A shares of the Fund may also
be purchased at net asset value where the purchase is in an amount of $3 million
or more and where the dealer and FSI enter into an agreement in which the dealer
agrees to return any commission paid to it on the sale (or a pro rata portion
thereof) as described above if the shareholder redeems his or her shares within
one year of purchase. (Shareholders who purchase shares at NAV pursuant to these
conditions are called ("$3 Million Shareholders")." This policy is terminated
effective as of the date of this Supplement and the above-referenced language,
and all references to "$3 Million Shareholders," are deleted from the
Prospectus.
-----------------------------------------------
From time to time, MFD may pay dealers 100% of the applicable sales charge
on sales of Class A shares of certain specified Funds sold by such dealer during
a specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset value
of all of the Class B shares of certain specified Funds sold by such dealer
during a specified sales period.
-----------------------------------------------
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to reinvest all dividends
and other distributions reinvested in additional shares.
-----------------------------------------------
From time to time, MFS may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fees charged by the custodian of the Fund's assets).
-----------------------------------------------
THE DATE OF THIS SUPPLEMENT IS JANUARY 13, 1995.
MFS-16-1/95/605M
<PAGE> 56
MFS(R) MANAGED SECTORS FUND MFS(R) GROWTH OPPORTUNITIES FUND
MFS(R) EMERGING GROWTH FUND MFS(R) HIGH INCOME FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) RESEARCH FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) VALUE FUND
MFS(R) WORLD EQUITY FUND MFS(R) BOND FUND
MFS(R) UTILITIES FUND MFS(R) LIMITED MATURITY FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) MUNICIPAL INCOME FUND MFS(R) MUNICIPAL SERIES TRUST
SUPPLEMENT TO BE AFFIXED TO THE CURRENT PROSPECTUS FOR DISTRIBUTION IN OHIO
Prospective Ohio investors should note the following:
a) This Prospectus must be delivered to the investor prior to consummation of
the sale;
b) The Fund may invest up to 50% of its assets in restricted securities,
including Rule 144A securities which have been deemed to be liquid by the
Board of Trustees.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
MFS-16OH-2/95/19.5M
<PAGE> 57
<TABLE>
<CAPTION>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS(R) WORLD TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) MUNICIPAL HIGH INCOME FUND
MFS(R) EMERGING GROWTH FUND MFS(R) MUNICIPAL INCOME FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) OTC FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) RESEARCH FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) TOTAL RETURN FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) MUNICIPAL LIMITED MATURITY FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WORLD ASSET ALLOCATION FUND
MFS(R) WORLD GROWTH FUND
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from February 1, 1995 through April 14, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the Funds'
distributor), MFD will pay Corelink Financial Inc. ("Corelink") an additional
commission equal to 0.10% of the gross commissonable sales for Class A shares
and Class B shares and the net asset value for Class C shares (if applicable) of
the Funds sold by Corelink during the Sales Period.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
MFS-16CL-2/95/5M
<PAGE> 58
PROSPECTUS
JUNE 1, 1994
<TABLE>
<S> <C>
MFS(R) ALABAMA MUNICIPAL BOND FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) ARKANSAS MUNICIPAL BOND FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) CALIFORNIA MUNICIPAL BOND FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) FLORIDA MUNICIPAL BOND FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GEORGIA MUNICIPAL BOND FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) LOUISIANA MUNICIPAL BOND FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) MARYLAND MUNICIPAL BOND FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) MISSISSIPPI MUNICIPAL BOND FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
</TABLE>
<PAGE> 59
PROSPECTUS
June 1, 1994
Class A Shares of Beneficial Interest
MFS(R) MUNICIPAL Class B Shares of Beneficial Interest
SERIES TRUST Class C Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) (For Certain Funds)
- ------------------------------------------------------------------------------
MFS Municipal Series Trust (the "Trust") is a mutual fund including the
following 18 separate series: MFS Alabama Municipal Bond Fund (the "Alabama
Fund"); MFS Arkansas Municipal Bond Fund (the "Arkansas Fund"); MFS California
Municipal Bond Fund (the "California Fund"); MFS Florida Municipal Bond Fund
(the "Florida Fund"); MFS Georgia Municipal Bond Fund (the "Georgia Fund"); MFS
Louisiana Municipal Bond Fund (the "Louisiana Fund"); MFS Maryland Municipal
Bond Fund (the "Maryland Fund"); MFS Massachusetts Municipal Bond Fund (the
"Massachusetts Fund"); MFS Mississippi Municipal Bond Fund (the "Mississippi
Fund"); MFS New York Municipal Bond Fund (the "New York Fund"); MFS North
Carolina Municipal Bond Fund (the "North Carolina Fund"); MFS Pennsylvania
Municipal Bond Fund (the "Pennsylvania Fund"); MFS South Carolina Municipal Bond
Fund (the "South Carolina Fund"); MFS Tennessee Municipal Bond Fund (the
"Tennessee Fund"); MFS Texas Municipal Bond Fund (the "Texas Fund"); MFS
Virginia Municipal Bond Fund (the "Virginia Fund"); MFS Washington Municipal
Bond Fund (the "Washington Fund"); and MFS West Virginia Municipal Bond Fund
(the "West Virginia Fund") (collectively referred to as either the "State Funds"
or the "Funds"). The investment objective of each Fund is to provide current
income exempt from federal income taxes and from the personal income taxes, if
any, of that State. The Trust will seek to achieve the investment objective of
each Fund by investing the assets of that Fund primarily in municipal bonds and
notes issued by that State, its political subdivisions, municipalities,
agencies, instrumentalities or public authorities. NOT MORE THAN ONE-THIRD OF
THE TOTAL ASSETS OF EACH FUND MAY BE INVESTED IN TAX-EXEMPT SECURITIES WHICH ARE
RATED LOWER THAN THE THREE HIGHEST RATING CATEGORIES OF RECOGNIZED RATING
AGENCIES OR IN COMPARABLE UNRATED SECURITIES. SUCH SECURITIES GENERALLY INVOLVE
GREATER VOLATILITY OF PRICE AND RISKS TO PRINCIPAL AND INCOME THAN SECURITIES IN
THE HIGHER RATING CATEGORIES. See "Investment Objective and Policies." The
minimum initial investment in a Fund is generally $1,000 per account (see
"Purchases").
The investment adviser and distributor for each Fund are Massachusetts Financial
Services Company and MFS Financial Services, Inc., respectively, both of which
are located at 500 Boylston Street, Boston, Massachusetts 02116.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS MUNICIPAL SERIES TRUST
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
This Prospectus sets forth concisely the information concerning the Trust and
each Fund that a prospective investor ought to know before investing. The Trust
has filed with the Securities and Exchange Commission a Statement of Additional
Information, dated June 1, 1994, which contains more detailed information about
the Trust and each Fund and is incorporated into this Prospectus by reference.
See page 55 for a further description of the information set forth in the
Statement of Additional Information. A copy of the Statement of Additional
Information may be obtained without charge by contacting the Shareholder
Servicing Agent (see back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE> 60
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
1. Synopsis .............................................................. 3
2. Condensed Financial Information ....................................... 8
3. Investment Objective and Policies ..................................... 26
4. Management of the Trust ............................................... 32
5. Information Concerning Shares of the Trust ............................ 34
Purchases ......................................................... 34
Exchanges ......................................................... 39
Redemptions and Repurchases ....................................... 40
Distribution Plans ................................................ 42
Distributions ..................................................... 44
Tax Status ........................................................ 45
Net Asset Value ................................................... 52
Description of Shares, Voting Rights and Liabilities .............. 52
Performance Information ........................................... 52
Expenses .......................................................... 53
6. Shareholder Services .................................................. 54
Appendix A -- Tax Equivalent Yield Tables ............................. 56
Appendix B -- Description of Municipal Obligations .................... 62
Appendix C -- Portfolio Composition Chart ............................. 69
Appendix D -- Additional Information Concerning the Funds ............. 70
1. SYNOPSIS
THE TRUST
MFS Municipal Series Trust (the "Trust") is an open-end, management investment
company which was organized as a business trust under the laws of The
Commonwealth of Massachusetts in 1984. The Trust presently consists of 19
separate series, each of which represents a portfolio with separate investment
policies. This Prospectus relates to: the Alabama Fund; the Arkansas Fund; the
California Fund; the Florida Fund; the Georgia Fund; the Louisiana Fund; the
Maryland Fund; the Massachusetts Fund; the Mississippi Fund; the New York Fund;
the North Carolina Fund; the Pennsylvania Fund; the South Carolina Fund; the
Tennessee Fund; the Texas Fund; the Virginia Fund; the Washington Fund; and the
West Virginia Fund, each of which is a non-diversified series and are referred
to in this Prospectus collectively as either the "State Funds" or the "Funds".
Shares of the remaining series of the Trust, named MFS Municipal Income Fund,
which is a diversified series, are offered and sold pursuant to a separate
prospectus and statement of additional information.
Each Fund currently offers Class A and Class B shares to the public. In
addition, the California Fund, the North Carolina Fund and the Virginia Fund
currently offer Class C shares to the public. Class A shares are offered at net
asset value plus an initial sales charge (or a contingent deferred sales charge
(a "CDSC") in the case of certain purchases of $1 million or more) and subject
to a Distribution Plan providing for an annual distribution fee and service fee.
Class B shares are offered at net asset value without an initial sales charge
but subject to a CDSC and a Distribution Plan providing for an annual
distribution fee and service fee which are greater than the Class A distribution
fee and service fee. Class B shares will convert to Class A shares approximately
eight years after purchase. Class C shares are offered at net asset value
without an initial sales charge or a CDSC but subject to a Distribution Plan
providing for an annual distribution and service fee which are equal to the
Class B annual distribution fee and service fee. Class C shares do not convert
to any other class of shares.
Each Fund is "non-diversified" which means that each Fund will, subject to the
diversification requirements of the Internal Revenue Code of 1986, as amended,
be able to invest more than 5% of its assets in obligations of each of one or
more issuers. The proceeds of sales of shares of each State Fund are used to buy
securities (primarily municipal bonds and notes and other debt instruments the
interest on which is exempt from federal income taxes and from the personal
income taxes, if any, of that State) for the portfolio of that State Fund. The
Trust's Board of Trustees provides broad supervision over the affairs of the
Trust and each Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each State Fund is to provide current income exempt
from federal income taxes and from the personal income taxes, if any, of that
State. Some of the securities purchased for the portfolios of the State Fund may
be purchased on a "when-issued" basis, which may involve certain risks. Subject
to applicable laws, the Trust may enter into futures contracts on fixed income
securities and indices of such securities on behalf of a Fund and may write and
purchase options on securities and options on futures contracts, which may also
involve certain risks. Not more than one-third of each Fund's total assets may
be invested in tax-exempt securities which are rated lower than the three
highest grades of recognized rating agencies or comparable unrated securities.
Such securities generally involve greater volatility of price and risks to
principal and income than securities in the higher rating categories.
Prospective investors should be aware that the net asset value of the shares of
each Fund (as with any open-end investment company) will change as the general
levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of such a portfolio can be
expected to decline. See "Investment Objective and Policies" below.
<PAGE> 61
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on Purchases of Shares of each Fund
(as a percentage of offering price) .................................... 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) .................. See Below<F1> 4.00%<F2> 0.00%
</TABLE>
THE FOLLOWING ANNUAL OPERATING EXPENSES FOR EACH CLASS OF SHARES OF EACH FUND
ARE SHOWN AFTER APPLICABLE FEE REDUCTIONS AND REIMBURSEMENTS, AS DESCRIBED IN
THE FOOTNOTES
ANNUAL OPERATING EXPENSES OF THE CLASS A SHARES OF EACH FUND (AS A PERCENTAGE
OF AVERAGE NET ASSETS):<F3>
<TABLE>
<CAPTION>
ALABAMA ARKANSAS CALIFORNIA FLORIDA GEORGIA LOUISIANA
FUND FUND FUND FUND FUND FUND
------- -------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .................................. .55% .40%<F4> .40%<F4> .25%<F4> .55% 0%<F4>
Rule 12b-1 Fees<F5> .............................. .25%<F6> 0%<F6> 0%<F6> 0%<F6> .25%<F6> 0%<F6>
Other Expenses ................................... .38% .38% .28% .57% .38% 0%<F7>
--- --- --- --- --- ---
Total Operating Expenses<F8> ..................... 1.18% .78% .68% .82% 1.18% 0%
</TABLE>
<TABLE>
<CAPTION>
NORTH
MARYLAND MASSACHUSETTS MISSISSIPPI NEW YORK CAROLINA PENNSYLVANIA
FUND FUND FUND FUND FUND FUND
-------- ------------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .................................. .55% .55% .15%<F4> .50%<F4> .55% 0%<F4>
Rule 12b-1 Fees<F5> .............................. .35% .35% 0%<F6> .25%<F6> .35% 0%<F6>
Other Expenses ................................... .33% .29% 0%<F7> .42% .26% 0%<F7>
--- --- --- --- --- ---
Total Operating Expenses<F8> ..................... 1.23% 1.19% .15% 1.17% 1.16% 0%
</TABLE>
<TABLE>
<CAPTION>
SOUTH WEST
CAROLINA TENNESSEE TEXAS VIRGINIA WASHINGTON VIRGINIA
FUND FUND FUND FUND FUND FUND
-------- --------- ----- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .................................. .55% .55% 0%<F4> .55% 0%<F4> .55%
Rule 12b-1 Fees<F5> .............................. .35% .35% 0%<F6> .35% 0%<F6> .35%
Other Expenses ................................... .33% .31% 0%<F7> .27% 0%<F7> .31%
--- --- --- --- --- ---
Total Operating Expenses<F8> ..................... 1.23% 1.21% 0% 1.17% 0% 1.21%
</TABLE>
<TABLE>
ANNUAL OPERATING EXPENSES OF THE CLASS B SHARES OF EACH FUND (AS A PERCENTAGE
OF AVERAGE NET ASSETS):<F3>
<CAPTION>
ALABAMA ARKANSAS CALIFORNIA FLORIDA GEORGIA LOUISIANA
FUND FUND FUND FUND FUND FUND
------- -------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees ................................... .55% .40%<F4> .40%<F4> .25%<F4> .55% 0%<F4>
Rule 12b-1<F9> .................................... 1.00% 1.00%<F10> 1.00%<F10> 1.00%<F10> 1.00% 1.00%<F10>
Other Expenses .................................... .45% .45% .35% .64% .45% 0%<F7>
--- --- --- --- --- ---
Total Operating Expenses<F11> ..................... 2.00% 1.85% 1.75% 1.89% 2.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
NORTH
MARYLAND MASSACHUSETTS MISSISSIPPI NEW YORK CAROLINA PENNSYLVANIA
FUND FUND FUND FUND FUND FUND
-------- ------------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees ................................... .55% .55% .15%<F4> .50%<F4> .55% 0%(4)
Rule 12b-1 Fees<F9> ............................... 1.00% 1.00% 1.00%<F10> 1.00% 1.00% 1.00%(10)
Other Expenses .................................... .40% .36% 0%<F7> .49% .33% 0%(7)
--- --- --- --- --- ---
Total Operating Expenses<F11> ..................... 1.95% 1.91% 1.15% 1.99% 1.88% 1.00%
</TABLE>
<TABLE>
<CAPTION>
SOUTH WEST
CAROLINA TENNESSEE TEXAS VIRGINIA WASHINGTON VIRGINIA
FUND FUND FUND FUND FUND FUND
-------- --------- ----- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees ................................... .55% .55% 0%<F4> .55% 0%<F4> .55%
Rule 12b-1 Fees<F9> ............................... 1.00% 1.00% 1.00%<F10> 1.00% 1.00%<F10> 1.00%
Other Expenses .................................... .40% .38% 0%<F7> .34% 0%<F7> .38%
--- --- --- --- --- ---
Total Operating Expenses<F11> ..................... 1.95% 1.93% 1.00% 1.89% 1.00% 1.93%
</TABLE>
<TABLE>
ANNUAL OPERATING EXPENSES OF THE CLASS C SHARES OF EACH FUND (AS A PERCENTAGE
OF AVERAGE NET ASSETS):<F12>
<CAPTION>
NORTH
CALIFORNIA CAROLINA VIRGINIA
FUND FUND FUND
---------- -------- --------
<S> <C> <C> <C>
Management Fees .......................................................................... .40%<F4> .55% .55%
Rule 12b-1 Fees<F9> ...................................................................... 1.00% 1.00% 1.00%
Other Expenses ........................................................................... .28% .26% .27%
--- --- ---
Total Operating Expenses ................................................................. 1.68%<F13> 1.81% 1.82%
- ---------
<FN>
<F1>Purchases of $1 million or more are not subject to an initial sales charge;
however, a CDSC of 1% will be imposed on such purchases in the event of
certain redemption transactions within 12 months following such purchases
(see "Purchases" below).
<F2>Class B shares purchased prior to September 1, 1993 will be subject to a
CDSC of 5% in the event of a redemption within the first year after
purchase.
<F3>For Class A and Class B shares, percentages are based on fees incurred
during the fiscal year ended January 31, 1994, except that percentages for
the Arkansas, Florida, Mississippi and New York Funds reflect the gradual
reduction of the waiver of a portion of the management fee, and percentages
for the California Fund reflect the reduction of the management fee, during
the current fiscal year (see footnote (4)).
<F4>The Adviser has voluntarily reduced the management fee with respect to the
Arkansas, Florida, Mississippi and New York Funds to 0.20%, 0.10%, 0.00%
and 0.35% of each Fund's average daily net assets, to be increased by 0.05%
each quarter thereafter, commencing on October 1, 1993 for the Florida,
Mississippi and New York Funds and commencing on July 1, 1993 for the
Arkansas Fund, not to exceed 0.55% of each Fund's average daily net assets.
The Adviser has voluntarily reduced its management fee with respect to the
Louisiana, Pennsylvania, Texas and Washington Funds to 0.00% of each Fund's
average daily net assets for an indefinite period of time. The Adviser has
voluntarily reduced the management fee with respect to the California Fund
to 0.40% of the Fund's average daily net assets for an indefinite period of
time. See "Management of the Trust" below.
<F5>Each Fund has adopted a distribution plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per annum
of the net assets of the Fund attributable to Class A shares. (See
"Distribution Plans.") Currently, a portion of the fees payable under the
Class A Distribution Plans with respect to certain Funds is being waived,
while certain other Funds have not commenced payments under the Class A
Distribution Plans (see footnote (6)). After a substantial period of time,
distribution expenses paid under this plan, together with the initial sales
charge, may total more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
<F6>For the Arkansas, California, Florida, Louisiana, Mississippi,
Pennsylvania, Texas and Washington Funds, fees payable under the Class A
Distribution Plans will become payable pursuant to such Plans on such date
or dates as the Trustees of the Trust may determine. Following such time,
fees payable under the Class A Distribution Plans will be payable in an
amount of up to 0.35% of the average daily net assets of such Fund
attributable to Class A shares. Commencing on October 14, 1991, August 21,
1991 and June 1, 1991, FSI has voluntarily waived its right to receive
0.10% of fees payable under the Class A Distribution Plans with respect to
the Alabama, Georgia and New York Funds. See "Distribution Plans" below.
<F7>The Adviser receives an additional fee in reimbursement of certain expenses
of the Louisiana, Mississippi, Pennsylvania, Texas and Washington Funds
paid by the Adviser. During the year ended January 31, 1994, the Adviser
agreed to voluntarily reduce the expense reimbursement fee for each of
these Funds for an indefinite time period, from 0.40% to 0.00% of such
Funds' average daily net assets.
<F8>Absent a reduction in certain Funds' management fees, fees payable under
the Class A Distribution Plan and/or expense reimbursement arrangements,
Total Operating Expenses for Class A shares of the Alabama, Arkansas,
California, Florida, Georgia, Louisiana, Mississippi, New York,
Pennsylvania, Texas and Washington Funds would have been 1.28%, .93%, .83%,
1.12%, 1.28%, .95%, .95%, 1.32%, .95%, .95% and .95%, respectively.
<F9>Each Fund has adopted a distribution plan for its Class B and C shares in
accordance with Rule 12b-1 under the 1940 Act, which provides that it will
pay distribution/service fees aggregating up to 1.00% per annum of the
average net daily assets attributable to the Class B and C shares (see
"Distribution Plans"). After a substantial period of time, distribution
expenses paid under this Plan, together with any CDSC, may total more than
the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
<F10>Except in the case of the 0.25% per annum first year service fee, service
fees under a Fund's Class B Distribution Plans will become payable for the
Arkansas, California, Florida, Louisiana, Mississippi, Pennsylvania, Texas
and Washington Funds on such date or dates as the Trustees of the Trust may
determine. See "Distribution Plans" below.
<F11>Absent a reduction in certain Funds' management fees and/or expense
reimbursement arrangements, Total Operating Expenses for Class B shares of
the Arkansas, California, Florida, Louisiana, Mississippi, New York,
Pennsylvania, Texas and Washington Funds would have been 2.00%, 1.90%,
2.19%, 1.95%, 1.95%, 2.04%, 1.95%, 1.95% and 1.95%, respectively.
<F12>Percentages for Class C shares are based on Class A and Class B expenses
incurred during the fiscal year ended January 31, 1994, except that
percentages for the California Fund reflect the gradual reduction of the
waiver of a portion of the management fee during the current fiscal year
(see footnote (4)).
<F13>Absent a reduction in the California Fund's management fees, total
Operating Expenses for Class C shares would have been 1.83%.
</TABLE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a hypothetical
$1,000 investment in a Fund, assuming (a) 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
<TABLE>
<CAPTION>
ALABAMA ARKANSAS CALIFORNIA FLORIDA
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------
PERIOD CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A CLASS B
- ----- ------- -------------- ------- --------------- ----- ------------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<F1> <F1> <F2> <F1>
1 year ............. $ 59 $ 60 $ 20 $ 55 $ 59 $ 19 $ 54 $ 58 $ 18 $ 17 $ 55 $ 59 $ 19
3 years ............ 83 93 63 71 88 58 68 85 55 53 72 89 59
5 years ............ 109 128 108 89 120 100 84 115 95 91 91 122 102
10 years ........... 184 212<F2> 212<F2> 140 189<F2> 189<F2> 128 178<F2> 178<F2> 199 144 193<F2>193<F2>
</TABLE>
<TABLE>
<CAPTION>
GEORGIA LOUISIANA MARYLAND MASSACHUSETTS
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------
PERIOD CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
- ----- ------- -------------- ------- ------------ -------- ------------- ------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<F1> <F1> <F1> <F1>
1 year .......... $ 59 $ 60 $ 20 $ 48 $ 50 $ 10 $ 59 $ 60 $ 20 $ 59 $ 59 $ 19
3 years ......... 83 93 63 48 62 32 85 91 61 83 90 60
5 years ......... 109 128 108 48 75 55 112 125 105 110 123 103
10 years ........ 184 212<F2> 212<F2> 48 94<F2> 94<F2> 189 209<F2> 209<F2> 185 205<F2> 205<F2>
</TABLE>
<TABLE>
<CAPTION>
MISSISSIPPI NEW YORK NORTH CAROLINA PENNSYLVANIA
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------
PERIOD CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A CLASS B
- ----- ------- ------------- ------- -------------- ------- ------------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<F1> <F1> <F1> <F1>
1 year ......... $ 49 $ 52 $ 12 $ 59 $ 60 $ 20 $ 59 $ 59 $ 19 $ 18 $ 48 $50 $10
3 years ........ 52 67 37 83 92 62 83 89 59 57 48 62 32
5 years ........ 56 83 63 109 127 107 108 122 102 98 48 75 55
10 years ....... 66 112<F2> 112<F2> 183 211<F2> 211<F2> 182 201<F2> 201<F1> 213 48 94<F2> 94<F2>
</TABLE>
<TABLE>
<CAPTION>
SOUTH CAROLINA TENNESSEE TEXAS VIRGINIA
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------
PERIOD CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS C
- ------ ------- ------------- ------- -------------- ------- ------------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<F1> <F1> <F1> <F1>
1 year ......... $ 59 $ 60 $ 20 $ 59 $ 60 $ 20 $ 48 $ 50 $ 10 $ 59 $ 59 $ 19 $ 18
3 years ........ 85 91 61 84 91 61 48 62 32 83 89 59 57
5 years ........ 112 125 105 111 124 104 48 75 55 109 122 102 99
10 years ....... 189 209<F2> 209<F2> 187 207<F2> 207<F2> 48 94<F2> 94<F2> 183 202<F2>202<F2> 214
</TABLE>
<TABLE>
<CAPTION>
WASHINGTON WEST VIRGINIA
FUND FUND
----------------------- ----------------------------
PERIOD CLASS A CLASS B CLASS A CLASS B
- ------ ------- --------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
(1) (1)
1 year ........... $ 48 $ 50 $ 10 $ 59 $ 60 $ 20
3 years .......... 48 62 32 84 91 61
5 years .......... 48 75 55 111 124 104
10 years ......... 48 94<F2> 94<F2> 187 207<F2> 207<F2>
<FN>
- ---------
<F1> Assumes no redemption.
<F2> Class B shares convert to Class A shares approximately eight years after
purchase; therefore years nine and ten reflect Class A expenses.
</TABLE>
THE "EXAMPLE" SET FORTH ABOVE REFLECTS THE IMPOSITION OF THE MAXIMUM SALES
CHARGE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OF A FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the expense table is to assist investors in understanding the
various costs and expenses that a shareholder in a Fund will bear directly or
indirectly. More complete descriptions of the following Trust expenses are set
forth in the following sections of the Prospectus: (i) varying sales charges on
share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii)
management fees -- "Management of the Fund -- Investment Adviser"; and (iv) Rule
12b-1 (i.e., distribution plan) fees -- "Distribution Plans."
INVESTMENT ADVISER
Massachusetts Financial Services Company, a Delaware corporation ("MFS" or the
"Adviser"), is the Trust's investment adviser. The Adviser is responsible for
the management of the assets of each Fund, and manages the portfolio of each
Fund from day to day in accordance with its investment objective and policies.
For these management and other services, the Adviser receives a management fee
from the Trust on behalf of each Fund computed and paid monthly at an annual
rate equal to 0.55% of the Fund's average daily net assets. For the Arkansas,
California, Florida, Louisiana, Mississippi, New York, Pennsylvania, Texas and
Washington Funds, the Adviser has voluntarily reduced the management fee. See
"Management of the Trust" in this Prospectus. The MFS organization, with a
history of money management dating back to 1924, advises and administers each of
the other funds in the MFS Family of Funds (the "MFS Funds"). MFS also manages
assets for certain other registered investment companies and for substantial
private clients.
NET ASSET VALUE OF SHARES
The value of each share of each class of each Fund is its net asset value. The
net asset value per share of each class of shares is determined by deducting the
amount of the liabilities attributable to the class from the value of the assets
attributable to the class and dividing the difference by the number of shares of
the class outstanding. The value of each share of each class of each Fund
changes daily as the aggregate value of the securities in the portfolio of that
Fund increases or decreases. See "Net Asset Value" below. Therefore, the value
of shares owned by a shareholder may be more or less than the shareholder's
cost.
PURCHASE OF SHARES
Shares of each Fund are continuously sold to the public and may be purchased
through any securities dealer or other financial institution having a selling
agreement with MFS Financial Services, Inc. ("FSI") in its capacity as the
Trust's distributor. Each Fund currently offers Class A and Class B shares to
the public. In addition, the California Fund, the North Carolina Fund and the
Virginia Fund currently offer Class C shares to the public.Class A shares are
offered at net asset value plus an initial sales charge (or a CDSC in the case
of certain purchases of $1 million or more) and subject to a distribution plan
providing for a distribution fee and service fee. Class B shares are offered at
net asset value without an initial sales charge but subject to a CDSC and a
distribution plan providing for an annual distribution fee and service fee which
are greater than the Class A distribution fee and service fee. Class B shares
will convert to Class A shares approximately eight years after purchase. Class C
shares are offered at net asset value without a sales charge or a CDSC but
subject to a distribution plan providing for an annual distribution and service
fee which are equal to the Class B annual distribution fee and service fee.
Class C shares do not convert to any other class of shares. The minimum initial
investment is generally $1,000 per account.
DISTRIBUTIONS
The Trust intends to declare daily and pay monthly dividends to the shareholders
of each class from the net investment income of the Fund allocable to that
class. If a Fund has profits from the sale of securities from its portfolio
(after taking into account any available capital losses, including capital loss
carryforwards from prior years), one or more capital gain distributions will be
made to shareholders of the Fund during the calendar year. A shareholder may
elect to receive dividends and capital gain distributions in either cash or
additional shares. See "Tax Status" and "Distributions" below.
REDEMPTION OF SHARES
The Trust will buy back shares of each Fund at their net asset value (subject,
in the case of Class B shares and in the case of certain Class A shares, to any
applicable CDSC) determined either on the day a dealer places an order or on the
day a shareholder's written instructions are received in proper form by the
Shareholder Servicing Agent. The Trust reserves the right to pay the redemption
price, either totally or partially, by a distribution in kind of securities from
the portfolio of a Fund (instead of cash).
EXCHANGE AND OTHER PRIVILEGES
Shareholders have the right to obtain quantity discounts on sales charges for
purchases of Class A shares under certain circumstances. Additionally,
shareholders have the right to exchange shares of a class of a Fund for shares
of the same class of another Fund (subject to residency requirements) or the
same class of shares of certain of the other MFS Funds. See "Exchanges" and
"Shareholder Services" below.
CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Funds' Annual Reports to Shareholders, which are
incorporated by reference into the Statement of Additional Information in
reliance upon the reports of Deloitte & Touche, independent certified public
accountants, as experts in acounting and auditing.
Further information about the performance of each Fund is contained in the
Fund's Annual Reports to Shareholders, which can be obtained from the
Shareholder Servicing Agent (see back cover for address and phone number)
without charge.
<PAGE> 62
FINANCIAL HIGHLIGHTS
(THERE WERE NO CLASS C SHARES OUTSTANDING DURING THESE PERIODS.)
<TABLE>
<CAPTION>
ALABAMA FUND
---------------------------------------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------------------
1994 1993 1992 1991 1994<F1>
---- ---- ---- ---- ----
CLASS A CLASS B
------------------------------------------- ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ................... $ 10.33 $ 9.95 $ 9.65 $ 9.53 $ 10.93
------- ------- ------- ------ -------
Income from investment operations:
Net investment income<F4> .............................. $ 0.55 $ 0.56 $ 0.60 $ 0.59 $ 0.18
Net realized and unrealized gain (loss) on investments . 0.69 0.41 0.41 0.08 0.07
------- ------- ------- ------ -------
Total from investment operations ..................... $ 1.24 $ 0.97 $ 1.01 $ 0.67 $ 0.25
------- ------- ------- ------ -------
Less distributions declared to shareholders:
From net investment income ............................. $ (0.54) $ (0.58) $ (0.65) $(0.55) $ (0.18)
From net realized gain on investments .................. (0.04) (0.01) (0.06) -- (0.02)
In excess of net investment income<F2> ................. (0.01) -- -- -- --
------- ------- ------- ------ -------
Total distributions declared to shareholders ......... $ (0.59) $ (0.59) $ (0.71) $(0.55) $ (0.20)
------- ------- ------- ------ -------
Net asset value -- end of period ......................... $ 10.98 $ 10.33 $ 9.95 $ 9.65 $ 10.98
======= ======= ======= ====== =======
Total return ............................................. 12.26% 10.08% 10.92% 7.37% 2.29%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:<F4>
Expenses ............................................... 1.21% 1.08% 0.95% 0.57% 1.98%<F3>
Net investment income .................................. 5.13% 5.79% 6.19% 6.63% 3.98%<F3>
PORTFOLIO TURNOVER ....................................... 12% 17% 23% 64% 12%
NET ASSETS AT END OF PERIOD (000 OMITTED) ................ $87,344 $67,678 $48,476 $22,076 $ 2,269
<FN>
- -----------
<F1> For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
<F2> For the year ended January 31, 1992, the per share distribution in excess
of net investment income was $0.004.
<F3> Annualized.
<F4> The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, net investment income per share and the
ratios would have been:
Net Investment income ............................. $ 0.54 $ 0.55 $ 0.59 $0.52 $0.18
RATIOS (TO AVERAGE NET ASSETS): ...................
Expenses ........................................ 1.31% 1.18% 1.08% 1.33% --
Net investment income ........................... 5.03% 5.69% 6.06% 5.87% --
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
ARKANSAS FUND
--------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------
1994 1993<F1> 1994<F2>
---- ---- ----
CLASS A CLASS B
------------------------ -------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ............................. $ 9.88 $ 9.53 $ 10.42
------- ------- -------
Income from investment operations:
Net investment income<F6> ........................................ $ 0.56 $ 0.58 $ 0.23
Net realized and unrealized gain (loss) on investments ........... 0.60 0.35 (0.04)
------- ------- -------
Total from investment operations ............................... $ 1.16 $ 0.93 $ 0.19
Less distributions declared to shareholders:
From net investment income ....................................... (0.55) $ (0.58) $(0.14)
From net realized gain on investments<F3> ........................ -- --
In excess of net investment income<F4> ........................... (0.02) -- --
------- ------- -------
Total distributions declared to shareholders ................... $ (0.57) $ (0.58) $ (0.14)
------- ------- -------
Net asset value -- end of period ................................... $ 10.47 $ 9.88 $ 10.47
======= ======= =======
Total return ....................................................... 11.95% 10.11% 2.18%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:<F6>
Expenses ......................................................... 0.63% 0.18%<F5> 1.75%<F5>
Net investment income ............................................ 5.30% 6.01%<F5> 3.87%<F5>
PORTFOLIO TURNOVER ................................................. 3% 10% 3%
NET ASSETS AT END OF PERIOD (000 OMITTED) .......................... $203,542 $124,644 $ 5,179
<FN>
- ---------
<F1> For the period from the commencement of operations, February 3, 1992, to
January 31, 1993.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
<F3> For the year ended January 31, 1994, the per share distributions from net
realized gain on investments and in excess of net realized gain on
investments were $0.0016 and $0.0003, respectively, for both Class A and
Class B shares.
<F4> For the year ended January 31, 1994, the per share distributions in excess
of net investment income were $0.004 for Class B shares.
<F5> Annualized.
<F6> The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, net investment income per share and the
ratios would have been:
Net investment income ................................ $ 0.53 $ 0.52 $ 0.12
RATIOS (TO AVERAGE NET ASSETS):
Expenses ........................................... 0.91% 0.76%<F5> 3.44%<F5>
Net investment income .............................. 5.01% 5.36%<F5> 2.09%<F5>
</TABLE>
<PAGE> 64
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CALIFORNIA FUND
--------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, YEAR ENDED FEBRUARY 28/29,
------------------------- ------------------------------------------------------------------------
1994<F4> 1994<F2> 1994<F3> 1993 1992 1991 1990 1989 1988 1987 1986<F1>
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
CLASS A CLASS B CLASS C CLASS A
--------------------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
(FOR A SHARE
OUTSTANDING
THROUGHOUT EACH
PERIOD):
Net asset value --
beginning of
period ........... $ 5.88 $ 6.02 $ 5.89 $ 5.42 $ 5.26 $ 5.19 $ 5.06 $ 5.08 $ 5.38 $ 5.07 $ 4.76
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income<F7> ...... $ 0.30 $ 0.10 $ 0.01 $ 0.34 $ 0.35 $ 0.33 $ 0.33 $ 0.32 $ 0.31 $ 0.32 $ 0.20
Net realized and
unrealized gain
(loss) on
investments ..... 0.14 -- 0.06 0.47 0.20 0.07 0.13 (0.02) (0.29) 0.34 0.28
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations .... $ 0.44 $ 0.10 $ 0.07 $ 0.81 $ 0.55 $ 0.40 $ 0.46 $ 0.30 $ 0.02 $ 0.66 $ 0.48
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
From net
investment
income .......... $(0.29) $(0.10) $(0.01) $(0.34) $(0.37) $(0.33) $(0.33) $(0.32) $(0.31) $(0.33) $(0.17)
From net realized
gain on
investments (0.07) (0.07) -- (0.01) (0.02) -- -- -- (0.01) (0.02) --
In excess of net
investment
income<F5> (0.01) -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions
declared to
shareholders .. $(0.37) $(0.17) $(0.01) $(0.35) $(0.39) $(0.33) $(0.33) $(0.32) $(0.32) $(0.35) $(0.17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value --
end of period ..... $ 5.95 $ 5.95 $ 5.95 $ 5.88 $ 5.42 $ 5.26 $ 5.19 $ 5.06 $ 5.08 $ 5.38 $ 5.07
====== ====== ====== ====== ====== ====== ====== ====== ====== ------ ------
RATIOS (TO AVERAGE
NET ASSETS)/
SUPPLEMENTAL DATA:<F7>
Expenses ......... 0.60%<F6> 1.60%<F6> 2.02%<F6> 0.39% 0.40% 0.87% 1.00% 1.28% 1.20% 1.04% 0.95%<F6>
Net investment
income .......... 4.99<F6> 3.64%<F6> 1.78%<F6> 6.18% 6.53% 6.39% 6.35% 6.35% 6.33% 6.25% 7.34%<F6>
PORTFOLIO TURNOVER . 38% 38% 38% 64% 73% 102% 243% 188% 240% 54% 23%
NET ASSETS AT END
OF PERIOD
(000 OMITTED) ..... $356,419 $ 19,360 $917 $272,179 $177,291 $84,551 $68,879 $59,212 $59,479 $62,368 $17,488
<FN>
- ---------
<F1> For the period from the commencement of investment operations, June 19,
1985, to February 28, 1986.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
<F3> For the period from the commencement of offering of Class C shares, January
3, 1994 to January 31, 1994.
<F4> For the eleven months ended January 31, 1994.
<F5> Distributions declared to shareholders in excess of net investment income
for the eleven months ended January 31, 1994 were $0.003 for both Class B
and Class C shares.
<F6> Annualized.
<F7> The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, net investment income per share
and the ratios would have been:
RATIOS (TO AVERAGE
NET ASSETS):
Expenses .... 0.78%<F6> 1.81%<F6> 3.53%<F6> 0.77% 0.79%
Net investment
income ..... 4.82%<F6> 3.43%<F6> 0.27%<F6> 5.80% 6.14%
</TABLE>
<PAGE> 65
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FLORIDA FUND
---------------------------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------
1994 1993<F1> 1994
---- ----- ----
CLASS A CLASS B<F2>
------------------------ ------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value --beginning of period .................................. $ 9.89 $ 9.53 $10.69
------- ------ ------
Income from investment operations --
Net investment income<F4> ............................................ $ 0.57 $ 0.58 $ 0.18
Net realized and unrealized gain (loss) on investments ............... 0.86 0.36 0.03
------- ------ ------
Total from investment operations ................................... $ 1.43 $ 0.94 $ 0.21
------- ------ ------
Less distributions declared to shareholders --
From net investment income ........................................... $ (0.57) $(0.58) $(0.17)
From net realized gain on investments ................................ (0.11) -- (0.10)
In excess of net investment income ................................... (0.01) -- (0.01)
------- ------ ------
Total distributions declared to shareholders ....................... $ (0.69) $(0.58) $(0.28)
------- ------ ------
Net asset value -- end of period ....................................... $ 10.63 $ 9.89 $10.62
======= ====== ======
Total return ........................................................... 14.71% 10.28%<F3> 4.87%<F3>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:<F4>
Expenses ............................................................. 0.49% 0.05%<F3> 1.64%<F3>
Net investment income ................................................ 5.42% 6.27%<F3> 3.82%<F3>
PORTFOLIO TURNOVER ..................................................... 53% 54% 53%
NET ASSETS AT END OF PERIOD (000 OMITTED) .............................. $124,131 $74,329 $7,244
<FN>
- ---------
<F1> For the period from the commencement of operations, February 3, 1992 to
January 31, 1993.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
<F3> Annualized.
<F4> The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, the net investment income per
share and the ratios would have been:
Net investment income per share ................................ $ 0.52 $ 0.51 $ 0.16
RATIOS (TO AVERAGE NET ASSETS):
Expenses ...................................................... 0.93% 0.81%<F3> 2.09%<F3>
Net investment income ......................................... 4.97% 5.51%<F3> 3.38%<F3>
</TABLE>
<PAGE> 66
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GEORGIA FUND
----------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
----------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989* 1994**
---- ---- ---- ---- ---- ----- ------
CLASS A CLASS B
------------------------------------------------------------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ........ $10.57 $10.22 $ 9.83 $ 9.73 $ 9.73 $ 9.53 $11.26
------ ------ ------ ------ ------ ------ ------
Income from investment operations --
Net investment income<F4> ................... $ 0.57 $ 0.58 $ 0.61 $ 0.63 $ 0.66 $ 0.32 $ 0.19
Net realized and unrealized gain (loss) on
investments ................................ 0.75 0.38 0.46 0.12 0.02 0.14 0.05
------ ------ ------ ------ ------ ------ ------
Total from investment operations .......... $ 1.32 $ 0.96 $ 1.07 $ 0.75 $ 0.68 $ 0.46 $ 0.24
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income .................. $(0.55) $(0.60) $(0.66) $(0.63) $(0.66) $(0.26) $(0.18)
From net realized gain on investments ....... (0.01) (0.01) (0.02) (0.02) (0.02) -- (0.01)
In excess of net investment income .......... (0.03) -- -- -- -- -- (0.01)
Total distributions declared to
shareholders ............................ $(0.59) $(0.61) $(0.68) $(0.65) $(0.68) $(0.26) $(0.20)
------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period .............. $11.30 $10.57 $10.22 $ 9.83 $ 9.73 $ 9.73 $11.30
====== ====== ====== ====== ====== ====== ======
Total return .................................. 12.71% 9.56% 11.29% 8.06% 7.19% 7.57%<F3> 5.34%<F3>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:<F4>
Expenses .................................... 1.21% 1.08% 0.99% 0.74% 0.42% 0.40%<F3> 1.97%<F3>
Net investment income ....................... 5.10% 5.75% 6.08% 6.46% 6.72% 6.18%<F3> 3.83%<F3>
PORTFOLIO TURNOVER ............................ 14% 27% 36% 71% 99% -- 14%
NET ASSETS AT END OF PERIOD
(000 OMITTED) ............................... $94,407 $64,649 $47,869 $29,214 $12,628 $4,383 $5,766
<FN>
- ---------
<F1> For the period from the commencement of operations, June 6, 1988 to January
31, 1989.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
<F3> Annualized.
<F4> The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, the net investment income per
share and the ratios would have been:
Net investment income per share ........ $ 0.56 $ 0.57 $ 0.60 $ 0.59 $ 0.57 $ 0.29 $ 0.19
RATIOS (TO AVERAGE NET ASSETS):
Expenses .............................. 1.31% 1.18% 1.09% 1.11% 1.31% 1.07%+ 1.97%<F3>
Net investment income ................. 5.00% 5.65% 5.98% 6.09% 5.83% 5.51%+ 3.83%<F3>
</TABLE>
<PAGE> 67
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LOUISIANA FUND
----------------------
YEAR ENDED JANUARY 31,
----------------------
1994 1994<F1>
-------- --------
CLASS A CLASS B
-------- -------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period $ 9.53 $10.08
------ ------
Income from investment operations:
Net investment income<F3>...... $ 0.52 $ 0.18
Net realized and unrealized gain (loss) on investments 0.62 0.07
------ ------
Total from investment operations $ 1.14 $ 0.25
------ ------
Less distributions declared to shareholders --
From net investment income $(0.52) $(0.18)
From net realized gain on investments (0.02) (0.02)
Total distributions declared to shareholders $(0.54) $(0.20)
------ ------
Net asset value -- end of period $10.13 $10.13
====== ======
Total return 12.33% 2.48%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:<F3>
Expenses 0.00% 1.00%<F2>
Net investment income 5.41% 4.32%<F2>
PORTFOLIO TURNOVER 33% 33%
NET ASSETS AT END OF PERIOD (000 OMITTED) $13,781 $1,263
<FN>
<F1> For the period from the commencement of offering of Class B
shares,September 7, 1993 to January 31, 1994.
<F2> Annualized.
<F3> The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, net investment income per share and the
ratios would have been:
Net investment income ................... $0.32 $0.09
RATIOS (TO AVERAGE NET ASSETS):
Expenses 2.03% 3.08%<F2>
Net investment income 3.38% 2.24%<F2>
</TABLE>
<PAGE> 68
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MARYLAND FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net Asset Value -- Beginning Of Period $11.40 $11.20 $10.97 $10.79 $10.76 $10.62 $11.20 $10.44
------ ------ ------ ------ ------ ------ ------ ------
Income From Investment Operations:
Net Investment Income $ 0.62 $ 0.67 $ 0.70 $ 0.70 $ 0.69 $ 0.69 $ 0.68 $ 0.71
Net Realized And Unrealized Gain
(Loss) On Investments 0.53 0.24 0.31 0.19 0.04 0.14 (0.57) 0.78
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations $ 1.15 $ 0.91 $ 1.01 $ 0.89 $ 0.73 $ 0.83 $ 0.11 $ 1.49
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions Declared To Shareholders --
From Net Investment Income $(0.61) $(0.69) $(0.76) $(0.70) $(0.69) $(0.69) $(0.67) $(0.73)
From Net Realized Gain On Investments (0.07) (0.02) (0.02) (0.01) (0.01) -- (0.01) --
In Excess Of Net investment Income (0.04) -- -- -- -- -- -- --
In Excess Of Net Realized Gain On
Investments (0.02) -- -- -- -- -- -- --
From Paid-In Capital<F4> -- -- -- -- -- -- (0.01) --
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions Declared To
Shareholders $(0.74) $(0.71) $(0.78) $(0.71) $(0.70) $(0.69) $(0.69) $(0.73)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value -- End Of Period $11.81 $11.40 $11.20 $10.97 $10.79 $10.76 $10.62 $11.20
====== ====== ====== ====== ====== ====== ====== ======
Total Return 10.27% 8.34% 9.55% 8.51% 6.90% 8.15% 1.25% 14.86%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 1.25% 1.14% 1.16% 1.17% 1.18% 1.14% 1.10% 1.10%
Net Investment Income 5.42% 6.13% 6.32% 6.45% 6.33% 6.52% 6.47% 6.60%
PORTFOLIO TURNOVER 25% 5% 9% 41% 58% 34% 13% 11%
NET ASSETS AT END OF PERIOD (000 OMITTED) $173,419 $145,794 $119,120 $101,742 $93,175 $84,380 $79,906 $81,712
<CAPTION>
----------------------------------
1986 1985<F1> 1994<F2>
----------------------------------
CLASS A CLASS B
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net Asset Value -- Beginning Of Period $9.89 $9.52 $11.88
----- ------ ------
Income From Investment Operations:
Net Investment Income $0.81 $0.22 $0.22
Net Realized And Unrealized Gain
(Loss) On Investments 0.62 0.29 (0.01)
----- ------ ------
Total From Investment Operations $1.43 $0.51 $0.21
Less Distributions Declared To Shareholders --
From Net Investment Income $(0.82) $(0.14) $(0.21)
From Net Realized Gain On Investments (0.06) -- (0.05)
In Excess Of Netinvestment Income -- -- (0.01)
In Excess Of Net Realized Gain On
Investments -- -- (0.02)
From Paid-In Capital<F3> -- -- --
----- ------ ------
Total Distributions Declared To
Shareholders $(0.88) $(0.14) $(0.29)
----- ------ ------
Net Asset Value -- End Of Period $10.44 $9.89 $11.80
----- ------ ------
Total Return 15.47% 21.42%<F3> 4.45%<F3>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 0.98% 0.95%<F3> 1.81%<F3>
Net Investment Income 8.22% 9.15%<F3> 4.23%<F3>
PORTFOLIO TURNOVER 26% 40% 25%
NET ASSETS AT END OF PERIOD (000 OMITTED) $33,818 $9,055 $5,345
<FN>
<F1> For the period from the commencement of investment operations, October 31,
1984 to january 31, 1985.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
<F3> Annualized.
<F4> For the year ended January 31, 1986, the per share distribution from
paid-in capital was $0.0005.
</TABLE>
<PAGE> 69
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
---------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986<F1> 1994<F2>
------ ------ ------ ------ ------ ------ ------- ------ ------- ---------
CLASS A CLASS B
------------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of
period ........................... $11.41 $11.05 $10.68 $10.58 $10.65 $10.60 $11.25 $10.59 $ 9.52 $11.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations--
Net investment income ............ $ 0.64 $ 0.68 $ 0.73 $ 0.71 $ 0.72 $ 0.72 $ 0.71 $ 0.74 $ 0.54 $ 0.23
Net realized and unrealized gain
(loss) on investments .......... 0.58 0.39 0.43 0.11 (0.07) 0.05 (0.65) 0.68 0.99 0.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ... $ 1.22 $ 1.07 $ 1.16 $ 0.82 $ 0.65 $ 0.77 $ 0.06 $ 1.42 $ 1.53 $ 0.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders--
From net investment income ....... $(0.64) $(0.71) $(0.78) $(0.72) $(0.72) $(0.72) $(0.71) $(0.75) $(0.46) $(0.22)
From net realized gain on
investments .................... (0.20) -- -- -- -- -- -- (0.01) -- (0.20)
In excess of net investment
income ......................... (0.04) -- -- -- -- -- -- -- -- (0.01)
From paid-in capital ............. -- -- (0.01) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Total distributions declared
to shareholders ............... $(0.88) $(0.71) $(0.79) $(0.72) $(0.72) $(0.72) $(0.71) $(0.76) $(0.46) $(0.43)
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Net asset value - end of period $11.75 $11.41 $11.05 $10.68 $10.58 $10.65 $10.60 $11.25 $10.59 $11.75
====== ====== ====== ===== ====== ====== ====== ===== ====== ======
Total return ............. 11.02% 10.03% 11.23% 8.12% 6.28% 7.65% 0.80% 14.10% 20.51%<F3> 5.89%<F3>
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses 1.19% 1.08% 1.06% 1.07% 1.10% 1.07% 1.04% 0.87% 0.86%<F3> 1.81%<F3>
Net investment income .. 5.71% 6.33% 6.65% 6.74% 6.75% 6.90% 6.79% 6.83% 7.82%<F3> 4.62%<F3>
PORTFOLIO TURNOVER ....... 30% 32% 51% 43% 52% 26% 27% 7% 27% 30%
NET ASSETS AT END OF
PERIOD (000 OMITTED) .... $300,894 $270,778 $239,311 $213,679 $215,381 $212,763 $224,219 $242,119 $94,575 $4,191
<FN>
- ---------
<F1> For the period from the commencement of operations, April 9, 1985 to
January 31, 1986.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993, to January 31, 1994.
<F3> Annualized.
</TABLE>
<PAGE> 70
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MISSISSIPPI FUND
--------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------
1994 1993* 1994**
--------------------------------------
CLASS A CLASS B
--------------------------------------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
Net asset value -- beginning of period $ 9.38 $ 9.53 $ 9.94
Income from investment operations: ------ ------ ------
Net investment income++ ............ $ 0.55 $ 0.24 $ 0.18
Net realized and unrealized gain
(loss) on investments ............ 0.62 (0.15) 0.05
------ ------ ------
Total from investment operations ..... $ 1.17 $ 0.09 $ 0.23
------ ------ ------
Less distributions declared to shareholders --
From net investment income ......... $(0.55) $(0.24) $(0.18)
From net realized gain on
investments ...................... -- -- --
Total distributions declared to ------ ------ ------
shareholders ................... $(0.55) $(0.24) $(0.18)
------ ------ ------
Net asset value -- end of period ..... $10.00 $ 9.38 $ 9.99
====== ====== ======
Total return ......................... 12.80% 5.00% 2.33%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:+ +
Expenses ........................... 0.03% 0.00%+ 1.06%+
Net investment income .............. 5.68% 5.59%+ 4.29%+
PORTFOLIO TURNOVER 28% 14% 28%
NET ASSETS AT END OF PERIOD
(000 OMITTED) ...................... $84,177 $41,212 $6,268
- ---------
* For the period from the commencement of investment operations, August 6,
1992, to January 31, 1993.
** For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
+ Annualized.
++ The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, net investment income per share and the
ratios would have been:
Net investment income ............. $0.45 $0.19 $0.14
RATIOS (TO AVERAGE NET ASSETS):
Expenses ........................ 1.01% 1.17%+ 2.12%+
Net investment income ........... 4.69% 4.42%+ 3.23%+
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NEW YORK FUND
-----------------------------------------------------------------------------------
YEAR ENDED JANUARY 31
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989<F1> 1994<F2>
CLASS A CLASS B
-------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period .... $10.78 $10.25 $ 9.90 $9.74 $9.79 $9.53 $11.46
Income from investment operations -- ------ ------ ------ ----- ----- ----- ------
Net investment income<F4> ............... $0.59 $ 0.63 $ 0.65 $0.65 $0.68 $0.29 $ 0.18
Net realized and unrealized gain (loss)
on investments ........................ 0.74 0.58 0.44 0.16 0.01 0.21 0.04
----- ------ ------ ----- ----- ----- ------
Total from investment operations ...... $1.33 $ 1.21 $ 1.09 $0.81 $0.69 $0.50 $ 0.22
----- ------ ------ ----- ----- ----- ------
Less distributions declared to shareholders --
From net investment income .............. (0.57) (0.65) (0.69) (0.65) (0.67) (0.24) (0.18)
From net realized gain on investments ... (0.17) (0.03) (0.05) -- (0.06) -- (0.15)
In excess of net investment income ...... (0.03) -- -- -- -- -- (0.01)
From paid-in capital .................... -- -- -- -- (0.01) -- --
Total distributions declared to ------ ------ ------ ----- ----- ----- ------
shareholders ........................ (0.77) (0.68) (0.74) (0.65) (0.74) (0.24) (0.34)
------ ------ ------ ----- ----- ----- ------
Net asset value -- end of period .......... $11.34 $10.78 $10.25 $9.90 $9.74 $9.79 $11.34
====== ====== ====== ===== ===== ===== ======
Total return .............................. 12.69% 12.23% 11.42% 8.74% 7.33% 8.16%<F3> 5.20%<F3>
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:<F4>
Expenses ................................ 0.93% 0.53% 0.65% 0.54% 0.40% 0.40%<F3> 1.79%<F3>
Net investment income ................... 5.21% 6.16% 6.44% 6.73% 6.88% 5.93%<F3> 3.90%<F3>
PORTFOLIO TURNOVER ........................ 51% 61% 80% 188% 236% 32% 51%
NET ASSETS AT END OF PERIOD (000 OMITTED) . $184,523 $135,749 $79,524 $37,385 $20,156 $6,412 $4,828
<FN>
- ---------
<F1>For the period from the commencement of operations, June 6, 1988 to January 31, 1989.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
Net investment income per share $0.56 $0.57 $0.60 $0.61 $0.59 $0.26 $0.17
RATIOS (TO AVERAGE NET ASSETS):
Expenses 1.23% 1.13% 1.16% 0.95% 1.32% 1.09%<F3> 2.00%<F3>
Net investment income 4.90% 5.56% 5.93% 6.33% 5.96% 5.24%<F3> 3.69%<F3>
</TABLE>
<PAGE> 71
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
---------------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ----
CLASS A
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):-
Net asset value -- beginning of period ...... $11.80 $11.45 $11.30 $11.18 $11.15 $11.13 $11.82 $11.09
Income from investment operations-- ------ ------ ------ ------ ------ ------ ------- ------
Net investment income ..................... $ 0.64 $ 0.65 $ 0.70 $ 0.72 $ 0.73 $ 0.74 $ 0.73 $ 0.75
Net realized and unrealized gain (loss) on
investments .............................. 0.58 0.37 0.26 0.17 0.03 0.02 (0.69) 0.90
------ ------ ------ ------ ------ ------ ------- ------
Total from investment operations ........ $ 1.22 $ 1.02 $ 0.96 $ 0.89 $ 0.76 $ 0.76 $ 0.04 $ 1.65
------ ------ ------ ------ ------ ------ ------- ------
Less distributions declared to shareholders--
From net investment income ............... $(0.61) $(0.67) $(0.76) $(0.72) $(0.73) $(0.74) $(0.73) $(0.76)
From net realized gain on investments .... (0.01) -- (0.01) (0.05) -- -- (0.16) (0.04)
In excess of net investment income<F6> .... (0.03) -- -- -- -- -- -- --
From paid-in capital<F5> .................. -- -- -- (0.04) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.65) $(0.67) $(0.81) $(0.77) $(0.73) $(0.74) $(0.73) $(0.92)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period ............ $12.37 $11.80 $11.45 $11.30 $11.18 $11.15 $11.13 $11.82
====== ====== ====== ====== ====== ====== ====== ======
Total return ................................ 10.59% 9.23% 8.82% 8.34% 6.97% 7.12% 0.65% 15.76%
RATIOS (TO AVERAGE NET ASSETS)/ SUPPLEMENTAL DATA:
Expenses .................................. 1.19% 1.07% 1.09% 1.09% 1.12% 1.11% 1.08% 1.07%
Net investment income ..................... 5.21% 5.80% 6.17% 6.47% 6.48% 6.70% 6.71% 6.63%
PORTFOLIO TURNOVER .......................... 12% 2% 39% 44% 61% 25% 10% 10%
NET ASSETS AT END OF PERIOD (000 OMITTED) ... $495,158 $398,352 $312,466 $226,806 $175,101 $129,287 $110,462 $105,668
<CAPTION>
----------------------------------------------------
YEAR ENDED JANUARY 31,
----------------------------------------------------
1986 1985<F1> 1994<F2> 1994<F3>
---- ----- ---- --------
CLASS B CLASS C
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):-
Net asset value -- beginning of period ....... $10.01 $ 9.52 $12.36 $12.24
Income from investment operations-- ------ ------ ------ ------
Net investment income ...................... $ 0.82 $ 0.21 $ 0.22 $ 0.02
Net realized and unrealized gain (loss) on
investments ............................... 1.12 0.42 0.01 0.12
------ ------ ------ ------
Total from investment operations ......... $ 1.94 $ 0.63 $ 0.23 $ 0.14
Less distributions declared to shareholders-- ------ ------ ------ ------
From net investment income ................ $(0.82) $(0.14) (0.21) $(0.02)
From net realized gain on investments ..... (0.04) -- (0.01) --
In excess of net investment income<F6> ..... -- -- (0.01) --
From paid-in capital<F5> ................... -- -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.86) $(0.14) $(0.23) $(0.02)
------ ------ ------ ------
Net asset value -- end of period ............. $11.09 $10.01 $12.36 $12.36
====== ====== ====== ======
Total return ................................. 20.63% 25.82%<F4> 4.58%<F4> 16.50%<F4>
RATIOS (TO AVERAGE NET ASSETS)/ SUPPLEMENTAL DATA:
Expenses ................................... 0.90% 0.95%<F4> 1.84%<F4> 1.44%<F4>
Net investment income ...................... 8.02% 8.71%<F4> 4.03%<F4> 2.33%<F4>
PORTFOLIO TURNOVER ........................... 78% 39% 12% 12%
NET ASSETS AT END OF PERIOD (000 OMITTED) .... $53,561 $20,243 $13,379 $4,584
<FN>
- ---------
<F1> For the period from the commencement of operations, October 31, 1984, to January 31, 1985.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993, to January 31, 1994.
<F3> For the period from the commencement of offering of Class C shares, January 3, 1994, to January 31, 1994.
<F4> Annualized
<F5> For the year ended January 31, 1991, the per share distribution from paid-in capital was $0.005.
<F6> For the year ended January 31, 1994, the per share distribution for Class C shares in excess of net investment income was
$0.003.
</TABLE>
<PAGE> 72
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PENNSYLVANIA FUND
---------------------------
YEAR ENDED JANUARY 31,
---------------------------
1994* 1994**
----- ------
CLASS A CLASS B
------- -------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value --beginning of period $ 9.53 $10.06
Income from investment operations -- ------- ------
Net investment income++ $ 0.50 $ 0.17
Net realized and unrealized gain (loss) on
investments 0.62 0.10
------ ------
Total from investment operations $ 1.12 $ 0.27
Less distributions declared to shareholders-- ------ ------
From net investment income $(0.50) $(0.17)
From net realized gain on investments (0.01) (0.01)
------ ------
Total distributions declared to shareholders $(0.51) $(0.18)
------ ------
Net asset value -- end of period $10.14 $10.15
====== ======
Total return 12.12% 6.76%+
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:++
Expenses 0.00% 1.00%+
Net investment income 5.30% 4.22%+
PORTFOLIO TURNOVER 10% 10%
NET ASSETS AT END OF PERIOD (000 OMITTED) $13,987 $3,401
* For the period from the commencement of operations, February 1, 1993 to
January 31, 1994.
** For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+ Annualized.
++ The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, the net investment income per share and the
ratios would have been:
</TABLE>
<TABLE>
<S> <C> <C>
Net investment income per share $ 0.32 $ 0.05
RATIOS (TO AVERAGE NET ASSETS):
Expenses 1.94% 2.50%+
Net investment income 3.36% 1.29%+
</TABLE>
<PAGE> 73
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SOUTH CAROLINA FUND
------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- ------- -------- ------- ------- ------ --------
CLASS A
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD):
Net asset value $12.02 $11.74 $11.45 $11.30 $11.24 $11.14 $11.54
------ ------ ------ ------ ------ ------ ------
Income from investment operations --
Net investment income .. $ 0.63 $ 0.67 $0.70 $ 0.71 $0.72 $ 0.76 $ 0.77
Net realized and unrealized gain (loss) on investments 0.74 0.34 0.40 0.21 0.06 0.11 (0.36)
------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 1.37 $ 1.01 $1.10 $ 0.92 $0.78 $ 0.87 $ 0.41
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.61) $(0.69) $(0.76) $(0.71) $(0.72) $(0.77) $(0.77)
From net realized gain (0.01) (0.04) (0.05) (0.06) -- -- --
In excess of net investment income ........ (0.03) -- -- -- -- -- --
From paid-in capital<F4> -- -- -- -- -- -- (0.04)
------ ------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.65) $(0.73) $(0.81) $(0.77) $(0.72) $(0.77) $(0.81)
------ ------ ------ ------ ------ ------ ------
Net asset value --end of period $12.74 $12.02 $11.74 $11.45 $11.30 $11.24 $11.14
====== ====== ====== ====== ====== ======= ======
Total return 11.69% 8.89% 9.95% 8.46% 7.13% 8.18% 3.92%
RATIOS (TO AVERAGE NET ASSETS)/ SUPPLEMENTAL DATA:
Expenses 1.22% 1.12% 1.15% 1.18% 1.21% 0.97% 0.81%
Net investment income .. 5.06% 5.74% 6.07% 6.30% 6.35% 6.90% 7.07%
PORTFOLIO TURNOVER 10% 11% 22% 47% 54% 27% 12%
NET ASSETS AT END OF PERIOD (000 OMITTED) $187,307 $144,539 $101,434 $75,922 $57,675 $45,391 $34,025
<CAPTION>
-------------------------------------------------
1987 1986 1985<F1> 1994<F2>
--------- -------- ----------- -----------
CLASS B
-------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD):
Net asset value $10.89 $ 9.95 $ 9.52 $12.67
------ ------ ------ ------
Income from investment operations --
Net investment income .. $ 0.77 $ 0.84 $ 0.22 $ 0.21
Net realized and unrealized gain (loss) on investments 0.69 0.95 0.35 0.06
------ ------ ------ ------
Total from investment operations $ 1.46 $ 1.79 $ 0.57 $ 0.27
------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.78) $(0.84) $(0.14) $(0.20)
From net realized gain (0.03) (0.01) --
In excess of net investment income ........ -- -- -- (0.01)
From paid-incapital<F4> -- -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.81) $(0.85) $(0.14) $(0.21)
------ ------ ------ ------
Net asset value --end of period $11.54 $10.89 $ 9.95 $12.73
====== ====== ====== ======
Total return 14.05% 19.13% 23.47%<F3> 5.47%<F3>
RATIOS (TO AVERAGE NET ASSETS)/ SUPPLEMENTAL DATA:
Expenses 0.99% 1.01% 0.95%<F3> 1.90%<F3>
Net investment income .. 7.00% 8.26% 9.09%<F3> 3.86%<F3>
PORTFOLIO TURNOVER 13% 28% 49% 10%
NET ASSETS AT END OF PERIOD (000 OMITTED) $27,978 $10,936 $3,052 $8,217
<FN>
- ---------
<F1>For the period from the commencement of operations, October 31, 1984 to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>For the year ended January 31, 1986, the per share distribution from paid-in capital was $0.00042.
</TABLE>
<PAGE> 74
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TENNESSEE FUND
-------------------------------------------------------------------
YEAR ENDED JANUARY 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990 1989<F1> 1994<F2>
------ ------ ------ ------ ------ ------ ------
CLASS A CLASS B
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period $10.37 $10.10 $ 9.90 $ 9.80 $ 9.68 $9.53 $10.87
Income from investment operations -- ------ ------ ------ ------ ------ ----- ------
Net investment income<F5> $ 0.57 $ 0.57 $ 0.61 $ 0.62 $ 0.67 $0.22 $ 0.19
Net realized and unrealized gain (loss) on
investments ........ 0.57 0.31 0.30 0.13 0.11 0.10 (0.06)
------ ------ ------ ------ ------ ----- ------
Total from investment operations $ 1.14 $ 0.88 $ 0.91 $ 0.75 $ 0.78 $0.32 $ 0.27
Less distributions declared to shareholders -- ------ ------ ------ ------ ------ ----- ------
From net investment income (0.54) (0.57) (0.66) (0.63) (0.66) (0.17) (0.19)
From net realized gain on investments -- (0.01) (0.05) (0.02) -- -- --
In excess of net investment income (0.03) -- -- -- -- -- --
From paid-in capital<F3> (0.03) -- -- -- -- -- --
------ ------ ------ ------ ------ ----- ------
Total distributions declared to shareholders (0.57) (0.61) (0.71) (0.65) (0.66) (0.17) (0.19)
------ ------ ------ ------ ------ ----- ------
Net asset value -- end of period $10.94 $10.37 $10.10 $ 9.90 $ 9.80 $9.68 $10.95
====== ====== ====== ====== ====== ===== ======
Total return 11.20% 9.03% 9.50% 7.96% 8.30% 3.43% 2.48%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:<F5>
Expenses 1.29% 1.14% 1.15% 1.03% 0.53% 0.40%<F4> 1.93%<F4>
Net investment income 5.25% 5.89% 6.11% 6.37% 6.70% 5.98%<F4> 4.20%<F4>
PORTFOLIO TURNOVER 12% 9% 42% 58% 78% 5% 12%
NET ASSETS AT END OF PERIOD (000 OMITTED) $123,050 $99,443 $87,898 $72,108 $56,048 $15,832 $3,818
<FN>
- ---------
<F1>For the period from the commencement of investment operations, August 12,1988, to January 31, 1989.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>For the year ended January 31, 1991, the per share distribution from paid-in capital was $0.0013.
<F4>Annualized.
<F5>The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, and if the expense reimbursement agreement had not been in
effect, net investment income per share and the ratios would have been:
Net investment income $ 0.61 $ 0.60 $ 0.20
RATIOS (TO AVERAGE NET ASSETS):
Expenses 1.17% 1.24% 0.95%<F4>
Net investment income 6.23% 5.99% 5.43%<F4>
</TABLE>
<PAGE> 75
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TEXAS FUND
-------------------------------
YEAR ENDED JANUARY 31,
-------------------------------
1994 1993<F1> 1994<F2>
------ --------- -----------
CLASS A CLASS B
------------------ -----------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period....... $10.01 $ 9.53 $10.79
Income from investment operations-- ------ ------ ------
Net investment income<F6> ................... $ 0.61 $ 0.57 $ 0.19
Net realized and unrealized gain (loss) on
investments ............................... 0.86 0.47 0.09
------ ------ ------
Total from investment operations: $ 1.47 $ 1.04 $ 0.28
Less distributions declared to shareholders-- ------ ------ ------
From net investment income ................ $(0.61) $(0.56) $(0.19)
From net realized gain on investments<F4>. (0.01) -- (0.01)
In excess of net investment income<F3> .... -- -- (0.01)
Total distributions declared to ------ ------ ------
shareholders ........................... $(0.62) $(0.56) $(0.21)
------ ------ ------
Net asset value -- end of period ............ $10.86 $10.01 $10.86
====== ====== ======
Total return ................................ 15.08% 11.30% 2.65%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:<F6>
Expenses .................................. 0.00% 0.00%<F5> 1.00%<F5>
Net investment income ..................... 5.75% 6.03%<F5> 4.41%<F5>
PORTFOLIO TURNOVER .......................... 7% 40% 7%
NET ASSETS AT END OF PERIOD (000 OMITTED) ... $18,987 $8,485 $956
<FN>
- ----------
<F1>For the period from the commencement of investment operations, February 3,
1992, to January 31, 1993.
<F2>For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
<F3>For the year ended January 31, 1994, the per share distributions in excess
of net investment income were $0.003 for Class A shares.
<F4>For the year ended January 31, 1994, the per share distributions in excess
of net realized gains on investments were $0.0008 for both Class A and Class
B shares.
<F5>Annualized.
<F6>The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, net investment income per share and the
ratios would have been:
Net investment income $ 0.44 $ 0.32 $ 0.11
RATIOS (TO AVERAGE NET ASSETS)-
Expenses 1.56% 2.67%<F5> 2.90%<F5>
Net investment income 4.17% 3.36%<F5> 2.51%<F5>
</TABLE>
<PAGE> 76
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
VIRGINIA FUND
-------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
-------------------------------------------------------------------------
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 .... $11.72 $11.44 $11.16 $10.97 $10.91 $10.75
Income from investment operations-- ------ ------ ------ ------ ------ ------
Net investment income ................... $ 0.65 $ 0.68 $ 0.71 $ 0.73 $ 0.73 $ 0.74
Net realized and unrealized gain (loss)
on investments ........................ 0.56 0.30 0.34 0.19 0.06 0.16
------ ------ ------ ------ ------ ------
Total from investment operations ...... $ 1.21 $ 0.98 $ 1.05 $ 0.92 $ 0.79 $ 0.90
Less distributions declared to shareholders- ------ ------ ------ ------ ------ ------
From net investment income .............. $(0.62) $(0.70) $(0.77) $(0.73) $(0.73) $(0.74)
From net realized gain on investments<F6> (0.20) -- -- -- -- --
In excess of net investment income<F7> .. (0.04) -- -- -- ---- --
From paid-in capital<F5> ................ -- -- -- -- -- --
Total distributions declared to ------ ------ ------ ------ ------ ------
shareholders ........................ $(0.86) $(0.70) $(0.77) $(0.73) $(0.73) $(0.74)
------ ------ ------ ------ ------ ------
Net asset value -- end of period .......... $12.07 $11.72 $11.44 $11.16 $10.97 $10.91
====== ====== ====== ====== ====== ======
Total return .............................. 10.67% 8.88% 9.76% 8.74% 7.46% 8.76%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:
Expenses ................................ 1.18% 1.08% 1.08% 1.11% 1.12% 1.09%
Net investment income ................... 5.37% 6.02% 6.32% 6.64% 6.67% 6.91%
PORTFOLIO TURNOVER ........................ 22% 20% 13% 38% 41% 38%
NET ASSETS AT END OF PERIOD (000 OMITTED) . $479,333 $399,696 $328,664 $275,202 $240,553 $207,680
<CAPTION>
-------------------------------------------------------------------------
1988 1987 1986 1985<F1> 1994<F2> 1994<F3>
-------------------------------------------------------------------------
CLASS B CLASS C
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period .... $11.38 $10.78 $10.01 $ 9.52 $12.14 $11.94
Income from investment operations-- ------ ------ ------ ------ ------ ------
Net investment income ................... $ 0.72 $ 0.74 $ 0.81 $ 0.22 $ 0.22 $ 0.02
Net realized and unrealized gain (loss)
on investments ........................ (0.57) 0.61 0.77 0.42 0.01 0.12
------ ------ ------ ------ ------ ------
Total from investment operations ...... $ 0.15 $ 1.35 $ 1.58 $ 0.64 $ 0.23 $ 0.14
Less distributions declared to shareholders- ------ ------ ------ ------ ------ ------
From net investment income .............. $(0.71) $(0.75) $(0.80) $(0.15) $(0.21) $(0.02)
From net realized gain on investments<F6> (0.05) -- (0.01) -- (0.09) --
In excess of net investment income<F7> .. -- -- -- (0.01) --
From paid-in capital<F5> ................ (0.02) -- -- -- -- --
Total distributions declared to ------ ------ ------ ------ ------ ------
shareholders ........................ $(0.78) $(0.75) $(0.81) $(0.15) $(0.31) $(0.02)
------ ------ ------ ------ ------ ------
Net asset value -- end of period .......... $10.75 $11.38 $10.78 $10.01 $12.06 $12.06
====== ====== ====== ====== ====== ======
Total return .............................. 1.61% 13.12% 16.82% 26.53%<F4> 4.93%<F4> 17.05%<F4>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:
Expenses ................................ 1.04% 1.02% 0.83% 0.95%<F4> 1.82%<F4> 1.18%<F4>
Net investment income ................... 6.75% 6.73% 8.89% 8.87%<F4> 4.25%<F4> 1.79%<F4>
PORTFOLIO TURNOVER ........................ 11% 20% 23% 13% 22% 22%
NET ASSETS AT END OF PERIOD (000 OMITTED) $192,104 $181,937 $85,076 $32,638 $10,877 $833
<FN>
- ---------
<F1>For the period from the commencement of operations, October 31, 1984, to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993, to January 31, 1994.
<F3>For the period from the commencement of offering of Class C shares, January 3, 1994, to January 31, 1994.
<F4>Annualized.
<F5>For the years ended January 31, 1987 and 1986, the per share distribution from paid-in capital was $0.0005 and $0.0015,
respectively.
<F6>For the year ended January 31, 1994, the per share distribution from net realized gain on investments was $0.00348.
<F7>For the year ended January 31, 1994, the per share distribution in excess of net investment income on Class C shares was $0.002.
</TABLE>
<PAGE> 77
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
WASHINGTON FUND
---------------------------------
YEAR ENDED JANUARY 31,
---------------------------------
1994 1993* 1994(S)
------ ------- ---------
CLASS A CLASS B
------- ---------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period $ 9.54 $ 9.53 $10.26
Income from investment operations-- ------ ------ ------
Net investment income++ .............. $ 0.57 $ 0.22 $ 0.18
Net realized and unrealized gain
(loss) on investments ............... 0.78 0.01 0.05
------ ------ ------
Total from investment operations: $ 1.35 $ 0.23 $ 0.23
------ ------ ------
Less distributions declared to shareholders--
From net investment income ........... $(0.57) $(0.22) $(0.18)
From net realized gain on
investments ......................... (0.07) -- (0.07)
In excess of net investment income -- -- --
Total distributions declared to ------ ------ ------
shareholders ...................... $(0.64) $(0.22) $(0.25)
------ ------ ------
Net asset value -- end of period ....... $10.25 $ 9.54 $10.24
====== ====== ======
Total return ........................... 14.55% 2.72% 2.30%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:++
Expenses ............................. 0.00% 0.00%+ 1.00%+
Net investment income ................ 5.63% 5.64%+ 4.28%+
PORTFOLIO TURNOVER ..................... 26% 12% 26%
NET ASSETS AT END OF PERIOD (000
OMITTED) ............................ $19,208 $9,574 $1,528
* For the period from the commencement of investment operations, August 7,
1992, to January 31, 1993.
(S) For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
+ Annualized.
++ The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, net investment income per share and the
ratios would have been:
Net investment income ........ $0.42 $0.12 $0.10
RATIOS (TO AVERAGE NET ASSETS):
Expenses ................... 1.46% 2.47%+ 2.79%+
Net investment income ...... 4.17% 3.17%+ 2.49%+
</TABLE>
<PAGE> 78
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
WEST VIRGINIA FUND
--------------------------------------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
1994<F2> 1994 1993 1992 1991 1990
--------------------------------------------------------------------
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 ... $11.50 $11.20 $10.93 $10.72 $10.68 $10.51
Income from investment operations-- ------ ------ ------ ------ ------ ------
Net investment income .................. $ 0.64 $ 0.66 $ 0.70 $ 0.71 $ 0.71 $ 0.77
Net realized and unrealized gain (loss) on
investments ........................... 0.69 0.34 0.34 0.21 0.04 0.18
------ ------ ------ ------ ------ ------
Total from investment operations .... $ 1.33 $ 1.00 $ 1.04 $ 0.92 $ 0.75 $ 0.95
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders--
From net investment income ............. $(0.61) $(0.69) $(0.76) $(0.71) $(0.71) $(0.78)
From net realized gain on investments .. (0.12) (0.01) (0.01) -- -- --
In excess of net investment income ..... (0.04) -- -- -- -- --
From paid-in capital<F4> ............... -- -- -- -- -- --
Total distributions declared to ------ ------ ------ ------ ------ ------
shareholders ....................... $(0.77) $(0.70) $(0.77) $(0.71) $(0.71) $(0.78)
------ ------ ------ ------ ------ ------
Net asset value - end of period .......... $12.06 $11.50 $11.20 $10.93 $10.72 $10.68
====== ====== ====== ====== ====== ======
Total return ............................. 11.80% 9.12% 9.84% 8.91% 7.26% 9.43%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:
Expenses ............................... 1.24% 1.15% 1.17% 1.21% 1.22% 0.86%
Net investment income .................. 5.30% 5.97% 6.33% 6.59% 6.63% 7.01%
PORTFOLIO TURNOVER ....................... 26% 19% 14% 37% 34% 9%
NET ASSETS AT END OF PERIOD (000 OMITTED) $141,190 $115,289 $80,440 $61,984 $52,398 $43,026
<CAPTION>
--------------------------------------------------------
1989 1988 1987 1986 1985<F1>
CLASS B
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ... $11.30 $10.77 $ 9.83 $ 9.52 $12.13
Income from investment operations-- ------ ------ ------ ------ ------
Net investment income .................. $ 0.77 $ 0.81 $ 0.84 $ 0.23 $ 0.22
Net realized and unrealized gain (loss) on
investments ........................... (0.72) 0.56 0.96 0.23 0.05
------ ------ ------ ------ ------
Total from investment operations ......... $ 0.05 $ 1.37 $ 1.80 $ 0.46 $ 0.27
Less distributions declared to shareholders-- ------ ------ ------ ------ ------
From net investment income ............. $(0.76) $(0.81) $(0.85) $(0.15) $(0.21)
From net realized gain on investments .. (0.02) (0.03) (0.01) -- (0.12)
In excess of net investment income ..... -- -- -- -- (0.01)
From paid-in capital<F4> ............... (0.06) -- -- -- --
Total distributions declared to ------ ------ ------ ------ ------
shareholders .......................... $(0.84) $(0.84) $(0.86) $(0.15) $(0.34)
------ ------ ------ ------ ------
Net asset value - end of period .......... $10.51 $11.30 $10.77 $ 9.83 $12.06
====== ====== ====== ====== ======
Total return ............................. 0.76% 13.42% 19.42% 18.96%<F3> 5.59%<F3>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:
Expenses................................ 0.79% 0.87% 1.00% 0.95%<F3> 1.89%<F3>
Net investment income .................. 7.32% 7.42% 8.40% 9.71%<F3> 4.14%<F3>
PORTFOLIO TURNOVER ....................... 11% 9% 24% 14% 26%
NET ASSETS AT END OF PERIOD (000 OMITTED) $36,276 $34,436 $17,733 $7,039 $4,530
<FN>
- ---------
<F1>For the period from the commencement of operations, October 31, 1984 to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993, to January 31, 1994.
<F3>Annualized.
<F4>For the years ended January 31, 1987 and 1986, the per share distribution from paid-in capital was $0.0018 and $0.0005,
respectively.
</TABLE>
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The investment objective of each State Fund is to
provide current income exempt from federal income taxes and personal income
taxes, if any, of that State. Any investment involves risk and there can be no
assurance that any State Fund will achieve its investment objective.
INVESTMENT POLICIES -- As a fundamental policy, the Trust seeks to achieve the
investment objective of each State Fund by investing the assets of that State
Fund primarily (i.e., at least 80% of its net assets under normal conditions) in
municipal bonds and notes and other debt instruments the interest on which is
exempt from federal income taxes and from the personal income taxes, if any, of
that State. These obligations are issued primarily by that State, its political
subdivisions, municipalities, agencies, instrumentalities or public authorities.
Although the Trust seeks to invest all the assets of each State Fund in the
obligations described in the preceding paragraph, market conditions may from
time to time limit the availability of such obligations. During periods when the
Trust is unable to purchase obligations described in the preceding paragraph for
the portfolio of any State Fund, the Trust will seek to invest the assets of
that State Fund in Municipal Obligations (as defined below) the interest on
which would be exempt from federal income taxes, but would be subject to
personal income taxes of that State. Also, as a temporary defensive measure
during times of adverse market conditions, up to 50% of the assets of a State
Fund may be held in cash or invested in the short-term obligations described in
paragraphs 4 and 5 below. Under normal conditions, substantially all of the
investments of each State Fund will be made in:
(1) Tax-exempt securities which are rated AAA, AA, or A by Standard &
Poor's Ratings Group ("S&P") or by Fitch Investors Service, Inc. ("Fitch")
or are rated Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's"),
or which are unrated but are considered to have essentially the same
characteristics and quality as securities having such ratings and are issued
by issuers which have other securities rated not lower than A by S&P, Fitch
or Moody's;
(2) Tax-exempt securities which are not rated and do not qualify under
paragraph 1 above or which are rated lower than the three highest grades of
S&P, Fitch or Moody's. However, not more than one-third of a State Fund's
total assets will be invested in such securities;
(3) Notes of issuers having an issue of outstanding Municipal
Obligations rated AAA, AA or A by S&P or Fitch or Aaa, Aa or A by Moody's or
which are guaranteed by the U.S. Government or which are rated MIG-1 or
MIG-2 by Moody's;
(4) Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; and
(5) Commercial paper which is rated A-1 or A-2 by S&P or P-1 or P-2 by
Moody's (or which is unrated but which is considered to have essentially the
same characteristics and qualities as commercial paper having such ratings),
obligations (including certificates of deposit, bankers' acceptances and
repurchase agreements) of banks with $1 billion or more of assets, and cash.
From time to time, a portion of the Fund's distributions will be taxable to
shareholders, for example, distributions of income from the obligations
described in paragraphs 4 and 5 above, from capital gains, from transactions in
certain Municipal Bonds purchased at a market discount and from certain other
transactions. The Trust may purchase Municipal Obligations the interest on which
may be subject to an alternative minimum tax (for purposes of this Prospectus,
the interest thereon is nonetheless considered to be tax-exempt). See "Tax
Status." For a comparison of yields on Municipal Obligations and taxable
securities, see the Taxable Equivalent Yield Tables in Appendix A. For a general
discussion of Municipal Obligations, the risks associated with an investment
therein, and descriptions of the ratings of S&P, Fitch and Moody's of Municipal
Obligations and short-term obligations permitted as investments, see Appendix B.
As used in this Prospectus, the terms "Municipal Obligations" and "tax-exempt
securities" are used interchangeably to refer to debt instruments issued by or
on behalf of States, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from federal income taxes
(without regard to whether the interest thereon is also exempt from the personal
income taxes of any State).
LOWER RATED MUNICIPAL OBLIGATIONS -- The lower rated or unrated securities
described in paragraph 2 above, while generally providing greater income than
investments in higher rated securities, usually are high risk securities
involving greater volatility of price (especially during periods of economic
uncertainty or change) and risk to principal and income (including the
possibility of default by or bankruptcy of the issuers of such securities) than
securities in the higher rating categories and because yields vary over time, no
specific level of income can ever be assured. These lower rated high yielding
fixed income securities generally tend to reflect economic changes (and the
outlook for economic growth), short-term corporate and industry developments and
the market's perception of their credit quality (especially during times of
adverse publicity) to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates, although these
lower rated fixed income securities are also affected by changes in interest
rates. In particular, securities rated BBB by S&P or Fitch or Baa by Moody's
(and comparable unrated securities) while normally exhibiting adequate
protection parameters, have speculative characteristics and changes in economic
conditions and other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of higher
grade Municipal Obligations. Securities rated lower than BBB by S&P or Fitch or
Baa by Moody's (and comparable unrated securities) (commonly referred to as
"junk bonds"), are considered speculative. While these high risk securities may
have some quality and protective characteristics, these can be expected to be
outweighed by large uncertainties or major risk exposures during times of
adverse market conditions. Furthermore, an economic downturn may result in a
higher incidence of defaults by issuers of these securities. During certain
periods, the higher yields on a Fund's lower rated high yielding fixed income
securities are paid primarily because of the increased risk of loss of principal
and income, arising from such factors as the heightened possibility of default
or bankruptcy of the issuers of such securities. Due to the fixed income
payments of these securities, a Fund may continue to earn the same level of
interest income while its net asset value declines due to portfolio losses,
which could result in an increase in the Fund's yield despite the actual loss of
principal. In addition, these lower rated or unrated high risk tax-exempt
securities are frequently traded only in markets where the number of potential
purchasers, if any, is very limited. Therefore, judgment may at times play a
greater role in valuing these securities than in the case of higher grade
tax-exempt securities. This consideration may have the effect of limiting the
ability of the Trust to sell such securities for a particular Fund at their fair
value either to meet redemption requests or to respond to changes in the economy
or the financial markets. See Appendix C to this Prospectus for charts
indicating the composition of the portfolio of each Fund for its fiscal year
ended January 31, 1994 with the debt securities rated by S&P separated into
rating categories. While the Adviser may refer to ratings issued by established
credit rating agencies, it is not a policy of the Trust to rely exclusively on
ratings issued by these agencies, but rather to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. Furthermore, no
minimum rating standard is required by the Trust. With respect to those
Municipal Obligations which are not rated by a major rating agency, the Trust
will be more reliant on the Adviser's judgment, analysis and experience than
would be the case if such Municipal Obligations were rated. To the extent the
Trust invests in these lower rated securities, the achievement of its investment
objective may be more dependent on the Adviser's own credit analysis than in the
case of a fund investing in higher quality bonds. In evaluating the
creditworthiness of an issue, whether rated or unrated, the Adviser may take
into consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the ability of the
issuer's management and regulatory matters.
Although higher quality tax-exempt securities may produce lower yields, they are
generally more marketable. To protect the capital of shareholders of a Fund
under adverse market conditions, the Trust may from time to time deem it prudent
to hold cash or to purchase higher quality securities or taxable short-term
obligations for that Fund with a resultant decrease in yield or increase in the
proportion of taxable income.
NON-DIVERSIFIED STATUS -- Each Fund is a "non-diversified" series of the Trust
which means that more than 5% of the assets of each Fund may be invested in the
obligations of each of one or more issuers, subject to the diversification
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
Since a relatively high percentage of the assets of a Fund may be invested in
the obligations of a limited number of issuers, the value of shares of a Fund
may be more susceptible to any single economic, political or regulatory
occurrence than the shares of a diversified investment company would be.
CHARACTERISTICS OF MUNICIPAL OBLIGATIONS -- Each Fund may invest its assets in a
relatively high percentage of municipal bonds issued by entities having similar
characteristics. The issuers may pay their interest obligations from revenue of
similar projects such as multi-family housing, nursing homes, electric utility
systems, hospitals or life care facilities. This too may make any Fund more
susceptible to similar economic, political, or regulatory occurrences,
particularly since such issuers would likely be located in the same State. As
the similarity in issuers increases, the potential for fluctuation of the net
asset value of the Fund's shares also increases. Each Fund will only invest in
securities of issuers which it believes will make timely payments of interest
and principal.
Each Fund may invest more than 25% of its assets in industrial revenue bonds
(referred to under current tax law as private activity bonds), and also may
invest more than 25% of its assets in revenue bonds issued for housing,
including multi-family housing, health care facilities or electric utilities, at
times when the relative value of issues of such a type is considered, in the
judgment of the Adviser, to be more favorable than that of other available types
of issues, taking into consideration the particular restrictions on investment
flexibility arising from the investment objective of each State Fund of
providing current income exempt from personal income taxes of that State (as
well as federal income taxes). Therefore, investors should also be aware of the
risks which these investments may entail. Industrial revenue bonds are issued by
various state and local agencies to finance various projects.
If a revenue bond is secured by payments generated from a project, and the
revenue bond is also secured by a lien on the real estate comprising the
project, foreclosure by the indenture trustee on the lien for the benefit of the
bondholders creates additional risks associated with owning real estate,
including environmental risks.
Housing revenue bonds typically are issued by a state, county or local housing
authority and are secured only by the revenues of mortgages originated by the
authority using the proceeds of the bond issue. Because of the impossibility of
precisely predicting demand for mortgages from the proceeds of such an issue,
there is a risk that the proceeds of the issue will be in excess of demand,
which would result in early retirement of the bonds by the issuer. Moreover,
such housing revenue bonds depend for their repayment upon the cash flow from
the underlying mortgages, which cannot be precisely predicted when the bonds are
issued. Any difference in the actual cash flow from such mortgages from the
assumed cash flow could have an adverse impact upon the ability of the issuer to
make scheduled payments of principal and interest on the bonds, or could result
in early retirement of the bonds. Additionally, such bonds depend in part for
scheduled payments of principal and interest upon reserve funds established from
the proceeds of the bonds, assuming certain rates of return on investment of
such reserve funds. If the assumed rates of return are not realized because of
changes in interest rate levels or for other reasons, the actual cash flow for
scheduled payments of principal and interest on the bonds may be inadequate. The
financing of multi-family housing projects is affected by a variety of factors,
including satisfactory completion of construction within cost constraints, the
achievement and maintainance of a sufficient level of occupancy, sound
management of the developments, timely and adequate increases in rents to cover
increases in operating expenses, including taxes, utility rates and maintenance
costs, changes in applicable laws and governmental regulations and social and
economic trends.
Electric utilities face problems in financing large construction programs in an
inflationary period, cost increases and delay occasioned by environmental
considerations (particularly with respect to nuclear facilities), difficulty in
obtaining fuel at reasonable prices, the cost of competing fuel sources,
difficulty in obtaining sufficient rate increases and other regulatory problems,
the effect of energy conservation and difficulty of the capital market to absorb
utility debt.
Health care facilities include life care facilities, nursing homes and
hospitals. Life care facilities are alternative forms of long-term housing for
the elderly which offer residents the independence of condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state industrial
development authorities. Since the bonds are secured only by the revenues of
each facility and not by state or local government tax payments, they are
subject to a wide variety of risks. Primarily, the projects must maintain
adequate occupancy levels to be able to provide revenues adequate to maintain
debt service payments. Moreover, in the case of life care facilities, since a
portion of housing, medical care and other services may be financed by an
initial deposit, there may be risk if the facility does not maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability of
management to accurately forecast inflationary cost pressures weighs importantly
in this process. The facilities may also be affected by regulatory cost
restrictions applied to health care delivery in general, particularly state
regulations or changes in Medicare and Medicaid payments or qualifications, or
restrictions imposed by medical insurance companies. They may also face
competition from alternative health care or conventional housing facilities in
the private or public sector. Hospital bond ratings are often based on
feasibility studies which contain projections of expenses, revenues and
occupancy levels. A hospital's gross receipts and net income available to
service its debt are influenced by demand for hospital services, the ability of
the hospital to provide the services required, management capabilities, economic
developments in the service area, efforts by insurers and government agencies to
limit rates and expenses, confidence in the hospital, service area economic
developments, competition, availability and expense of malpractice insurance,
Medicaid and Medicare funding, and possible federal legislation limiting the
rates of increase of hospital charges.
Each Fund may also invest in bonds for industrial and other projects, such as
sewage or solid waste disposal or hazardous waste treatment facilities.
Financing for such projects will be subject to inflation and other general
economic factors as well as construction risks including labor problems,
difficulties with construction sites and the ability of contractors to meet
specifications in a timely manner. Because some of the materials, processes and
wastes involved in these projects may include hazardous components, there are
risks associated with their production, handling and disposal.
Municipal Obligations in which the Funds may invest also include zero coupon
bonds and deferred interest bonds. Zero coupon bonds and deferred interest bonds
are debt obligations which are issued at a significant discount from face value.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular payment
of interest begins. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. Zero coupon bonds and deferred interest bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash. Such investments may experience greater volatility
in market value than debt obligations which make regular payments of interest.
Each Fund will accrue income on such investments for tax and accounting
purposes, which is distributable to shareholders. Since no cash is received at
the time of accrual, a Fund may be required to liquidate other portfolio
securities to satisfy its distribution obligations.
The net asset value of the shares of each Fund changes as the general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested in fixed income securities can be expected to rise. Conversely, when
interest rates rise, the value of such a portfolio can be expected to decline.
Except for the policy identified above as fundamental, shareholder approval is
not required to change any of the foregoing investment policies, or any of the
policies discussed below.
"WHEN-ISSUED" SECURITIES -- Some new issues of tax-exempt securities may be
purchased on a "when-issued" basis, which means that the obligations will be
delivered to a Fund at a future date usually beyond customary settlement time.
The commitment to purchase an obligation for which payment will be made on a
future date may be deemed a separate security. Although the amount of tax-exempt
securities which there may be commitments to purchase on a "when- issued" basis
is not limited, it is expected that under normal circumstances not more than 50%
of the total assets of any Fund will be committed to such purchases. A Fund does
not pay for such obligations until received and does not start earning interest
on the obligations until the contractual settlement date. Each Fund has
established a segregated account consisting of cash, short-term money market
instruments or high quality debt securities equal to the amount of the
commitments on behalf of the Fund to purchase "when-issued" securities. For
additional information concerning the purchase of securities on a "when-issued"
basis, see the Statement of Additional Information.
VARIABLE AND FLOATING RATE OBLIGATIONS -- The interest rates payable on certain
securities in which a Fund may invest are not fixed and may fluctuate based upon
changes in market rates. Variable rate obligations have an interest rate which
is adjusted at predesignated periods and interest on floating rate obligations
is adjusted whenever there is a change in the market rate of interest on which
the interest rate payable is based. For additional information concerning
variable and floating rate obligations, see the Statement of Additional
Information.
INVERSE FLOATING RATE OBLIGATIONS -- Each Fund may invest in so called "inverse
floating rate obligations" or "residual interest" bonds or other obligations or
certificates relating thereto structured to have similar features. Such
obligations generally have floating or variable interest rates that move in the
opposite direction of short-term interest rates and generally increase or
decrease in value in response to changes in short-term interest rates at a rate
which is a multiple (approximately two) of the rate at which fixed-rate
long-term tax-exempt securities increase or decrease in response to such
changes. As a result, such obligations have the effect of providing investment
<PAGE> 79
leverage and may be more volatile than long-term fixed rate tax-exempt
obligations.
PARTICIPATION INTERESTS -- From time to time, a Fund may purchase from banks
participation interests in all or part of specific holdings of Municipal
Obligations. Each participation interest is backed by an irrevocable letter of
credit or guarantee of the selling bank. Participation interests will only be
purchased if in the opinion of counsel interest income on such interests will be
tax-exempt when distributed as dividends to shareholders of a Fund.
RESTRICTED SECURITIES -- Each Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended (the "1933 Act")
("restricted securities"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a continuing
review of the trading markets for a specific Rule 144A security, whether such
security is illiquid and thus subject to a Fund's limitation on investing not
more than 15% of its net assets in illiquid investments, or liquid and thus not
subject to such limitation. The Board of Trustees has adopted guidelines and
delegated to the Adviser the daily function of determining and monitoring
liquidity of Rule 144A securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. The Board will
carefully monitor each Fund's investments in Rule 144A securities, focusing on
such important factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in each Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities held in
a Fund's portfolio. Subject to the Funds' 15% limitation on investments in
illiquid investments, the Funds may also invest in restricted securities that
may not be sold under Rule 144A, which presents certain risks. As a result, the
Funds might not be able to sell these securities when the Adviser wishes to do
so, or might have to sell them at less than fair value. In addition, market
quotations are less readily available. Therefore, judgment may at times play a
greater role in valuing these securities than in the case of unrestricted
securities.
OPTIONS -- Each Fund may write (i.e., sell) "covered" put and call options on
fixed income securities subject to any applicable laws. Call options written by
a Fund give the holder the right to buy the underlying securities from the Fund
at a fixed exercise price up to a stated expiration date or, in the case of
certain options, on such date. Put options written by a Fund give the holder the
right to sell the underlying securities to the Fund during the term of the
option at a fixed exercise price up to a stated expiration date or, in the case
of certain options, on such date. Call options are "covered" by a Fund, for
example, when it owns the underlying securities, and put options are "covered"
by a Fund, for example, when it has established a segregated account of cash and
high grade government securities of the Fund which can be liquidated promptly to
satisfy any obligation of the Fund to purchase the underlying securities. Each
Fund may utilize other forms of cover as well, as described in the Statement of
Additional Information. Each Fund may also write straddles (combinations of puts
and calls on the same underlying security). Such transactions generate
additional premium income but also present increased risk. See the Statement of
Additional Information.
A Fund will receive a premium from writing a put or call option, which increases
the gross income of the Fund in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates. By writing a call option, a Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a put option, a Fund
assumes the risk that it may be required to purchase the underlying security for
an exercise price higher than its then current market value, resulting in a
potential capital loss unless the security subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. It is possible, however, that
illiquidity in the options markets may make it difficult from time to time for a
Fund to close out its written option positions.
A Fund may also purchase put or call options in anticipation of changes in
interest rates which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. The
premium paid for a put or call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option, and, unless the
price of the underlying security changes sufficiently, the option may expire
without value.
A Fund may purchase detachable call options on municipal securities, which are
options issued by an issuer of the underlying municipal securities giving the
purchaser the right to purchase the securities at a fixed price, at a stated
time in the future, or in some cases, on a future date.
Each Fund may write and purchase options on securities only for hedging purposes
and not in an effort to increase current income. Options on securities that are
written or purchased by the Funds will be traded on U.S. exchanges and
over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Each Fund may enter into
futures contracts on fixed income securities and on indices of fixed income
securities, including municipal bond indices, any other financial indices, and
any index of fixed income securities which may become available for trading, and
on Eurodollar deposits ("Futures Contracts"), subject to any applicable laws.
Each Fund may, subject to any applicable laws, purchase and write options on all
such Futures Contracts ("Options on Futures Contracts"). These investments will
be used to hedge against anticipated future changes in interest rates which
otherwise might either adversely affect the value of the portfolio securities of
a Fund or adversely affect the prices of long-term bonds which are intended to
be purchased for the Fund at a later date. Such transactions may also be entered
into for non-hedging purposes, to the extent permitted by applicable law.
Futures Contracts and Options on Futures Contracts entail risks. Although the
Trust believes that use of such contracts will benefit the Funds, if the
Adviser's investment judgment about the general direction of interest rates is
incorrect, the overall performance of a Fund may be poorer than if the Fund had
not entered into any such contract.
In order to assure that each Fund will not be deemed to be a "commodity pool"
for purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission (the "CFTC") require that each Fund enter into transactions
in Futures Contracts and Options on Futures Contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions do not exceed 5% of the liquidation value of each Fund's
assets. In addition, each Fund must comply with the requirements of various
state securities laws in connection with such transactions.
Each Fund has adopted the additional policy that it will not enter into a
Futures Contract if, immediately thereafter, the value of all such Fund's
Futures Contracts would exceed 50% of the value of the Fund's total assets.
Moreover, a Fund will not purchase put and call options on securities or on
Futures Contracts if as a result more than 5% of the total assets of the Fund
would be invested in such options.
Futures Contracts and Options on Futures Contracts that are entered into by a
Fund will be traded on U.S. exchanges.
RISK FACTORS -- Although the Funds will enter into certain transactions in
options, Futures Contracts and Options on Futures Contracts for hedging
purposes, all subject to applicable laws, such transactions nevertheless involve
risks. For example, a lack of correlation between the instrument underlying an
option or Futures Contract and the assets being hedged, or unexpected adverse
price movements, could render a Fund's hedging strategy unsuccessful and could
result in losses. In addition, there can be no assurance that a liquid secondary
market will exist for any contract purchased or sold, and a Fund may be required
to maintain a position until exercise or expiration, which could result in
losses. Transactions in such instruments entered into for non-hedging purposes,
subject to applicable laws, involve greater risks and may result in losses which
are not offset by gains on other portfolio assets. The Statement of Additional
Information contains a further description of options, Futures Contracts and
Options on Futures Contracts, and a discussion of the risks related to
transactions therein.
Transactions in the foregoing instruments may be entered into by the Funds on
U.S. exchanges regulated by the Securities and Exchange Commission (the "SEC")
or the CFTC. Options on securities may also be written or purchased in the
over-the-counter market. Over-the-counter transactions involve certain risks
which may not be present in an exchange environment.
Gains recognized from options and futures transactions engaged in by the Trust
on behalf of a Fund are taxable to the Fund's shareholders when distributed to
them.
PORTFOLIO TRADING -- Each Fund intends to fully manage its portfolio by buying
and selling securities, as well as holding securities to maturity. In managing
its portfolio, each Fund seeks to take advantage of market developments, yield
disparities and variations in the creditworthiness of issuers. For a description
of the strategies which may be used by the Funds in managing their portfolios,
which may include adjusting the average maturity of a Fund's portfolio in
anticipation of a change in interest rates, see the Statement of Additional
Information.
Distributions of gains, if any, realized from the sale of Municipal Obligations
or other securities are subject to federal income taxes and State personal
income taxes. See "Tax Status." The primary consideration in placing portfolio
security transactions with broker-dealers for execution is to obtain, and
maintain the availability of, execution at the most favorable prices and in the
most effective manner possible. Consistent with the foregoing primary
consideration, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"), and such other policies as the Trustees
may determine, the Adviser may consider sales of shares of each Fund and of the
other investment company clients of FSI as a factor in the selection of
broker-dealers to execute the portfolio transactions of any Fund. For a further
discussion of portfolio transactions, see the Statement of Additional
Information.
The Statement of Additional Information includes a listing of investment
restrictions which govern the investment policies of each Fund. The Trust's
investment limitations, policies and rating standards are generally adhered to
at the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
Shareholder approval is not required to change the investment objective of any
Fund and a subsequent change in investment objective may result in the Fund
having an investment objective different from the objective which the
shareholder considered appropriate at the time of investment.
CONCENTRATION IN STATE OBLIGATIONS -- RISKS; ADDITIONAL INFORMATION -- Because
each State Fund will ordinarily invest 80% or more of its net assets in its
state, each Fund is more susceptable to factors affecting its state than is a
comparable municipal bond fund not concentrated in the obligations of issuers
located in a single state. It is also possible that there will not be sufficient
availability of suitable Municipal Obligations for each Fund to achieve its
objective of providing income and an investment exempt from state taxes.
Investors should be aware of certain additional information concerning
investments in each State's Municipal Obligations. For a discussion of this
information, which does not purport to be complete, see Appendix D.
4. MANAGEMENT OF THE TRUST
INVESTMENT ADVISER -- The Trust's Board of Trustees provides broad supervision
over the affairs of each Fund. The Adviser is responsible for the management of
each Fund's assets and the officers of the Trust are responsible for its
operations. A majority of the Trustees are not affiliated with the Adviser.
The Adviser manages the assets of each Fund (other than the Arkansas,
California, Florida, Louisiana, Mississippi, Pennsylvania, Texas and Washington
Funds) pursuant to an Investment Advisory Agreement, dated August 24, 1984 (the
"Advisory Agreement"). The Adviser manages the assets of the Arkansas, Florida
and Texas Funds pursuant to separate Investment Advisory Agreements, each dated
February 1, 1992. The Adviser manages the assets of the Mississippi and
Washington Funds pursuant to separate Investment Advisory Agreements, each dated
August 1, 1992. The Adviser manages the assets of the Louisiana and Pennsylvania
Funds pursuant to separate Investment Advisory Agreements, each dated February
1, 1993. The Adviser manages the assets of the California Fund pursuant to an
Investment Advisory Agreement dated August 1, 1993. The Adviser provides
investment advisory and administrative services with respect to each Fund, as
well as office facilities and overall administrative services for the Trust.
Each Fund is currently managed by a committee comprised of various investment
professionals employed by the Adviser. Subject to such policies as the Trustees
may determine, the Adviser makes investment decisions for each Fund. For these
services and facilities, the Adviser receives a management fee from the Trust on
behalf of each Fund computed and paid monthly at an annual rate equal to 0.55%
of the Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year. The Adviser voluntarily reduced the management fee
with respect to the Arkansas, Florida, Mississippi and New York Funds to 0.20%,
0.10%, 0.00% and 0.35%, respectively, of each Fund's average daily net assets
until October 1, 1993 (except for the Arkansas Fund which is through June 30,
1993), to be increased by 0.05% each quarter thereafter, not to exceed 0.55% of
each Fund's average daily net assets. The Adviser has voluntarily reduced its
management fee with respect to the Louisiana, Pennsylvania, Texas and Washington
Funds to 0.00% of each Fund's average daily net assets for an indefinite period
of time. The Adviser has voluntarily agreed (i) to reduce or eliminate the
management fee for the California Fund and (ii) to bear some or all of the other
operating expenses payable by such Fund. The amount by which the California
Fund's management fee will be reduced, the amount of operating expenses to be
borne, and the period during which such reduction or elimination and expense
bearing will remain in effect, will be determined from time to time by the
Adviser in its sole discretion. Such amounts will not be subject to
reimbursement by the California Fund. Effective February 1, 1994, the Adviser
has voluntarily agreed to maintain the California Fund's management fee at the
reduced rate of 0.40% of the Fund's average daily net assets for an indefinite
period of time. These fee reductions may be rescinded by the Adviser at any time
without notice to shareholders. See "Expenses" below.
For the Trust's fiscal year ended January 31, 1994, MFS received fees under the
Advisory Agreement with respect to the following Funds: Alabama Fund, $439,235;
Arkansas Fund, $940,077; Florida Fund, $522,640; Georgia Fund, $449,179;
Louisiana Fund, $54,035; Maryland Fund, $903,650; Massachusetts Fund,
$1,591,974; Mississippi Fund, $367,101 New York Fund, $916,193; North Carolina
Fund, $2,501,986; Pennsylvania Fund, $56,065; South Carolina Fund, $947,476;
Tennessee Fund, $627,398; Texas Fund, $75,954; Virginia Fund, $2,459,087;
Washington Fund, $80,180; and West Virginia Fund, $728,874. MFS voluntarily
reduced its fees under the Advisory Agreement, in whole or in part, with respect
to the following Funds in the following amounts for the Trust's fiscal year
ended January 31, 1994: the Arkansas Fund, $502,194; the Florida Fund, $444,758;
the Louisiana Fund, $54,035; the Mississippi Fund, $349,609; the New York Fund,
$340,615; the Pennsylvania Fund, $56,065; the Texas Fund, $75,954; and the
Washington Fund, $80,180. For the California Fund's 11 month period ended
January 31, 1994, fees payable to MFS amounted to $1,641,620 (of which $585,888
was not imposed). See "Expenses" below.
MFS also serves as investment adviser to each of the other MFS Funds and to
MFS/Sun Life Series Trust, MFS Municipal Income Trust, MFS Multimarket Income
Trust, MFS Government Markets Income Trust, MFS Intermediate Income Trust, MFS
Charter Income Trust, MFS Special Value Trust, MFS Institutional Trust, MFS
Union Standard Trust, MFS Variable Insurance Trust, Sun Growth Variable Annuity
Fund, Inc. and seven variable accounts, each of which accounts is a registered
investment company established by Sun Life Assurance Company of Canada (U.S.)
("Sun Life of Canada (U.S.)") in connection with the sale of Compass-2 and
Compass-3 combination fixed/variable annuity contracts. The MFS Asset Management
Group, a division of MFS, provides investment advice to substantial private
clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under management of the MFS organization were approximately
$33.6 billion on behalf of approximately 1.4 million investor accounts as of
March 31, 1994. As of such date, the MFS organization managed approximately
$19.6 billion of assets in fixed income securities and fixed income securities
of its MFS Asset Management Group, including approximately $6.6 billion of
assets in municipal securities. MFS is a subsidiary of Sun Life of Canada (U.S.)
which in turn is a subsidiary of Sun Life Assurance Company of Canada ("Sun
Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D.
Scott, John D. McNeil and John R. Gardner. Mr. Brodkin is the Chairman, Mr.
Shames is the President and Mr. Scott is the Secretary and a Senior Executive
Vice President of MFS. Messrs. McNeil and Gardner are the Chairman and
President, respectively, of Sun Life. Sun Life, a mutual life insurance company,
is one of the largest international life insurance companies and has been
operating in the United States since 1895. The executive officers of MFS report
to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman of MFS, is the Chairman and President of the
Trust. Cynthia M. Brown, Robert A. Dennis, W. Thomas London, Stephen E. Cavan,
James R. Bordewick, Jr., James O. Yost and Linda J. Hoard, all of whom are
officers of MFS, are officers of the Trust.
DISTRIBUTOR -- FSI, a wholly owned subsidiary of MFS, is the distributor of
shares of each Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. ("Shareholder Servicing
Agent"), a wholly owned subsidiary of MFS, performs transfer agency, certain
dividend disbursing agency and other services for the Trust.
5. INFORMATION CONCERNING SHARES OF THE TRUST
PURCHASES
Shares of each Fund may be purchased through any securities dealer, certain
banks or other financial institutions having selling agreements with FSI. Non-
securities dealer financial institutions will receive transaction fees that are
the same as commission fees to dealers. Securities dealers and other financial
institutions may also charge their customers fees relating to investments in the
Trust.
Each Fund currently offers Class A and Class B shares to the public. In
addition, the California Fund, the North Carolina Fund and the Virginia Fund
currently offer Class C shares to the public. These classes bear sales charges
and distribution fees in different forms and amounts as described below.
CLASS A SHARES: Class A shares are offered at net asset value per share plus an
initial sales charge (or CDSC in the case of certain purchases of $1 million or
more) as follows:
<TABLE>
<CAPTION>
SALES CHARGE<F1> DEALER
AS A PERCENTAGE OF: ALLOWANCE AS
------------------------------ PERCENTAGE OF
AMOUNT OF NET AMOUNT AMOUNT OF
- -AMOUNT OF PURCHASE - OFFERING PRICE INVESTED OFFERING PRICE
- --------------------- -------------- ---------- ---------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.00%
$100,000 or more but less than $250,000 4.00 4.17 3.20
$250,000 or more but less than $500,000 2.95 3.04 2.25
$500,000 or more but less than $1,000,000 2.20 2.25 1.70
$1,000,000 or more None<F2> None<F2> See Below<F2>
<FN>
- ---------
<F1>Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
<F2>A CDSC may apply in certain instances. FSI (on behalf of the Fund) will pay
a commission on purchases of $1 million or more.
</FN>
</TABLE>
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% of the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares.
In determining whether a CDSC on such Class A shares is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to the CDSC are the
first redeemed followed by other shares held for the longest period of time. All
investments made during a calendar month, regardless of when during the month
the investment occurred, will age one month on the last day of the month and
each subsequent month. Except as noted below, the CDSC on Class A shares will be
waived in the case of: (i) exchanges (except that if the shares acquired by
exchange were then redeemed within 12 months of the initial purchase (other than
in connection with subsequent exchanges to other MFS Funds), the charge would
not be waived); (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Code (a "Retirement Plan"), due
to: (a) a loan from the plan (repayments of loans, however, will constitute new
sales for purposes of assessing the CDSC); (b) "financial hardship" of the
participant in the plan, as that term is defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time; or (c) the death of a
participant in such plans; (iii) distributions from a 403(b) plan or an
Individual Retirement Account ("IRA") due to death, disability or attainment of
age 59 1/2; (iv) tax-free returns of excess contributions to an IRA; (v)
distributions by other employee benefit plans to pay benefits; and (vi) certain
involuntary redemptions and redemptions in connection with certain automatic
withdrawals from a qualified retirement plan. The CDSC on Class A shares will
not be waived, however, if the Retirement Plan withdraws from the Fund except if
that Retirement Plan has invested its assets in Class A shares of one or more of
the MFS Funds for more than 10 years from the later to occur of (i) January 1,
1993 or (ii) the date such Retirement Plan first invests its assets in Class A
shares of one or more of the MFS Funds, the CDSC on Class A shares will be
waived in the case of a redemption of all of the Retirement Plan's shares
(including shares of any other class) in all MFS Funds (i.e., all the assets of
the Retirement Plan invested in the MFS Funds are withdrawn), unless,
immediately prior to the redemption, the aggregate amount invested by the
Retirement Plan in Class A shares of the MFS Funds (excluding the reinvestment
of distributions) during the prior four year period equals 50% or more of the
total value of the Retirement Plan's assets in the MFS Funds, in which case the
CDSC will not be waived. Any applicable CDSC will be deferred upon an exchange
of Class A shares for units of participation of the MFS Fixed Fund (a bank
collective investment fund) (the "Units"), and the CDSC will be deducted from
the redemption proceeds when such Units are subsequently redeemed (assuming the
CDSC is then payable). No CDSC will be assessed upon an exchange of Units for
Class A shares. For purposes of calculating the CDSC payable upon redemption of
Class A shares or Units acquired pursuant to one or more exchanges, the period
during which the Units are held will be aggregated with the period during which
the Class A shares are held. The applicability of the CDSC will be unaffected by
transfers of registration. FSI shall receive all CDSCs which it intends to apply
for the benefit of the Fund.
FSI allows discounts to dealers (which are alike for all dealers) from the
<PAGE> 80
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 4% and FSI retains approximately
3/4 of 1% of the public offering price. Pursuant to a special arrangement, the
dealer allowance as a percentage of offering price for the California Fund and
the New York Fund is as follows:
SALES CHARGE DEALER ALLOWANCE
AS A PERCENTAGE AS A PERCENTAGE
OF AMOUNT OF OF AMOUNT OF
OFFERING PRICE OFFERING PRICE
-------------- --------------
4.75% 4.25%
4.00% 3.45%
2.95% 2.50%
2.20% 1.95%
This special arrangement may be revised or discontinued at any time without
notice to shareholders.
The sales charge may vary depending on the number of shares of a Fund as well as
certain MFS Funds and other funds owned or being purchased, the existence of an
agreement to purchase additional shares during a 13-month period (or 36-month
period for purchases of $1 million or more) or other special purchase programs.
A description of the Right of Accumulation, Letter of Intent and the Group
Purchase privileges by which the sales charge may also be reduced is set forth
in "Shareholder Services" in the Statement of Additional Information. In
addition, FSI pays commissions to dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1.00% on sales up to $5 million,
plus 0.25% on the amount in excess of $5 million. Purchases of $1 million or
more for each shareholder account will be aggregated over a 12-month period
(commencing from the date of the first such sale) for purposes of determining
the level of commissions to be paid during that period with respect to such
account.
Class A shares of each Fund may be sold at their net asset value to the officers
of the Trust, to any of the subsidiary companies of Sun Life, to eligible
Directors, officers, employees (including retired employees) and agents of MFS,
Sun Life or any of their subsidiary companies, to any trust, pension,
profit-sharing or any other benefit plan for such persons, to any trustees and
any retired trustees of any investment company for which FSI serves as
distributor or principal underwriter, and to certain family members of such
individuals and their spouses, provided such shares will not be resold except to
the Trust. Class A shares of each Fund may be sold at net asset value to any
employee, partner, officer or trustee of any sub-adviser to any MFS Fund and to
certain family members of such individuals and their spouses, or to any trust,
pension, profit-sharing or other retirement plan for the sole benefit of such
employee or representative, provided such shares will not be resold except to
the Fund. Class A shares of each Fund may also be sold at net asset value to any
employee or registered representative of any dealer or other financial
institution which has a sales agreement with FSI or its affiliates, to certain
family members of such employees or representatives and their spouses, or to any
trust, pension, profit-sharing or any other benefit plan for the sole benefit of
such employee or representative, as well as to clients of the MFS Asset
Management Group. Insurance company separate accounts may also purchase Class A
shares of each Fund at their net asset value. Class A shares of each Fund also
may be sold at net asset value, subject to appropriate documentation, through a
dealer where the amount invested represents redemption proceeds from a
registered open-end management investment company not distributed or managed by
FSI or its affiliates, if such redemption has occurred no more than 60 days
prior to the purchase of Class A shares of each Fund and the shareholder either
(i) paid an initial sales charge or (ii) was at some time subject to, but did
not actually pay, a deferred sales charge with respect to the redemption
proceeds. Class A shares of each Fund may also be sold at net asset value where
the amount invested represents redemption proceeds from the MFS Fixed Fund. In
addition, Class A shares of each Fund may be sold at net asset value in
connection with the acquisition or liquidation of the assets of other investment
companies or personal holding companies. Class A shares of each Fund may also be
purchased at their net asset value by retirement plans where third party
administrators of such plans have entered into certain arrangements with FSI or
its affiliates provided that no commission is paid to dealers. Class A shares of
each Fund may be purchased at net asset value through certain broker-dealers and
other financial institutions which have entered into an agreement with FSI,
which includes a requirement that such shares be sold for the benefit of clients
participating in a "wrap account" or a similar program under which such clients
pay a fee to such broker-dealer or other financial institution.
Class A shares of each Fund may be purchased at net asset value by retirement
plans qualified under section 401(a) or 403(b) of the Code which are subject to
the Employee Retirement Income Security Act of 1974, as amended, as follows:
(i) the retirement plan and/or the sponsoring organization must subscribe to
the MFS Fundamental 401(k) PlanSM or another similar section 401(a) or 403 (b)
recordkeeping program made available by MFS Service Center, Inc.;
(ii) either (a) the sponsoring organization must have at least 25 employees or
(b) the aggregate purchases by the retirement plan of Class A shares of the
MFS Funds must be in an amount of at least $250,000 within a reasonable period
of time, as deterimined by FSI in its sole discretion; and
(iii) a CDSC of 1% will be imposed on such purchases in the event of certain
redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of a
Fund in this manner will be paid a commission by FSI, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that FSI may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at FSI's
invitation, enter into an agreement with FSI in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion thereof)
if the shareholder redeems his or her shares within a period of time after
purchase as specified by FSI. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing from
the date of the first such purchase) for purposes of determining the level of
commissions to be paid during that period with respect to such account.
Class A shares of each Fund may be sold at net asset value through the automatic
reinvestment of Class A and Class B periodic distributions which constitute
required withdrawals from qualified retirement plans. Class A shares of each
Fund may also be purchased at net asset value where the purchase is in an amount
of $3 million or more and where the dealer and FSI enter into an agreement in
which the dealer agrees to return any commission paid to it on the sale (or on a
pro rata portion thereof) as described above if the shareholder redeems his or
her shares within one year of purchase (shareholders who purchase shares at net
asset value pursuant to these conditions are called "$3 Million Shareholders").
Furthermore, Class A shares of each Fund may be sold at net asset value through
the automatic reinvestment of distributions of dividends and capital gains of
other MFS Funds pursuant to the Distribution Investment Program (see
"Shareholder Services" in the Statement of Additional Information).
CLASS B SHARES: Class B shares of each Fund are offered at net asset value
without an initial sales charge but subject to a CDSC as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First 4%*
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
- ---------
*Class B shares purchased from January 1, 1993 through August 31, 1993 will be
subject to a CDSC of 5% in the event of a redemption within the first year
after purchase.
For Class B shares purchased prior to January 1, 1993, each Fund imposes a CDSC
as a percentage of redemption proceeds as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First 6%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
No CDSC is paid upon an exchange of shares. For purposes of calculating the CDSC
upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares. See "Redemptions and Repurchases -
Contingent Deferred Sales Charge" below for further discussion of the CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the account
is registered (i) in the case of a deceased individual, solely in the deceased
individual's name, (ii) in the case of a disabled individual, solely or jointly
in the disabled individual's name or (iii) in the name of a living trust for the
benefit of the deceased or disabled individual. The CDSC on Class B shares will
also be waived in the case of redemptions of shares of a Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other retirement
plan qualified under section 401(a), 401(k) or 403(b) of the Code due to death
or disability, or in the case of required minimum distributions from any such
retirement plan due to attainment of age 70 1/2. The CDSC on Class B shares will
be waived in the case of distributions from a retirement plan qualified under
sections 401(a) or 401(k) of the Code due to (i) returns of excess contribution
to the plan, (ii) retirement of a participant in the plan, (iii) a loan from the
plan (repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC), (iv) "financial hardship" of the participant in the plan,
as that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as
amended from time to time, and (v) termination of employment of the participant
in the plan (excluding, however, a partial or other termination of the plan).
The CDSC on Class B shares will also be waived upon redemptions by: (i) officers
of the Trust, (ii) any of the subsidiary companies of Sun Life, (iii) eligible
Directors, officers, employees (including retired employees) and agents of MFS,
Sun Life or any of their subsidiary companies, (iv) any trust for such persons,
(v) any trustees and retired trustees of any investment company for which FSI
serves as distributor or principal underwriter, and (vi) certain family members
of such individuals and their spouses, provided in each case that the shares
will not be resold except to the Fund. The CDSC on Class B shares will also be
waived in the case of redemptions by any employee or registered representative
of any dealer or other financial institution which has a sales agreement with
FSI, by certain family members of any such employee or representative and his or
her spouse, by any trust for the sole benefit of such employee or representative
and by clients of the MFS Asset Management Group. A retirement plan qualified
under section 401(a) of the Code (a "Retirement Plan") that has invested its
assets in Class B shares of one or more of the MFS Funds for more than 10 years
from the later to occur of (i) January 1, 1993 or (ii) the date the Retirement
Plan first invests its assets in Class B shares of one or more of the MFS Funds
will have the CDSC on Class B shares waived in the case of a redemption of all
the Retirement Plan's shares (including shares of any other class) in all MFS
Funds (i.e., all the assets of the Retirement Plan invested in the MFS Funds are
withdrawn), except that if, immediately prior to the redemption, the aggregate
amount invested by the Retirement Plan in Class B shares of the MFS Funds
(excluding the reinvestment of distributions) during the prior four year period
equals 50% or more of the total value of the Retirement Plan's assets in the MFS
Funds, then the CDSC will not be waived. The CDSC on Class B shares may also be
waived in connection with the acquisition or liquidation of the assets of other
investment companies or personal holding companies.
CONVERSION OF CLASS B SHARES: Class B shares of each Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
Fund. Shares purchased through the reinvestment of distributions paid in respect
of Class B shares will be treated as Class B shares for purposes of the payment
of the distribution and service fees under the Distribution Plan applicable to
Class B shares. However, for purposes of conversion to Class A shares, all
shares in a shareholder's account that were purchased through the reinvestment
of dividends and distributions paid in respect of Class B shares (and which have
not converted to Class A shares as provided in the following sentence) will be
held in a separate sub-account. Each time any Class B shares in the
shareholder's account (other than those in the sub-account) convert to Class A
shares, a portion of the Class B shares then in the sub-account will also
convert to Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares not acquired through reinvestment of dividends and
distributions that are converting to Class A shares bear to the shareholder's
total Class B shares not acquired through reinvestment. The conversion of Class
B shares to Class A shares is subject to the continuing availability of a ruling
from the Internal Revenue Service or an opinion of counsel that such conversion
will not constitute a taxable event for federal tax purposes. There can be no
assurance that such a ruling or opinion will be available, and the conversion of
Class B shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
CLASS C SHARES: Class C shares of the California Fund, the North Carolina Fund
and the Virginia Fund are offered at net asset value without an initial sales
charge or a CDSC. Class C shares do not convert to any other class of shares.
The maximum investment in Class C shares that may be made is $5,000,000 per
transaction.
Class C shares are not currently available for purchase by any retirement plan
qualified under sections 401(a) or 403(b) of the Code if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan
or another similar 401(a) or 403(b) recordkeeping program made available by MFS
Service Center, Inc.
GENERAL: Except as described below, the minimum initial investment is $1,000 per
account and the minimum additional investment is $50 per account. Accounts being
established for monthly automatic investments and under payroll savings programs
and tax-deferred retirement programs (other than IRAs) involving the submission
of investments by means of group remittal statements are subject to a $50
minimum on initial and additional investments per account. The minimum initial
investment for IRAs is $250 per account and the minimum additional investment is
$50 per account. Accounts being established for participation in the Automatic
Exchange Plan are subject to a $50 minimum on initial and additional investments
per account. There are also other limited exceptions to these minimums for
certain tax-deferred retirement programs. Any minimums may be changed at any
time at the discretion of FSI. The Trust reserves the right to cease offering
shares of any Fund at any time.
For shareholders who elect to participate in certain investment programs (e.g.,
the automatic investment plan) or other shareholder services, FSI or its
affiliates may either (i) give a gift of nominal value, such as a hand-held
calculator, or (ii) make a nominal charitable contribution on their behalf.
Although all MFS Funds are generally available as an investment choice for
retirement plans, such as an IRA, municipal bond funds, such as the Funds, may
not be suitable for inclusion in a retirement plan due to their tax-exempt
nature. A shareholder should consult his or her finanical or tax adviser
regarding any such investment.
A shareholder whose shares are held in the name of, or controlled by, an
investment dealer might not receive many of the privileges and services from the
Trust (such as Right of Accumulation, Letter of Intent and certain recordkeeping
services) that the Trust ordinarily provides.
Purchases and exchanges should be made for investment purposes only. The Trust
and FSI each reserve the right to reject any specific purchase order or to
restrict purchases by a particular purchaser (or group of related purchasers).
The Trust or FSI may reject or restrict purchases of a Fund's shares by a
particular purchaser or group, for example, when such purchase is contrary to
the best interests of a Fund's other shareholders or otherwise would disrupt
management of the Fund.
FSI may enter into an agreement with shareholders who intend to make exchanges
among certain classes of certain MFS Funds (as determined by FSI) which follow a
timing pattern, and with individuals or entities acting on such shareholders'
behalf (collectively, "market timers"), setting forth the terms, procedures and
restrictions with respect to such exchanges. In the absence of such an
agreement, it is the policy of the Fund and FSI to reject or restrict purchases
by market timers if (i) more than two exchange purchases are effected in a timed
account in the same calendar quarter or (ii) a purchase would result in shares
being held in timed accounts by market timers representing more than (x) one
percent of a Fund's net assets or (y) specified dollar amounts in the case of
certain MFS Funds, which may include the Funds and which may change from time to
time. The Trust and FSI each reserve the right to request market timers to
redeem their shares at net asset value, less any applicable CDSC, if either of
these restrictions is violated.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A, Class B and Class C shares.
The Glass-Steagall Act prohibits national banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of the
prohibition has not been clearly defined, FSI believes that such Act should not
preclude banks from entering into agency agreements with FSI (as described
above). If, however, a bank were prohibited from so acting, the Trustees would
consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. It is not expected that
shareholders would suffer any adverse financial consequence as a result of these
occurrences. In addition, state laws on this issue may differ from the
interpretation of federal law expressed herein, and banks and financial
institutions may be required to register as broker-dealers pursuant to state
law.
EXCHANGES
Subject to the restrictions set forth below, some or all of the shares in an
account with any Fund for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of another
Fund or any of the other MFS Funds (if available for sale) at net asset value;
however, shares of a Fund may be exchanged for shares of another State Fund only
by residents of such other State. In addition, Class C shares may be exchanged
for shares of MFS Money Market Fund at net asset value. Shares of one class may
not be exchanged for shares of any other class. Exchanges will be made only
after instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Shareholder Servicing Agent in proper
form (i.e., if in writing -- signed by the record owner(s) exactly as the shares
are registered; if by telephone -- proper account identification is given by the
dealer or shareholder of record) and each exchange must involve either shares
having an aggregate value of at least $1,000 ($50 in the case of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by MFS
Service Center, Inc.) or all the shares in the account. If an Exchange Request
is received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the New York Stock Exchange (the "Exchange"), the
exchange usually will occur on that day if all the restrictions set forth above
have been complied with at that time. No more than five exchanges may be made in
any one Exchange Request by telephone. Additional information concerning this
exchange privilege and prospectuses for any of the other MFS Funds may be
obtained from investment dealers or the Shareholder Servicing Agent. A
shareholder should read the prospectus of the other fund and consider the
differences in objectives and policies before making any exchange. For federal
and (generally) state income tax purposes, an exchange is treated as a sale of
the shares exchanged and, therefore, an exchange could result in a capital gain
or loss to the shareholder making the exchange. Exchanges by telephone are
automatically available to most non-retirement plan accounts and certain
retirement plan accounts. For further information regarding exchanges by
telephone, see "Redemptions by Telephone" below. The exchange privilege (or any
aspect of it) may be changed or discontinued and is subject to certain
limitations, including certain restrictions on purchases by market timer
accounts. Special procedures, privileges and restrictions with respect to
exchanges may apply to market timers who enter into an agreement with FSI, as
set forth in such agreement (see "Purchases").
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the amount in his account on
any date on which a Fund is open for business by redeeming shares at their net
asset value or by selling such shares to the Fund through a dealer (a
repurchase). Certain purchases may, however, be subject to a CDSC in the event
of certain redemption transactions (see "Contingent Deferred Sales Charge"
below). For the convenience of shareholders, the Funds have arranged for
different procedures for redemption and repurchase. Since the net asset value of
shares of the account fluctuates, redemptions or repurchases, which are taxable
transactions, are likely to result in gains or losses to the shareholder. When a
shareholder withdraws an amount from his account, the shareholder is deemed to
have tendered for redemption a sufficient number of full and fractional shares
in his account to cover the amount withdrawn. The proceeds of a redemption or
repurchase will normally be available within seven days, except that for shares
purchased or received in exchange for shares purchased by check (including
certified checks or cashier's checks) payment of redemption proceeds may be
delayed for 15 days from the purchase date in an effort to assure that such
check has cleared. Payment of redemption proceeds may be delayed for up to seven
days if the Fund determines that such a delay would be in the best interest of
all its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder has the right to redeem all or any
portion of the shares in his account by mailing or delivering to the Shareholder
Servicing Agent (see back cover for address) a stock power with a written
request for redemption, or a letter of instruction, together with the share
certificates for the shares (if any were issued) and all in "good order" for
transfer, to the Shareholder Servicing Agent (see back cover for address). "Good
order" generally means that the stock power, written request for redemption,
letter of instruction or certificate must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed in
the manner set forth below under the caption "Signature Guarantee." In addition,
in some cases "good order" will require the furnishing of additional documents.
The Shareholder Servicing Agent may make certain de minimis exceptions to the
above requirements for redemption. Within seven days after receipt of a
redemption request by the Shareholder Servicing Agent in "good order," the Trust
will make payment in cash of the net asset value of the shares next determined
after such redemption request was received, reduced by the amount of any
applicable CDSC and the amount of any income tax required to be withheld, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the Exchange is closed or trading on the Exchange
is restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists (See "Tax Status").
B. REDEMPTION BY TELEPHONE -- Each shareholder may redeem an amount from his
account by telephoning toll-free at (800) 225-2606. Shareholders wishing to
avail themselves of this telephone redemption privilege must so elect on their
Account Application, designate thereon a commercial bank and account number to
receive the proceeds of such redemption, and sign the Account Application Form
with the signature(s) guaranteed in the manner set forth below under the caption
"Signature Guarantee." The proceeds of such a redemption, reduced by the amount
<PAGE> 81
of any applicable CDSC described above and the amount of any income tax required
to be withheld, are mailed by check to the designated account, without charge.
As a special service, investors may arrange to have proceeds in excess of $1,000
wired in federal funds to the designated account. If a telephone redemption
request is received by the Shareholder Servicing Agent by the close of regular
trading on the Exchange on any business day, shares will be redeemed at the
closing net asset value of the Fund on that day. Subject to the conditions
described in this section, proceeds of a redemption are normally mailed or wired
on the next business day following the date of receipt of the order for
redemption. The Shareholder Servicing Agent will not be responsible for any
losses resulting from unauthorized telephone transactions if it follows
reasonable procedures designed to verify the identity of the caller. The
Shareholder Servicing Agent will request personal or other information from the
caller, and will normally also record calls. Shareholders should verify the
accuracy of confirmation statements immediately after their receipt.
C. REPURCHASE THROUGH A DEALER -- If a shareholder desires to sell his shares at
their net asset value through a securities dealer (a repurchase), the
shareholder can place a repurchase order with his dealer, who may charge the
shareholder a fee. Net asset value is calculated on the day the dealer places
the order with FSI, as the Fund's agent. IF THE DEALER RECEIVES THE
SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE EXCHANGE AND
COMMUNICATES IT TO FSI ON THE SAME DAY BEFORE FSI CLOSES FOR BUSINESS, THE
SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY REDUCED BY
THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO
BE WITHHELD.
D. REDEMPTION BY CHECK -- Only Class A and Class C shares may be redeemed by
check. A shareholder (except a $3 Million Shareholder) owning Class A or Class C
shares of a Fund may elect to have a special account with State Street Bank and
Trust Company (the "Bank") for the purpose of redeeming Class A or Class C
shares from his or her account by check. The Bank will provide each Class A or
Class C shareholder, upon request, with forms of checks drawn on the Bank. Only
shareholders having accounts in which no share certificates have been issued
will be permitted to redeem shares by check. Checks may be made payable in any
amount not less than $500. Shareholders wishing to avail themselves of this
check-writing privilege should so request on their Account Application, must
execute signature cards (for additional information, see the Account
Application) with the signature guaranteed in the manner set forth below under
the caption "Signature Guarantee," and must return any Class A or Class C share
certificates issued to them. Additional documentation will be required from
corporations, partnerships, fiduciaries or other such institutional investors.
All checks must be signed by the shareholder(s) of record exactly as the account
is registered before the Bank will honor them. The shareholders of joint
accounts may authorize each shareholder to redeem by check. The check may not
draw on monthly dividends which have been declared but not distributed.
SHAREHOLDERS WHO PURCHASE CLASS A AND CLASS C SHARES BY CHECK (INCLUDING
CERTIFIED CHECKS OR CASHIER'S CHECKS) MAY WRITE CHECKS AGAINST THOSE SHARES ONLY
AFTER THEY HAVE BEEN ON THE FUND'S BOOKS FOR 15 DAYS. WHEN SUCH A CHECK IS
PRESENTED TO THE BANK FOR PAYMENT, A SUFFICIENT NUMBER OF FULL AND FRACTIONAL
SHARES WILL BE REDEEMED TO COVER THE AMOUNT OF THE CHECK AND ANY APPLICABLE CDSC
AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD. IF THE AMOUNT OF THE
CHECK PLUS ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE
WITHHELD, IS GREATER THAN THE VALUE OF THE CLASS A OR CLASS C SHARES HELD IN THE
SHAREHOLDER'S ACCOUNT, THE CHECK WILL BE RETURNED UNPAID, AND THE SHAREHOLDER
MAY BE SUBJECT TO EXTRA CHARGES. TO AVOID DISHONOR OF CHECKS DUE TO FLUCTUATION
IN ACCOUNT VALUE, SHAREHOLDERS ARE ADVISED AGAINST REDEEMING ALL OR MOST OF
THEIR ACCOUNT BY CHECK. CHECKS SHOULD NOT BE USED TO CLOSE A FUND ACCOUNT
BECAUSE WHEN THE CHECK IS WRITTEN, THE SHAREHOLDER WILL NOT KNOW THE EXACT TOTAL
VALUE OF THE ACCOUNT ON THE DAY THE CHECK CLEARS. There is presently no charge
to the shareholder for the maintenance of this special account or for the
clearance of any checks, but each Fund and the Bank reserve the right to impose
such charges or to modify or terminate the redemption-by-check privilege at any
time.
SIGNATURE GUARANTEE: In order to protect shareholders against fraud to the
greatest extent possible, each Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must be guaranteed by an eligible bank, broker, dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association. Signature guarantees shall be accepted
in accordance with policies established by the Shareholder Servicing Agent.
GENERAL: Shareholders of each Fund who have redeemed their shares have a
one-time right to reinvest the redemption proceeds in the same class of shares
of any Fund or any other of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days of
the redemption pursuant to the Reinstatement Privilege. If the shares credited
for any CDSC paid are then redeemed within six years of the initial purchase in
the case of Class B shares, or 12 months of the initial purchase in the case of
certain Class A share purchases, a CDSC will be imposed upon redemption. Such
purchases under the Reinstatement Privilege are subject to all limitations in
the Statement of Additional Information regarding this privilege.
Subject to the Trust's compliance with applicable regulations, each Fund
reserves the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution-in-kind, the
shareholder could incur brokerage or transaction charges when converting the
securities to cash.
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the shareholder) if at any time the total
investment in such account drops below $500 because of redemptions, except in
the case of accounts established for automatic investments and certain payroll
savings programs, Automatic Exchange Plan accounts and tax-deferred retirement
plans, for which the minimum investment requirement is either $250 or $50. See
"Purchases" above. Shareholders will be notified that the value of their account
is less than the minimum investment requirement and allowed 60 days to make an
additional investment before the redemption is processed. No CDSC will be
imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in the
case of purchases of $1 million or more of Class A shares) or six years (in the
case of purchases of Class B shares). Purchase of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month. Class
B shares purchased on or after January 1, 1993 will be aggregated on a calendar
month basis -- all transactions made during a calendar month, regardless of when
during the month they have occurred, will age one year at the close of business
on the last day of such month in the following calendar year and each subsequent
year. For Class B shares of a Fund purchased prior to January 1, 1993,
transactions will be aggregated on a calendar year basis -- all transactions
made during a calendar year, regardless of when during the year they have
occurred, will age one year at the close of business on December 31 of that year
and each subsequent year. At the time of a redemption, the amount by which the
value of a shareholder's account for a particular class represented by Direct
Purchases exceeds the sum of the six calendar year aggregations (12 months in
the case of purchases of $1 million or more of Class A shares) of Direct
Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is
ever assessed on additional shares acquired through the automatic reinvestment
of dividends or capital gain distributions ("Reinvested Shares").
Therefore, at the time of redemption of shares of a particular class, (i) any
Free Amount is not subject to the CDSC and (ii) the amount of redemption equal
to the then-current value of Reinvested Shares is not subject to the CDSC, but
(iii) any amount of the redemption in excess of the aggregate of the
then-current value of Reinvested Shares and the Free Amount is subject to a
CDSC. The CDSC will first be applied against the amount of Direct Purchases
which will result in any such charge being imposed at the lowest possible rate.
The CDSC to be imposed upon redemptions will be calculated as set forth in
"Purchases" above.
The applicability of the CDSC will be unaffected by exchanges or transfers of
registration.
DISTRIBUTION PLANS
The Trustees have adopted separate distribution plans for Class A, Class B and
Class C shares for each applicable Fund pursuant to Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule"), after having concluded that there is
a reasonable likelihood that the plans would benefit such Fund and its
shareholders.
CLASS A DISTRIBUTION PLAN. Each Fund's Class A Distribution Plan provides that
the Fund will pay FSI a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% of the average daily net assets attributable to Class
A shares of that Fund annually in order that FSI may pay expenses on behalf of
such Fund related to the distribution and servicing of Class A shares. Such
payments have already commenced with respect to the Alabama, Georgia, Maryland,
Massachusetts, New York, North Carolina, South Carolina, Tennessee, Virginia and
West Virginia Funds and will commence, in the case of the Arkansas, California,
Florida, Louisiana, Mississippi, Pennsylvania, Texas and Washington Funds on
such date or dates as may be determined from time to time by the Trustees of the
Trust in their discretion. The expenses to be paid by FSI on behalf of a Fund
include a service fee to securities dealers which enter into a sales agreement
with FSI of up to 0.25% on that Fund's average daily net assets attributable to
Class A shares that are owned by investors for whom such securities dealers is
the holder or dealer of record. This fee is intended to be partial consideration
for all personal services and/or account maintenance services rendered by the
dealer with respect to Class A shares. FSI may from time to time reduce the
amount of the service fee paid for shares sold prior to a certain date. FSI, as
the Trust's distributor, will also retain a distribution fee of 0.10% of a
Fund's average daily net assets attributable to Class A shares as partial
consideration for services performed and expenses incurred in the performance of
FSI's obligations under its distribution agreement with the Trust. FSI has
voluntarily waived its right to receive such 0.10% fee under the Class A
Distribution Plan with respect to the Alabama, Georgia and New York Funds; this
waiver may be discontinued by FSI at any time without prior notice. In addition,
to the extent that the aggregate of the foregoing fees does not exceed 0.35% per
annum of the average daily net assets of a Fund attributable to Class A shares,
each Fund is permitted to pay other distribution-related expenses, including
commissions to dealers and payments to wholesalers employed by FSI for sales at
or above a certain dollar level. Service fees may be reduced for a securities
dealer that is the holder or dealer of record for an investor who owns shares of
a Fund having an aggregate net asset value at or above a certain dollar level.
Dealers may from time to time be required to meet certain criteria in order to
receive service fees. FSI or its affiliates are entitled to retain all service
fees payable under the Class A Distribution Plan for which there is no dealer of
record or for which qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
performed by FSI or its affiliates for shareholder accounts. Certain banks and
other financial institutions that have selling agreements with FSI will receive
service fees that are the same as service fees to dealers. Fees payable under
the Class A Distribution Plan are charged to, and therefore reduce income
allocated to, Class A shares.
CLASS B DISTRIBUTION PLAN. Each Fund's Class B Distribution Plan provides that
the Fund will pay FSI a daily distribution fee equal on an annual basis to 0.75%
of that Fund's average daily net assets attributable to Class B shares and will
pay FSI a service fee of up to 0.25% per annum of that Fund's average daily net
assets attributable to Class B shares (which FSI will in turn pay to securities
dealers which enter into a sales agreement with FSI at a rate of up to 0.25% per
annum of that Fund's average daily net assets attributable to Class B shares
owned by investors for whom that securities dealer is the holder or dealer of
record). This service fee is intended to be additional consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to Class B shares. FSI will pay commissions to dealers of 3.75% of
the purchase price of Class B shares purchased through dealers. FSI will also
advance to dealers the first year service fee at a rate equal to 0.25% of the
purchase price of such shares and, as compensation therefor, FSI may retain the
service fee paid by a Fund with respect to such shares for the first year after
purchase. Therefore, the total amount paid to a dealer upon the sale of shares
is 4.00% of the purchase price of the shares (commission rate of 3.75% plus
service fee equal to 0.25% of the purchase price). Dealers will become eligible
for additional service fees with respect to such shares commencing in the
thirteenth month following the purchase. Except in the case of the 0.25% per
annum first year service fee, service fees under a Fund's Class B Distribution
Plan will become payable for the Arkansas, California, Florida, Louisiana,
Mississippi, Pennsylvania, Texas and Washington Funds on such date or dates as
the Trustees of the Trust may determine. Dealers may from time to time be
required to meet certain criteria in order to receive service fees. FSI or its
affiliates are entitled to retain all service fees payable under the Class B
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by FSI or its affiliates
for shareholder accounts. The purpose of the distribution payments to FSI under
the Class B Distribution Plan is to compensate FSI for its distribution services
to each Fund. Since FSI's compensation is not directly tied to its expenses, the
amount of compensation received by FSI during any year may be more or less than
its actual expenses. For this reason, this type of distribution fee arrangement
is characterized by the staff of the SEC as being of the "compensation" variety.
However, the Funds are not liable for any expenses incurred by FSI in excess of
the amount of compensation it receives. The expenses incurred by FSI, including
commissions to dealers, are likely to be greater than the distribution fees for
the next several years, but thereafter such expenses may be less than the amount
of the distribution fees. Certain banks and other financial institutions that
have selling agreements with FSI will receive agency transaction and service
fees that are the same as commissions and service fees to dealers. Fees payable
under the Class B Distribution Plan are charged to, and therefore reduce, income
allocated to Class B shares. The Class B Distribution Plan also provides that
FSI will receive all CDSCs attributable to Class B shares (see "Redemptions and
Repurchases" above), which do not reduce the distribution and service fees.
CLASS C DISTRIBUTION PLAN. Each Fund's Class C Distribution Plan (applicable
to California, North Carolina and Virginia Funds only) provides that the Fund
will pay FSI a distribution fee of up to 0.75% per annum of the Fund's average
daily net assets attributable to Class C shares and will pay FSI a service fee
of up to 0.25% per annum of the Fund's average daily net assets attributable to
Class C shares (which FSI in turn pays to securities dealers which enter into a
sales agreement with FSI at a rate of up to 0.25% per annum of the Fund's daily
net assets attributable to Class C shares owned by investors for whom that
securities dealer is the holder or dealer of record). The distribution/service
fees attributable to Class C shares are designed to permit an investor to
purchase such shares through a broker-dealer without the assessment of an
initial sales charge or a CDSC while allowing FSI to compensate broker-dealers
in connection with the sale of such shares. The service fee is intended to be
additional consideration for all personal services and/or account maintenance
services rendered with respect to Class C shares. FSI or its affiliates are
entitled to retain all service fees payable under the Class C Distribution Plan
with respect to accounts for which there is no dealer of record as partial
consideration for personal services and/or account maintenance services
performed by FSI or its affiliates for shareholder accounts. The purpose of the
distribution payments to FSI under the Class C Distribution Plan is to
compensate FSI for its distribution services to the Fund. Distribution payments
under the Plan will be used by FSI to pay securities dealers a distribution fee
in an amount equal on an annual basis to 0.75% of the Fund's average daily net
assets attributable to Class C shares owned by investors for whom that
securities dealer is the holder or dealer of record. (Therefore, the total
amount of distribution/service fees paid to a dealer on an annual basis is 1.00%
of the Fund's average daily net assets attributable to Class C shares owned by
investors for whom the securities dealer is the holder or dealer of record.) FSI
also pays expenses of printing prospectuses and reports used for sales purposes,
expenses with respect to the preparation and printing of sales literature and
other distribution related expenses, including, without limitation, the
compensation of personnel and all costs of travel, office expense and equipment.
Since FSl's compensation is not directly tied to its expenses, the amount of
compensation received by FSI during any year may be more or less than its actual
expenses. For this reason, this type of distribution fee arrangement is
characterized by the staff of the SEC as being of the "compensation" variety.
However, the Funds are not liable for any expenses incurred by FSI in excess of
the amount of compensation it receives. Certain banks and other financial
institutions that have agency agreements with FSI will receive agency
transaction and service fees that are the same as distribution fees and service
fees to dealers. Fees payable under the Class C Distribution Plan are charged
to, and therefore reduce, income allocated to Class C shares.
DISTRIBUTIONS
Each Fund intends to declare daily and pay to its shareholders substantially all
of its net investment income as dividends on a monthly basis. Dividends
generally are distributed on the first business day of the following month. In
addition, a Fund may make one or more distributions during the calendar year to
its shareholders from any long-term capital gains. Each Fund also may make one
or more distributions during the calendar year to its shareholders from
short-term capital gains. Shareholders may elect to receive dividends and
capital gain distributions in either cash or additional shares of the same class
with respect to which a distribution is made (see "Tax Status" and "Shareholder
Services -- Distribution Options" below). Distributions paid by each Fund with
respect to Class A shares will generally be greater than those paid with respect
to Class B and Class C shares because expenses attributable to Class B and Class
C shares will generally be higher.
TAX STATUS
FEDERAL INCOME TAXES -- Each Fund is treated as a separate entity for federal
income tax purposes. In order to minimize the taxes that the Funds would
otherwise be required to pay, each Fund intends to qualify each year as a
separate "regulated investment company" under Subchapter M of the Code, and to
make distributions to its shareholders in accordance with the timing
requirements imposed by the Code, it is expected that the Fund will not be
required to pay any federal income or excise taxes. Each Fund also expects that
the dividends it pays to its shareholders from interest on Municipal Obligations
will be exempt from federal income tax, because each Fund intends to satisfy
certain requirements of the Code. Distributions of income from capital gains,
from investments in taxable securities and from certain other transactions
including transactions involving Municipal Obligations purchased at a market
discount will be taxable to shareholders, whether distributed in cash or in
additional shares; however, it is expected that such amounts would not be
substantial in relation to the tax-exempt interest received by each Fund.
Shareholders may not have to pay state or local taxes on dividends derived from
interest on U.S. government obligations, although such taxes generally would be
due with respect to capital gains realized on the disposition of such
obligations. Investors should consult with their tax advisers in this regard.
A statement setting forth the federal income tax status of all distributions for
each calendar year, including the portion (if any) taxable as ordinary income;
the portion taxable as long term capital gains; the portion, if any,
representing a return of capital (which is free of current taxes but results in
a basis reduction); the portion exempt from federal income taxes as
"exempt-interest dividends"; the portion, if any, that is a tax preference item
under the federal alternative minimum tax; and the amount, if any, of federal
income tax withheld will be sent to each shareholder of each Fund promptly after
the end of such year.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Fund will not be deductible for federal income tax purposes. Exempt- interest
dividends are taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to federal income tax.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by certain private activity bonds
should consult their advisers before purchasing shares in a Fund.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest and makes interest on certain
tax-exempt bonds and distributions by a Fund of such interest a tax preference
item for purposes of the individual and corporate alternative minimum tax. In
addition, all exempt-interest dividends may affect a corporate shareholder's
alternative minimum tax liability.
Each Fund intends to withhold U.S. federal income tax at the rate of 30% on
taxable dividends and any other payments that are subject to such withholding
and are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable treaty.
Each Fund is also required in certain circumstances to apply backup withholding
of 31% of taxable dividends and redemption proceeds paid to any shareholder
(including a shareholder who is neither a citizen nor a resident of the U.S.)
who does not furnish to the Fund certain information and certifications or who
is otherwise subject to backup withholding. However, backup withholding will not
be applied to payments which have been subject to 30% withholding. Prospective
investors should read the Account Application for information regarding backup
withholding of federal income tax and should consult their own tax advisers as
to the tax consequences of an investment in a Fund.
STATE INCOME TAXES
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any Fund is liable for any income or franchise tax in The
Commonwealth of Massachusetts as long as it qualifies as a regulated investment
company under the Code. Set forth below are brief descriptions of the personal
income tax status of an investment in the Funds under tax laws currently in
effect in the state for which the Fund is named. A statement setting forth the
state income tax status of each Fund's distributions made during each calendar
year will be sent to shareholders annually.
ALABAMA TAXES -- The Alabama Department of Revenue has advised the Trust that
under existing Alabama law as long as the Alabama Fund qualifies as a separate
"regulated investment company" under the Code, and provided the Fund is invested
in obligations the interest on which would be exempt from Alabama personal
income taxes if held directly by an individual shareholder (such as obligations
of Alabama or its political subdivisions, of the United States or of certain
territories or possessions of the United States), dividends received from the
Alabama Fund that represent interest received by the Alabama Fund on such
obligations will be exempt from Alabama personal income taxes. To the extent
that distributions by the Alabama Fund are derived from long-term or short-term
capital gains on such obligations, or from dividends or capital gains on other
types of obligations, such distributions will not be exempt from Alabama
personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Alabama Fund by an Alabama resident will be taken into account for
Alabama personal income tax purposes.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the Alabama Fund to purchase or carry shares of the Alabama Fund will not be
deductible for Alabama income tax purposes.
ARKANSAS TAXES -- On December 13, 1991, the Arkansas Department of Finance and
Administration issued a letter ruling to the Arkansas Fund providing that, under
the current terms of the Arkansas Fund's Prospectus, income distributions to
Arkansas Fund shareholders, to the extent such distributions represent interest
on obligations of the State of Arkansas or obligations of the United States or
its possessions, will be exempt from Arkansas income tax.
Capital gains or losses realized from transactions in the portfolio securities
of the Arkansas Fund and distributed to shareholders and the capital gains and
losses realized by shareholders from redemptions, sales or exchanges of shares
of the Arkansas Fund will be taken into account for Arkansas income tax
purposes.
<PAGE> 82
CALIFORNIA TAXES: The California Fund believes that under existing California
law, as long as at the end of each quarter of the California Fund's taxable year
the California Fund continues to qualify for the special federal income tax
treatment afforded regulated investment companies and at least 50% of the value
of the California Fund's assets consists of obligations that, if held by an
individual, would pay interest exempt from California taxation, shareholders of
the California Fund will be able to exclude from income, for California personal
income tax purposes, "California exempt-interest dividends" received from the
California Fund during that taxable year. A "California exempt-interest
dividend" is any dividend or portion thereof of the California Fund not
exceeding the interest received by the California Fund during the taxable year
on obligations that, if held by an individual, would pay interest exempt from
California taxation (less certain direct and allocated expenses which include
amortization of acquisition premium) and so designated by written notice to
shareholders within 60 days after the close of that taxable year.
Distributions, other than "California exempt-interest dividends," by the
California Fund to California residents will be subject to California personal
income taxation. Gains realized by California residents from a redemption or
sale of shares of the California Fund will also be subject to California
personal income taxation. In general, California nonresidents, other than
certain dealers, will not be subject to California personal income taxation on
distributions by the California Fund or on gains from the redemption or sale of
shares of the California Fund, unless those shares have acquired a California
"business situs." (Such California nonresidents will, however, likely be subject
to other state or local income taxes on such distributions or gains, depending
on their residence.) Short-term capital losses realized by shareholders from a
redemption of shares of the California Fund within six months from the date of
their purchase will not be allowed for California personal income tax purposes
to the extent of any tax-exempt dividends received with respect to such shares
during such period. No deduction will be allowed for California personal income
tax purposes for interest on indebtedness incurred or continued to purchase or
carry shares of the California Fund for any taxable year of a shareholder during
which the California Fund distributes "California exempt-interest dividends."
A statement setting forth the amount of "California exempt-interest dividends"
distributed during each calendar year will be sent to shareholders annually.
FLORIDA TAXES -- Florida does not currently impose an income tax on individuals.
Thus, individual shareholders of the Florida Fund will not be subject to any
Florida state income tax on distributions received from the Florida Fund.
However, certain distributions will be taxable to corporate shareholders which
are subject to Florida corporate income tax.
Florida currently imposes an "intangibles tax" at the annual rate of 0.20% on
certain securities and other intangible assets owned by Florida residents.
Certain types of tax exempt securities of Florida issuers, U.S. Government
securities and tax exempt securities issued by certain U.S. territories and
possessions are exempt from this intangibles tax. Shares of the Florida Fund
will also be exempt from the Florida intangibles tax if the portfolio consists
exclusively of securities exempt from the intangibles tax on December 31 of the
year. If the portfolio consists of any assets on December 31 which are not so
exempt however, only the portion of the shares of the Florida Fund which relate
to securities issued by the United States and its possessions and territories
will be exempt from the Florida intangibles tax, and the remaining portion of
such shares will be fully subject to the intangibles tax, even if they partly
relate to Florida tax exempt securities.
GEORGIA TAXES -- Under existing laws, shareholders will not be subject to
Georgia income tax on distributions with respect to shares of the Georgia Fund
to the extent such distributions represent "exempt-interest dividends" for
federal income tax purposes that are attributable to interest-bearing
obligations issued by or on behalf of the State of Georgia or its political
subdivisions, or issued by territories or possessions of the United States (to
the extent federal law exempts interest on obligations of such territories or
possessions from state income taxation) which are held by the Georgia Fund.
Distributions, if any, derived from capital gain or other sources generally will
be taxable to shareholders of the Georgia Fund for Georgia income tax purposes.
Obligations of the State of Georgia and its political subdivisions and public
institutions are exempt from the Georgia intangible personal property tax.
Obligations issued by territories or possessions of the United States (to the
extent federal law exempts obligations of such territories or possessions from
state property taxation) are exempt by federal statute from taxes such as the
Georgia intangible personal property tax. It is likely, however, that the
Georgia intangible personal property tax applies at the rate of $.10 per $1,000
in value of shares of the Georgia Fund held by shareholders who are subject to
such tax.
LOUISIANA TAXES -- The Louisiana Fund is not subject to Louisiana income tax
except to the extent that obligations held by the Louisiana Fund, not including
tax-exempt obligations of the State of Louisiana, or its political or
governmental subdivisions, its governmental agencies or instrumentalities,
acquire a business situs within Louisiana.
Based upon a private ruling obtained from the Louisiana Department of Revenue
and Taxation (the "Department"), and subject to the current policies of the
Department, shareholders of the Louisiana Fund who are individuals and residents
of the State of Louisiana and who are otherwise subject to Louisiana income tax
will not be subject to Louisiana income tax on Louisiana Fund dividends to the
extent that such dividends are attributable to interest on tax-exempt
obligations of the State of Louisiana or its political or governmental
subdivisions, its governmental agencies or instrumentalities. To the extent that
distributions by the Louisiana Fund are attributable to sources other than those
described in the preceding sentence, such distributions, including but not
limited to long-term or short-term capital gains, will not be exempt from
Louisiana income tax.
Non-resident individuals maintaining their legal domicile other than in the
State of Louisiana will not be subject to Louisiana income tax on their
Louisiana Fund dividends.
To the extent a shareholder in the Louisiana Fund is a corporation otherwise
subject to the Louisiana corporation franchise tax, its investment in and
distributions from the Louisiana Fund will not be exempt but will be included in
its taxable capital in determining its Louisiana corporation franchise tax
liability.
The Louisiana Fund will notify its shareholders within 60 days after the close
of the year as to the interest derived from Louisiana obligations and exempt
from Louisiana income tax.
The Louisiana Fund's property will not be subject to Louisiana ad valorem taxes.
MARYLAND TAXES -- Holders of the Maryland Fund who are individuals,
corporations, estates or trusts and who are subject to Maryland state and local
income tax will not be subject to tax in Maryland on Maryland Fund dividends to
the extent such dividends (A) qualify as exempt-interest dividends of a
regulated investment company under Section 852(b)(5) of the Code which are
attributable to (i) interest on tax-exempt obligations of the State of Maryland
or its political subdivisions or authorities or (ii) interest on obligations of
the United States or an authority, commission, instrumentality, possession or
territory of the United States, or (B) are attributable to gain realized by the
Maryland Fund from the sale or exchange of bonds issued by Maryland or a
political subdivision of Maryland or of the United States or an authority,
commission or instrumentality of the United States.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described above, such as (i) interest on obligations
issued by states other than Maryland or (ii) income from repurchase contracts,
such distributions will not be exempt from Maryland state and local income
taxes. In addition, gain realized by a shareholder upon a redemption or exchange
of Maryland Fund shares will be subject to Maryland taxation.
In the event the Maryland Fund fails to qualify as a "regulated investment
company," the Maryland Fund would be subject to corporate Maryland income tax
and distributions would be taxable as ordinary income to the shareholders.
Maryland presently includes in taxable net income items of tax preferences as
defined in the Code. Interest paid on certain private activity bonds constitutes
a tax preference. Accordingly, subject to a threshold amount, 50% of any
distributions on the Maryland Fund attributable to such private activity bonds
will not be exempt from Maryland state and local income taxes.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the Maryland Fund to purchase or carry shares of the Maryland Fund will not be
deductible for Maryland state and local income tax purposes to the extent such
interest is allocable to exempt-interest dividends.
MASSACHUSETTS TAXES -- Under existing Massachusetts law, as long as the
Massachusetts Fund qualifies as a separate "regulated investment company" under
the Code, (i) the Massachusetts Fund will not be liable for any income or
corporate excise tax in The Commonwealth of Massachusetts and (ii) shareholders
of the Massachusetts Fund who are subject to Massachusetts personal income
taxation will not be required to include in their Massachusetts gross income
that portion of their "exempt-interest dividends" (as defined in Section
852(b)(5) of the Code) from the Massachusetts Fund which the Massachusetts Fund
clearly identifies as directly attributable to interest received by the
Massachusetts Fund on obligations issued by The Commonwealth of Massachusetts,
its counties and municipalities, authorities, political subdivisions or
instrumentalities or on obligations of the United States or its agencies or
possessions that are exempt from state taxation.
Any capital gains distributed by the Massachusetts Fund (except for cases in
which capital gains are specifically exempted from income taxation under the
legislation authorizing issuance of the obligations the sale of which produced
such capital gains), or gains realized by the shareholder from a redemption or
sale of shares of the Massachusetts Fund, will be subject to Massachusetts
personal income taxation.
MISSISSIPPI TAXES -- Interest received upon the obligations of the State of
Mississippi or political subdivisions thereof are exempt from income tax in the
State of Mississippi. A recently adopted Mississippi Income Tax Regulation
provides a pass-through of the tax-exempt character of interest received by a
regulated investment company, such as the Mississippi Fund, upon distribution to
its shareholders. Under the new Regulation, a taxpayer's pro rata portion of
interest dividends distributed by the Mississippi Fund is exempt from
Mississippi income tax to the extent that such pro rata portion represents
interest received by the Fund from governmental securities which would be exempt
for Mississippi income tax purposes if such governmental securities were
directly held by the taxpayer.
NEW YORK TAXES -- Under existing New York laws, shareholders will not be subject
to New York State nor New York City personal income taxes on New York Fund
dividends to the extent that such dividends qualify as "exempt-interest
dividends" under the Code and represent interest income attributable to
obligations of the State of New York and its political subdivisions (as well as
certain other obligations the interest on which is exempt from New York State
and New York City personal income taxes, such as, for example, certain
obligations of The Commonwealth of Puerto Rico). To the extent that New York
Fund distributions are derived from other income, including long-term or
short-term capital gains, such distributions will not be exempt from New York
State or New York City personal income tax.
Dividends on shares of the New York Fund are not excluded from net income in
determining New York State or New York City franchise taxes on corporations or
financial institutions.
Capital gains or losses realized by a shareholder from a redemption, sale or
exchange of shares of the New York Fund will be taken into account for New York
State personal income tax purposes, in the case of a New York State resident,
and for New York City personal income tax purposes, in the case of a resident of
New York City.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the New York Fund to purchase or carry shares of the New York Fund will not be
deductible for New York State or New York City personal income tax purposes.
NORTH CAROLINA TAXES -- The North Carolina Department of Revenue has advised the
Trust that under existing North Carolina law, as long as the North Carolina Fund
qualifies as a separate "regulated investment company" under the Code and 50% or
more of the value of the total assets of the North Carolina Fund consists of
obligations whose interest is exempt from federal income tax, dividends received
from the North Carolina Fund that represent either (i) interest exempt from
federal income tax and received by the North Carolina Fund on obligations of
North Carolina or its political subdivisions; nonprofit educational institutions
organized or chartered under the laws of North Carolina; or Guam, Puerto Rico,
or the U.S. Virgin Islands including the governments thereof and their agencies,
instrumentalities and authorities, or (ii) interest received by the North
Carolina Fund on direct obligations of the United States will be exempt from
North Carolina personal income taxes. In the event the North Carolina Fund fails
to qualify as a separate "regulated investment company" or does not satisfy the
50% test, the foregoing exemption may be unavailable or substantially limited.
Any capital gains distributed by the North Carolina Fund (except for capital
gains attributable to the sale by the North Carolina Fund of an obligation the
profit from which is exempt by a North Carolina statute) or gains realized by
the shareholder from a redemption or sale of shares of the North Carolina Fund
will be subject to North Carolina personal income taxes.
If certain substantive (as to portfolio composition) and reporting requirements
are met, shares of the North Carolina Fund will be entirely exempt from the
North Carolina intangibles tax. Otherwise, the shares will be partially exempt.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the North Carolina Fund to purchase or carry shares of the North Carolina Fund
generally will not be deductible for North Carolina income tax purposes.
PENNSYLVANIA TAXES -- Individual shareholders who are Pennsylvania residents
subject to the Pennsylvania personal income tax will not be subject to
Pennsylvania personal income tax on distributions of income and gains made by
the Fund which are attributable to obligations issued by the Commonwealth of
Pennsylvania and its political subdivisions, agencies and instrumentalities,
certain qualifying obligations of United States territories and possessions or
United States Government obligations, the interest and gains from which are
statutorily free from state taxation in the Commonwealth of Pennsylvania
("exempt obligations"). Capital gain distributions by the Fund will be subject
to Pennsylvania personal income tax.
Distributions attributable to most other sources will not be exempt from
Pennsylvania personal income tax.
Corporate shareholders who are subject to the Pennsylvania corporate net income
tax will not be subject to corporate net income tax on distributions of interest
made by the Pennsylvania Fund, provided such distributions are attributable to
obligations issued by the Commonwealth of Pennsylvania and its political
subdivisions, agencies and instrumentalities, and certain qualifying territories
and possessions of the United States, and further provided such distributions
are not included in such shareholder's Federal taxable income determined before
net operating loss carryovers and special deductions.
Shares of the Pennsylvania Fund which are held by individual shareholders who
are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the Fund's
portfolio consists of exempt obligations on the annual assessment date. Further,
shares of the Fund which are held by individual shareholders who are residents
of the City of Pittsburgh or the School District of Pittsburgh, or both, will be
exempt from the personal property tax imposed by each such jurisdiction to the
extent that the Fund's portfolio consists of exempt obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal property
taxes.
In the case of individual shareholders who are residents of the City of
Philadelphia, distributions of interest derived from exempt obligations will not
be taxable for purposes of the Philadelphia School District Investment Net
Income Tax.
SOUTH CAROLINA TAXES -- Under existing South Carolina law, as long as the South
Carolina Fund qualifies as a separate "regulated investment company" under the
Code, shareholders of the South Carolina Fund will not be required to include in
their South Carolina gross income distributions from the South Carolina Fund to
the extent such distributions qualify as "exempt-interest dividends" as defined
in the Code, which are directly attributable to interest received by the South
Carolina Fund on tax-exempt obligations issued by the State of South Carolina or
its political subdivisions or the United States. In the event the South Carolina
Fund fails to qualify as a separate "regulated investment company," the
foregoing exemption may be unavailable or substantially limited.
Any capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund, will
be subject to South Carolina income taxation.
As intangible personal property, the shares of the South Carolina Fund are
exempt from any and all ad valorem taxation in South Carolina.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the South Carolina Fund to purchase or carry shares of the South Carolina Fund
generally will not be deductible for South Carolina income tax purposes.
TENNESSEE TAXES -- Under existing Tennessee law, as long as the Tennessee Fund
qualifies as a separate "regulated investment company" under the Code, dividends
received from the Tennessee Fund will not be subject to the Tennessee individual
income tax, also known as the Hall Income Tax, to the extent that such dividends
represent income of the Tennessee Fund attributable to interest on (i) bonds or
securities of the United States government or any agency or instrumentality
thereof, (ii) bonds of the State of Tennessee or any county, municipality, or
political subdivision thereof, including any agency, board, authority, or
commission, or (iii) bonds of Puerto Rico, United States Virgin Islands, or
Guam. In addition, the administrative position of the Tennessee Department of
Revenue is that dividends received from the Tennessee Fund will not be subject
to the Tennessee individual income tax to the extent that such dividends
represent income of the Tennessee Fund attributable to capital gains from the
sale, exchange, redemption, payment at maturity, or other disposition of such
bonds or securities.
Other distributions from the Tennessee Fund, including dividends attributable to
obligations of issuers in states other than Tennessee, will not be exempt from
the Tennessee individual income tax.
TEXAS TAXES -- The State of Texas currently imposes no income tax. Therefore, no
portion of any dividend received by an individual shareholder of the Texas Fund
in respect of his shares is subject to income taxation by the State or by any
political subdivision of the State. Furthermore, generally the shares are not
taxable under any property tax levied in the State; however, this exemption
under certain circumstances may not apply to insurance companies, savings and
loan associations, or certain transportation businesses (the extent of taxation
of intangible personal property owned by such entities being governed by
specific statutes). The "inheritance tax" imposed by the State upon certain
transfers of property of a deceased resident individual shareholder may be
measured in part upon the value of the shares included in the estate of such
shareholder.
The Fund is not subject to the state corporate franchise tax. However, with
respect to any corporate shareholder of the Texas Fund (or any partnership
shareholder of the Texas Fund having corporate partners) which otherwise is
subject to the state corporate franchise tax, the shares of the Texas Fund held
by the shareholder will be taken into account in computing the "taxable capital"
of the shareholder allocated to the State, upon which such franchise tax may be
measured. In addition, such a corporate shareholder may be required to include
in its net taxable earned surplus, for purposes of the Texas franchise tax, all
or a portion of any gains on, or dividends which are includable in its gross
income for federal income tax purposes in respect of the shares. Certain
substantial amendments to the state corporate franchise tax recently have been
enacted. Because no authoritative judicial, legislative or administrative
interpretation of these amendments has issued, and there remain many unresolved
questions regarding their potential effect on corporate franchise taxpayers,
each corporation which is subject to the state franchise tax (and each
partnership having corporate partners which are subject to the state franchise
tax) and which is considering the purchase of shares of the Texas Fund should
consult its tax advisor regarding the effect of these amendments.
The foregoing is a general, abbreviated summary of certain of the provisions of
the Texas statutes and administrative interpretations presently in effect as
they directly govern the taxation of shareholders of the Texas Fund. The
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Trust transactions.
VIRGINIA TAXES -- Under existing Virginia law, as long as the Virginia Fund
qualifies as a separate "regulated investment company" under the Code, and 50%
or more of the value of the total assets of the Virginia Fund consists of
obligations whose interest is exempt from federal income tax, dividends received
from the Virginia Fund that represent either (i) interest exempt from federal
income tax and received by the Virginia Fund on obligations of Virginia or its
political subdivisions or Guam, Puerto Rico, or the U.S. Virgin Islands or (ii)
interest received by the Virginia Fund on direct obligations of the United
States will be exempt from Virginia personal income taxes. In the event the
Virginia Fund fails to qualify as a separate "regulated investment company" or
does not satisfy the 50% test, the foregoing exemption may be unavailable or
substantially limited.
An individual shareholder of the Virginia Fund who is a Virginia resident will
recognize capital gains for Virginia income tax purposes to the same extent that
he would for federal income tax purposes when the Virginia Fund makes a capital
gain distribution or when the shareholder redeems or sells shares.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the Virginia Fund to purchase or carry shares of the Virginia Fund generally
will not be deductible for Virginia income tax purposes.
WASHINGTON TAXES -- The State of Washington currently imposes no income tax.
Therefore, no portion of any dividend received by a shareholder of the
Washington Fund in respect of his shares is subject to income taxation by the
State of Washington or by any political subdivision of the State. Furthermore,
the shares are generally not taxable under any property tax levied in the State
of Washington. The State of Washington's inheritance tax imposed upon certain
transfers of property of a deceased resident individual shareholder may be
measured in part upon the value of the shares included in the estate of that
shareholder.
The State of Washington currently imposes an excise tax upon any person engaging
in business activity in Washington. This excise tax is measured by the gross
receipts of the taxpayer, but Washington law permits certain deductions.
Interest income paid on obligations of the State of Washington, its political
subdivisions, and its municipal corporations may be deducted for excise tax
purposes by any person. In addition, interest and dividend income from other
sources may generally be deducted by persons other than financial institutions
(i.e., banks, loan companies, securities or other financial businesses). Thus,
the dividends received by a shareholder (other than a financial institution) of
the Washington Fund will not be subject to Washington excise tax.
WEST VIRGINIA TAXES -- In 1993 the West Virginia Department of Tax and Revenue
<PAGE> 83
issued Technical Assistance Advisory 93-002 which was declared to be of
precedential value. This Technical Assistance Advisory addresses liability for
West Virginia personal income tax on interest and dividend income received by
investors in regulated investment companies. Accordingly, under existing law, as
long as the West Virginia Fund qualifies as a separate "regulated investment
company" under the Code, that portion of exempt-interest dividends that
represents interest income received by the West Virginia Fund from obligations
of the United States and its possessions and interest or dividend income
received by the West Virginia Fund on obligations or securities of any
authority, commission or instrumentality of the United States or of the State of
West Virginia, which is exempt from West Virginia State income tax by federal or
West Virginia law, is exempt from West Virigina Personal Income Tax. This
exemption does not apply to any portion of interest income on obligations of any
state other than West Virginia, regardless of any exemption provided under
federal law. In the event the West Virginia Fund fails to qualify as a separate
"regulated investment company", the foregoing exemption may be unavailable or
substantially limited.
The Technical Assistance Advisory contains a more specific, although
nonexclusive, list of obligations and authorities which are exempt from
taxation. The Technical Assistance Advisory also confirms that interest on
indebtedness incurred (directly or indirectly) by a shareholder of the West
Virginia Fund to purchase or carry shares of the West Virginia Fund will not be
deductible for West Virginia income purposes.
NET ASSET VALUE
The net asset value per share of each class of each Fund is determined each day
during which the Exchange is open for trading. This determination is made once
each day as of the close of regular trading on the Exchange by deducting the
amount of the liabilities attributable to the class from the value of the assets
attributable to the class and dividing the difference by the number of shares of
the class outstanding. In determining such net asset value, the portfolio
securities of each Fund are valued on the basis of valuations furnished by a
pricing service, since such valuations are believed to reflect the fair value of
such securities, as described in the Statement of Additional Information. A
share's net asset value is effective for orders received by the dealer prior to
its calculation and received by FSI prior to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Each Fund has two classes of shares entitled Class A and Class B Shares of
Beneficial Interest (without par value). The California Fund, the North Carolina
Fund and the Virginia Fund also have a third class of shares entitled Class C
Shares of Beneficial Interest (without par value). The Trust presently has 19
series of shares and has reserved the right to create and issue additional
series and classes of shares. The shares of each class of each Fund participate
equally in the earnings, dividends and assets attributable to that class of
shares of the particular Fund. Shareholders are entitled to one vote for each
share held. Shares of each Fund generally vote separately, for example to
approve investment advisory agreements, but shares of all Funds vote together,
including shares of other series of the Trust, to the extent required under the
1940 Act, in the election of Trustees and selection of accountants.
Additionally, each class of shares of a Fund will vote separately on any
material increases in the fees under its Distribution Plan or on any other
matter that affects solely its class of shares, but will otherwise vote together
with all other classes of shares of the Fund on all other matters. The Trust
does not intend to hold annual shareholder meetings. The Declaration of Trust
provides that a Trustee may be removed from office in certain instances (see
"Description of Shares, Voting Rights and Liabilities" in the Statement of
Additional Information).
Each share of a class of each Fund represents an equal proportionate interest in
that Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as set
forth above in "Purchases -- Conversion of Class B Shares"). Shares are fully
paid and non-assessable. Should a Fund be liquidated, shareholders of each class
of that Fund are entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders. Shares will remain on
deposit with the Shareholder Servicing Agent and certificates will not be issued
except in connection with pledges and assignments and in certain other limited
circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance (e.g., fidelity bonding and errors and omissions insurance) existed
and the Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Trust will provide yield, tax-equivalent yield, current
distribution rate and total rate of return quotations for each class of shares
of each Fund and may also quote fund rankings in the relevant fund category from
various sources, such as the Lipper Analytical Services, Inc. and Wiesenberger
Investment Companies Service. Yield and tax-equivalent yield quotations are
based on the annualized net investment income per share of each class of a Fund
over a 30-day period stated as a percent of the maximum public offering price of
shares of that class on the last day of that period. The yield calculation for
Class B shares assumes no CDSC is paid. The current distribution rate for each
class is generally based upon the total amount of dividends per share paid by
the Fund to shareholders of that class during the past 12 months and is computed
by dividing the amount of such dividends by the maximum public offering price of
that class at the end of such period. Current distribution rate calculations for
Class B shares assume no CDSC is paid. The current distribution rate differs
from the yield and tax-equivalent yield calculations because it may include
distributions to shareholders from sources other than dividends and interest,
such as premium income from option writing, short-term capital gains, and return
of invested capital, and is calculated over a different period of time. Total
rate of return quotations reflect the average annual percentage change over
stated periods in the value of an investment in a class of shares of a Fund made
at the maximum public offering price of the shares of that class with all
dividends reinvested and which, if quoted for periods of six years or less, will
give effect to the imposition of the CDSC assessed upon redemptions of Class B
shares. Such total rate of return quotations may be accompanied by quotations
which do not reflect the reduction in value of the initial investment due to the
sales charge or the deduction of the CDSC, and which will thus be higher. Each
Fund's yield, tax- equivalent yield and total rate of return quotations are
based on historical performance and are not intended to indicate future
performance. Yield and tax-equivalent yield reflect only net portfolio income
allocable to a class as of a stated period of time, and current distribution
rate reflects only the rate of distributions paid by a Fund over a stated period
of time, while total rate of return reflects all components of investment return
over a stated period of time. All performance quotations for a Fund may from
time to time be used in advertisements, shareholder reports or other
communications to shareholders. For a discussion of the manner in which the
Trust will calculate yield, tax-equivalent yield, current distribution rate and
total rate of return, see the Statement of Additional Information. In addition
to information provided in shareholder reports, the Trust may, in its
discretion, from time to time, make a list of all or a portion of a Fund's
holdings available to investors upon request.
EXPENSES
The Trust pays the compensation of the Trustees who are not officers of the
Adviser and all the Trust's expenses (other than those assumed by MFS or FSI),
including: all fees paid under the Investment Advisory Agreements and
Distribution Plans; governmental fees; interest charges; taxes (if any);
membership dues in the Investment Company Institute allocable to the Trust; fees
and expenses of independent auditors and of legal counsel; expenses of
preparing, printing and mailing share certificates, periodic reports, notices
and proxy statements to shareholders and to governmental officers and
commissions; brokerage and other expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance premiums;
fees and expenses of State Street Bank and Trust Company, the Trust's Custodian,
for all services to the Trust, including safekeeping of funds and securities and
maintaining required books and accounts; fees and expenses of MFS Service
Center, Inc., the Shareholder Servicing Agent, and of any registrar or dividend
disbursing agent of the Trust; expenses of repurchasing and redeeming shares and
servicing shareholder accounts; expenses of calculating the net asset value of
the shares of each Fund; and expenses of shareholder meetings. Expenses relating
to the issuance, registration and qualification of shares of each Fund and the
preparation, printing and mailing of prospectuses for such purposes are borne by
the Trust except that its Distribution Agreement with FSI, as the Trust's
distributor, requires FSI to pay for prospectuses which are to be used for sales
to prospective investors. Expenses of the Trust which are not attributable to a
specific Fund are allocated among the Funds in a manner believed by management
of the Trust to be fair and equitable. The Adviser has agreed to pay for the
Louisiana, Mississippi, Pennsylvania, Texas and Washington Funds the foregoing
expenses (except for the fees paid under the Advisory Agreements and any
Distribution Plan) until the dates specified below, and to pay the expenses
after August 23, 1984 relating to the organization of the Trust, all subject to
reimbursement by such Funds and the Trust, as applicable. To accomplish such
reimbursement, the Adviser receives an expense reimbursement fee from each such
Fund in addition to the management fees, computed and paid monthly at the annual
rate of 0.40% of the average daily net assets of the Fund for its then-current
fiscal year, with a limitation that immediately after any such payment the
aggregate expenses of each such Fund, including the management fee but excluding
any Distribution Plan fees, will not exceed .95% of its average daily net
assets. MFS has voluntarily reduced its expense reimbursement fee to 0.00% for
an indefinite period beginning with the commencement of operations of each such
Fund. This fee reduction may be rescinded by the Adviser at any time without
notice to shareholders. The expense reimbursement and fee agreement terminates
for each such Fund on the earlier of either the date on which the payments made
thereunder by such Fund equal the prior payment of such reimbursable expenses by
the Adviser or December 31, 2001 (in the case of the Mississippi, Texas and
Washington Funds, and December 31, 2002, in the case of the Louisiana and
Pennsylvania Funds). Similar expense reimbursement and fee agreements were in
place but have been terminated with respect to the Alabama, Arkansas, Florida,
Georgia, Maryland, Massachusetts, New York, North Carolina, South Carolina,
Tennessee, Virginia and West Virginia Funds. In addition, MFS has voluntarily
reduced the management fee for an indefinite period for each of the Arkansas,
California, Florida, Louisiana, Mississippi, New York, Pennsylvania, Texas and
Washington Funds. See "Management of the Trust" above.
6. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Trust should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder of each Fund will
receive confirmation statements showing the transaction activity in his account.
Cancelled checks, if any will be sent to shareholders monthly. Each shareholder
will receive an annual statement of the federal income tax and the state
personal income tax status of reportable distributions made by the Fund during
the calendar year (see "Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts ) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional shares
of that Fund. This option will be assigned if no other option is
specified.
-- Dividends (including short-term capital gains) in cash; long-term capital
gain distributions reinvested in additional shares of that Fund.
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) of dividends and capital gain
distributions will be made in additional full and fractional shares of that Fund
at the net asset value in effect at the close of business on the last business
day of the month. Dividends and capital gain distributions in amounts less than
$10 will automatically be reinvested in additional shares of the Fund. Any
request to change a distribution option must be received by the Shareholder
Servicing Agent a reasonable time prior to the last business day of the month
for a dividend or distribution in order to be effective for that dividend or
distribution. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Trust makes available the following programs designed to enable shareholders to
add to their investment in an account with the Trust or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Trust.
LETTER OF INTENT: If a shareholder (other than group purchases as described
in the Statement of Additional Information) anticipates purchasing $100,000 or
more of Class A shares of a Fund alone or in combination with Class B or Class C
Shares of the Fund or any of the classes of the other MFS Funds or MFS Fixed
Fund (a bank collective investment fund) within a 13-month period (or 36-month
period for purchases of $1 million or more), the shareholder may obtain such
shares at the same reduced sales charge as though the total quantity were
invested in one lump sum, subject to escrow agreements and the appointment of an
attorney for redemptions from the escrow amount if the intended purchases are
not completed, by completing the Letter of Intent section of the Account
Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of all classes of shares of
that shareholder in the MFS Funds reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of a Fund may
be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by a Fund may be
automatically invested at net asset value (and without any applicable CDSC) in
shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder (except a $3 Million Shareholder)
may direct the Shareholder Servicing Agent to send him (or anyone he designates)
periodic payments, as designated on the Account Application and based upon the
value of his account. Each payment under a Systematic Withdrawal Plan (a "SWP")
must be at least $100, except in certain limited circumstances. The aggregate
withdrawals of Class B shares in any year pursuant to a SWP will not be subject
to a CDSC and generally are limited to 10% of the value of the account at the
time of the establishment of the SWP. The CDSC will not be waived in the case of
SWP redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
the other MFS Funds, and in the case of Class C shares, for shares of MFS Money
Market Fund, under the Automatic Exchange Plan, a dollar cost averaging program.
The Automatic Exchange Plan provides for automatic monthly or quarterly
transfers of funds from the shareholder's account in an MFS Fund for investment
in the same class of other MFS Funds selected by the shareholder provided such
shares are available for sale. Under the Automatic Exchange Plan, transfers of
at least $50 each may be made to up to four different funds. A shareholder
should consider the objectives and policies of a fund and review its prospectus
before electing to transfer money into such fund through the Automatic Exchange
Plan. No transaction fee is imposed in connection with transfer transactions
under the Automatic Exchange Plan. However, transfers from MFS Money Market
Fund, MFS Government Money Market Fund or Class A shares of MFS Cash Reserve
Fund will be subject to any applicable sales charge. For federal and (generally)
state income tax purposes, a transfer is treated as a sale of the shares
transferred and, therefore, could result in a capital gain or loss to the
shareholder making the transfer. See the Statement of Additional Information for
further information concerning the Automatic Exchange Plan. Investors should
consult their tax advisers for information regarding the potential capital gain
and loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares and because of
assessement of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C
Shares," shares of the Funds may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans and
other corporate pension and profit-sharing plans. Investors should consult with
their tax advisers before establishing any of the tax-deferred retirement plans
described above.
--------------
The Trust's Statement of Additional Information, dated June 1, 1994 contains
more detailed information about the Trust and the Funds, including information
related to (i) the Trust's investment policies and restrictions; (ii) its
Trustees, officers and investment adviser; (iii) portfolio transactions; (iv)
the method used to calculate performance quotations of each of the Funds; (v)
the Distribution Plans; (vi) various services and privileges provided by the
Trust for the benefit of the shareholders of each of the Funds; (vii)
determination of net asset value of shares of each of the Funds; and (viii)
certain voting rights of shareholders of each of the Funds.
<PAGE> 84
APPENDIX A
TAXABLE EQUIVALENT YIELD TABLES
(RATES FOR 1994 UNDER FEDERAL AND STATE INCOME TAX LAWS)
The tables below show the approximate taxable bond yields which are equivalent
to tax-exempt bond yields, for the ranges indicated, under federal and,
respectively, Alabama, Arkansas, California, Georgia, Louisiana, Maryland,
Massachusetts, Mississippi, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Virginia and West Virginia personal income tax laws that
apply to 1994. The States of Florida, Texas and Washington do not currently
impose an income tax on individuals. Such yields will differ under the laws
applicable to subsequent years. Separate calculations, showing the applicable
taxable income brackets, are provided for investors who file joint returns and
for those investors who file individual returns. In each table, the effective
marginal income tax rate will be increased if personal exemptions are phased out
(for the phase out period only) and if a portion of itemized deductions is
disallowed. This increase in the marginal rates, if applicable, will cause a
corresponding increase in the equivalent taxable yields.
ALABAMA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 19.10% 3.71% 4.94% 6.18% 7.42% 8.65% 9.89% 0.15 0.048240
$ 0 - 38,000 19.07 3.71 4.94 6.18 7.41 8.65 9.89 0.15 0.047894
$ 22,751 - 55,100 $ 38,001 - 91,850 31.60 4.39 5.85 7.31 8.77 10.23 11.70 0.28 0.050000
$ 55,101 - 115,000 $ 91,851 - 140,000 34.45 4.58 6.10 7.63 9.15 10.68 12.20 0.31 0.050000
$115,001 - 250,000 $140,001 - 250,000 39.20 4.93 6.58 8.22 9.87 11.51 13.16 0.36 0.050000
$250,000 & over $250,000 & over 42.62 5.23 6.97 8.71 10.46 12.20 13.94 0.396 0.050000
<FN>
<F1>Net amount subject to Federal and Alabama personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined Federal and Alabama rate assumes itemization of state tax deduction.
<F3>Alabama tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
ARKANSAS
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 22,750 18.53% 3.68% 4.91% 6.14% 7.36% 8.59% 9.82% 0.15 0.041540
$ 0 - 38,000 19.45 3.72 4.97 6.21 7.45 8.69 9.93 0.15 0.052369
$ 22,751- 55,100 32.99 4.48 5.97 7.46 8.95 10.45 11.94 0.28 0.069304
$ 38,001 - 91,850 33.04 4.48 5.97 7.47 8.96 10.45 11.95 0.28 0.070000
$ 55,101-115,000 $ 91,851 - 140,000 35.83 4.68 6.23 7.79 9.35 10.91 12.47 0.31 0.070000
$115,001-250,000 $140,001 - 250,000 40.48 5.04 6.72 8.40 10.08 11.76 13.44 0.36 0.070000
$250,000 & over $250,000 & over 43.83 5.34 7.12 8.90 10.68 12.46 14.24 0.396 0.070000
<FN>
<F1>Net amount subject to Federal and Arkansas personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined Federal and Arkansas rate assumes itemization of state tax deduction.
<F3>Arkansas tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
<PAGE> 85
CALIFORNIA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 17.80% 3.65% 4.87% 6.08% 7.30% 8.52% 9.73% 0.15 0.032883
$ 0 - 38,000 17.34 3.63 4.84 6.05 7.26 8.47 9.68 0.15 0.027531
$ 22,751 - 55,100 34.40 4.57 6.10 7.62 9.15 10.67 12.20 0.28 0.088923
$ 38,001 - 91,850 34.01 4.55 6.06 7.58 9.09 10.61 12.12 0.28 0.083506
$ 55,101 - 115,000 37.49 4.80 6.40 8.00 9.60 11.20 12.80 0.31 0.094029
$ 91,851 - 140,000 37.42 4.79 6.39 7.99 9.59 11.19 12.78 0.31 0.093000
$115,001 - 250,000 42.58 5.22 6.97 8.71 10.45 12.19 13.93 0.36 0.102786
$140,001 - 250,000 42.11 5.18 6.91 8.64 10.36 12.09 13.82 0.36 0.095394
$250,001 - 424,760 45.64 5.52 7.36 9.20 11.04 12.88 14.72 0.396 0.100000
$250,000 & over $424,760 & over 46.24 5.58 7.44 9.30 11.16 13.02 14.88 0.396 0.110000
<FN>
<F1>Net amount subject to Federal and California personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined Federal and California rate assumes itemization of state tax deduction.
<F3>Federal and California tax rates and brackets are based on 1993 information, since at this time 1994
information is not available.
</FN>
</TABLE>
FLORIDA
1994 TAX YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- ------------------------------------ INCOME TAX-EXEMPT YIELD
SINGLE JOINT TAX --------------------------------------------------
1994 1994 BRACKET 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
- ---------------- ---------------- -------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 $ 0 - 38,000 15.00% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
$ 22,751 - 55,100 $ 38,001 - 91,850 28.00 4.17 5.56 6.94 8.33 9.72 11.11
$ 55,101 - 115,000 $ 91,851 - 140,000 31.00 4.35 5.80 7.25 8.70 10.14 11.59
$115,001 - 250,000 $140,001 - 250,000 36.00 4.69 6.25 7.81 9.38 10.94 12.50
$250,000 & over $250,000 & over 39.60 4.97 6.62 8.28 9.93 11.59 13.25
<FN>
<F1>Net amount subject to Federal personal income tax after deductions and exemptions.
</FN>
</TABLE>
<PAGE> 86
GEORGIA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 19.39% 3.72% 4.96% 6.20% 7.44% 8.68% 9.92% 0.15 0.051639
$ 0 - 38,000 19.52 3.73 4.97 6.21 7.46 8.70 9.94 0.15 0.053157
$ 22,751 - 55,100 $ 38,001 - 91,850 32.32 4.43 5.91 7.39 8.87 10.34 11.82 0.28 0.060000
$ 55,101 - 115,000 $ 91,851 - 140,000 35.14 4.63 6.17 7.71 9.25 10.79 12.33 0.31 0.060000
$115,001 - 250,000 $140,001 - 250,000 39.84 4.99 6.65 8.31 9.97 11.64 13.30 0.36 0.060000
$250,000 & over $250,000 & over 43.22 5.28 7.04 8.81 10.57 12.33 14.09 0.396 0.060000
<FN>
<F1>Net amount subject to Federal and Georgia personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined Federal and Georgia rate assumes itemization of state tax deduction.
<F3>Georgia tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
LOUISIANA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 17.65% 3.64% 4.86% 6.07% 7.29% 8.50% 9.71% 0.15 0.031207
$ 0 - 38,000 17.95 3.66 4.88 6.09 7.31 8.53 9.75 0.15 0.034736
$ 22,751 - 55,100 31.11 4.35 5.81 7.26 8.71 10.16 11.61 0.28 0.043153
$ 38,001 - 91,850 31.31 4.37 5.82 7.28 8.73 10.19 11.65 0.28 0.045964
$ 55,101 - 115,000 $ 91,851 - 140,000 35.14 4.63 6.17 7.71 9.25 10.79 12.33 0.31 0.060000
$115,001 - 250,000 $140,001 - 250,000 39.84 4.99 6.65 8.31 9.97 11.64 13.30 0.36 0.060000
$250,000 & over $250,000 & over 43.22 5.28 7.04 8.81 10.57 12.33 14.09 0.396 0.060000
<FN>
<F1>Net amount subject to Federal and Louisiana personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the
federal tax bracket. Combined Federal and Louisiana rate assumes itemization of state tax deduction.
<F3>Louisiana tax rates and brackets are based on 1993 information, since at this time 1994 information
is not available.
</FN>
</TABLE>
<PAGE> 87
MARYLAND
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 19.03% 3.71% 4.94% 6.18% 7.41% 8.65% 9.88% 0.15 0.047361
$ 0 - 38,000 17.95 3.66 4.88 6.09 7.31 8.53 9.75 0.15 0.034736
$ 22,751 - 55,100 $ 38,001 - 91,850 31.60 4.39 5.85 7.31 8.77 10.23 11.70 0.28 0.050000
$ 91,851 - 140,000 34.45 4.58 6.10 7.63 9.15 10.68 12.20 0.31 0.050000
$115,001 - 250,000 39.84 4.99 6.65 8.31 9.97 11.64 13.30 0.36 0.060000
$141,001 - 250,000 39.78 4.98 6.64 8.30 9.96 11.62 13.28 0.36 0.059090
$250,000 & over $250,000 & over 43.22 5.28 7.04 8.81 10.57 12.33 14.09 0.396 0.060000
<FN>
<F1>Net amount subject to Federal and Maryland personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the
federal tax bracket. Combined Federal and Maryland rate assumes itemization of state tax deduction.
<F3>Maryland tax rates and brackets are based on 1993 information, since at this time 1994 information is
not available.
</FN>
</TABLE>
MASSACHUSETTS
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 $ 0 - 38,000 25.20% 4.01% 5.35% 6.68% 8.02% 9.36% 10.70% 0.15 0.120000
$ 22,750 - 55,100 $ 38,000 - 91,850 36.64 4.73 6.31 7.89 9.47 11.05 12.63 0.28 0.120000
$ 55,100 - 115,000 $ 91,850 - 140,000 39.28 4.94 6.59 8.23 9.88 11.53 13.18 0.31 0.120000
$115,000 - 250,000 $140,000 - 250,000 43.68 5.33 7.10 8.88 10.65 12.43 14.20 0.36 0.120000
$250,000 & over $250,000 & over 46.85 5.64 7.53 9.41 11.29 13.17 15.05 0.396 0.120000
<FN>
<F1>Net amount subject to Federal and Massachusetts personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined Federal and Massachusetts rate assumes itemization of state tax deduction.
<F3>Massachusetts tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
<PAGE> 88
MISSISSIPPI
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 18.69% 3.69% 4.92% 6.15% 7.38% 8.61% 9.84% 0.15 0.043405
$ 0 - 38,000 18.91 3.70 4.93 6.17 7.40 8.63 9.87 0.15 0.046051
$ 22,751 - 55,100 $ 38,001 - 91,850 31.60 4.39 5.85 7.31 8.77 10.23 11.70 0.28 0.050000
$ 55,101 - 115,000 $ 91,851 - 140,000 34.45 4.58 6.10 7.63 9.15 10.68 12.20 0.31 0.050000
$115,001 - 250,000 $140,001 - 250,000 39.20 4.93 6.58 8.22 9.87 11.51 13.16 0.36 0.050000
$250,000 & over $250,000 & over 42.62 5.23 6.97 8.71 10.46 12.20 13.94 0.396 0.050000
<FN>
<F1>Net amount subject to Federal and Mississippi personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined Federal and Mississippi rate assumes itemization of state tax deduction.
<F3>Mississippi tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
NEW YORK STATE RESIDENTS (EXCEPT NEW YORK CITY RESIDENTS)
1994 TAX YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- ----------------------------- INCOME TAX-EXEMPT YIELD AVERAGE AVERAGE AVERAGE AVERAGE
SINGLE JOINT TAX ---------------------------------- FEDERAL STATE CITY NYC ADD'L
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE RATE SURCHARGE SURCHARGE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 20.37% 3.77% 5.02% 6.26% 7.53% 8.79% 10.05% 0.15 0.063167 0.000000 0.000000 0.000000
$ 0 - 38,000 20.16 3.76 5.01 6.26 7.52 8.77 10.02 0.15 0.060648 0.000000 0.000000 0.000000
$ 22,751 - 55,100 33.47 4.51 6.01 7.52 9.02 10.52 12.02 0.28 0.075938 0.000000 0.000000 0.000000
$ 38,001 - 91,850 33.47 4.51 6.01 7.52 9.02 10.52 12.02 0.28 0.075938 0.000000 0.000000 0.000000
$ 55,100 - 115,000 36.24 4.71 6.27 7.84 9.41 10.98 12.55 0.31 0.075938 0.000000 0.000000 0.000000
$ 91,851 - 140,000 36.24 4.71 6.27 7.84 9.41 10.98 12.55 0.31 0.075938 0.000000 0.000000 0.000000
$115,001 - 250,000 $140,001 - 250,000 40.86 5.07 6.76 8.45 10.15 11.84 13.53 0.36 0.075938 0.000000 0.000000 0.000000
$250,000 & over $250,000 & over 44.19 5.38 7.17 8.96 10.75 12.54 14.33 0.396 0.075938 0.000000 0.000000 0.000000
<FN>
<F1>Net amount subject to Federal and New York personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
<F3>Federal and New York tax rates and brackets are based on 1994 information.
</FN>
</TABLE>
<PAGE> 89
NEW YORK -- NEW YORK CITY RESIDENTS ONLY
1994 TAX YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- ----------------------------- INCOME TAX-EXEMPT YIELD AVERAGE AVERAGE AVERAGE AVERAGE
SINGLE JOINT TAX ------------------------------------ FEDERAL STATE CITY NYC ADD'L
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE RATE SURCHARGE SURCHARGE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 23.40% 3.92% 5.22% 6.53% 7.83% 9.14% 10.44% 0.15 0.063167 0.027922 0.003353 0.004379
$ 0 - 38,000 23.14 3.90 5.20 6.51 7.81 9.11 10.41 0.15 0.060648 0.027528 0.003283 0.004314
$ 38,001 - 91,850 36.63 4.73 6.31 7.89 9.47 11.05 12.62 0.28 0.075938 0.033435 0.005151 0.005402
$ 55,100 - 115,000 39.31 4.94 6.59 8.24 9.89 11.53 13.18 0.31 0.075938 0.033959 0.005100 0.005468
$ 91,850 - 140,000 39.30 4.94 6.59 8.24 9.88 11.53 13.18 0.31 0.075938 0.033832 0.005100 0.005450
$115,000 - 250,000 $140,000 - 250,000 43.71 5.33 7.11 8.88 10.66 12.44 14.21 0.36 0.075938 0.034000 0.005100 0.005474
$250,000 & over $250,000 & over 46.88 5.65 7.53 9.41 11.30 13.18 15.06 0.396 0.075938 0.034000 0.005100 0.005474
<FN>
<F1>Net amount subject to Federal and New York personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
<F3>Federal and New York tax rates and brackets are based on 1994 information.
</FN>
</TABLE>
<PAGE> 90
NORTH CAROLINA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ------------------ ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 20.47% 3.77% 5.03% 6.29% 7.54% 8.80% 10.06% 0.15 0.064392
$ 0 - 38,000 20.47 3.77 5.03 6.29 7.54 8.80 10.06 0.15 0.064406
$ 22,751 - 55,100 $ 38,001 - 91,850 33.04 4.48 5.97 7.47 8.96 10.45 11.95 0.28 0.070000
$ 55,101 - 115,000 36.31 4.71 6.28 7.85 9.42 10.99 12.56 0.31 0.076886
$ 91,851 - 140,000 36.26 4.71 6.28 7.84 9.41 10.98 12.55 0.31 0.076230
$115,001 - 250,000 $140,001 - 250,000 40.96 5.08 6.78 8.47 10.16 11.86 13.55 0.36 0.077500
$250,000 & over $250,000 & over 44.28 5.38 7.18 8.97 10.77 12.56 14.36 0.396 0.077500
<FN>
<F1>Net amount subject to Federal and North Carolina personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined federal and North Carolina rate assumes itemization of state tax deduction.
<F3>North Carolina tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
PENNSYLVANIA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 $ 0 - 38,000 17.38% 3.63% 4.84% 6.05% 7.26% 8.47% 9.68% 0.15 0.028000
$ 22,751 - 55,100 $ 38,001 - 91,850 30.02 4.29 5.72 7.14 8.57 10.00 11.43 0.28 0.028000
$ 55,101 - 115,000 $ 91,851 - 140,000 32.93 4.47 5.96 7.45 8.95 10.44 11.93 0.31 0.028000
$115,001 - 250,000 $140,001 - 250,000 37.79 4.82 6.43 8.04 9.64 11.25 12.86 0.36 0.028000
$250,000 & over $250,000 & over 41.29 5.11 6.81 8.52 10.22 11.92 13.63 0.396 0.028000
<FN>
<F1>Net amount subject to Federal and Pennsylvania personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax
bracket. Combined Federal and Pennsylvania rate assumes itemization of state tax deduction.
<F3>Pennsylvania tax rates and brackets are based on 1993 information, since at this time 1994 information is not
available.
</FN>
</TABLE>
<PAGE> 91
SOUTH CAROLINA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 19.77% 3.74% 4.99% 6.23% 7.48% 8.72% 9.97% 0.15 0.056168
$ 0 - 38,000 20.25 3.76 5.02 6.27 7.52 8.78 10.03 0.15 0.061719
$ 22,751 - 55,100 $ 38,001 - 91,850 33.04 4.48 5.97 7.47 8.96 10.45 11.95 0.28 0.070000
$ 55,101 - 115,000 $ 91,851 - 140,000 35.83 4.68 6.23 7.79 9.35 10.91 12.47 0.31 0.070000
$115,001 - 250,000 $140,001 - 250,000 40.48 5.04 6.72 8.40 10.08 11.76 13.44 0.36 0.070000
$250,000 & over $250,000 & over 43.83 5.34 7.12 8.90 10.68 12.46 14.24 0.396 0.070000
<FN>
<F1>Net amount subject to Federal and South Carolina personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax
bracket. Combined Federal and South Carolina rate assumes itemization of state tax deduction.
<F3>Federal & South Carolina Tax rates and brackets are based on 1994 information.
</FN>
</TABLE>
<PAGE> 92
TENNESSEE
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 $ 0 - 38,000 20.10% 3.75% 5.01% 6.26% 7.51% 8.76% 10.01% 0.15 0.060000
$ 22,751 - 56,100 $ 38,001 - 91,850 32.32 4.43 5.91 7.39 8.87 10.34 11.82 0.28 0.060000
$ 55,101 - 115,000 $ 91,851 - 140,000 35.14 4.63 6.17 7.71 9.25 10.79 12.33 0.31 0.060000
$115,001 - 250,000 $140,001 - 250,000 39.84 4.99 6.65 8.31 9.97 11.64 13.30 0.36 0.060000
$250,000 & over $250,000 & over 43.22 5.28 7.04 8.81 10.57 12.33 14.09 0.396 0.060000
<FN>
<F1>Net amount subject to Federal and Tennessee personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax
bracket. Combined Federal and Tennessee rate assumes itemization of state tax deduction.
<F3>Tennessee tax rates and brackets are based on 1993 information, since at this time 1994 information is not
available.
</FN>
</TABLE>
TEXAS
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD
SINGLE JOINT TAX -----------------------------------------------------
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
- ----------------- ------------------ ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 $ 0 - 38,000 15.00% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
$ 22,751 - 55,100 $ 38,001 - 91,850 28.00 4.17 5.56 6.94 8.33 9.72 11.11
$ 55,101 - 115,000 $ 91,851 - 140,000 31.00 4.35 5.80 7.25 8.70 10.14 11.59
$115,001 - 250,000 $140,001 - 250,000 36.00 4.69 6.25 7.81 9.38 10.94 12.50
$250,000 & over $250,000 & over 39.60 4.97 6.62 8.28 9.93 11.59 13.25
<FN>
<F1>Net amount subject to Federal personal income tax after deductions and exemptions.
</FN>
</TABLE>
VIRGINIA
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ------------------------------------------ FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------- ------------------ ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 18.93% 3.70% 4.93% 6.17% 7.40% 8.63% 9.87% 0.15 0.046180
$ 0 - 38,000 19.31 3.72 4.96 6.20 7.44 8.68 9.91 0.15 0.050723
$ 22,751 - 55,100 $ 38,001 - 91,850 32.14 4.42 5.89 7.37 8.84 10.32 11.79 0.28 0.057500
$ 55,101 - 115,000 $ 91,851 - 140,000 34.97 4.61 6.15 7.69 9.23 10.76 12.30 0.31 0.057500
$115,001 - 250,000 $140,001 - 250,000 39.68 4.97 6.63 8.29 9.95 11.60 13.26 0.36 0.057500
$250,000 & over $250,000 & over 43.07 5.27 7.03 8.78 10.54 12.30 14.05 0.396 0.057500
<FN>
<F1>Net amount subject to Federal and Virginia personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax
bracket. Combined Federal and Virginia rate assumes itemization of state tax deduction.
<F3>Virginia tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
WASHINGTON
1994 TAX YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- -------------------------------------- INCOME TAX-EXEMPT YIELD
SINGLE JOINT TAX -----------------------------------------------------
1994<F3> 1994<F3> BRACKET 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
- ----------------- ------------------ ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 $ 0 - 38,000 15.00% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
$ 22,751 - 55,100 $ 38,001 - 91,850 28.00 4.17 5.56 6.94 8.33 9.72 11.11
$ 55,101 - 115,000 $ 91,851 - 140,000 31.00 4.35 5.80 7.25 8.70 10.14 11.59
$115,001 - 250,000 $140,001 - 250,000 36.00 4.69 6.25 7.81 9.38 10.94 12.50
$250,000 & over $250,000 & over 39.60 4.97 6.62 8.28 9.93 11.59 13.25
<FN>
<F1>Net amount subject to Federal personal income tax after deductions and exemptions.
</FN>
</TABLE>
WEST VIRGINIA
1994 TAX YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME<F1>
- ----------------------------------------- INCOME TAX-EXEMPT YIELD AVERAGE
SINGLE JOINT TAX ---------------------------------------------------- FEDERAL STATE
1994<F3> 1994<F3> BRACKET<F2> 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% RATE RATE
- ----------------------------------------- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,750 18.03% 3.66% 4.88% 6.10% 7.32% 8.54% 9.76% 0.15 0.035603
$ 0 - 38,000 18.32 3.67 4.90 6.12 7.35 8.57 9.79 0.15 0.039078
$ 22,751 - 55,100 31.72 4.39 5.86 7.32 8.79 10.25 11.72 0.28 0.061653
$ 38,001 - 91,850 32.49 4.44 5.93 7.41 8.89 10.37 11.85 0.28 0.062400
$ 55,101 - 115,000 35.46 4.65 6.20 7.75 9.30 10.85 12.40 0.31 0.064590
$ 91,851 - 140,000 35.49 4.65 6.20 7.75 9.30 10.85 12.40 0.31 0.065000
$115,001 - 250,000 $140,000 - 250,000 40.16 5.01 6.68 8.36 10.03 11.70 13.37 0.36 0.065000
$250,000 & over $250,000 & over 43.53 5.31 7.08 8.85 10.63 12.40 14.17 0.396 0.065000
<FN>
<F1>Net amount subject to Federal and West Virginia personal income tax after deductions and exemptions.
<F2>Effective combined federal and state tax bracket. State rate based on the average state rate for the federal tax bracket.
Combined Federal and West Virginia rate assumes itemization of state tax deduction.
<F3>West Virginia tax rates and brackets are based on 1993 information, since at this time 1994 information is not available.
</FN>
</TABLE>
<PAGE> 93
APPENDIX B
DESCRIPTION OF MUNICIPAL OBLIGATIONS
Municipal Obligations include bonds, notes and commercial paper issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from federal income taxes
(without regard to whether the interest thereon is also exempt from the personal
income taxes of any state). Municipal Obligation bonds are issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligation bonds may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses, and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds (referred to under
current tax law as private activity bonds), are issued by or on behalf of public
authorities to obtain funds to provide privately-operated housing facilities,
airport, mass transit or port facilities, sewage disposal, solid waste disposal
or hazardous waste treatment or disposal facilities and certain local facilities
for water supply, gas or electricity. Such obligations are included within the
term Municipal Obligations if the interest paid thereon qualifies as exempt from
federal income tax. Other types of industrial development bonds, the proceeds of
which are used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities, may constitute Municipal
Obligations, although the current federal tax laws place substantial limitations
on the size of such issues.
The two principal classifications of Municipal Obligation bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its good faith, credit and taxing power for the payment of
principal and interest. The payment of the principal of and interest on such
bonds may be dependent upon an appropriation by the issuer's legislative body.
The characteristics and enforcement of general obligation bonds vary according
to the law applicable to the particular issuer. Revenue bonds are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source. Industrial development bonds which are Municipal Obligations are in most
cases revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds. Municipal Bonds also include participations in
municipal leases. These are undivided interests in a portion of an obligation in
the form of a lease or installment purchase which is issued by state and local
governments to acquire equipment and facilities. Municipal leases frequently
have special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt- issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Although the obligations will be secured by the leased
equipment or facilities, the disposition of the property in the event of
non-appropriation or foreclosure might, in some cases, prove difficult. In light
of these concerns, the Trust has adopted and follows procedures for determining
whether municipal lease securities purchased by the Trust are liquid and for
monitoring the liquidity of municipal lease securities held in the Trust's
portfolio. The procedures require that a number of factors be used in evaluating
the liquidity of a municipal lease security, including the frequency of trades
and quotes for the security, the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, the willingness of
dealers to undertake to make a market in the security, the nature of the market
place in which the security trades, the credit quality of the security, and
other factors which the Adviser may deem relevant. There are, of course,
variations in the security of Municipal Obligations, both within a particular
classification and between classifications, depending on numerous factors.
Municipal Obligation notes generally are used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal
Obligation notes include:
1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various tax revenues, such as income, sales, use and business taxes, and are
payable from these specific future taxes.
2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued in
expectation of receipt of other kinds of revenue, such as federal revenues
available under Federal Revenue Sharing Programs.
3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to provide
interim financing until long-term bond financing can be arranged. In most cases,
the long-term bonds then provide the money for the repayment of the Notes.
Issues of commercial paper typically represent short-term, unsecured, negotiable
promissory notes. These obligations are issued by agencies of state and local
governments to finance seasonal working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases, Municipal
Obligation commercial paper is backed by letters of credit, lending agreements,
note repurchase agreements or other credit facility agreements offered by banks
or other institutions.
The yields on Municipal Obligations are dependent on a variety of factors,
including general market conditions, supply and demand and general conditions of
the Municipal Obligation market, size of a particular offering, the maturity of
the obligation and rating (if any) of the issue.
DESCRIPTION OF RATINGS+
The ratings of Moody's Investors Service, Inc., Standard & Poor's Ratings Group
and Fitch Investors Service, Inc. represent their opinions as to the quality of
various debt obligations. It should be emphasized, however, that ratings are not
absolute standards of quality. Consequently, Municipal Obligations with the same
maturity, coupon and rating may have different yields while Municipal
Obligations of the same maturity and coupon with different ratings may have the
same yield.
DESCRIPTION OF LONG-TERM DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue. Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons. NOTE: Those bonds in the Aa, A,
Baa, Ba and B groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories. Debt rated "BB", "B"
"CCC", "CC" and "C" is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
"BB" indicates the least degree of speculation and "C" the highest. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or large exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC: The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" is typically applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payment is jeopardized.
PLUS (+ ) OR MINUS (-): The ratings from "AA" to
"CCC" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeble events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+ ".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+ ) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within a rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
DESCRIPTION OF RATINGS OF STATE AND MUNICIPAL NOTES
MOODY'S INVESTORS SERVICE, INC.
Moody's ratings for state and municipal short-term obligations will be
designated MOODY'S INVESTMENT GRADE ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
Symbols used will be as follows:
MIG-1/VMIG-1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's note rating reflects the liquidity concerns and market-
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 -- Strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 -- Speculative capacity to pay principal and interest.
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ : Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated "F-
1+ ".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned "F-1+ " and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-5: Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually senior debt obligations not having an original maturity in excess of
one year. Moody's two highest commercial paper rating categories are as follows:
"Prime-1" -- Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term senior debt obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
"Prime-2" -- Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term senior debt obligations. This will
<PAGE> 94
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. S&P's two highest commercial paper rating categories are as follows:
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+ ) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
DESCRIPTION OF OTHER INVESTMENTS
U.S. GOVERNMENT OBLIGATIONS -- are issued by the Treasury or agencies,
authorities or instrumentalities of the U.S. Government and include bills,
certificates of indebtedness, notes, and bonds. Agencies, authorities and
instrumentalities of the U.S. Government are established under the authority of
an act of Congress and include, but are not limited to, the Government National
Mortgage Association ("GNMA"), the Tennessee Valley Authority, the Bank for
Cooperatives, the Farmers Home Administration, Federal Home Loan Banks ("FHLB"),
Federal Intermediate Credit Banks, Federal Land Banks, and the Federal National
Mortgage Association ("FNMA").
Some of the foregoing obligations, such as Treasury bills and GNMA pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of FHLB, by the right of the issuer to borrow from
the U.S. Treasury; still others, such as bonds issued by the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government will provide financial
support to instrumentalities sponsored by the U.S. Government as it is not
obligated by law, in certain instances, to do so.
CERTIFICATES OF DEPOSIT -- are certificates issued against funds deposited
in a commercial bank, are for a definite period of time, earn a specified rate
of return, and are normally negotiable.
BANKERS' ACCEPTANCES -- are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
COMMERCIAL PAPER -- refers to promissory notes issued by corporations in
order to finance their short-term credit needs.
REPURCHASE AGREEMENTS -- are agreements pursuant to which the Trust, on
behalf of a Fund, acquires securities subject to the seller's agreement to
repurchase at a specified time and price. The Trust's position during the entire
term of the repurchase agreement will be fully collateralized. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Trust's right to liquidate the securities
may be restricted (during which time the value of the securities could decline).
As discussed in the Statement of Additional Information, the Trust has adopted
certain procedures intended to minimize any risk.
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Prospectus for the securities listed. Ratings
are generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the date of the Trust's
fiscal year end.
<PAGE> 95
APPENDIX C
PORTFOLIO COMPOSITION CHART
<TABLE>
<CAPTION>
ALABAMA ARKANSAS CALIFORNIA FLORIDA GEORGIA LOUISIANA MARYLAND
FUND FUND FUND FUND FUND FUND FUND
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
NET ASSETS NET ASSETS NET ASSETS NET ASSETS NET ASSETS NET ASSETS NET ASSETS
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SECURITY
- --------
Short-term Obligations
and Other Assets ............ 1% 1% 1% 2% 1% (3)% 1%
Debt-Unrated by S&P ......... 11% 9% 5% 2% 12% 4% 10%
DEBT-S&P RATING
- ---------------
AAA ........................ 43% 34% 33% 56% 38% 68% 46%
AA ......................... 14% 22% 17% 17% 26% 9% 28%
A ......................... 14% 27% 40% 11% 13% 16% 11%
BBB ....................... 17% 7% 4% 12% 7% 6% 4%
BB ......................... 0% 0% 0% 0% 1% 0% 0%
B .......................... 0% 0% 0% 0% 2% 0% 0%
---- ---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSSETTS MISSISSIPPI NEW YORK NORTH CAROLINA PENNSYLVANIA SOUTH CAROLINA
FUND FUND FUND FUND FUND FUND
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
NET ASSETS NET ASSETS NET ASSETS NET ASSETS NET ASSETS NET ASSETS
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
SECURITY
- --------
Short-term Obligations
and Other Assets ............ 1% 0% 1% 0% (1)% 1%
Debt-Unrated by S&P ......... 14% 3% 8% 7% 5% 4%
DEBT-S&P RATING
- ---------------
AAA ....................... 38% 46% 25% 36% 66% 48%
AA ........................ 8% 12% 19% 27% 8% 24%
A ......................... 31% 28% 25% 24% 15% 17%
BBB ....................... 8% 11% 22% 6% 7% 6%
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
TENNESSEE TEXAS VIRGINIA WASHINGTON WEST VIRGINIA
FUND FUND FUND FUND FUND
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
NET ASSETS NET ASSETS NET ASSETS NET ASSETS NET ASSETS
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SECURITY
- --------
Short-term Obligations
and Other Assets ............ 1% 1% 1% 1% 1%
Debt-Unrated by S&P ......... 6% 1% 11% 3% 8%
DEBT-S&P RATING
- ---------------
AAA ........................ 35% 50% 34% 38% 42%
AA ......................... 13% 24% 35% 40% 8%
A .......................... 28% 15% 18% 16% 21%
BBB ........................ 15% 8% 1% 2% 15%
BB ......................... 2% 1% 0% 0% 5%
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
</TABLE>
The charts above indicate the composition of the portfolio of each Fund for
the fiscal year ended January 31, 1994 with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated by
averaging the monthly dollar weighted average of each Funds' net assets
invested in each category. The chart does not necessarily indicate what the
composition of any Funds' portfolio will be in subsequent fiscal years.
Rather, the Trust's investment objectives, policies and restrictions indicate
the extent to which the Trust may purchase securities in the various
categories.
<PAGE> 96
APPENDIX D
ADDITIONAL INFORMATION CONCERNING THE STATE FUNDS
The following discussion regarding certain economic, financial and legal matters
pertaining to the relevant States and their governments are drawn primarily from
official statements relating to securities offerings of those States and other
publicly available documents, dated as of various dates prior to the date of
this Prospectus, and do not purport to be complete descriptions. Discussions
regarding the financial condition of a particular State government may not be
relevant to Municipal Obligations issued by political subdivisions of that
State. Moreover, the general economic conditions discussed may or may not affect
issuers of the obligations of these States. None of the information is relevant
to any tax-exempt securities issued by territories and possessions of the United
States or the District of Columbia or their political subdivisions, agencies or
instrumentalities.
ALABAMA FUND
Alabama'a economy has experienced a major trend toward industrialization over
the last two decades. By 1990, manufacturing accounted for 40% of Alabama's Real
Gross State Product (the total value of goods and services produced in Alabama).
During the 1960's and 1970's the State's industrial base became more diversified
and balanced, moving away from primary textiles (including apparel), chemicals,
rubber and plastics. Since the early 1980's, modernization of existing
facilities and an increase in direct foreign investments in the State has made
the manufacturing sector more competitive in domestic and international markets.
Among the leading manufacturing industries have been pulp and paper and
chemicals, the development and growth of which have been made possible by
abundant rainfall and a high pulpwood growth rate. In recent years Alabama has
ranked as the fifth largest producer of timber in the nation. Alabama has fresh
water availability of twenty times present usage. The State's growing chemical
industry has been the natural complement of production of wood pulp and paper.
Mining, oil and gas production, textiles and apparel, rubber and plastics,
printing and publishing, steel, machinery and service industries are also
important to Alabama's economy. Coal mining is by far the most important mining
activity.
In recent years, the importance of service industries to the State's economy has
increased significantly. The major service industries in the State are the
general healthcare industries, most notably represented by the University of
Alabama medical complex in Birmingham, and the high technology research and
development industries concentrated in the Huntsville area. The financial,
insurance and real estate sectors have also shown strong growth over the last
several years.
The economy in the State of Alabama significantly recovered from the recession
of the early 1980's. Since 1983 the State has recovered and moved forward faster
than the national average. The Alabama Development Office (ADO) reported as of
December 31, 1992, that for the sixth consecutive year more than $2 billion was
expended in Alabama for new and expanded industries.
Despite the economic expansion that has taken place the State is suffering along
with the rest of the nation through the recent downturn in the economy. Growth
in overall tax revenues was only about 3.4% from fiscal 1991 to 1992. Corporate
income tax receipts declined slightly from 1991 to 1992. However, State tax
collections are up about 8.9% for the nine month period ending June 30, 1993, as
compared to the same period for fiscal 1992, indicating an economic recovery is
in progress. Individual income tax receipts and sales tax receipts for the same
nine month period increased 8.0% and 7.3%, respectively.
Real Gross State Product (RGSP) is a comprehensive measure of economic
performance for the State of Alabama. Alabama's RGSP is defined as the total
value of all final goods and services produced in the State in constant dollar
terms. Hence, changes in RGSP reflect changes in final output. From 1986-1992,
RGSP originating in manufacturing increased by 16% while RGSP originating in all
the non-manufacturing sectors grew by 13%.
There was a significant decrease in unemployment in the period 1985-1989 due to
the economic recovery from the recession of the early 1980's. Since 1989
unemployment rates have come down more gradually due to the general nationwide
reduction in activity and employment in the industrial sector. At the end of
November, 1992 the State unemployment rate was 7.3% compared to the national
average of 7.4%.
An adverse decision in the cases of Alabama Coalition for Equity, Inc., et al.
v. Hunt, et al., could have a substantial adverse effect on the State's
financial position.
In Alabama Coalition for Equity, Inc., et al. v. Hunt, et al., filed on May 3,
1990, the Circuit Court of Montgomery County, the plaintiffs have alleged that
the State of Alabama's public school funding structure is unconstitutional under
the United States Constitution and the Alabama State Constitution. The
plaintiffs sought inter alia, an injunction prohibiting the State of Alabama
from implementing or maintaining any public school fund system perpetuating the
current funding structure; a ruling requiring the State of Alabama to maintain a
constitutional public school funding structure; and the payment of the
plaintiffs' attorneys' fees.
On August 13,1991, the court granted partial summary judgment to the plaintiffs
on the constitutionality of amendment 111, Section 256, of the Alabama
Constitution. The court ruled that this provision violated the Equal Protection
Clause of the Fourteenth Amendment to the United States Constitution. On
December 3, 1993, the court made final its Remedy Order which found the entire
educational system of the State of Alabama to be unconstitutional. The court
held that all school children have a right to attend school in a liberal system
of public schools required to be provided by the State. The trial court intends
to conduct further hearings on the implementation of its Remedy Order. The
Remedy Order has been appealed to the Alabama Supreme Court by intervenors.
Should the trial court's decision be upheld, the State may be required to expend
substantial amounts on implementation of and compliance with the Order.
ARKANSAS FUND
During the past two decades, Arkansas' economic base has shifted from
agriculture to light manufacturing. The State is now moving toward a heavier
manufacturing base involving more sophisticated processes and products such as
electrical machinery, transportation equipment, fabricated metals and
electronics. Arkansas now has a higher percentage of workers involved in
manufacturing than the national average. The diversification of economic
interests has lessened the State's cyclical sensitivity to the impact of any
single sector.
Arkansas' diversified economic base is also reflected in the distribution of the
State's employment among the manufacturing, trade, service and governmental
sectors. During the past decade, there have been gains in the services and
wholesale and retail trade sectors. However, the civilian unemployment rate in
Arkansas has exceeded the national average during each year since 1978.
Manufacturing continues to be a leading component of Arkansas' economy.
Manufacturing contributes over 25% of the total wage and salary component of
personal income. There is an almost equal division between durable and
nondurable goods. Non-manufacturing and non-agricultural goods provide a
balanced proportion of the overall economy and tend to insulate the State's
economy from any adverse economic conditions which affect manufacturing.
Agriculture is a significant and historical component of Arkansas' economy. Over
40% of the land in Arkansas is devoted to agriculture. Arkansas ranks first in
the nation in rice production, first in commercial broilers and fourth in
cotton.
Arkansas ranks first in the nation in the production of bauxite and bromine. The
State has significant natural gas and oil production in its west, central and
southern regions. There is also increased activity in the coal mining fields of
western Arkansas.
CALIFORNIA FUND
Certain of the securities in the California Fund's portfolio may be obligations
of issuers which rely in whole or in part, directly or indirectly, on ad valorem
real property taxes as a source of revenue. Article XIIIA of the California
Constitution, adopted in 1978, limits ad valorem taxes on real property, and
restricts the ability of taxing entities to increase real property tax revenues.
At the time of adoption of Article XIIIA, the State General Fund had a
substantial surplus. Following the adoption of Article XIIIA, legislation was
adopted which provided for a one-time distribution of a portion of the State's
General Fund surplus to local public agencies, the reallocation of property tax
and other revenue to such agencies, and the State's assumption of certain
obligations theretofore paid out of local funds. The surplus in the General Fund
was depleted and the State ended fiscal 1982-1983 on June 30, 1983 with a
General Fund deficit. Although, a surplus in the General Fund was subsequently
reestablished, in recent years the State has again been operating at a
substantial deficit.
Since the start of fiscal 1990-1991, the State has faced the worst economic,
fiscal, and budget conditions since the 1930s. The State ended fiscal 1990-
1991, fiscal 1991-1992 and fiscal 1992-1993 with multibillion dollar deficits
and, at the date of this Prospectus, forecasts indicate that the State will end
fiscal 1993-1994 with a multibillion dollar deficit. In February 1994 the
State's nonpartisan legislative analyst projected that the State could end
fiscal 1993-1994 with an accumulated deficit of approximately $3 billion and
that the State could incur an additional deficit of at least $3 billion during
fiscal 1994-1995 (resulting in an accumulated deficit by the end of fiscal
1994-1995 of approximately $6 billion). The State's analyst also noted that
costs related to the January 1994 earthquake in Los Angeles could increase the
State's deficit. Although the proposed State budget for fiscal 1994-1995 calls
for the retirement of the deficit during the fiscal year, it assumes certain
questionable revenue items, such as receipt of higher federal aid and revenue
from favorable outcomes in pending litigation. In addition, the State's budget
in recent years has not reflected certain questionable school funding shifts.
The State's ability to raise revenues and to reduce expenditures to the extent
necessary to balance the budget for any year depends, among other things, upon
the State's economic health and the accuracy of the State's revenue predictions,
as well as the impact of budgetary restrictions imposed by voter- passed
initiatives.
The financial difficulties experienced by the State and other issuers of
California municipal securities in recent years have resulted in the credit
ratings of certain of their obligations being downgraded significantly by the
major rating agencies. There can be no assurance that credit ratings on
securities in the California Fund's portfolio will not be further downgraded.
In connection with establishing the budget for fiscal 1993-1994, approximately
$2.6 billion of property tax revenues were transferred from local governments to
public schools to help meet education funding requirements. To counteract the
negative impact of the property tax transfer on local governments, a sales tax
increase (with revenues allocable to local police and fire services) was
permanently extended by voters in November 1993.
Article XIIIB of the California Constitution, originally adopted in 1979, limits
significantly spending by state government and by "local government" (defined as
"any city, county, city and county, school district, special district,
authority, or other political subdivision of or within the state"). One of the
exclusions from these limitations for any entity of government is the debt
service costs of bonds existing or legally authorized as of January 1, 1979, or
thereafter approved by the voters.
Article XIIIB states that it shall not "be construed to impair the ability of
the state or of any local government to meet its obligations with respect to
existing or future bonded indebtedness." Despite this language, following the
adoption of Article XIIIB, concern has been expressed with respect to the
combined effect of such constitutionally imposed limits on the ability of
California state and local governments to utilize bond financing. For fiscal
1986-1987, the State collected revenues in excess of Article XIIIB spending
limits. As a result, over $1 billion in unexpected revenues received by the
State during fiscal 1986-1987, attributable in part to greater than anticipated
realization of capital gain income by California taxpayers in the latter part of
1986 due to changes in the federal income tax laws, was returned to the
taxpayers. Article XIIIB was modified substantially by Propositions 98 and 111
of 1988 and 1990, respectively. Proposition 111 relaxed Article XIIIB spending
limits and revised Proposition 98, which, as revised, may require approximately
40% of the State's general fund budget and 50% of revenues collected in excess
of the State spending limit to be spent on public schools and community
colleges.
In June 1982, California voters approved initiative measures which (1) repealed
the California gift and inheritance tax laws, and enacted, in lieu thereof, a
California death tax, and (2) increased, for taxable years commencing on or
after January 1, 1982, the amount by which personal income tax brackets will be
adjusted annually in an effort to index such tax brackets to account for the
effects of inflation. Following the adoption of such measures, the California
Department of Finance and the California Legislative Analyst reported that the
amount of the annual reductions in state revenues resulting from the approval of
these measures would be substantial. California has also revised its system of
taxing corporations which conduct business both within and without California
(such corporations were previously taxed under the so-called "unitary" method
applied on a worldwide basis). Since 1988, such corporations have been able to
elect, subject to payment of an election fee, to use the "unitary" method, but
on a "water's edge" basis and in 1993 the fee was eliminated. The revisions in
the State's system of corporate taxation could also result in decreased state
revenues. In addition, at the time of this Prospectus the constitutionality of
the worldwide combined reporting method and the election fee for prior years is
being challenged in the courts. The success of such litigation could also result
in decreased state revenues. Decreased state revenues may result in reductions
in allocations of state revenues to local governments. California legislation,
adopted after enactment of the Federal Tax Reform Act of 1986, revised
California's personal income tax and corporate tax laws to make them conform to
federal income tax provisions.
In November 1982, California issued registered revenue-anticipation warrants in
the aggregate principal amount of $400 million to enable California to meet its
then-current cash requirements. Such warrants were timely repaid. In February
1983, legislation was enacted which enabled California, until June 30, 1985, to
borrow funds by issuing notes or other short-term instruments; the June 30, 1985
termination date was eliminated by legislation enacted in September 1984. Since
1983, California has repeatedly issued revenue anticipation notes authorized by
the February, 1983 legislation. All required payments on such notes have been
timely made. In July 1993 the State issued $2 billion of revenue anticipation
notes due June 28, 1994. Because of a two month delay that took place in
enacting the State's budget for fiscal 1992- 1993, the State issued registered
warrants (promissory notes with no specific maturity) to suppliers and other
State-payees. Registered warrants had not been issued by the State since the
1930s. Recent budget imbalances have also caused the State to issue revenue
anticipation warrants three times in less than two years. Revenue anticipation
warrants can be issued and redeemed in different fiscal years (as compared to
revenue anticipation notes that are issued and redeemed in the same fiscal year)
and prior to 1992, the State had not issued revenue anticipation warrants since
1983. The State issued $475 million of revenue anticipation warrants in June
1992 and $2 billion of revenue anticipation warrants in June 1993. All required
payments on such revenue anticipation warrants have been timely made. In
February 1994 the State issued $3.2 billion of revenue anticipation warrants
consisting of $1.2 billion of Series A warrants due December 21, 1994, and $2
billion of Series B warrants due July 26, 1994. As of the date of this
Prospectus, the State plans to sell $5.5 billion of revenue anticipation notes
in July 1994 to help retire a portion of such warrants. It is not presently
possible to determine the extent to which California will issue additional
revenue-anticipation warrants, additional short-term interest-bearing notes or
other instruments in future fiscal years.
Because of the complex nature of Articles XIIIA and XIIIB, the possible
ambiguities and inconsistencies in their respective terms, and the applicability
of their respective exemptions and exceptions and the impossibility of
predicting future appropriations, it is not presently possible to determine the
impact of Article XIIIA or Article XIIIB or any implementing or related
legislation on the securities in the Fund's portfolio or the ability of State or
local governments to pay the interest on, or repay the principal of, such
securities. Article XIIIA and its implementing and related legislation have been
subject to legal challenges based on various State and federal constitutional
grounds. In 1979, the California Supreme Court held unconstitutional as an
impairment of contract that part of legislation distributing a portion of the
State's General Fund surplus to local public agencies which purported to
eliminate certain cost of living salary increases provided for by agreement with
certain local public agency employees. With that exception, to date the courts
either have upheld the constitutionality of Article XIIIA and its implementing
and related legislation or have interpreted them in such a manner as to avoid
the necessity for a direct determination of constitutional issues. In June 1992,
the U.S. Supreme Court upheld the constitutionality of Article XIIIA. However,
Articles XIIIA and XIIIB and their respective implementing and related
legislation may be subject to continuing or future legal challenges. It is not
presently possible to predict the outcome of any such litigation with respect to
the ultimate scope, impact or constitutionality of either Article XIIIA or
Article XIIIB, or their respective implementing or related legislation, or the
impact of any such determinations upon State agencies and local governments, or
upon the abilities of such entities to pay the interest on, or repay the
principal of, the securities in the California Fund's portfolio.
FLORIDA FUND
Florida has made significant advances in recent years in diversifying its
economy, which at one time was almost entirely fueled by its elderly population
and tourism. Still more service-oriented than most other states, Florida now
accommodates numerous diversifying urban centers. The Miami/Dade area has
developed into a major international banking center, while maintaining itself as
a prime tourist destination. The Orlando area, stimulated by the presence and
growth of Walt Disney World and the Epcot Center, has also become a significant
diverse employment hub.
Economic conditions in much of Florida have improved significantly since a year
ago. In some areas, this is due to positive income and jobs performances linked
to the moderate state and national economic recoveries. In southeastern Florida,
improved growth rates are associated with ongoing recovery efforts after
Hurricane Andrew.
Sectors that have shown recent strong growth trends across the state are
business services, health care services and retail trade. Defense downsizing has
eliminated numerous military and related civilian jobs and resulted in decreases
in defense manufacturing jobs. The decreases in defense manufacturing jobs have
been offset by increased jobs in the manufacturing of construction materials,
which have shown rapid growth due to the great need for construction materials
resulting from the hurricane.
Overall in 1992, Florida experienced moderate jobs growth. In the most recent
quarter, state employment rates improved in all twenty of the state's metro
economies and on average among the non-metro areas as well.
Gross income measured in 1987 dollars has moved upward in Florida,
notwithstanding the hurricane-related decline in personal income experienced in
the third quarter of 1992 by residents of southeastern Florida.
GEORGIA FUND
Since 1973 the State's long-term debt obligations have been issued in the form
of general obligation debt or guaranteed revenue debt. The State may incur
guaranteed revenue debt by guaranteeing the payment of certain revenue
obligations issued by an instrumentality of the State. Prior to 1973 all of the
State's long-term debt obligations were issued by ten separate State authorities
and secured by lease rental agreements between such authorities and various
State departments and agencies ("Authority Lease Obligations"). The Georgia
Constitution since 1973 has prohibited further Authority Lease Obligations. The
Georgia Constitution prohibits the incurring of any general obligation debt or
guaranteed revenue debt if the highest aggregate annual debt service requirement
for the then current year or any subsequent fiscal year for outstanding general
obligation debt and guaranteed revenue debt, including the proposed debt, and
the highest aggregate annual payments for the then current year of any
subsequent fiscal year of the State for all remaining Authority Lease
Obligations, exceed 10% of the total revenue receipts, less refunds, of the
state treasury in the fiscal year immediately preceding the year in which any
such debt is to be incurred. As of January, 1994, the total indebtedness of the
State of Georgia consisting of general obligation debt, guaranteed revenue debt
and remaining Authority Lease Obligations totalled $4,002,605,000 and the
highest aggregate annual payment for such debt equalled 5.32% of fiscal year
1993 State treasury receipts.
The Georgia Constitution also permits the State to incur public debt to supply a
temporary deficit in the State treasury in any fiscal year created by a delay in
collecting the taxes of that year. Such debt must not exceed, in the aggregate,
5% of the total revenue receipts, less refunds, of the State treasury in the
fiscal year immediately preceding the year in which such debt is incurred. The
debt incurred must be repaid on or before the last day of the fiscal year in
which it is to be incurred out of the taxes levied for that fiscal year. No such
debt may be incurred in any fiscal year if there is then outstanding unpaid debt
from any previous fiscal year which was incurred to supply a temporary deficit
in the State treasury. No such short-term debt has been incurred under this
provision since the inception of the constitutional authority permitting it.
Virtually all of debt obligations of the State of Georgia and its counties,
municipalities and other political subdivisions and public authorities are
required by law to be validated and confirmed in a judicial proceeding prior to
issuance.
The State operates on a fiscal year beginning July 1 and ending June 30.
Estimated revenue collections of $9,131,999,998 for the fiscal year 1994 showed
an increase of 9.41% over collections for the similar period in the previous
fiscal year.
Based on data of the Georgia Department of Revenue for fiscal year 1993, income
tax receipts and sales tax receipts of the State for fiscal year 1993 comprised
approximately 47% and 36%, respectively, of the total State tax revenues.
Further, such data shows that total State tax revenue collections for fiscal
year 1993 ($8,346,411,129.33) increased by approximately 1% over such
collections in fiscal year 1992.
The unemployment rate of the civilian labor force in the State as of May 1993
was 5.2% according to data provided by the Georgia Department of Labor. The
Metropolitan Atlanta area, which is the largest employment center in the area
comprised of Georgia and its five bordering states and which accounts for
approximately 42% of the State's population, has for some time enjoyed a lower
rate of unemployment than the State considered as a whole. In descending order,
wholesale and retail trade, financing insurance and retail services,
manufacturing, government and transportation comprise the largest source of
employment within the State.
Several lawsuits have been filed against the State of Georgia asserting that the
decision in Davis v. Michigan Department of Treasury, 489 U.S. 803 (1989),
invalidates Georgia's tax treatment of Federal Retirement Benefits for years
prior to 1989. Under the three year statute of limitation set out in Georgia's
refund statute, the maximum potential liability under these suits calculated to
August 15, 1993, would appear to be no greater than $100 million. The plaintiffs
in these suits originally requested refunds for tax years beginning with 1980.
The State's maximum exposure to all taxpayers with a Davis claim for the years
1980-1988 would appear to be approximately $591 million. Any such liability
would be predicated on a holding by the State of Georgia court or the United
States Supreme Court that a refund remedy is required. The Georgia Supreme Court
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has held in Georgia's "test case" that the plaintiff is not entitled to a
refund. The plaintiff has petitioned the United States Supreme Court for a writ
of certiorari.
Three suits have been filed against the State of Georgia seeking refunds of
liquor taxes in light of Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
under Georgia's pre-Bacchus statute. In the Beam case, 501 U.S. (decided June
20, 1991) the United States Supreme Court indicated that Bacchus was
retroactive, but only within the bounds of State statutes of limitations and
procedural bars, and left State courts to determine any remedy in light of
reliance interests, equitable considerations, and other defenses. Georgia's
statute of limitations has run on all pre-Bacchus claims for refund except five
pending claims seeking $31 million in tax plus interest. On remand, the Fulton
County Superior Court has ruled that procedural bars and other defenses bar any
recovery by taxpayers on Beam's claims for refund. The Georgia Supreme Court has
affirmed and Beam has petitioned the United States Supreme Court for a writ of
certiorari.
Age International, Inc. v. State and Age International, Inc. v. Miller are suits
(one for refund and one for declaratory and injunctive relief) which have been
filed against the State of Georgia by foreign producers of alcoholic beverages
seeking $96,000,000 in refunds of alcohol import taxes imposed under Georgia's
post-Bacchus (see previous note) statute. These claims constitute 99% of all
such taxes paid during the preceding three years. In addition, the claimants
have filed administrative claims for an additional $23,000,000 for apparently
later time periods. The Age refund case is still pending in the trial court. The
Age declaration/injunctive relief case was dismissed by the U.S. District Court
and is on appeal to the Eleventh Circuit Court of Appeals.
The case of Board of Public Education for Savannah/Chatham County v. State of
Georgia is based on the local school board's claim that the State finance the
major portion of the costs of its desegregation program. The Savannah Board
originally requested restitution in the amount of $30,000,000, but the Federal
District Court set forth a formula which would require a State payment in the
amount of approximately $6,000,000. Plaintiffs, dissatisfied with the
apportionment of desegregation costs between state and county and an adverse
ruling on the state funding formula for transportation costs, have appealed to
the United States Eleventh Circuit Court of Appeals. The State has filed a
responsive cross-appeal on the ground that there is no basis for any liability.
A similar complaint has been filed by DeKalb County and there are approximately
five other school districts which potentially might attempt to file similar
claims. In the DeKalb County case alone, the plaintiffs appear to be seeking
approximately $67,500,000 of restitution. The DeKalb case has recently been
tried and is awaiting final argument and decision by the Court.
Leslie K. Johnsen v. Collins. Plaintiff in this case has filed suit in federal
district and state superior courts challenging the Constitutionality of
Georgia's transfer fee (often referred to as "impact fee") by asserting that the
fee violates the commerce clause, due process, equal protection and privilege
and immunity provisions of the United States Constitution. Plaintiff seeks to
prohibit the State from further collections and to require the State to return
to her and those similarly situated all fees previously collected. From May 1992
to February 1994, the State has collected $11,304,925. The State continues to
collect approximately $500,000 to $600,000 per month.
Daniel W. Tedder v. Marcus E. Collins, Sr., is a class action suit challenging
the validity of a Georgia Department of Revenue regulation issued in July 1992
which resulted in enforcement of sales tax collections on sales of used
transportation equipment, most notably sales of used cars where neither party is
engaged in the regular sale of used cars. The trial court declared the
regulation invalid. Approximately $30,000,000 of tax on such sales was collected
before the regulation was rescinded and collection ceased. Accordingly, refund
claims of up to $30,000,000 plus interest could be sought. Approximately
$16,000,000 in refunds have been paid.
Many factors affect and could have an adverse impact on the financial condition
of the State and other issuers of long-term debt obligations which may be held
in the portfolio of the Georgia Fund, including national, social, environmental,
economic and political policies and conditions, many of which are not within the
control of the State or such issuers. It is not possible to predict whether or
to what extent those factors may affect the State and other issuers of long-term
debt obligations which may be held in the portfolio of the Georgia Fund and the
impact thereof on the ability of such issuers to meet payment obligations.
LOUISIANA FUND
Under Louisiana law, certain bonds and obligations constitute general
obligations of the State of Louisiana or are backed by the full faith and credit
of the State of Louisiana, and certain bonds and obligations do not or are not.
The Louisiana Fund invests in both types of obligations.
The Bond Security and Redemption Fund of the State of Louisiana secures all
general obligation bonds of the State of Louisiana issued pursuant to Article
VII, Sections 6(A) and 6(B) of the constitution of Louisiana and those bonds
issued by State agencies or instrumentalities which are backed by the State's
full faith and credit, pari passu. Article VII, Section 9(B) of the State
Constitution gives constitutional status to the Bond Security and Redemption
Fund and further provides that, subject to contractual obligations existing on
the effective date of the Constitution (January 1, 1975), all State money
deposited in the State Treasury is to be credited to the Bond Security and
Redemption Fund, except money received as the result of grants or donations or
other forms of assistance when the terms and conditions thereof or of agreements
pertaining thereto require otherwise. This section further requires that in each
fiscal year an amount be allocated from the Bond Security and Redemption Fund
sufficient to pay all obligations that are secured by the full faith and credit
of the State and that become due and payable within the current fiscal year,
including principal, interest, premiums, sinking or reserve funds or other
requirements. Under the administrative procedures of the State Treasurer's
office, debt service requirements falling due each month are set aside in the
Bond Security and Redemption Fund during the immediately preceding and current
month, followed by monthly transfers of excess funds to the State's general and
other funds.
Any bonds issued by the State of Louisiana other than general obligation bonds,
or any bonds issued by the State of Louisiana or any other issuer that are not
backed by the full faith and credit of the State of Louisiana are not entitled
to the benefits of the Bond Security and Redemption Fund.
The legislature has limited its ability to authorize certain debt and the State
Bond Commission's ability to issue certain bonds. The legislature may not
authorize general obligation bonds or other general obligations secured by the
full faith and credit of the State if the amount of authorized but unissued debt
plus the amount of outstanding debt exceeds twice the average annual revenues of
the Bond Security and Redemption Fund for the last three fiscal years completed
prior to such authorization. This debt limitation is not applicable to or shall
not include the authorization of refunding bonds secured by the full faith and
credit of the State, or to authorized or outstanding bond anticipation notes.
Bond anticipation notes are issued in anticipation of the sale of duly
authorized bonds or to fund capital improvements. The State Bond Commission may
not issue general obligation bonds or other general obligations secured by the
full faith and credit of the State at any time when the highest annual debt
service requirement for the current or any subsequent fiscal years for such
debt, including the debt service on such bonds or other obligations then
proposed to be sold by the State Bond Commission, exceeds 10% of the average
annual revenues of the Bond Security and Redemption Fund for the last three
fiscal years completed prior to such issuance. The annual revenues of the Bond
Security and Redemption Fund for the three fiscal years ended June 30, 1991,
1992 and 1993, were respectively: $5,024,957,000, $5,136,845,000 and
$5,994,856,000. This debt limitation is not applicable to the issuance or sale
by the State Bond Commission of refunding bonds secured by the full faith and
credit of the State of Louisiana or to bond anticipation notes. However, in
calculating the annual debt service requirements in any fiscal year, included is
the debt service on refunding bonds and excluded is the debt service
requirements on the prior issues of bonds refunded by the refunding bonds.
The State Bond Commission may also issue and sell revenue anticipation notes to
avoid temporary cash flow deficits. These notes are payable from anticipated
cash, as reflected in the most recent official forecast of the Revenue
Estimating Conference. Unless issued in accordance with the provisions of
Article VII, Section 6(A) of the State Constitution, the notes do not constitute
a full faith and credit obligation of the State.
The foregoing limitations on indebtedness imposed upon the legislature and the
State Bond Commission do not apply to obligations that are not general
obligations of the State of Louisiana or that are not backed by the full faith
and credit of the State of Louisiana.
Although the manner in which the Bond Security and Redemption Fund operates is
intended to adequately fund all obligations that are general obligations of the
State, or that are secured by the full faith and credit of the State, there can
be no assurance that particular bond issues will not be adversely affected by
expected budget gaps. During the period from fiscal year 1981-82 through fiscal
year 1991-92, the State experienced operating budget deficits in eight of the
ten fiscal years. Exacerbating the operating deficit problem was the highly
dependent nature of the State's budget on mineral revenues and in particular,
the dramatic fluctuations in oil prices over the past decade. Furthermore, a
significant component of Louisiana's annual budget burden arises out of its debt
service obligations which are the highest per capita of any of the 14 southern
states. According to the 1990 United States Census Bureau, Louisiana had a $226
per capita debt service interest payment, compared with $39 per capita in
Mississippi and $28 per capita in the State of Texas. Other factors attributing
to Louisiana's budget gap are the decline in mineral revenues, weak sales tax
collections, expiration of certain taxes, increases in certain tax credits and
the prior utilization of one time monies to balance earlier state budgets.
These same conditions could adversely affect bonds that are not general
obligations of the State or that are not entitled to the full faith and credit
of the State and that therefore are not secured by the Bond Security and
Redemption Fund. Examples of these bonds include general obligation parish bond
issues, revenue bonds issued by the State of Louisiana or a parish or other
political subdivision or agency, and industry development bonds. Revenue bonds
are payable only from revenues derived from a specific facility or revenue
source. Industrial development bonds are generally secured solely by the
revenues derived from payments made by the industrial user. With respect to
bonds issued by local political subdivisions or agencies, because the 64
parishes within the State of Louisiana are subject to their own revenue and
expenditure problems, current and long term adverse developments affecting their
revenue sources and their general economy may have a detrimental impact on such
bonds. Similarly, current adverse developments affecting Louisiana's state and
local economy could have a detrimental impact on revenue bonds and industrial
development bonds.
MARYLAND FUND
The State's total expenditures for the fiscal years ending June 30, 1991, June
30, 1992 and June 30, 1993 were $11.304 billion, $11.585 billion and $11.786
billion, respectively. As of May 16, 1994, it was estimated that total
expenditures for fiscal year 1994 would be $12.726 billion. The State's General
Fund, representing approximately 54% - 60% of each year's total budget, had a
surplus on a budgetary basis of $55 thousand in fiscal year 1991, a deficit of
$56 million in fiscal year 1992 and a surplus of $11 million in fiscal year
1993. The Governor of Maryland reduced fiscal year 1993 appropriations by
approximately $56 million to offset the fiscal year 1992 deficit. The State
Constitution mandates a balanced budget.
In April 1993, the General Assembly approved the $12.5 billion 1994 fiscal year
budget. The Budget includes $2.5 billion in aid to local governments (reflecting
a $233.8 million increase in funding over 1993 that provides for substantial
increases in education, health and police aid), and $72.8 million in general
fund deficiency appropriations for fiscal year 1993, of which $50 million is a
legislatively mandated appropriation to the Revenue Stabilization Account of the
State Reserve Fund. The Revenue Stabilization Account was established in 1986 to
retain State revenues for future needs and to reduce the need for future tax
increases. The 1994 Budget does not include any proposed expenditures dependent
on additional revenue from new or broad-based taxes. When the 1994 Budget was
enacted, it was estimated that the general fund surplus on a budgetary basis at
June 30, 1994, would be approximately $26 million, excluding $50 million that
was mandated to be appropriated in the 1994 session of the General Assembly to
the Revenue Stabilization Account of the State Reserve Fund. As of May 16,1994
it is estimated that the general fund surplus on a budgetary basis at June 30,
1994, will be $24 million.
In April 1994, the General Assembly approved the $13.3 billion 1995 fiscal year
budget. The Budget includes $2.6 billion in aid to local governments (reflecting
a $102.4 million increase over 1994 that provides substantial increases in
education, health and police aid), and $104.8 million in general fund deficiency
appropriations for fiscal year 1994, of which $60.5 million is an appropriation
to the Revenue Stabilization Account of the State Reserve Fund. As of May 16,
1994 it is estimated that the general fund surplus on a budgetary basis at June
30, 1995 will be $9.7 million.
The public indebtedness of Maryland is divided into three basic types. The State
issues general obligation bonds for capital improvements and for various
State-sponsored projects. The Department of Transportation of Maryland issues
limited special obligations bonds for transportation purposes payable primarily
from specific, fixed-rate excise taxes and other revenues related mainly to
highway use. Certain authorities issue obligations solely from specific non-tax
enterprise fund revenues and for which the State has no liability and has given
no moral obligation assurance.
While the factors mentioned above indicate that Maryland and its
instrumentalities are addressing the effects of the economic recession and,
overall, are in satisfactory economic health, there can, of course, be no
assurance that this will continue or that particular Maryland Municipal
Obligations may not be adversely affected by changes in state or local economic
or political conditions.
MASSACHUSETTS FUND
Investments in Massachusetts Municipal Obligations may be affected by a variety
of factors, including the general economic health of the state and local
governments and the availability of federal funding.
Commonwealth spending exceeded revenues in each of the five fiscal years
commencing fiscal year 1987. In particular, from 1987 to 1990, spending in five
major expenditure categories -- Medicaid, debt service, public assistance, group
health insurance and transit subsidies -- grew at rates in excess of the rate of
inflation for the comparable period. In addition, the Commonwealth's tax
revenues during this period repeatedly failed to meet official forecasts. For
the budgeted funds, operating losses in fiscal years 1987 and 1988 of $349
million and $370 million, respectively, were covered by surplus carried forward
from prior years. The operating losses in fiscal years 1989 and 1990, which
totalled $672 million and $1.25 billion, respectively, were covered primarily
through deficit borrowings. During the period, fund balances in the budgeted
operating funds declined from an opening balance of $1.17 billion in fiscal year
1987 to an ending balance of negative $1.1 billion in fiscal year 1990. Fiscal
1991 and 1992 ended with positive fund balances of $237.1 million and $549.4
million, respectively.
Standard & Poor's and Moody's have upgraded their ratings of long-term bonds
issued by the Commonwealth to A+ and A, respectively. The budgetary difficulties
of the Commonwealth are likely to affect the bond ratings and credit standing of
its public authorities and municipalities as well. These difficulties could
affect adversely the market values and marketability of, or possibly even result
in default in payment on, outstanding obligations issued by the Commonwealth or
its public authorities or municipalities.
The Commonwealth is also experiencing an economic slowdown. Earlier in the
1980s, revenue growth and expenditure increases occurred in the context of a
strong performance by the Commonwealth's and the region's economy. However,
since 1988, economic performance has slowed significantly, particularly in the
construction, real estate, financial and manufacturing sectors (including high
technology), with especially adverse results in 1990 and the first half of 1991.
In 1990, for the first time since 1979, the Commonwealth's unemployment rate
significantly exceeded the national average. As of December 1993, the
Commonwealth's unemployment rate was 6.3%, as compared to a national average of
6.4%. Increases in unemployment claims have reduced the balances in the
Commonwealth's unemployment compensation trust fund. In addition, the
Commonwealth's per capita personal income is growing at a rate lower than the
national average.
In fiscal year 1993, which ended June 30, 1993, the revenues of the budgeted
operating funds of the Commonwealth increased by approximately 6.9% over the
prior fiscal year, to approximately $14.710 billion. Expenditures also
increased, by 9.6% over the prior year, to approximately $14.696 billion. As a
result, in fiscal year 1993 the Commonwealth experienced a surplus of revenues
and other sources over expenditures of approximately $13.1 million. The
Commonwealth ended fiscal year 1993 with a positive closing fund balance of
$562.5 million.
On July 19, 1993 the Governor signed the Commonwealth's budget for fiscal year
1994. Budgeted revenues and other sources in fiscal 1994 are currently estimated
by the Executive Office for Administration and Finance to be approximately
$15.483 billion, including estimated tax revenues in the amount of $10.560
billion, an increase of $630 million over tax revenues in fiscal year 1993. The
budget signed by the Governor provided for projected expenditures of $15.467
billion.
In Massachusetts the tax on personal property and real estate is virtually the
only source of tax revenues available to cities and towns to meet local costs.
"Proposition 2 1/2", an initiative petition adopted by the voters of the
Commonwealth in November 1980, limits the power of Massachusetts cities and
towns and certain tax-supported districts and public agencies to raise revenue
from property taxes to support their operations, including the payment of
certain debt service. Proposition 2 1/2 required many cities and towns to reduce
their property tax levies to a stated percentage of the full and fair cash value
of their taxable real estate and personal property, and it limits the amount by
which the total property taxes assessed by all cities and towns might increase
from year to year.
The reductions in local revenues and anticipated reductions in local personnel
and services resulting from Proposition 2 1/2 created strong demand for
substantial increases in state-funded local aid, which increased significantly
in fiscal years 1982 through 1986. The effect of this increase in local aid was
to shift a major part of the impact of Proposition 2 1/2 to the Commonwealth,
but this did not require an increase in Massachusetts state taxes. The recent
difficulties summarized above have resulted in a substantial reduction in local
aid from the Commonwealth and delays in the payment of local aid. These
reductions and delays may create financial difficulties for certain
municipalities. The budget signed by the Governor for fiscal 1994 contains
expenditures of $2.737 billion for direct local aid, an increase of
approximately 7.5% above the fiscal 1993 level.
Limitations on Commonwealth tax revenues have been established both by
legislation enacted in 1986 and by public approval of an initiative petition in
1986. The two measures are inconsistent in several respects, including the
methods of calculating the limits and the exclusions from the limits. The
initiative petition, which took effect in 1986, contains no exclusion for debt
service on Municipal Obligations of the Commonwealth. Commonwealth tax revenues
in fiscal years 1988 through 1993 were lower than the limit set by either the
initiative petition or the legislative enactment. The Executive Office for
Administration and Finance of the Commonwealth has estimated that Commonwealth
tax revenues will not reach the limit imposed by either the initiative petition
or the legislative enactment in fiscal year 1994.
The aggregate unfunded actuarial liabilities of the pension systems of the
Commonwealth and the unfunded liability for the Commonwealth related to local
retirement systems are significant -- estimated to be approximately $8.485
billion as of January 1, 1992, on the basis of certain actuarial assumptions
regarding, among other things, future investment earnings and annual inflation
rates, wage increases and cost of living increases. No assurance can be given
that these assumptions will be realized. As of June 30, 1993, the Commonwealth's
state pension reserve was approximately $3.877 billion. The legislature adopted
a comprehensive pension bill addressing the issue in January 1988, which
requires the Commonwealth, beginning in fiscal 1989, to fund future pension
liabilities currently and amortize the Commonwealth's unfunded liabilities over
40 years, in accordance with funding schedules proposed by the Secretary of
Administration and Finance and approved by new legislation.
MISSISSIPPI FUND
In September 1993 Mississippi's unemployment rate fell considerably to 5.2%. The
growth rate of state product for the year is estimated to have been 5.8%, and is
expected to accelerate to 6.0% in 1994. Mississippi continued to close the per
capita income gap between the State and the average for the country. Per capita
incomes increased 5.7% over this period versus 5.0% for the United States as a
whole.
Approximately 27,400 new jobs were created in 1993, with half of that growth due
to the gaming industry. Total employment in Mississippi is projected to increase
by 23,000 jobs, or 1.8%, in 1994. In the U.S. as a whole, total employment grew
more slowly at 0.3%. Manufacturing accounts for 23% of employment in Mississippi
but considerably less in total U.S. employment. In Mississippi, about 56% of
manufacturing employment is in durable goods, with the remainder in nondurable
goods. Mississippi's employment growth is expected to continue in such sectors
as services, finance, insurance, real estate and construction.
The Mississippi economy is outpacing the rest of the nation, with growth rates
of income and employment well above the national average. U.S. News and World
Report (11/8/93) ranked Mississippi number one in the nation, based on six
indicators of economic health. The strength of Mississippi's economy is evident
by the 9.8% rise in the corporate profits during 1992, and a similar growth is
estimated for 1993.
In recent years, the State has successfully expanded its economy through
technology-based research and education, and the Mississippi banking system has
exhibited strength and stability over the past several years, a period
characterized by a growing number of bank failures nationwide.
The gaming industry started up in Mississippi in August 1992, and as of November
1993 it had already become a $500 million industry, providing more than 12,000
jobs in direct employment and contributing over $60 million in state and local
tax revenues annually.
While the number of workers involved directly in agriculture has declined, it
remains a significant factor in the State's economy. Cotton was the number one
producer of farm income in 1990, poultry and eggs were second while forestry was
third. Research and promotion have provided the State with a number of new
farming alternatives. The production of catfish, poultry, rice, blueberries and
muscadines have grown dramatically in recent years. Timber continues to be
Mississippi's largest natural resource, with the State leading the nation in the
number of tree farms. Of Mississippi's total land area 56% (approximately 17
million acres) is classified as commercial forest.
All or part of 20 states and 136 metropolitan areas lie within 550 miles of
Mississippi. Mississippi is in an excellent location to service this market area
with four interstate highways, which provide access in every direction, 19
railroads, including four of the nation's largest carriers, and seven commercial
airports. International and domestic waterborne commerce is served by
Mississippi's nine major ports.
The population of the State is estimated to be 2,666,000. The population
increased an estimated .3% during 1992 and 1993 with a considerably higher
percentage increase in its urban areas. Mississippi has a relatively young
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population, with 29% of its total population below 18 years of age.
Employment in the service industries rose 7% during 1993. Having the most rapid
growth of any sector, the service sector has now surpassed manufacturing as the
leading employer in the State, employing 31% of the total non-agricultural
employment. The other large employment sectors are government, retail trade and
construction. The leading employer by product category remains the apparel
industry, followed by food, furniture and fixtures, and lumber. Although its
importance has declined, agriculture continues to contribute significantly to
the State's economy. With the diversification into livestock, soybeans,
aquaculture, rice and other alternative crops, there is now less dependence on
cotton as the major crop.
Total personal income in Mississippi increased 32.7% from 1983 to 1989 compared
to a 30.6% increase in the U.S. over the same period. Manufacturing, services
and government employment comprise the largest components of earned personal
income in Mississippi. Mississippi continues to rank 50th among the 50 states in
per capita total personal income. However, between 1970 and 1990, per capita
total personal income in Mississippi increased at a compound annual rate of 8.8%
while U.S. per capita total personal income increased at an 8.4% compound annual
rate. In 1993 personal income in Mississippi rose an estimated 5.7% compared to
a 5.0% increase for the U.S. Personal income.
In the State of Mississippi, all State indebtedness must be authorized by
legislation governing the specific programs or projects to be financed. Such
debt may include short- and long-term indebtedness, self-supporting general
obligation bonds, highway bonds and other types of indebtedness. The amount of
bonded indebtedness that may be incurred by the State or any of its direct
agencies is limited by the Mississippi Constitution to an amount equal to one
and one-half times the sum of all revenue collected by the State during any one
of the preceding four fiscal years, whichever year may be higher. As of October
1, 1991, the State's gross debt was approximately $638 million. For the fiscal
year ended June 30, 1992, the constitutional debt limit is expected to be
approximately $3.8 billion, State revenues are expected to be approximately $2.8
billion, and the annual debt service requirement on the State's net direct debt
is expected to be approximately $26 million.
For the fiscal year ended June 30, 1992, State General Fund receipts are
budgeted at approximately $2,000,397,000 and State General Fund Disbursements
are budgeted at approximately $1,999,675,700, and State Special Fund Receipts
and Disbursements are estimated to be approximately $3.47 million and $3.52
million, respectively.
NEW YORK FUND
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractural arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
recent years, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
Constitutional challenges to State laws have limited the amount of taxes which
political subdivisions can impose on real property, which may have an adverse
effect on the ability of issuers to pay obligations supported by such taxes. A
variety of additional court actions have been brought against the State and
certain agencies and municipalities relating to financings, amount of real
estate tax, use of tax revenues and other matters, which could adversely affect
the ability of the State or such agencies or municipalities to pay their
obligations.
Both the State and New York City face potential economic problems which could
seriously affect the ability of both the State and City to meet their respective
financial obligations. The City has had to face greater competition from other
major cities and the State economy has grown more slowly than that of the nation
as a whole, in part as a result of international and national trends beyond the
State's or City's control. Moreover, the current high level of New York State
and New York City taxes limits the ability of the State and the City to impose
higher taxes in the event of future difficulties. The federal and State
governments have proposed various programs to alleviate these trends but no
immediate reversal can be expected.
The State is the second most populous in the nation and has a relatively high
level of personal wealth. The State's economy is diverse with a comparatively
large share of the nation's finance, insurance, transportation, communications
and services employment, and a comparatively small share of the nation's farming
and mining activity. The State's location and its excellent air transport
facilities and natural harbors have made it an important link in international
commerce. The State has a declining proportion of its workforce engaged in
manufacturing, and an increasing proportion engaged in service industries. This
transition reflects a national trend.
Although industry and commerce are broadly spread across the State, particular
activities are concentrated in certain areas. Westchester County is headquarters
for several major corporations. Buffalo's economy relies on heavy industry.
Rochester leads the nation in the manufacture of photographic and optical
equipment. Syracuse and the Utica-Rome area produce machinery and transportation
equipment. The Albany-Troy-Schenectady area is a governmental center and
produces electrical products. Binghamton is the original site of the
International Business Machines Corporation and continues to have a
concentration of employment in computer and other high technology manufacturing.
New York City, which is the most populous city in the State and nation and is
the center of the nation's largest metropolitan area, accounts for approximately
41% of both the State's population and personal income. It is headquarters for
the nation's securities business, six of the ten largest commercial banks in the
nation, five of the ten largest diversified financial institutions, four of the
ten largest life insurance companies and five of the nation's 50 largest
industrial corporations (five others of which have headquarters elsewhere in the
State). In addition, the City houses the home offices of the three major radio
and television broadcasting networks, most of the national magazines and a
substantial portion of the nation's book publishers. The City also retains
leadership in the design and manufacture of men's and women's apparel.
The State has historically been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a whole,
gradually eroding its relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed financial
and business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City.
During calendar years 1982 and 1983 the State's economy in most respects
performed better than that of the nation. However, in the calendar years 1984
through 1991, the State's rate of economic expansion was somewhat slower than
that of the nation. The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984. Total personal income in the State has risen slightly faster than the
national average every year since 1983, with the exception of 1984, 1985, 1990
and 1991. Overall economic activity declined less than that of the nation as a
whole during the 1982-83 recession. In the current recession, however, the State
and the rest of the Northeast, has been more heavily impacted.
The State has for many years had a very high State and local tax burden relative
to other states. The State and its localities have used these taxes to develop
and maintain their transportation networks, public schools and colleges, public
health systems, other social services and recreational facilities. Despite these
benefits, the burden of State and local taxation, in combination with the many
other causes of regional economic dislocation, may have contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State.
NORTH CAROLINA FUND
General obligations of a city, town or county in North Carolina are payable from
the general revenues of the entity, including ad valorem tax revenues on
property within the jurisdiction. Revenue bonds issued by North Carolina
political subdivisions include (1) revenue bonds payable exclusively from
revenue-producing governmental enterprises and (2) industrial revenue bonds,
college and hospital revenue bonds and other "private activity bonds" which are
essentially non-governmental debt issues and which are payable exclusively by
private entities such as non-profit organizations and business concerns of all
sizes. State and local governments have no obligation to provide for payment of
such private activity bonds and in many cases would be legally prohibited from
doing so. The value of such private activity bonds may be affected by a wide
variety of factors relevant to particular localities or industries, including
economic developments outside of North Carolina.
Section 23-48 of the North Carolina General Statutes appears to permit any city,
town, school district, county or other taxing district to avail itself of the
provisions of Chapter 9 of the United States Bankruptcy Code, but only with the
consent of the Local Government Commission of the State and of the holders of
such percentage or percentages of the indebtedness of the issuer as may be
required by the Bankruptcy Code (if any such consent is required). Thus,
although limitations apply, in certain circumstances political subdivisions
might be able to seek the protection of the Bankruptcy Code.
STATE BUDGET AND REVENUES. The North Carolina State Constitution requires that
the total expenditures of the State for the fiscal period covered by each budget
not exceed the total of receipts during the fiscal period and the surplus
remaining in the State Treasury at the beginning of the period. The State's
fiscal year runs from July 1st through June 30th.
In 1990 and 1991 the State had difficulty meeting its budget projections. The
General Assembly responded by enacting a number of new taxes and fees, which
generated an estimated $665.5 million in fiscal year 1991-92. Revenues for
1992-93 were estimated to include an additional $95.6 million and helped produce
a budget surplus (approximatey $342 million) for the 1992-93 fiscal year.
In addition, the 1993 Session of the General Assembly reduced allowable
departmental operating expenditures by $120.3 and $122.8 million for fiscal
years 1993-94 and 1994-95 respectively, and authorized continuation funding of
approximately $8.33 billion for fiscal year 1993-94 and $8.60 billion for fiscal
year 1994-95. The savings reductions were based on recommendations from the
Governor, the Government Performance Audit Committee and selected savings
identified by the General Assembly.
Both the nation and the State have experienced a modest economic recovery in
recent months. However, it is unclear what effect these developments, as well as
the reduction in government spending or increase in taxes, may have on the value
of the Debt Obligations in the North Carolina Fund. No solid upward econimic
trend has developed, and both the State and the national economies must be
watched carefully.
The fiscal condition of the State might be affected adversely by litigation
concerning the legality of certain State tax provisions following the March 1989
decision of the United States Supreme Court that it is unconstitutional for a
state to exempt from state income taxation retirement benefits paid by the state
or its local governments, but not to exempt retirement benefits paid by the
federal government.
Based on that decision, certain federal retirees and federal military
personnel plaintiffs brought an action in federal court against the North
Carolina Department of Revenue and certain officials of the State alleging the
unconstitutionality of taxes collected under the prior North Carolina tax
statutes and seeking damages for the illegally collected taxes paid on federal
retirement or military pay for the years 1985-88 (covering the asserted 3 year
limitations period), plus interest. Swanson, et al. v. Powers, et al. (United
States District Court for the Eastern District of North Carolina, No. 89-282-
CIV-5-H) ("Swanson Federal"). The individual plaintiffs in Swanson Federal
also brought an action in North Carolina state court seeking refunds of the
illegal taxes. Swanson, et al. v. State of North Carolina, et al. (Wake
County, North Carolina Superior Court, No. 90 CVS 3127) ("Swanson State").
The amounts claimed by federal retirees in the Swanson actions have not been
precisely calculated. Plaintiffs have asserted that the plaintiff class contains
about 100,000 taxpayers; the State has asserted that the claims would aggregate
at least $140 million (which might not include interest).
In Swanson State the North Carolina Supreme Court found for the State, ruling
that the State would not be required to refund taxes illegally collected prior
to the U.S. Supreme Court's decision. The U.S. Supreme Court vacated the
judgment and remanded the case to the North Carolina Supreme Court for
reconsideration in the light of the U.S. Supreme Court's holding in Harper v.
Virginia Department of Taxation (No. 91-794) (decided 6/18/93) ("Harper"). In
Harper, which also involved the disparate income tax treatment of retired state
and federal employees and the question of retroactive appliation of the law, the
U.S. Supreme Court held that the Commonwealth of Virginia must provide
"meaningful backward-looking relief" to the plaintiffs, if the Commonwealth did
not have a predeprivation process adequate to satisfy due process requirements.
The case was remanded to the Supreme Court of Virginia to determine whether a
remedy was required and, if so, what form it would take.
The impact of Harper on the estimated $140 million of refund claims in Swanson
State has yet to be determined. On March 4, 1994, (in an unpublished opinion)
the North Carolina Supreme Court decided in favor of the State dismissing the
Swanson State case. The plaintiffs reportedly will appeal to the United States
Supreme Court.
The decision in Harper also reactivated the damage claims in Swanson Federal,
and the federal court will begin hearing arguments on these claims in February,
1994.
GENERAL. The population of the State has increased 13% from 1980, from 5,880,095
to 6,647,351 as reported by the 1990 federal census. Although North Carolina is
the tenth largest state in population, it is primarily a rural state, having
only five municipalities with populations in excess of 100,000. The labor force
has undergone significant change during recent years. The State has moved from
an agricultural to a service and goods producing economy. Those persons
displaced by farm mechanization and farm consolidations have, in large measure,
sought and found employment in other pursuits. Due to the wide dispersion of
non-agricultural employment, the people have been able to maintain, to a large
extent, their rural habitation practices. During the period 1980 to 1992, the
State labor force grew about 22% (from 2,855,200 to 3,487,500). Per capita
income during the period 1980 to 1990 grew from $7,999 to $16,203, an increase
of 102.6%.
The current economic profile of the State consists of a combination of industry,
agriculture and tourism. As of May 1993, the State was reported to rank tenth
among the states in non-agricultural employment and eighth in manufacturing
employment. Employment indicators have fluctuated somewhat in the annual periods
since June of 1989, but have demonstrated an upward trend since 1991. The
following table reflects the fluctuations in certain key employment categories.
<TABLE>
<CAPTION>
CATEGORY (ALL SEASONALLY ADJUSTED) JUNE 1989 JUNE 1990 JUNE 1991 JUNE 1992 JUNE 1993
<S> <C> <C> <C> <C> <C>
Civilian Labor Force 3,286,000 3,312,000 3,228,000 3,495,000 3,504,000
Nonagricultural Employment 3,088,000 3,129,000 3,059,000 3,135,000 3,203,400
Goods Producing Occupations (mining, 1,042,200 1,023,100 973,600 980,800 993,600
construction and manufacturing)
Service Occupations 2,045,800 2,106,300 2,085,400 2,154,200 2,209,800
Wholesale/Retail Ocupations 713,900 732,500 704,100 715,100 723,200
Government Employees 482,200 496,400 496,700 513,400 515,400
Miscellaneous Services 563,900 587,300 596,300 638,300 676,900
Agricultural Employment 54,900 58,900 88,700 102,800 88,400
</TABLE>
The adjusted unemployment rate in June 1992 was 5.4% of the labor force, as
compared with an unemployment rate of 7% nationwide.
Gross agricultural income in 1992 was $5.26 billion, including approximately
$5,181,695,000 income from commodities. As of 1992, the State was tenth in the
nation in gross agricultural income. According to the State Commissioner of
Agriculture, in 1992 the State ranked first in the nation in the production of
flue-cured tobacco, total tobacco, turkeys and sweet potatoes; second in the
value of poultry and poultry products, in the production of cucumbers for
pickles and in trout production; fourth in commercial broilers, strawberries and
peanuts; sixth in burley tobacco and hogs; and seventh in the number of chickens
(excluding broilers), pecans and apples.
The diversity of agriculture in North Carolina and a continuing push in
marketing efforts have protected farm income from some of the wide variations
that have been experienced in other states where most of the agricultural
economy is dependent on a small number of agricultural commodities. North
Carolina is the third most diversified agricultural state in the nation.
Nevertheless, tobacco production is the second leading source of agricultural
income in the State, accounting for 20.3% of gross agricultural income. Tobacco
farming in North Carolina has been and is expected to continue to be affected by
major Federal legislation and regulatory measures regarding tobacco production
and marketing and by international competition. Measures adverse to tobacco
farming could have negative effects on farm income and the North Carolina
economy generally. The largest single source for agricultural income in the
State is poultry and eggs, which accounted for revenues of approximately $1.6
billion in 1992 and 31% of gross agricultural income.
The number of farms has been decreasing; in 1993 there were approximately 59,000
farms in the State (down from approximately 72,000 in 1987, a decrease of about
18% in six years). However, a strong agribusiness sector supports farmers with
farm inputs (fertilizer, insecticide, pesticide and farm machinery) and
processing of commodities produced by farmers (vegetable canning and cigarette
manufacturing).
The State Department of Commerce, Travel and Tourism Division, statistics
office, reports that in 1992 approximately $7.8 billion was spent on tourism in
the State, with 1993 revenues from tourism expected to exceed $8 billion. The
statistics office estimates a 6% annual average revenue growth rate in the
tourism industry. In 1991, traveler expenditures directly generated more than
155,000 jobs within the State, 5.1% of total nonagricultural employment in that
year.
BOND RATINGS. Currently, Moody's rates North Carolina general obligation bonds
as Aaa and Standard & Poor's rates such bonds as AAA. Standard & Poor's also
reaffirmed its stable outlook for the State in October 1993.
Standard & Poor's reports that North Carolina's rating reflects the State's
strong economic characteristics, sound financial performance, and low debt
levels.
PENNSYLVANIA FUND
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. By the mid-1980's, manufacturing had fallen behind the services
sector as the largest single source of employment in Pennsylvania. However,
Pennsylvania continues to have a greater percentage of its workers employed in
manufacturing than the national average, leaving the economy somewhat cyclical
and vulnerable to recessionary forces. As of February 1993, the state's
seasonally adjusted unemployment rate was 7.0% which matched the nation's
seasonally adjusted rate. Unadjusted for seasonal fluctuations, Pennsylvania's
February 1993 unemployment rate was 7.7% as compared to the nationally
unadjusted rate of 6.8%. The population of the state was essentially flat
throughout the 1980's and into the early 1990's.
REVENUES AND EXPENDITURES -- Pennsylvania uses the fund method of accounting.
The General Fund, the Commonwealth's largest fund, receives all tax receipts,
revenues, federal grants and reimbursements that are not specified by law to be
deposited elsewhere. Debt service on all obligations, except those issued for
highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund.
The General Fund closed the fiscal years ended June 30, 1990 and 1992 with
unappropriated balance surpluses of $136 million and $8.8 million, respectively.
The General Fund closed the fiscal year ended June 30, 1991 with an
unappropriated balance deficit of $454 million.
During fiscal 1991, the national economic downturn led to severe revenue
shortfalls compounded by larger than expected human services expenditures. Total
General Fund tax receipts were 1.7% lower than fiscal 1990 levels. In January
1991 the Commonwealth's general obligations and other agency related debt issues
were placed on Standard & Poor's ("S&P") CreditWatch with negative implications.
During fiscal 1992, S&P reported that recent tax increases of about $3 billion,
together with payment-timing charges, should allow the Commonwealth to stabilize
its short-term borrowing, which had increased. In September 1991, S&P removed
the Commonwealth's general obligations and agency debt from CreditWatch.
The fiscal 1993 budget totals $14.1 billion, approximately $0.2 billion higher
than the fiscal 1992 budget.
The Pennsylvania Constitution requires all proceeds of motor fuel taxes, vehicle
registration fees, license taxes, operators' license fees and other excise taxes
imposed on products used in motor transportation to be used exclusively for
construction, reconstruction, maintenance and repair of and safety on highways
and bridges and for the payment of debt service on obligations incurred for such
purposes. The Motor License Fund is the fund through which such revenues are
accounted for and expended.
In fiscal 1992, Motor License Fund revenues totaled $1,471 million, a decrease
of less than one percent from fiscal 1991. The Commonwealth attributes this
decline to the recession. Actual expenditures totaled $1,528 million, more than
two percent higher than fiscal 1991. As of June 30, 1992, the Motor License Fund
had an unappropriated balance of $22 million. For fiscal 1993, revenues and
adjustments are expected to total $1,478 million while budgeted expenditures
total $1,474 million with an expected year-end unappropriated balance of $27
million.
COMMONWEALTH DEBT -- The Pennsylvania Constitution permits the issuance of the
following types of debt: (i) debt to suppress insurrection or rehabilitate areas
affected by disaster; (ii) electorate approved debt; (iii) debt for capital
projects subject to an aggregate outstanding debt limit of 1.75 times the annual
average tax revenues of the preceding five fiscal years; and (iv) tax
anticipation notes payable in the fiscal year of issuance.
Pennsylvania's Auditor General is required to certify to the Governor and the
General Assembly certain information regarding the Commonwealth's indebtedness.
According to the most recent Auditor General's certificate, the average annual
tax revenues deposited in all funds in the five fiscal years ended June 30, 1992
<PAGE> 99
was $14,481 million, and the net debt limitation for the 1993 fiscal year is
$25,342 million. Outstanding net debt totaled $4,083.6 at June 30, 1992, a
decrease of $0.8 million from June 30, 1991. At February 28, 1993, the amount of
debt authorized by law to be issued, but not yet incurred, was $14,635 million.
Pennsylvania engages in short-term borrowing to finance expenses within a fiscal
year through the sale of tax anticipation notes, which must mature within the
fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed in the aggregate 20% of the revenues estimated to
accrue to the appropriate fund or funds in the fiscal year. The state is not
permitted to fund deficits between fiscal years with any form of debt. All year
end deficit balances must be funded within the succeeding fiscal year's budget.
The Commonwealth plans to issue a total of $975 million of tax anticipation
notes for the account of the General Fund for fiscal 1993, $600 million of which
are outstanding as of October 29, 1992.
Pending the issuance of bonds, the Commonwealth may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS -- Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is not supported by assets of, or revenues derived from the various
projects financed and is not an obligation of the Commonwealth. Some of these
agencies, however, are indirectly dependent on Commonwealth appropriations.
State-related agencies and their outstanding debt as of June 30, 1992 include
the Delaware River Joint Toll Bridge Commission ($59 million), the Delaware
River Port Authority ($244 million), the Pennsylvania Economic Development
Financing Authority ($180 million), the Pennsylvania Energy Development
Authority ($174 million), the Pennsylvania Higher Education Assistance Agency
($1,010 million), the Pennsylvania Higher Educational Facilities Authority
($1,721 million), the Pennsylvania Industrial Development Authority ($278
million), the Pennsylvania Infrastructure Investment Authority ($143 million),
the Pennsylvania Turnpike Commission ($1,102 million), and the State Public
School Building Authority ($314 million).
The only obligations of state-created agencies in Pennsylvania that bear a moral
obligation of the state are those issued by the Pennsylvania Housing Finance
Agency ("PHFA"), a state-created agency that provides financing for housing for
lower and moderate income families in the state, and the Hospitals and Higher
Education Facilities Authority of Philadelphia ("HHEFAP"), a municipal authority
organized to acquire and prepare various sites for use as intermediate care
facilities for the mentally retarded. As of June 30, 1992, PHFA had $2,343
million of bonds and $76 million of notes outstanding and HHEFAP had $2 million
of loan principal outstanding.
LOCAL GOVERNMENT DEBT -- Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically. There is extensive general legislation
applying to local governments. For example, the Local Government Unit Debt Act
provides for uniform debt limits for local government units, including
municipalities and school districts, and prescribes methods of incurring,
evidencing, securing and collecting debt.
The City of Philadelphia experienced a series of General Fund deficits for
fiscal years 1988 through 1992 which have culminated in the City's present
serious financial difficulties. For fiscal 1991, Philadelphia experienced a
General Fund balance deficit of $154 million. The City estimates its fiscal 1992
General Fund balance deficit at $248 million.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt to liquidate budget deficits and to make factual
findings and recommendations to the assisted city concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between Philadelphia
and PICA was approved by City Council on January 3, 1992, and approved by the
PICA Board and signed by the Mayor on January 8, 1992. As of October 29, 1992,
Philadelphia is operating under a five-year fiscal plan approved by PICA on
April 6, 1992. Full implementation of the five-year plan was delayed due to the
labor negotiations that were not completed until October 1992, three months
after the expiration of the old labor contracts. Due to delayed management
initiatives and labor terms more expensive than contained in the five-year plan,
the plan is estimated to be approximately $130 million out of balance over the
five-year period. In June 1992, PICA issued $475 million of its Special Tax
Revenue Bonds to provide financial assistance to Philadelphia.
SOUTH CAROLINA FUND
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there be a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also provides
that the State Budget and Control Board may, if a deficit appears likely, effect
such reductions in appropriations as may be necessary to prevent a deficit. At
the November 1984, general election there was approved a constitutional
amendment providing that annual increases in State appropriations may not exceed
the average growth rate of the economy of the State and that the annual
increases in the number of State employees may not exceed the average growth of
the population of the State. The State Constitution also establishes a General
Reserve Fund to be maintained in an amount equal to 4% of General Fund revenue
for the latest fiscal year. Despite the efforts of the State Budget and Control
Board, deficits were experienced in the fiscal years ending June 30, 1981, 1982,
1985 and 1986. All deficits have been funded out of the General Reserve Fund.
For the fiscal years ending June 30, 1983 and 1984, the State had cash
surpluses.
At the November 1988, general election there was approved a constitutional
amendment reducing from 4% to 3% the amount of General Fund revenue which must
be kept in the General Reserve Fund, and removing the provisions requiring a
special vote to adjust this percentage. The amendment also created a Capital
Reserve Fund equal to 2% of General Fund revenue. Before March 1 of each year,
the Capital Reserve Fund must be used to offset mid-year budget reductions
before mandating cuts in operating appropriations, and after March 1, the
Capital Reserve Fund may be appropriated by a special vote in separate
legislation by the General Assembly to finance in cash previously authorized
capital improvement bond projects, retire bond principal or interest on bonds
previously issued, and for capital improvements or other nonrecurring purposes
which must be ranked in order of priority of expenditure. Monies in the Capital
Reserve Fund not appropriated or any appropriation for a particular project or
item which has been reduced due to application of the monies to year-end
deficit, must go back to the General Fund.
For the fiscal year ended June 30, 1989, the State had a surplus of
$129,788,135. At June 30, 1989, the balance in the General Fund was $87,999,428.
Because of anticipated revenue shortfalls for the fiscal year 1989-1990, the
State Budget and Control Board committed $42.4 million of the $58.7 million
Capital Reserve Fund in April 1990. Lack of sufficient funding at year end
resulted in an additional use of $4.5 million from the Capital Reserve Fund.
After the above reductions, the State had a fiscal year 1989-90 surplus of
$13,159,892 which was used to fund supplemental appropriations $1,325,000 and
the Capital Reserve Fund at $11,834,892. At June 30, 1990, the balance in the
General Reserve Fund was $94,114,351.
During fiscal year 1990-91, the State Budget Control Board approved mid-year
budget changes in November 1990 and again in February 1991, to offset lower
revenue estimates. Those changes included committing the Capital Reserve Fund
appropriation and reducing agency appropriations in an additional amount
necessary to offset (together with automatic expenditure reductions that are
tied to revenue levels) what would otherwise be a projected deficit of
approximately $132.6 million. In May 1991, the Budget and Control Board,
responding to April revenue figures and unofficial estimates indicating an
additional shortfall of $30 to $50 million, ordered an immediate freeze on all
personnel activities, from hiring to promotions; a freeze on purchasing, with
limited exceptions; and an indefinite halt to new contracts and contract
renewals. The Board also asked the General Assembly for the power to furlough
government workers periodically during the next fiscal year.
In the past, the State's budgetary accounting principles allowed revenue to be
recorded only when the State received the related cash. On July 30, 1991, the
Budget and Control Board approved a change in this principle for sales tax
revenue beginning with the fiscal year ended June 30, 1991. The Board's
resolution requires that sales taxes collected by merchants in June and received
by the State in July be reported as revenue in June rather than in July. This
change resulted in a $5.2 million decrease in reported 1990-91 sales tax revenue
and a one-time $83.1 million addition to fund balance. The one-time adjustment
increases the Fund balance to the level it would be if the new principle had
been in effect in years before 1990-91. Following such action, the year-end
balance in the General Reserve Fund was $33.4 million.
On July 26, 1991, the Board of Economic Advisors advised the Budget and Control
Board that it projected a revenue shortfall of $148 million for the fiscal year
1991-92 budget of $3.581 billion. In response, the Budget and Control Board
eliminated the 2% Capital Reserve Fund appropriation of $65.9 million and
reduced other expenditures across the board by 3%. On February 10, 1992, the
Board of Economic Advisers advised the Budget and Control Board that it had
revised its estimate of revenues for the current fiscal year downward by an
additional $55 million. At its February 11, 1992 meeting, the Budget and Control
Board responded by imposing an additional 1% across the board reduction of
expenditures (except with respect to approximately $10 million for certain
agencies). At its February 13, 1992 meeting the Budget and Control Board
restored a portion of the 1% reduction to four education-related agencies
totalling approximately $5.7 million. These expenditure reduction measures, when
coupled with revenue increases projected by the Budget and Control Board,
resulted in an estimated balance of approximately $1.4 million in the General
Fund for the fiscal year 1991-92. Despite such actions, expenditures exceeded
revenues by $38.2 million and, as required by the South Carolina Constitution,
such amount was withdrawn from the General Reserve Fund to cover the shortfall.
On August 22, 1992, the Budget and Control Board adopted a plan to reduce
appropriations under the 1992 Appropriations Act because of revenue shortfall
projections of approximately $200 million for the 1992-93 fiscal year. These
reductions were based on the rate of growth in each agency's budget over the
past year. On September 15, 1992, the Supreme Court of South Carolina enjoined
the Budget and Control Board from implementing its proposed plan for budget
reductions on the grounds that the Board had authority to make budget reductions
only across the board based on total appropriations. In response to this
decision, the Board instituted a 4% across the board reduction on November 10,
1992, the Budget and Control Board permanently reduced the $88.1 million in
appropriations which were set aside on September 15, 1992. This action along
with improved actual revenue collections created a budgetary surplus of
approximately $101 million.
From the early 1920's to the present time, the State's economy has been
dominated by the textile industry with over one out of every three manufacturing
workers directly or indirectly related to the textile industry. While the
textile industry is still the major industrial employer in the State, since 1950
the State's economy has undergone a gradual transition. The economic base of the
State has diversified as the trade and service sectors developed and with the
added development of the durable goods manufacturing industries, South
Carolina's economy now resembles more closely that of the United States.
In South Carolina in 1992, personal income grew at an average annual rate of
5.9%. During the same period the nation's income grew 6.1% and the Southeast
grew 6.5%. Over the last five (5) years (1987-1992) personal income in South
Carolina rose at a compounded annual rate of 7.0%, outpacing the nation and the
Southeast with income growth rates of 6.2% and 6.8%, respectively, in the same
period. During the first nine months in 1993, personal income in South Carolina
rose 5.7% while the rate of increase in the U.S. for the same period was 5.2%.
Monthly unemployment rates in the State have equalled or been below comparable
national rates for the nation during 1993. The rate for December, 1993, was 7%
compared to the 6.4% national rate.
TENNESSEE FUND
In 1978, the voters of the State of Tennessee approved an amendment to the State
Constitution requiring that (1) the total expenditures of the State for any
fiscal year shall not exceed the State's revenues and reserves, including the
proceeds of debt obligations issued to finance capital expenditures and (2) in
no year shall the rate of growth of appropriations from State tax revenues
exceed the estimated rate of growth of the State's economy. No debt obligation
may be authorized for the current operation of any State service or program
unless repaid within the fiscal year of issuance.
In response to public demand for better public education throughout the State,
the 1992 Tennessee General Assembly temporarily raised the State sales tax by
one-half of one percent to 6%, effective April 1, 1992. This increase became
permanent as a result of the 1993 legislative session. This increase establishes
the maximum total State and local sales tax rate at 8.75%. State Department of
Revenue collections for the fiscal year ended June 30, 1993 increased 5.5% over
fiscal 1992, or $43.9 million over original estimates. In the first four months
of fiscal year 1993, revenue collections were $48.9 million over estimates. In
late 1993, the State's rainy day fund reached $150 million -- the highest in the
State's history. Adjusted for inflation, taxable sales grew by 7.5% from the
third quarter of 1992 to the third quarter of 1993, triple the long-range
inflation-adjusted average of 2.5%. State revenue collections for June 1993
increased 9.8% over June 1992, after factoring out new taxes. August 1993
revenue collection figures were 10.5% over August 1992 figures. State revenue
collections in December, 1993 increased 7.2% over those in December, 1992.
Although the issue of instituting a State income tax is still being discussed by
legislators, most political observers in Tennessee doubt such a proposal will be
passed within the next two-three years. Few candidates for governor have said
they would work for major changes in the current tax system.
The Tennessee economy generally tends to rise and fall in a roughly parallel
manner with the U.S. economy, although in recent years Tennessee has experienced
less economic growth than the U.S. average. Like the U.S. economy, the Tennessee
economy entered recession in the last half of 1990 and continued throughout the
majority of 1991 and into 1992 as the Tennessee index of leading economic
indicators trended downward throughout the period. The Tennessee economy gained
strength during 1992 and this renewed vitality continued into 1993. Current
indicators are for the State to enjoy a year of economic gains in 1994, although
the two-year forecast horizon covering 1994 and 1995 is not expected to be a
boom period for the State. One forecast is for slow growth through 1994, with a
projected growth of real taxable sales in 1994 of 1.9%.
The Tennessee index of leading economic indicators fluctuated in 1992 and, in
late 1993, leading indicators and coincident indicators generally were up,
except for a 5.2% drop in October, 1993. In July, 1993, the composite index was
up 1.52%; in August, 1993, it was up 3.81%; and in September, it was up 7.60%.
In June, 1993, the composite index was up 1.37% over the same month one year
earlier.
In economic development, 1992 was Tennessee's third-best year since records have
been kept, although it must still be regarded as languid, since above average
growth normally occurs during the first two years of an economic expansion.
Current statistics show that inflation-adjusted personal income grew 4.8% from
the second-quarter of 1991 to the second quarter of 1992. A growth of 2.4% in
non-agricultural employment occurred between the third quarter of 1991 and the
third quarter of 1992. According to the U.S. Department of Labor, average annual
pay in Tennessee increased 5.9% in 1992, to $22,807. The national average was
5.4% and $25,903 in pay. For the year ended June 30, 1993, however, Tennessee
led the nation in bankruptcy filings with a rate twice the national average.
Historically, the Tennessee economy has been characterized by a greater
concentration in manufacturing employment than the U.S. as a whole. The economy
is, however, undergoing a structural change through the increase in service
sector employment. Service sector employment has climbed steadily since 1960,
increasing its share of overall state employment from 13.0% to 24.3% in 1993.
From the third quarter of 1992 to the third quarter of 1993, 40.9% of employment
growth occurred in the services sector. Over the same period, employment in
durable goods manufacturing has been flat and employment in the nondurable goods
sector has been in decline. Tennessee's unemployment rate dropped to 5.1% for
November, 1993, which was its lowest level in over three years. By November,
1993, only one county had an unemployment rate over 10% for the first time since
1974. Tennessee's unemployment rate dropped to an average 5.6% during the third
quarter of 1993.
Tennessee's population increased 6.2% from 1980 to 1990, less than the national
increase of 10.2% for the same period. In December 1992 the State's population
reached approximately 4.9 million. Population growth in Tennessee is expected to
come mostly in the major metropolitan areas over the next 10-15 years. The
overall state population is expected to grow 5.5% between 1990 and 2000, then
4.6% for the period between 2000 and 2010. Greatest growth is expected to occur
in the Nashville MSA, and the largest population decline is expected in the
rural counties of northwest Tennessee. This declining rate of population,
coupled with the structural changes in the Tennessee economy and the increased
competition from domestic and international trading partners, comprise three
trends that are likely to influence the State's long-term outlook.
Manufacturing employment in Tennessee declined in 1993 when manufacturing
employment in October 1993 showed a decrease of approximately 1.12% over the
same month in 1992. Total non-agricultural employment in Tennessee was
approximately 2,309,000 in the first quarter of 1994, which represented an
increase over the same quarter in 1993 of 2.02%. Manufacturing employment is one
component of non-agricultural employment. Non-agricultural employment in
Tennessee is relatively uniformly diversified with approximately 23% in the
manufacturing sector, approximately 23% in the wholesale and retail trade
sector, approximately 22% in the service sector, and approximately 16% in
government. The State also continued to attract new manufacturing facilities.
Sector employment figures for fiscal year 1993-94 are not available at this
time.
Tennessee's general obligation bonds are rated Aaa by Moody's and AA+ by
Standard & Poor's. Tennessee's smallest counties have Moody's lower ratings
ranging from Baa to B in part due to these rural counties' limited economies
that make them vulnerable to economic downturns. Tennessee's four largest
counties have the second highest of Moody's nine investment grades, Aa. There
can be no assurance that the economic conditions on which these ratings are
based will continue or that particular obligations contained in the Portfolio of
the Tennessee Fund may not be adversely affected by changes in economic or
political conditions.
TEXAS FUND
The State of Texas is the second largest by size among the states of the United
States. Texas is the third largest state by population, based upon the 1990
census undertaken by the U.S. Census Bureau. The average annual population
growth rate for the State between 1980 and 1990 was approximately 1.8%.
The Texas output accounts for about 7% of the total output of the United States.
Long identified with the oil and gas industry, these businesses today account
for only approximately 12% of the State's economy. The service- producing
sectors (e.g. transportation, public utilities, finance, insurance, real estate,
trade, services and government) are the major sources of job growth in Texas.
Further, manufacturing job growth is anticipated by the Comptroller of Public
Accounts to be significant to the State's future growth.
Employment in the State increased steadily through the 1970's and the early
1980's. The precipitous decline in oil prices in early 1986 and changes in the
Federal income tax laws affecting real estate resulted in a weaker Texas economy
in general. However, by early 1987 the Texas economy had moved into a period of
recovery; economic expansion has continued since 1988. Based upon information
gathered by the Texas Employment Commission and the U.S. Bureau of Labor
Statistics, Texas nonfarm employment reached an all-time high of 7.46 million
jobs in 1993. At the same time, the jobless rate has fallen from a peak of
approximately 10% in the summer of 1986 to about 6.0% in the middle of 1990
before rising to a current rate of approximately 7% as of October, 1993.
The State does not levy any property tax for general revenue purposes; however,
such taxes are an important source of revenue for local political subdivisions
in the State. The total property tax levied by all taxing jurisdications
(counties, cities, school districts and special districts) reached approximately
$14.0 billion in 1992, including approximately $2.3 billion levied by cities,
$2.0 billion levied by counties, approximately $8.2 billion levied by school
districts and approximately $1.5 billion levied by special districts. The total
value of taxable property in the State amounted to approximately $628 billion in
1991, according to state records.
Historically, the primary sources of the State's revenues have been sales taxes,
mineral severance taxes and federal grants. Due to the collapse of oil and gas
prices and the resulting enactment by recent Legislatures of new tax measures,
including those increasing the rates of existing taxes and expanding the tax
base for certain taxes, there has been a reordering in the relative importance
of the State's taxes in terms of their contribution to the State's revenue in
any year. In 1993, Federal receipts became the State's largest revenue source,
accounting for approximately 28.4% of total revenue during fiscal year 1992.
Sales taxes which had been the State's main revenue source, fell to second
place, accounting for 27% of state revenues during fiscal year 1993. Interest
and investment income became the third largest revenue source, accounting for
6.4% of the total state revenue during fiscal year 1993. The motor fuel tax
became the State's fourth largest revenue source, accounting for approximately
6.2% of the total revenue during fiscal year 1992, while licenses, fees and
permits fell to being the State's fifth largest revenue source, accounting for
approximately 6.1% of the total revenue. The State also imposes motor vehicle,
oil and gas severance and other taxes. The State does not impose any personal or
corporate income tax (although it does impose a corporate franchise tax
measured, in part, by the net earned surplus of the corporation).
In each of the past five years the State has ended the year with a cash surplus
in the General Revenue Fund: at the end of fiscal year 1989, that surplus was
$297 million; at the end of fiscal year 1990, that surplus was $767 million; at
the end of fiscal year, 1991 that surplus was $1,005 billion; at the end of
fiscal year 1992, that surplus was $609 million; and at the end of the most
recent fiscal year, 1993, that surplus was $1.623 billion.
Except as specifically authorized, the Constitution generally prohibits the
creation of debt by or on behalf of the State; further, the Constitution
prohibits the lending or pledging of the credit of the State in any manner to or
in support of the payment of liabilities of any person (including
municipalities). For purposes of this limitation, "debt" generally comprises
obligations which are payable over a period extending beyond the end of the
current budget period and out of monies other than funds available or expected
to become available during that budget period. However, "debt" does not include
revenue bonds which are not payable from tax sources (or the payment of which is
subject to appropriation).
At various times, the voters of the State, by adoption of constitutional
amendments, have authorized the issuance of debt of the State, including general
obligation indebtedness for which the full faith and credit and the taxing power
of the State may be pledged. The total amount of such debt which has been
authorized is in excess of $10.03 billion; as of November 30, 1993, there was
outstanding such debt in the amount of approximately $3.603 billion.
In addition to the issuance of general obligation indebtedness, certain state
agencies have the authority to issue revenue bonds indirectly payable from funds
appropriated from the General Revenue Fund. Further, additional state programs
may be financed with revenue bonds or similar obligations payable from revenues
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generated by the specific programs authorized, and not from the general revenues
of the State or its taxing power.
On December 6, 1987, a class action suit was filed on behalf of the League of
United Latin American Citizens, and other persons, mostly students, alleging
that the State discriminated against Mexican-American students by denying them
equal access to first class universities. On January 21, 1992, after a jury
trial, the Court ruled that the State's higher education system violated the
state constitution and enjoined the defendants from applying sections of the
Texas Education Code and present and future appropriations of the Legislature
relating to the financing of public universities, or distributing monies from
the Texas General Revenue Fund, the Permanent University Fund, or the Texas
Higher Education Assistance Fund, and from financing any permanent improvements
at the schools. On October 6, 1993, the State Supreme Court reversed the lower
court's decision and held that the method of financing higher education was not
in violation of the State's Constitution.
The State is a party to various legal proceedings relating to its operations and
governmental functions; the Texas Attorney General has rendered opinions with
respect to recent state bond issues that, none of such proceedings, if decided
adversely to the State, would have a material adverse effect on the financial
condition of the State.
Over the past several years, the state Legislature has passed several public
education financing systems which have ultimately been declared
unconstitutional. In 1991, the Legislature approved an appropriations bill
funding public education at a level of $16,038 billion for the 1992-93 biennium
under a school finance bill that was passed in 1990. On January 30, 1992, the
Texas Supreme Court held that the public school finance system enacted in 1990
levies an unconstitutional ad valorem tax; however, the Texas Supreme Court also
held that its decision will not adversely affect the validity, incontestability,
obligation of payment or source of payment of any bonds issued by Texas school
districts for authorized purposes prior to June 1, 1993, the distribution to
school districts of state and federal funds before June 1, 1993, in accordance
with present procedures and laws, or the assessment and collection after June 1,
1993, of any taxes or other revenues levied or imposed for or pledged to the
payment of any bonds issued or debt incurred prior to June 1, 1993. On July 7,
1992, a trial judge denied a request to appoint a court master to develop an
alternative school finance plan in the event the Texas Legislature failed to
develop a plan by June 1, 1993. In its 1993 regular session, the Legislature had
adopted legislation, including a call for an electoral referendum to approve the
amendment of state Constitution; that referendum was held on May 1, 1993, at
which time the constitutional amendment was defeated. The Legislative
subsequently passed SB7, which directed that the State's wealthiest school
districts choose from among various alternatives at sharing their wealth with
poorer districts. Upon review, the trial court upheld the constitutionality of
SB7, but required that the Legislature provide for the maintenance and efficient
funding of school facilities. It preserved the right of the plaintiffs to seek
further relief, under certain circumstances. An appeal of the decision is
likely.
VIRGINIA FUND
The Constitution of Virginia limits the ability of the Commonwealth to create
debt. An amendment to the Constitution requiring a balanced budget was approved
by the voters on November 6, 1984.
General obligations of cities, towns or counties are payable from the general
revenues of the entity, including ad valorem tax revenues on property within the
jurisdiction. The obligation to levy taxes could be enforced by mandamus, but
such a remedy may be impracticable and difficult to enforce. Under the Code of
Virginia, a holder of any general obligation bond in default may file an
affidavit setting forth such default with the Governor. If, after investigating,
the Governor determines that such default exists, he is directed to order the
State Comptroller to withhold State funds appropriated and payable to the entity
and apply the amount so withheld to unpaid principal and interest.
The economy of the Commonwealth of Virginia is based primarily on manufacturing,
the government sector, agriculture, mining and tourism.
The Commonwealth has maintained a high level of fiscal stability for many years
due in large part to conservative financial operations and diverse sources of
revenue. No significant new taxes or increases in the scope or amount of
existing taxes were passed at the 1994 session of the General Assembly.
In Davis v. Michigan (decided March 28, 1989), the United States Supreme Court
ruled unconstitutional Michigan's statute exempting from state income tax the
retirement benefits paid by the state or local governments and not exempting
retirement benefits paid by the federal government. At the time of this ruling,
under legislation subsequently amended in 1989 to provide uniform exemptions for
all pensioners, Virginia exempted state and local but not federal government
benefits. Several suits for refunds, some with multiple plaintiffs, were filed.
A state trial court ruling in favor of the Commonwealth was affirmed by the
Virginia Supreme Court on March 1, 1991, but on June 28, 1991, the decision of
the Virginia Supreme Court was vacated by the U.S. Supreme Court, and the case
was remanded to the Virginia Supreme Court for reconsideration in light of an
intervening U.S. Supreme Court decision on retroactive application of decisional
constitutional law. On November 8, 1991, Virginia Supreme Court affirmed its
March 1, 1991 ruling denying refunds. On June 18, 1993, the U.S. Supreme Court
reversed the November 8, 1991, ruling of the Virginia Supreme Court and remanded
the case to the Virginia Supreme Court for further procedings consistent with
the opinion of the U.S. Supreme Court. The Virginia Supreme Court remanded the
case to the trial court, which on January 7, 1994, denied refunds to the
plaintiffs. The trial court's decision has been appealed to the Virginia Supreme
Court. The Attorney General of Virginia cannot predict the outcome of this
lawsuit. The estimated potential financial impact on the Commonwealth of claims
for refunds by all federal pensioners is approximately $707.5 million, including
interest through December 31, 1993.
WASHINGTON FUND
Based on the U.S. Census Bureau's 1990 Census, the State of Washington is the
18th largest of the 50 states by population. The State is the 20th largest by
land area. From 1980 to 1990, the State's population increased at an average
annual rate of 1.8% while the United States' population grew at an annual rate
of 1.1% over the same period.
Seattle, the State's largest city, is situated on the Puget Sound and is part of
the strong international trade, manufacturing, high technology and business
service corridor which extends from Everett to Tacoma. The Pacific Coast-Puget
Sound region of the State includes 75% of the population, the major portion of
industrial activity and the major part of the State's forests which are
important to the timber and paper industries. The balance of the State includes
rich agricultural areas primarily devoted to grain, apple and other fruit
orchards, and dairy operations.
The economic base of the State includes manufacturing and service industries, as
well as agricultural and timber production. Overall, during 1987 through 1993,
employment within the State experienced growth in manufacturing as well as
non-manufacturing industries. Sectors in which growth has exceeded comparable
figures reported in the United States include durable and non-durable goods,
manufacturing, services and government. The Boeing Company, the State's largest
employer, is a preeminent aircraft manufacturer. Boeing exerts a significant
impact on overall State production, employment and labor earnings.
Between 1987 and 1991 employment within the State experienced growth in
manufacturing as well as non-manufacturing industries. Sectors of the State's
employment base in which growth has exceeded comparable figures reported for the
U.S. include durable and non-durable goods manufacturing, services and
government.
Washington's economy consists of both export and local industries. Exports to
other states account for 32% of Washington's goods and services while 10% of
Washington's goods and services are sold internationally. Washington ranks
number one in international exports per capita.
The State's leading export industries are aerospace, forest products,
agriculture and food processing. On a combined basis, the aerospace, timber and
food processing industries employ about 9% of the State's non-farm workers. In
recent years, however, the non-manufacturing sector has played an increasingly
significant role in contributing to the State's economy.
The aerospace industry currently represents approximately 8% of all taxable
business income. The largest employer in the State is the Boeing Company, one of
the world's major aerospace firms. In terms of production, employment and labor
earnings, the Boeing Company has a significant impact on the State's economy.
The Boeing Company operates principally in three industry segments: commercial
transportation and products services; military transportation products; and
related systems and missiles and space. Financial performance of this company
has been extremely strong in recent years as measured by increased sales,
airplane deliveries and backlogs of orders. However, demand for military
production is diminishing. Also, recent cancellations and delayed deliveries of
commercial aircraft have been announced. Boeing reduced its workforce in the
State by 11,289 as of the end of 1993 and stated it expects to eliminate a total
of 7,000 jobs at its Washington operations, with the majority of the reductions
expected to occur in the first half of 1994 through attrition and layoffs.
By most measures, agriculture combined with food processing is Washington's most
important industry. Although Washington produces a variety of agricultural
products, its major products are wheat, milk, apples and cattle. The value of
agricultural production was $2.6 billion in 1992. Growth in agricultural
production, including potatoes and hay, was an integral factor in the State's
economic growth in the late 1980's and early 1990's.
Washington benefits from an abundance of natural forests which cover over 40% of
the land area. This abundance places forest products behind aerospace as the
State's second most important manufacturing industry. Employment in the forest
products industry makes up 2.6% of non-farm employment, and the largest employer
is The Weyerhaeuser Company. Productivity in the Washington forest products
industry increased steadily from 1980 to 1990; however, since 1991 recessionary
influences have resulted in a production decline, although a leveling and slight
increase in employment is projected for 1994. A continued decline in overall
production over the next few years is expected due to federally imposed
limitations on the harves of old growth timber and the inability to maintain the
recent record levels of production increases. Although some unemployment is
expected to occur in certain regions of the State, it is not expected to affect
the overall economic performance of the State materially.
Employment in the finance, insurance and real estate segments of the market is
estimated to represent 5.4% of all wage and salary employment within the State
in 1991. Since 1987 annual growth of employment in this sector of the economy
has averaged 2.3%, compared to 1.3% for the U.S. as a whole.
Washington is the closest U.S. mainland point to Asia. Consequently, the State
is a major trans-shipment point for commodities moving to and from the Pacific
Rim nations. The Port of Seattle and the Port of Tacoma each rank among the top
20 largest ports in the world based on volume of containerized cargo shipped.
The Pacific Rim countries, the Middle East, Europe, Central and South America
serve as major trading partners for both ports.
On a combined basis employment in the government sector represents approximately
18% of all wage and salary employment in the State. Seattle serves as the home
to several regional offices of federal government agencies and the State
receives an above average share of defense expenditures.
Tourism and services play a significant role in Washington's economy. The
highest employment growth between 1981 and the present occurred in the services
sector. As the business, legal and financial center of the State, Seattle ranks
ninth in the country in the number of downtown hotel rooms. The State's
mountains, beaches and wineries attract numerous tourists.
Boeing is a significant contributor to the high technology sector of the State's
economy. However, the State is also home of approximately 1,000 advanced
technology firms. Nearly 50% of these firms are computer related businesses.
Software development and programming services are by far the fastest growing
segments. In addition, several biotechnical firms located in the State have
attained international acclaim for their research and development. The State's
universities and research institutions serve as catalysts in expansion of high
tech industries. Other key factors which support continued growth of this area
include the State's existing industry base, well trained labor force, relatively
low cost power, and a progressive business climate with excellent transportation
access to world wide markets.
The State began the 1991-93 Biennium with a $468 million surplus and $260
million in the Budget Stabilization Account. The 1991-93 Biennium Budget assumed
use of an undesignated fund balance from the 1989-91 biennium of $498.5 million.
Weaker than expected revenue collections during the first six months of fiscal
year 1992 caused the State Economic and Revenue Forecast Council to reduce
projected revenues, resulting in a forecast of a General Fund shortfall.
Therefore, in December 1991, the Governor implemented a 2.5% reduction in agency
biannual General Fund-State appropriations. In April 1992, a 1991-93
Supplemental Budget was adopted by the Legislature and, following vetoes of
selected provisions, was signed by the Governor. The ending 1991-93 balance was
$234 million.
The Legislature passed a 1993-95 Operating Budget which contains $650 million in
general tax increases, $163 million in other revenues, $700 million in program
and administrative reductions, and $622 million in fund shifts (such as to
federal funding sources). The 1994 Supplemental Operating Budget includes $48
million in tax cuts, and $11 million revenue increase from a variety of sources
and $168 million in additional expenditures, many of which represent one-time
investments. The projected 1993-95 General Fund-State Balance is $164 million.
State tax revenue growth is limited so that it does not exceed the growth rate
of State personal income averaged over a three-year period. State tax revenues,
as defined, represent about one-half of all revenues coming to the State or
roughly 97% of General Fund-State revenues. The State may not impose on local
governments responsibility for new programs or increased levels of service under
existing programs without providing the financing to pay for the added services.
The proportion of State tax revenues which consist of direct State
appropriations to local governments cannot be decreased below the proportion
appropriated in the 1997 Biennium. To date, State revenue increases have
remained substantially below these limits.
Initiative 601, which became law in November 1993, limits increases in General
Fund-State expenditures to the average rate of population and inflation growth.
This initiative will replace the limitations described in the preceding
paragraph effective July 1, 1995, and sets forth a series of guidelines for
limiting tax and expenditure increases and stabilizing long-range budget
planning. It establishes a procedure for computing a fiscal year growth factor
based on a lagged, three-year average of population and inflation growth. This
growth factor is used to determine a State spending limit for programs and
expenditures supported by the General Fund. Two new reserve funds (the Emergency
Reserve Fund and Education Construction Fund) are created for depositing
revenues in excess of the spending limit and the current Budget Stabilization
Account is abolished. Like existing limitations, restrictions are placed on the
addition or transfer of functions to local government unless there is
reimbursement. Two provisions of Initiative 601 are currently applicable: the
requirement for legislative approval of fee increases beyond the fiscal year
growth factor, and restriction on new taxes being imposed without voter
approval. At the beginning of Fiscal Year 1996, the requirement for voter
approval of new tax measures expires. Taxes can then be enacted with a
two-thirds majority of both houses of the legislature if resulting General
Fund-State expenditures do not exceed the spending limit.
WEST VIRGINIA FUND
West Virginia's economy is heavily dependent upon the coal mining industry. A
reduction in the demand of certain types of coal has had an adverse impact upon
the industry and upon the economy of the State. Notwithstanding the importance
of the coal mining industry on the West Virginia economy, over the course of the
past few years, West Virginia's economy has benefitted from a developing tourism
industry. Tourism, directly and indirectly, accounts for a large portion of the
West Virginia economy. The Governor's Office and the State Legislature have
placed great emphasis upon developing the tourism industry in the State and,
accordingly, the Legislature has recently enacted a number of statutes designed
to foster the growth in tourism.
Real and personal property is currently being reappraised on a statewide basis
for ad valorem property tax purposes.
Data compiled by the State of West Virginia Bureau of Employment Programs
indicates that unemployment in West Virginia rose during 1991 and 1992. This
increase in unemployment is in contrast to a prior trend of year-over-year
improvements. The Bureau of Employment Programs indicates that this reflects the
impact of the national recession upon the economy of West Virginia.
During the 1991 regular session, the Legislature created the Division of Debt
Management under the auspices of the West Virginia State Board of Investments.
Through this division, the Board is now responsible for monitoring the State's
total debt position and developing a comprehensive long-term debt plan for the
State and its agencies.
In July of 1993 the West Virginia Supreme Court of Appeals ruled in the matter
of William S. E. Winkler and Diane Hickle v. State of West Virginia School
Building Authority et. al., 434, S.E. 2d 420 (W. Va 1993), that revenue bonds
authorized under the School Building Authority Act violated Section 4 of Article
X of the West Virginia Constitution in that such bonds create without voter
approval financial obligations of the State which must be satisfied by the State
legislature out of the State's general revenue funds. The Court's opinion
invalidated approximately $160 million in proposed new bonds to be issued by the
School Building Authority (SBA). The Court specified that its ruling would be
applied prospectively and not retroactively. Therefore, the Court did not
invalidate the approximately $331 million in SBA bonds already outstanding. The
Court also authorized the SBA to issue $154 million in new bonds which will be
used to refund the existing bonds at a lower interest rate. The ruling of the
Court is limited in scope and provides that the State Constitution does not
prohibit the issuance of revenue bonds to be redeemed from a special fund and
does not prohibit the State or its agencies from issuing revenue bonds to be
liquidated from contracts requiring rental payments from another State agency or
from contracts for necessary services such as utilities. Some State officials
have speculated that the Court's opinion may provide precedent for the challenge
of other State bonds issued in a manner similar to the SBA bonds, such as the
bonds issued for the regional jail system and to replace Weston Hospital. In the
future it is assumed that test cases addressing the constitutionality of a bond
issue will be instituted if there is a question as to whether State bonds are
revenue or general obligation bonds. The Court noted and was critical of the
fact that no such test case had been used for the SBA bonds.
<PAGE> 101
West Virginia's economy should be enhanced by the West Virginia Highway System
Improvements initiative which is anticipated to involve the expenditure of
approximately $4.62 billion of Federal and State funds over the next several
years to construct new roadways in the State.
<PAGE> 102
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MFS(R) Massachusetts Municipal Bond Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) Mississippi Municipal Bond Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Virginia Municipal Bond Fund
MFS(R) Washington Municipal
Bond Fund
MFS(R) West Virginia Municipal
Bond Fund
MST-1-6/94/345M
<PAGE> 103
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS FLORIDA MUNICIPAL BOND FUND
Municipal Bonds - 96.4%
- ----------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ----------------------------------------------------------------------------
General Obligation - 6.9%
AA Florida Board of Education, Capital Outlay,
9.125s, 2014 $2,600 $ 3,351,036
AA Florida Board of Education, Capital Outlay,
7.25s, 2023 490 529,009
AA- Hillsborough County, FL, Unincorporated
Area Parks & Recreation, 5.5s, 2023 2,000 1,736,220
AA Palm Beach County, FL, 6.5s, 2010 2,000 2,046,860
-----------
$ 7,663,125
- ----------------------------------------------------------------------------
Refunded and Special Obligation - 7.3%
AAA Broward County, FL, School District,
7.125s, 2008 $ 250 $ 274,058
AAA Dade County, FL, School District, 7.375s,
2008 1,000 1,110,250
AAA Florida Board of Education, Capital Outlay,
9.125s, 2014 400 534,084
AA Florida Board of Education, Capital Outlay,
7.25s, 2023 510 568,201
AAA Florida Municipal Power Agency Rev.
(Stanton No. 2 Project), 6.5s, 2022 2,000 2,167,260
AAA Florida Turnpike Authority Rev., 7.125s,
2018 1,250 1,395,212
AAA Gainesville, FL, Utility Systems Rev.,
7.25s, 2013 500 548,385
AAA Orange County, FL, Tourist Development Tax
Rev., 7.25s, 2010 500 559,475
AAA Puerto Rico Highway & Transportation
Authority, Highway Rev., 6.625s, 2018 100 109,641
A Puerto Rico Public Buildings Authority,
6.875s, 2021 740 822,976
-----------
$ 8,089,542
- ----------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 0.1%
NR Dade County, FL, Housing Finance Authority,
7s, 2024 $ 75 $ 76,425
- ----------------------------------------------------------------------------
Single Family Housing Revenue - 0.9%
AA Dade County, FL, Housing Finance Authority,
6.95s, 2012 $1,000 $ 1,023,960
- ----------------------------------------------------------------------------
Multi-Family Housing Revenue - 1.4%
NR Florida Housing Finance Agency (Southlake
Apartments), 8.7s, 2021 $1,500 $ 1,506,810
- ----------------------------------------------------------------------------
Insured Health Care Revenue - 12.3%
AAA Brevard County, FL, Health Facilities
Authority Rev. (Wuesthoff Memorial), 6.5s,
2007 $1,000 $ 1,046,270
AAA Charlotte County, FL, Public Facilities
Authority Rev. (Bon Secours), 8.38s,
2027(S)(S)(S) 5,000 4,342,050
AAA Dade County, FL, Public Facilities Rev.
(Jackson Memorial Hospital), 5.625s, 2018 3,000 2,697,750
AAA Jacksonville, FL, Hospital Rev. (Baptist
Medical), 7.3s, 2019 1,900 2,050,138
AAA Jacksonville, FL, Hospital Rev. (University
Medical Center, Inc.), 6.6s, 2013 500 504,505
AAA Jacksonville, FL, Hospital Rev. (University
Medical Center, Inc.), 6.6s, 2021 3,000 3,018,660
-----------
$ 13,659,373
- ----------------------------------------------------------------------------
Health Care Revenue - 10.6%
NR Brevard County, FL, Health Facilities
Authority Rev. (Friendly Village), 9.25s,
2012 $ 375 $ 384,687
NR Brevard County, FL, Health Facilities
Authority Rev. (Wuesthoff Memorial), 7.2s,
2013 1,000 1,007,720
BBB+ Escambia County, FL, Health Facilities
Authority (Baptist Hospital), 6s, 2014 2,500 2,239,225
BBB+ Escambia County, FL, Health Facilities
Authority (Baptist Hospital & Baptist
Manor), 6.75s, 2014 1,000 986,680
NR Jacksonville, FL, Health Facilities
Authority, Industrial Development Rev.
(Cypress Village), 7s, 2014 1,250 1,244,038
NR Jacksonville, FL, Health Facilities
Authority, Industrial Development Rev.
(National Benevolent Assn./Cypress), 6.4s,
2016 1,475 1,380,113
NR Orange County, FL, Industrial Development
Authority Rev. (Friendly Village), 9.25s,
2012 335 344,369
A- Palm Beach County, FL, Health Facilities
(Good Samaritan Health System), 6.2s, 2011 1,000 965,900
NR Pensacola, FL, Health Facilities (Daughters
of Charity National Health), 5.25s, 2011 3,000 2,633,190
NR St. Petersburg, FL, Health Facilities Rev.
(Swanholm Nursing), 10s, 2022 490 523,251
-----------
$ 11,709,173
- ----------------------------------------------------------------------------
Electric and Gas Utility Revenue - 19.4%
AAA Escambia County, FL, Pollution Control Rev.
(Gulf Power Co.), 6.75s, 2022 $ 500 $ 510,360
AAA Escambia County, FL, Utilities District,
Utility Systems Rev., 6.25s, 2015 1,500 1,501,366
AAA Florida Municipal Power Agency Rev. (St.
Lucie), 5.5s, 2012 1,040 945,734
AAA Florida Municipal Power Agency Rev. (St.
Lucie), 5.7s, 2016 5,000 4,633,650
AA- Hillsborough County, FL, Industrial
Development Authority, Pollution Control
Rev. (Tampa Electric Co.), 8s, 2022 1,000 1,133,540
AA Jacksonville, FL, Electric Authority Rev.
(St. Johns River Power), 5.5s, 2013 3,000 2,708,010
AA Jacksonville, FL, Electric Authority Rev.
(St. Johns River Power), 6.5s, 2014 500 510,030
AAA Kissimmee, FL, Utilities Authority,
Electric Systems Rev., 5.375s, 2012 1,500 1,348,560
AA- Lakeland, FL, Electric & Water Rev., 0s,
2012 3,000 971,670
AA- Orlando, FL, Utilities Commission, Water &
Electric Rev., 6.75s, 2017 250 263,560
NR Palm Beach County, FL, Solid Waste
Industrial Development Rev. (Osceola
Power), 6.95s, 2022 3,000 2,865,180
A- Puerto Rico Electric Power Authority Rev.,
7s, 2011 240 252,631
AAA Reedy Creek, FL, Improvement District,
Utilities Rev., 5s, 2014 4,500 3,784,995
-----------
$ 21,429,286
- ----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 12.5%
AAA Brevard County, FL, Utilities Rev., 5.25s,
2014 $3,000 $ 2,612,760
AAA Dade County, FL, Water & Sewer System Rev.,
5s, 2009 3,500 3,080,140
AAA Englewood, FL, Water District, 6s, 2019 1,000 967,330
A Jacksonville, FL, Water & Sewer Suburban
Utilities Rev., 6.75s, 2022 1,500 1,546,530
AAA New Smyrna Beach, FL, Utilities Commission
Rev., 5s, 2019 2,000 1,627,180
A Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 1,000 1,101,010
AAA Seminole, FL, Water & Sewer Improvement
Rev., 6s, 2019 3,000 2,920,470
-----------
$ 13,855,420
- ----------------------------------------------------------------------------
Turnpike Revenue - 4.5%
A Commonwealth of Puerto Rico, Highway &
Transportation Authority, Highway Rev.,
5.5s, 2015 $2,000 $ 1,775,420
AAA Florida Turnpike Authority Rev., 5s, 2014 2,750 2,318,250
AAA Orlando & Orange Counties, FL, Expressway
Authority Rev., 5.5s, 2018 1,000 888,430
-----------
$ 4,982,100
- ----------------------------------------------------------------------------
Airport and Port Revenue - 1.9%
AAA Dade County, FL, Aviation Facilities Rev.,
6.55s, 2013 $1,000 $ 1,012,610
AAA Port Everglades, FL, Port Improvement Rev.,
0s, 2005 2,000 1,059,760
-----------
$ 2,072,370
- ----------------------------------------------------------------------------
Sales and Excise Tax Revenue - 5.0%
AAA Brevard County, FL, Sales Tax Rev., 5.75s,
2012 $1,000 $ 946,910
AAA Broward County, FL, Tourist Development
Rev. (Convention Center), 5.625s, 2013 1,805 1,667,007
AAA Jacksonville, FL, Capital Improvement
(Gator Bowl), 5.5s, 2014 2,000 1,817,020
AAA Jacksonville, FL, Excise Tax Rev., 0s, 2010 1,000 365,230
AAA Jacksonville, FL, Excise Tax Rev., 0s, 2011 1,000 340,100
A Puerto Rico Highway & Transportation
Authority Rev., 6.625s, 2018 400 405,025
-----------
$ 5,541,292
- ----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 4.0%
BB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 6.8s, 2012 $1,000 $ 989,270
BB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 6.95s,
2012 2,500 2,500,725
BB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 6.9s, 2022 1,000 977,980
-----------
$ 4,467,975
- ----------------------------------------------------------------------------
Other - 9.6%
A Florida Finance Department, General
Services Rev. (Department of Environment),
5s, 2012 $1,120 $ 953,646
AAA Gainesville, FL, Entitlement Rev., 5.5s,
2017 1,250 1,112,913
AAA Hillsborough County, FL, Capital
Improvement Rev., 5.125s, 2013 1,000 859,340
AAA Hillsborough County, FL, Capital
Improvement Rev., 5.25s, 2016 2,870 2,462,833
A Hillsborough County, FL, Capital
Improvement Rev., 6.75s, 2022 2,000 2,038,660
BBB+ Lake County, FL, Resource Recovery,
Industrial Development Authority Rev.,
5.85s, 2009 2,000 1,785,300
AAA Palm Beach County, FL, Criminal Justice
Facilities Rev., 5.375s, 2010 1,495 1,383,279
-----------
$ 10,595,971
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $108,157,077) $106,672,822
- ------------------------------------------------------------------------------
Floating Rate Demand Notes - 3.6%
- ------------------------------------------------------------------------------
Hillsborough County, FL, Pollution Control
Rev. (Tampa Electric Co.), due 5/15/18 $2,500 $ 2,500,000
Uinta County, WY, Pollution Control Rev.
(Chevron USA, Inc.), due 8/15/20 1,500 1,500,000
- ------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 4,000,000
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $112,157,077) $110,672,822
Other Assets, Less Liabilities (15,125)
- ------------------------------------------------------------------------------
Net Assets - 100.0% $110,657,697
- ------------------------------------------------------------------------------
(S)(S)(S)Inverse floating rate security.
See notes to financial statements
<PAGE> 104
FINANCIAL STATEMENTS - CONTINUED
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F9> 1994<F8> 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
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 $10.38 $11.30 $10.57 $10.22 $ 9.83 $ 9.73
------ ------ ------ ------ ------ ------
Income from investment operations<F7> --
Net investment income <F5> $ 0.28 $ 0.09 $ 0.57 $ 0.58 $ 0.61 $ 0.63
Net realized and unrealized gain (loss) on
investments (0.11) (0.92) 0.75 0.38 0.46 0.12
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.17 $(0.83) $ 1.32 $ 0.96 $ 1.07 $ 0.75
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.26) $(0.06) $(0.55) $(0.60) $(0.66) $(0.63)
From net realized gain on investments -- -- (0.01) (0.01) (0.02) (0.02)
In excess of net investment income (0.02) (0.03) (0.03) -- -- --
In excess of net realized gain on
investments (0.03)<F10> -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.31) $(0.09) $(0.59) $(0.61) $(0.68) $(0.65)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.24 $10.38 $11.30 $10.57 $10.22 $9.83
------ ------ ------ ------ ------ ------
Total return<F6> 1.66%<F4> (7.34)%<F4> 12.71% 9.56% 11.29% 8.06%
Ratios (to average net assets)/ Supplemental
data<F5>:
Expenses 1.11%<F3> 1.18%<F3> 1.21% 1.08% 0.99% 0.74%
Net investment income 5.40%<F3> 5.05%<F3> 5.10% 5.75% 6.08% 6.46%
Portfolio turnover 24% 5% 14% 27% 36% 71%
Net assets at end of period (000 omitted) $82,391 $85,878 $94,407 $64,649 $47,869 $29,214
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31 January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1990 1989<F1> 1994<F9> 1994<F8> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.73 $ 9.53 $10.38 $11.30 $11.26
------ ------ ------ ------ ------
Income from investment operations<F7> -
Net investment income <F5> $ 0.66 $ 0.32 $ 0.24 $ 0.07 $ 0.19
Net realized and unrealized gain (loss) on
investments 0.02 0.14 (0.12) (0.91) 0.05
------ ------ ------ ------ ------
Total from investment operations $ 0.68 $ 0.46 $ 0.12 $(0.84) $ 0.24
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.66) $(0.26) $(0.21) $(0.07) $(0.18)
From net realized gain on investments (0.02) -- -- -- (0.01)
In excess of net investment income -- -- (0.02) (0.01) (0.01)
In excess of net realized gain on
investments -- -- (0.03)<F10> -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.68) $(0.26) $(0.26) $(0.08) $(0.20)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.73 $ 9.73 $10.24 $10.38 $11.30
------ ------ ------ ------ ------
Total return<F6> 7.19% 7.57%<F3> 1.24%<F4> (7.47)%<F4> 5.34%<F3>
Ratios (to average net assets)/
Supplemental data<F5>:
Expenses 0.42% 0.40%<F3> 1.92%<F3> 1.99%<F3> 1.97%<F3>
Net investment income 6.72% 6.18%<F3> 4.55%<F3> 4.17%<F3> 3.83%<F3>
Portfolio turnover 99% --% 24% 5% 14%
Net assets at end of period (000 omitted) $12,628 $4,383 $7,707 $6,631 $5,766
<FN>
<F1> For the period from the commencement of investment operations, June 6, 1988 to January 31, 1989.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3> Annualized.
<F4> Not annualized.
<F5> The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F9> 1994<F8> 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 0.28 $ 0.09 $ 0.56 $ 0.57 $ 0.60 $ 0.59
Ratios (to average net assets):
Expenses 1.21%<F3> 1.28%<F3> 1.31% 1.18% 1.09% 1.11%
Net investment income 5.30%<F3> 4.95%<F3> 5.00% 5.65% 5.98% 6.09%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31 January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1990 1989<F1> 1994<F9> 1994<F8> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 0.57 $ 0.29 $ 0.24 -- $ 0.19
Ratios (to average net assets):
Expenses 1.31% 1.07%<F3> 1.92%<F3> -- 1.97%<F3>
Net investment income 5.83% 5.51%<F3> 4.55%<F3> -- 3.83%<F3>
<F6> Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F7> Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F8> For the two months ended March 31, 1994.
<F9> For the period ended September 30, 1994.
<F10>Amounts include $0.005 of distributions from net realized gain on investments each for Class A and Class B shares.
</TABLE>
See notes to financial statements
<PAGE> 105
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS MARYLAND MUNICIPAL BOND FUND
Municipal Bonds - 96.1%
- ---------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------
General Obligation - 13.9%
AA+ Anne Arundel County, MD, 4.9s, 2011 $ 1,005 $ 862,411
AA+ Baltimore County, MD, Metropolitan
District, 4.3s, 2004 1,000 881,530
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2009 700 629,874
AAA Baltimore, MD, Consolidated Public
Improvement, 7s, 2009 1,000 1,078,230
A Baltimore, MD, Consolidated Public
Improvement, 7.15s, 2009 2,000 2,204,200
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2010 815 726,434
AAA Baltimore, MD, Consolidated Public
Improvement, 5.375s, 2011 900 805,761
AAA Baltimore, MD, Consolidated Public
Improvement, 5.375s, 2013 770 692,283
AA- Carroll County, MD, 5.2s, 2011 2,000 1,771,260
AA+ Howard County, MD, Metropolitan District,
0s, 2008 1,975 837,124
AAA Montgomery County, MD, Public Improvement,
0s, 2009 11,500 4,570,445
AA- Prince George's County, MD, 0s, 2007 5,110 2,293,164
AAA Prince George's County, MD, Public
Improvement, 5.5s, 2013 2,000 1,828,420
AAA State of Maryland, 9s, 1999 350 407,291
AA Washington Suburban Sanitation District,
MD, 5s, 2010 1,000 877,730
AA Washington Suburban Sanitation District,
MD, 5s, 2011 1,815 1,578,161
AA Washington Suburban Sanitation District,
MD, 6.1s, 2015 1,070 1,059,878
-----------
$ 23,104,196
- ----------------------------------------------------------------------------
State and Local Appropriation - 13.6%
AA Baltimore, MD, Certificates of
Participation, 5.25s, 2016 $ 2,000 $ 1,716,360
NR Calvert County, MD, Community Lease Rev.,
7.2s, 2010 750 802,770
AA+ Howard County, MD, Certificates of
Participation, 8.15s, 2021 450 551,709
AA+ Howard County, MD, Certificates of
Participation, "A", 8s, 2019 805 958,538
AA+ Howard County, MD, Certificates of
Participation, "B", 8s, 2019 385 458,431
AA+ Howard County, MD, Certificates of
Participation, "C", 8s, 2019 680 809,697
AAA Maryland Stadium Authority, Convention
Center Expansion, 5.875s, 2012 2,000 1,899,800
AA- Maryland Stadium Authority, Sports
Facilities Leasing Rev., 7.6s, 2019 2,580 2,788,928
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2005 2,495 1,349,171
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2006 2,490 1,257,151
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2011 3,675 1,280,444
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2004 980 566,479
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2006 1,800 908,784
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2009 1,500 601,395
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2010 2,730 1,020,856
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2011 2,810 979,060
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2012 2,480 811,307
AAA Prince George's County, MD, Industrial
Development Authority, 5.25s, 2019 1,500 1,278,600
A Puerto Rico Public Buildings Authority,
6.27s, 2016 (Municipal Swap)* 3,000 2,580,060
-----------
$ 22,619,540
- ----------------------------------------------------------------------------
Refunded and Special Obligation - 16.2%
AAA Baltimore, MD, Water Utility Rev., 6.5s,
2020 $ 540 $ 574,360
AAA Cecil County, MD, 9.25s, 2003 230 245,302
AAA Commonwealth of Puerto Rico, Public
Improvement, 6.8s, 2021 1,500 1,661,130
AAA Government of Guam, Limited Obligation
Highway Rev., 9.25s, 2005 550 578,138
AAA Howard County, MD, Metropolitan District,
7.15s, 2020 500 550,595
AAA Maryland Board of Trustees, College &
University Rev., 7.625s, 2012 1,730 1,827,676
AAA Maryland Health & Higher Education
Facilities Authority Rev. (John Hopkins
University), 9.25s, 2015 1,000 1,057,460
AAA Maryland Health & Higher Education
Facilities Authority Rev. (Sinai
Hospital/Baltimore), 7s, 2019 2,000 2,206,080
AAA Maryland Health & Higher Education
Facilities Authority Rev. (University of
Maryland Medical System), 7s, 2017 1,840 2,040,873
AAA Maryland Health & Higher Education
Facilities Authority Rev. (University of
Maryland Medical System), 6.5s, 2021 1,000 1,067,110
AAA Maryland Transportation Authority,
Transportation Facilities Project Co.,
9s, 2015 5,300 5,594,839
AAA Montgomery County, MD, Rev. Authority,
Lease Rev. (Regional Indoor Swim Center
Project), 7.6s, 2008 750 822,780
AAA Morgan State University, MD, Academic &
Auxiliary Facilities & Fees Rev., 0s, 2006 1,135 569,032
AAA Morgan State University, MD, Academic &
Auxiliary Facilities & Fees Rev., 0s, 2008 1,400 619,878
NR Prince George's County, MD, Hospital Rev.
(Dimensions Health Corp.), 7.25s, 2017 2,000 2,257,640
AAA Puerto Rico Aqueduct & Sewer Authority,
10.25s, 2009 500 685,285
AAA Puerto Rico Electric Power Authority Rev.,
8s, 2008 500 561,865
AAA Puerto Rico Electric Power Authority Rev.,
9.125s, 2015 250 266,758
AAA Puerto Rico Industrial, Medical &
Environmental Pollution Control
Facilities, Finance Authority, 9.75s, 2025 450 479,133
AAA St. Mary's County, MD, 7.75s, 2016 2,050 2,220,724
AAA Washington Suburban Sanitation District,
MD, 6.9s, 2013 1,045 1,149,249
-----------
$ 27,035,907
- ----------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 3.0%
BBB Baltimore, MD, City Housing Corp. Rev.,
7.75s, 2009 $ 1,065 $ 1,089,889
AAA Baltimore, MD, City Housing Corp. Rev.,
7.25s, 2023 3,265 3,375,161
AAA Montgomery County, MD, Housing
Opportunities Commission, 8.125s, 2010 500 515,620
-----------
$ 4,980,670
- ----------------------------------------------------------------------------
Single Family Housing Revenue - 7.1%
NR Maryland Community Development
Administration, 7.75s, 2009 $ 1,500 $ 1,551,255
NR Maryland Community Development
Administration, 7.7s, 2015 685 716,106
NR Maryland Community Development
Administration, 8.25s, 2017 1,300 1,378,572
NR Maryland Community Development
Administration, 7.625s, 2020 2,500 2,591,125
NR Maryland Community Development
Administration, 8.25s, 2020 500 531,020
NR Maryland Community Development
Administration, 6.75s, 2026 2,250 2,251,440
NR Maryland Community Development
Administration, 7.625s, 2029 1,000 1,033,810
NR Maryland Community Development
Administration, 7.85s, 2029 765 796,832
NR Maryland Community Development
Administration, 0s, 2032 11,605 650,112
NR Montgomery County, MD, Housing
Opportunities Commission, 7.5s, 2017 370 379,320
-----------
$ 11,879,592
- ----------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.6%
NR Maryland Community Development
Administration, 7.375s, 2021 $ 425 $ 438,498
NR Maryland Community Development
Administration, 9.625s, 2026 140 144,000
NR Maryland Community Development
Administration, 8.4s, 2029 1,320 1,386,198
NR Maryland Community Development
Administration, 7.5s, 2031 65 67,569
NR Maryland Community Development
Administration, 7.8s, 2032 1,200 1,247,004
NR Montgomery County, MD, Housing
Opportunities Commission, 7.375s, 2032 1,045 1,075,065
-----------
$ 4,358,334
- ----------------------------------------------------------------------------
Insured Health Care Revenue - 4.7%
A Frederick County, MD, Rev. (Northhampton
Manor), 10.5s, 2024 $ 245 $ 252,423
AAA Maryland Health & Higher Education
Facilities Authority Rev. (Anne Arundel
Medical Center), 5s, 2023 2,000 1,593,960
AAA Maryland Health & Higher Education
Facilities Authority Rev. (Greater
Baltimore Medical Center), 5.375s, 2008 2,000 1,883,240
AAA Maryland Health & Higher Education
Facilities Authority Rev. (Maryland
General Hospital), 6.125s, 2014 2,000 1,931,760
AAA Maryland Health & Higher Education
Facilities Authority Rev. (Mercy Medical
Center), 5.5s, 2022 1,000 868,590
AAA Maryland Industrial Development Finance
Authority, Economic Development Rev. (Bon
Secours), 8.162s, 2022(S)(S)(S) 1,500 1,285,710
-----------
$ 7,815,683
- ----------------------------------------------------------------------------
Health Care Revenue - 12.3%
NR Berlin, MD, Hospital Rev. (Atlantic General
Hospital), 8.375s, 2022 $ 1,385 $ 1,437,464
BBB- Maryland Health & Higher Education
Facilities Authority Rev. (Doctors
Community Hospital), 5.5s, 2024 2,000 1,530,720
NR Maryland Health & Higher Education
Facilities Authority Rev. (Francis Scott
Key), 5.625s, 2025 1,500 1,311,690
AA- Maryland Health & Higher Education
Facilities Authority Rev. (John Hopkins
Hospital), 0s, 2010 2,000 761,600
AA- Maryland Health & Higher Education
Facilities Authority Rev. (John Hopkins
Hospital), 5s, 2023 2,500 2,033,300
AA- Maryland Health & Higher Education
Facilities Authority Rev. (Kaiser
Permanente Hospital), 9.125s, 2015 500 524,245
NR Maryland Health & Higher Education
Facilities Authority Rev. (Medlantic
Hospital Care Corp.), 8.375s, 2014 3,800 4,011,204
A Maryland Health & Higher Education
Facilities Authority Rev. (Peninsula
Regional Medical), 5.25s, 2012 1,000 860,330
A Maryland Health & Higher Education
Facilities Authority Rev. (Peninsula
Regional Medical), 5s, 2023 2,300 1,795,840
A Maryland Health & Higher Education
Facilities Authority Rev. (Suburban
Hospital), 5.125s, 2021 2,200 1,796,344
NR Prince George's County, MD, Hospital Rev.
(Dimensions Health Corp.), 5.3s, 2024 2,500 1,983,000
NR Prince George's County, MD, Hospital Rev.
(Southeast Healthcare System), 6.375s,
2023 2,900 2,539,182
-----------
$ 20,584,919
- ----------------------------------------------------------------------------
Electric and Gas Utility Revenue - 1.2%
A- Puerto Rico Electric Power Authority Rev.,
7s, 2011 $ 1,000 $ 1,052,630
A- Puerto Rico Electric Power Authority Rev.,
6s, 2014 1,000 949,860
-----------
$ 2,002,490
- ----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 1.5%
AAA Baltimore, MD, Wastewater Rev.,
7.73s, 2020(S)(S)(S) $ 3,000 $ 2,450,850
- ----------------------------------------------------------------------------
Turnpike Revenue - 1.1%
AA Maryland Department of Transportation,
County Transit Rev., 4.8s, 2004 $ 2,000 $ 1,861,560
- ----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 5.4%
A Allegheny County, MD, Pollution Control
Rev. (Westvaco Corp.), 10.5s, 2004 $ 250 $ 257,500
NR Baltimore, MD, Industrial Rev. Board
(Weyerhaeuser Co.), 9s, 2006 3,150 3,262,234
AA Baltimore, MD, Port Facilities Rev. (E.I.
du Pont de Nemours & Co.), 6.5s, 2011 1,500 1,507,545
NR Maryland Industrial Development Finance
Authority, Economic Development Rev.,
9.875s, 2005 185 192,078
AAA Northeast Maryland, Waste Disposal
Authority (Harford County Resource
Recovery), 7.2s, 2005 1,000 1,086,200
A Northeast Maryland, Waste Disposal
Authority (Harford County Resource
Recovery), 8.6s, 2008 1,000 1,032,890
NR Northeast Maryland, Waste Disposal
Authority (Montgomery County Resource
Recovery),
6s, 2006 1,000 969,180
A Upper Potomac River Commission, MD,
Pollution Control Rev. (Westvaco Corp.),
10.5s, 2004 150 157,856
A Upper Potomac River Commission, MD,
Pollution Control Rev. (Westvaco Corp.),
9.125s, 2015 500 530,810
-----------
$ 8,996,293
- ----------------------------------------------------------------------------
Universities - 1.6%
NR Maryland Health & Higher Education
Facilities Authority Rev. (Mt. St. Mary's
College), 6.5s, 2009 $ 813 $ 687,292
AA+ University of Maryland, Auxiliary
Facilities & Tuition Rev., 0s, 2004 1,000 565,470
AA+ University of Maryland, Auxiliary
Facilities & Tuition Rev., 6s, 2009 1,500 1,483,500
-----------
$ 2,736,262
- ----------------------------------------------------------------------------
Special Assessment District - 3.1%
NR Northeast Maryland, Waste Disposal
Authority (Montgomery County Resource
Recovery), 6.3s, 2016 $ 5,400 $ 5,099,976
- ----------------------------------------------------------------------------
Other - 8.8%
BBB Maryland Health & Higher Education
Facilities Authority Rev. (Kennedy
Institute), 6.75s, 2022 $ 500 $ 485,255
BBB Maryland Industrial Development Finance
Authority (America Center for Physics),
6.625s, 2017 1,500 1,442,880
NR Maryland Industrial Development Finance
Authority (YMCA/Baltimore), 8s, 2012 2,825 2,806,807
NR Maryland Industrial Development Finance
Authority (YMCA/Baltimore), 8.25s, 2012 945 951,265
A Prince George's County, MD, 5.25s, 2013 4,500 3,799,980
AAA Puerto Rico Telephone Authority Rev.,
5.69s, 2004 (Interest Rate Swap)* 1,000 844,180
AAA Washington, D.C., Metropolitan Area Transit
Authority, Gross Rev., 5.125s, 2008 2,000 1,806,780
AAA Washington, D.C., Metropolitan Area Transit
Authority, Gross Rev., 5.25s, 2014 3,000 2,603,280
-----------
$ 14,740,427
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $160,373,271) $160,266,699
- ------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.6%
- ------------------------------------------------------------------------------
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 $ 300 $ 300,000
St. Charles Parish, LA, Pollution Control
Rev. (Shell Oil Co.), due 11/01/21 50 50,000
Uinta County, WY, Pollution Control Rev.
(Chevron Corp.), due 8/15/20 3,900 3,900,000
- ----------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 4,250,000
- ----------------------------------------------------------------------------
Total Investments (Identified Cost, $164,623,271) $164,516,699
Other Assets, Less Liabilities - 1.3% 2,234,945
- ------------------------------------------------------------------------------
Net Assets - 100.0% $166,751,644
- ------------------------------------------------------------------------------
*Indexed security. See Note 7.
(S)(S)(S)Inverse floating rate security.
See notes to financial statements
<PAGE> 106
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS MASSACHUSETTS MUNICIPAL BOND FUND
Municipal Bonds - 96.1%
- ---------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------
Student Loan Revenue - 0.1%
NR Massachusetts Education Loan Authority, 9s,
2001 $ 145 $ 149,216
- ----------------------------------------------------------------------------
General Obligation - 11.8%
AAA Boston, MA, 6.5s, 2012 $ 2,000 $ 2,043,540
AAA Boston, MA, 6s, 2014 3,160 3,073,638
A+ Commonwealth of Massachusetts, 0s, 2004 10,000 5,524,200
AAA Commonwealth of Massachusetts, 7.5s, 2004 2,850 3,225,145
A+ Commonwealth of Massachusetts, 0s, 2005 2,000 1,030,940
AAA Commonwealth of Massachusetts, 0s, 2006 4,000 2,024,400
A+ Commonwealth of Massachusetts, 5s, 2007 2,500 2,202,550
A+ Commonwealth of Massachusetts, 5.5s, 2007 2,500 2,372,825
AAA Commonwealth of Massachusetts, 7s, 2009 1,250 1,340,188
A+ Commonwealth of Massachusetts, "A", 0s, 2005 2,000 1,051,540
AAA Gloucester, MA, 7s, 2009 225 235,327
AAA Gloucester, MA, 7s, 2010 215 224,868
AAA Haverhill, MA, 7s, 2012 1,250 1,318,037
AAA Holyoke, MA, 8s, 2001 1,700 1,925,726
AAA Holyoke, MA, 8.1s, 2005 500 585,660
NR Holyoke, MA, Electric Rev., 8s, 2001 775 812,758
AAA Lawrence, MA, 9.75s, 2002 600 748,182
AAA Lawrence, MA, 4.75s, 2014 1,000 814,150
NR Lowell, MA, 8.4s, 2009 1,000 1,128,470
NR Northbridge, MA, 7.6s, 2001 325 355,934
AAA Princeton, MA, 7.25s, 2009 490 527,044
-----------
$ 32,565,122
- ----------------------------------------------------------------------------
State and Local Appropriation - 7.2%
A+ Mass. Bay Transportation Authority,
5.5s, 2006 $ 5,000 $ 4,766,950
A+ Mass. Bay Transportation Authority,
5.5s, 2012 5,000 4,515,500
A+ Mass. Bay Transportation Authority,
6.2s, 2016 10,975 10,619,630
-----------
$ 19,902,080
- ----------------------------------------------------------------------------
Refunded and Special Obligation - 21.8%
AAA Boston, MA, 7.75s, 2008 $ 500 $ 555,460
A+ Commonwealth of Massachusetts, 6.875s, 2010 11,000 12,123,870
AAA Government of Guam, Limited Obligation
Highway Rev., 9.25s, 2005 650 683,254
NR Holyoke, MA, 9.85s, 2008 425 479,438
NR Lowell, MA, 7.625s, 2010 4,875 5,569,980
AAA Mass. Bay Transportation Authority,
8.7s, 2005 435 456,785
AAA Mass. Bay Transportation Authority,
8.5s, 2014 3,000 3,447,870
AAA Mass. Bay Transportation Authority,
7.875s, 2021 1,500 1,728,675
AAA Mass. Federally Assisted Housing, 0s, 2023 4,285 687,314
NR Mass. Health & Education Facilities
Authority (Addison Gilbert Hospital),
9.25s, 2014 1,500 1,585,605
AA Mass. Health & Education Facilities
Authority (Children's Hospital),
7.75s, 2018 2,425 2,685,227
AAA Mass. Health & Education Facilities
Authority (Harvard Community Health),
9.125s, 2017 4,250 4,490,295
AAA Mass. Health & Education Facilities
Authority (Harvard University),
8.5s, 2015 9,520 10,085,298
AAA Mass. Health & Education Facilities
Authority (Harvard University), 8.5s, 2016 2,500 2,648,450
NR Mass. Health & Education Facilities
Authority (Saint Elizabeth's Hospital),
7.75s, 2027 1,250 1,367,813
AAA Mass. Health & Education Facilities
Authority (South Shore Hospital),
8.125s, 2017 1,070 1,179,375
NR Mass. Health & Education Facilities
Authority (Suffolk University), 8s, 2010 1,750 2,002,087
NR Mass. Health & Education Facilities
Authority (Youville Hospital), 9s, 2007 540 581,359
NR Mass. Health & Education Facilities
Authority (Youville Hospital), 9.1s, 2015 455 490,422
NR Mass. Industrial Finance Agency (Cape Cod
Health System), 8.5s, 2020 500 591,770
NR Mass. Industrial Finance Agency (Evanswood
Bethzatha Corp.), 9s, 2020 1,000 1,015,810
BB+ Mass. Municipal Wholesale Electric Co.,
13.625s, 2017 1,015 1,069,911
BB+ Mass. Municipal Wholesale Electric Co.,
13s, 2018 1,880 1,960,163
AAA Mass. Municipal Wholesale Electric Co.,
"A", 13s, 2018 255 265,873
AAA Mass. Port Authority Rev., 12.75s, 2002 485 661,259
AAA Mass. Port Authority Rev., 13s, 2013 780 1,277,242
AAA Palmer, MA, 7.7s, 2010 500 570,920
-----------
$ 60,261,525
- ----------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 2.6%
AAA Mass. Housing Finance Agency, 9.125s, 2020 $ 490 $ 518,734
A+ Mass. Housing Finance Agency, 8.88s, 2021 1,995 2,070,710
AAA Mass. Housing Finance Agency, 6.9s, 2024 2,000 2,049,860
AAA Mass. Housing Finance Agency, 7.65s, 2028 1,430 1,472,013
AAA Somerville, MA, Housing Authority Rev.
(Clarendon Hill), 7.85s, 2010 1,000 1,077,980
-----------
$ 7,189,297
- ----------------------------------------------------------------------------
Single Family Housing Revenue - 3.7%
A+ Mass. Housing Finance Agency, 6.3s, 2013 $ 2,000 $ 1,949,560
A+ Mass. Housing Finance Agency, 9.5s, 2016 1,590 1,646,477
A+ Mass. Housing Finance Agency, 8.1s, 2020 2,450 2,565,174
A+ Mass. Housing Finance Agency, 8.1s, 2021 2,000 2,101,100
A+ Mass. Housing Finance Agency, 7.95s, 2023 1,000 1,039,090
A Mass. Housing Finance Agency, 7.5s, 2029 930 941,216
-----------
$ 10,242,617
- ----------------------------------------------------------------------------
Multi-Family Housing Revenue - 1.6%
AAA Mass. Housing Finance Agency, 6.65s, 2019 $ 1,500 $ 1,476,345
A+ Mass. Housing Finance Agency, 8.4s, 2021 2,190 2,248,736
BB+ Mass. Housing Finance Agency, 8.2s, 2027 720 758,311
-----------
$ 4,483,392
- ----------------------------------------------------------------------------
Insured Health Care Revenue - 4.6%
AAA Mass. Health & Education Facilities
Authority, 5.5s, 2013 $ 2,490 $ 2,239,008
AAA Mass. Health & Education Facilities
Authority (Beth Israel Hospital), 8.472s,
2025(S)(S)(S) 4,000 3,433,200
AAA Mass. Health & Education Facilities
Authority (Newton-Wellesley Hospital),
8s, 2018 3,290 3,599,951
NR Mass. Health & Education Facilities
Authority (South Shore Hospital), 6s, 2034 2,000 1,834,900
NR Mass. Industrial Finance Agency (Meadow
Green Nursing Home), 9.6s, 2027 1,475 1,590,478
-----------
$ 12,697,537
- ----------------------------------------------------------------------------
Health Care Revenue - 14.2%
NR Boston, MA, Industrial Development Finance
Authority (Stonehedge Convalescent
Center), 10.75s, 2011 $ 855 $ 932,206
A Mass. Health & Education Facilities
Authority (Beth Israel Hospital), 7s, 2014 3,000 3,183,780
A+ Mass. Health & Education Facilities
Authority (Brigham & Women's Hospital),
6.75s, 2024 1,000 1,007,860
NR Mass. Health & Education Facilities
Authority (Central New England Health),
6.125s, 2013 2,200 1,929,950
A- Mass. Health & Education Facilities
Authority (Charlton Memorial Hospital),
7.25s, 2013 1,700 1,771,400
BBB Mass. Health & Education Facilities
Authority (Emerson Hospital), 8s, 2018 1,800 1,932,444
NR Mass. Health & Education Facilities
Authority (Fairview Extended Care
Facility), 10.25s, 2021 2,000 2,156,380
A- Mass. Health & Education Facilities
Authority (Jordan Hospital), 6.875s, 2022 2,750 2,585,825
BB Mass. Health & Education Facilities
Authority (Mass. Eye & Ear Infirmary),
7.375s, 2011 3,000 2,847,120
A Mass. Health & Education Facilities
Authority (New England Deaconess
Hospital), 6.875s, 2022 2,500 2,405,750
BBB Mass. Health & Education Facilities
Authority (Sisters of Providence Health
System), 6.5s, 2008 1,000 970,460
NR Mass. Industrial Finance Agency (Beverly
Enterprises), 8.375s, 2009 2,000 2,106,020
NR Mass. Industrial Finance Agency
(Continental Healthcare), 11.875s, 2015 5,525 5,778,156
NR Mass. Industrial Finance Agency (Evanswood
Bethzatha Corp.), 7.625s, 2014 1,200 1,175,436
NR Mass. Industrial Finance Agency (Martha's
Vineyard Long-Term Care), 9.25s, 2022 3,000 2,983,050
NR Mass. Industrial Finance Agency (Mass.
Biomedical Research), 0s, 2004 5,000 2,716,050
NR Mass. Industrial Finance Agency (Mass.
Biomedical Research), 0s, 2010 5,300 1,853,675
NR Mass. Industrial Finance Agency (Needham/
Hamilton House), 11s, 2010 800 816,856
-----------
$ 39,152,418
- ----------------------------------------------------------------------------
Electric and Gas Utility Revenue - 1.8%
AAA Chicopee, MA, Electric System Rev.,
9.125s, 2005 $ 2,200 $ 2,266,572
AA Mass. Municipal Wholesale Electric Co.,
8.02s, 2018(S)(S)(S) 3,500 2,618,630
-----------
$ 4,885,202
- ----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 8.0%
A Mass. Water Resources Authority,
6.25s, 2010 $ 2,000 $ 1,977,020
A Mass. Water Resources Authority, 5.25s,
2015 5,000 4,263,950
A Mass. Water Resources Authority, 5.5s, 2015 4,000 3,517,680
A Mass. Water Resources Authority, 6.5s, 2019 8,000 8,016,400
A Mass. Water Resources Authority, 5.5s, 2022 4,945 4,248,744
-----------
$ 22,023,794
- ----------------------------------------------------------------------------
Turnpike Revenue - 2.0%
NR Mass. Industrial Finance Agency, Tunnel
Rev. (Mass. Turnpike), 9s, 2020 $ 5,310 $ 5,567,163
- ----------------------------------------------------------------------------
Airport and Port Revenue - 3.0%
AA- Mass. Port Authority Rev., 6s, 2013 $ 1,825 $ 1,756,964
AA- Mass. Port Authority Rev., 9.375s, 2015 1,520 1,602,886
AAA Mass. Port Authority Rev., 7.5s, 2020 4,500 4,833,540
-----------
$ 8,193,390
- ----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.8%
NR Clinton, MA, Industrial Rev. Board (Zayre
Corp.), 8.5s, 2009 $ 807 $ 818,815
NR Mass. Industrial Finance Agency (Automatic
Data Processing, Inc.), 8.25s, 2019 900 925,956
NR Springfield, MA, Industrial Development
Finance Agency (Terminal Building), 10s,
2001 453 453,398
-----------
$ 2,198,169
- ----------------------------------------------------------------------------
Universities - 7.6%
AAA Mass. Health & Education Facilities
Authority (Boston University),
9.77s, 2031(S)(S)(S) $ 5,000 $ 5,065,250
AA- Mass. Health & Education Facilities
Authority (Smith College), 5.75s, 2024 2,000 1,817,980
AAA Mass. Health & Education Facilities
Authority (Suffolk University), 6.35s,
2022 1,000 964,530
AAA Mass. Health & Education Facilities
Authority (Tufts University), 9.75s,
2018 (Municipal Swap)* 3,000 2,626,470
AA+ Mass. Health & Education Facilities
Authority (Wellesley College), 5.375s,
2019 1,500 1,308,300
AAA Mass. Health & Education Facilities
Authority (Wentworth Technology
Institute), 5.5s, 2023 2,900 2,463,579
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2004 1,000 557,280
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2005 1,000 520,040
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2009 1,000 381,690
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2010 1,000 356,260
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2011 500 166,435
NR Mass. Industrial Finance Agency (Curry
College), 8s, 2014 2,000 1,929,940
NR Mass. Industrial Finance Agency (Emerson
College), 8.9s, 2018 1,000 1,099,120
AA Mass. Industrial Finance Agency (Phillips
Academy), 5.375s, 2023 2,000 1,712,620
-----------
$ 20,969,494
- ----------------------------------------------------------------------------
Other - 5.3%
NR Martha's Vineyard, MA, Land Bank,
8.125s, 2011 $ 4,200 $ 4,199,034
NR Mass. Health & Education Facilities
Authority (Learning Center for Deaf
Children), 9.25s, 2014 2,250 2,389,095
BBB Mass. Industrial Finance Agency (Dexter
School), 7.5s, 2011 1,720 1,802,887
BBB Mass. Industrial Finance Agency (Dexter
School), 7.5s, 2021 2,900 3,039,751
AAA Mass. Industrial Finance Agency (Jewish
Philanthropies), 6.375s, 2015 2,000 1,980,400
NR Nantucket Island, MA, Land Bank, 7.75s,
2020 1,200 1,328,664
-----------
$ 14,739,831
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $259,767,531) $265,220,247
- ------------------------------------------------------------------------------
Floating Rate Demand Note - 0.3%
- ------------------------------------------------------------------------------
Mass. Health & Education Facilities
Authority Rev., due 7/01/05,
at Identified Cost $ 900 $ 900,000
- ----------------------------------------------------------------------------
Call Option Purchased - 0.1%
- ----------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- ----------------------------------------------------------------------------
Georgia Municipal Electric Authority/2003/102
(Premium Paid, $131,400) $ 10 $ 313,500
- ----------------------------------------------------------------------------
Total Investments (Identified Cost, $260,798,931) $266,433,747
Other Assets, Less Liabilities - 3.5% 9,679,914
- ----------------------------------------------------------------------------
Net Assets - 100.0% $276,113,661
- ----------------------------------------------------------------------------
*Indexed security. See Note 7.
(S)(S)(S)Inverse floating rate security.
See notes to financial statements
<PAGE> 107
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS NEW YORK MUNICIPAL BOND FUND
Municipal Bonds - 96.1%
- -----------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
General Obligation - 6.2%
A- New York, NY, 8s, 2015 $ 10 $ 11,126
A- New York, NY, 8.25s, 2016 160 181,541
A- New York, NY, 7.5s, 2018 4,000 4,308,080
A- New York, NY, 8s, 2018 60 66,610
NR Oswego County, NY, 6.7s, 2009 1,000 1,042,450
AAA Port Byron, NY, Central School District,
7.4s, 2012 500 565,540
AAA Port Byron, NY, Central School District,
7.4s, 2013 500 567,570
AAA Port Byron, NY, Central School District,
7.4s, 2014 500 569,475
AAA Port Byron, NY, Central School District,
7.4s, 2015 500 568,085
AAA Rensselaer County, NY, 6.7s, 2012 500 525,125
NR Territory of Virgin Islands, 7.75s, 2006 440 476,810
AAA Washingtonville, NY, Central School
District, 7.35s, 2008 550 617,348
AAA Washingtonville, NY, Central School
District, 7.35s, 2009 550 614,746
-----------
$ 10,114,506
- -----------------------------------------------------------------------------
State and Local Appropriation - 29.5%
BBB Metropolitan Transportation Authority, NY,
Services Contract, 0s, 2008 $4,700 $ 1,908,012
BBB Metropolitan Transportation Authority, NY,
Services Contract, 5.75s, 2008 3,500 3,229,240
BBB Metropolitan Transportation Authority, NY,
Services Contract, 7.375s, 2008 4,335 4,711,321
BBB Metropolitan Transportation Authority, NY,
Services Contract, 0s, 2009 1,000 377,460
AAA New York City Construction Rev., 5.625s, 2013 2,000 1,874,080
BBB New York Dormitory Authority (City
University), 5.375s, 2007 1,000 892,630
BBB New York Dormitory Authority (City
University), 8.125s, 2008 1,500 1,683,690
BBB New York Dormitory Authority (City
University), 5.75s, 2011 710 647,094
BBB New York Dormitory Authority (City
University), 5.75s, 2013 1,600 1,441,680
BBB New York Dormitory Authority (City
University), 5.75s, 2018 5,500 4,875,805
AAA New York Dormitory Authority (College &
University), 0s, 2005 3,395 1,805,122
AAA New York Dormitory Authority (College &
University), 0s, 2006 1,700 842,622
BBB - New York Dormitory Authority (Community
College), 5.4s, 2008 1,960 1,743,792
BBB New York Dormitory Authority (Department of
Health), 5.5s, 2020 3,000 2,553,900
AAA New York Dormitory Authority (State
University), 5.875s, 2011 1,000 962,260
AAA New York Dormitory Authority (State
University), 5.875s, 2011 1,380 1,322,413
A New York Local Government Assistance Corp.,
5.375s, 2016 2,455 2,121,758
AA New York Medical Care Facilities Finance
Agency (Long-Term Care Facility), 6.8s, 2014 1,000 1,037,840
NR New York Medical Care Facilities Finance
Agency (Wyckoff Heights), 7.35s, 2011 1,385 1,478,931
BBB + New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev. 8.875s, 2007 290 321,694
BBB + New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.875s, 2008 245 271,815
BBB + New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.4s, 2018 1,635 1,722,979
BBB + New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.875s, 2020 405 446,148
BBB + New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.3s, 2021 250 266,430
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 5.9s, 2022 3,000 2,780,130
BBB New York Urban Development Capital Corp.,
State Facilities Rev., 5.5s, 2014 1,300 1,137,292
BBB New York Urban Development Capital Corp.,
State Facilities Rev., 5.5s, 2015 2,000 1,725,540
BBB New York Urban Development Capital Corp.,
State Facilities Rev., 7.5s, 2020 1,000 1,075,170
A Puerto Rico Public Buildings Authority,
6.27s, 2016 (Municipal Swap)* 2,000 1,720,040
NR Troy, NY, Certificates of Participation,
Recreational Facilities Rev., 9.75s, 2010 955 1,006,064
-----------
$ 47,982,952
- -----------------------------------------------------------------------------
Refunded and Special Obligation - 20.3%
A- New York City Municipal Water & Sewer
Finance Authority, 7.375s, 2013 $2,000 $ 2,258,120
A- New York City Municipal Water & Sewer
Finance Authority, 7s, 2015 530 583,864
A- New York City Municipal Water & Sewer
Finance Authority, 7s, 2015 225 247,867
AAA New York Local Government Assistance Corp.,
7s, 2016 6,500 7,211,100
AAA New York Local Government Assistance Corp.,
7.25s, 2018 2,500 2,807,450
AA New York Medical Care Facilities Finance
Agency, 8.3s, 2022 515 576,769
AAA New York Medical Care Facilities Finance
Agency (Buffalo General Hospital), 7.7s, 2022 500 556,895
AA New York Medical Care Facilities Finance
Agency (Presbyterian Hospital), 7.7s, 2009 750 854,640
AAA New York Medical Care Facilities Finance
Agency (St. Luke's Hospital), 7.45s, 2029 2,600 2,916,160
AAA New York Medical Care Facilities Finance
Agency (St. Luke's Hospital), 7.45s, 2029 2,000 2,243,200
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.875s, 2008 225 258,975
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.875s, 2020 560 644,560
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.3s, 2021 750 848,010
A- New York, NY, 8s, 2015 490 569,037
A- New York, NY, 8.25s, 2016 1,840 2,179,186
A- New York, NY, 8s, 2018 5,940 6,902,339
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 250 314,055
AAA Triborough Bridge & Tunnel Authority, NY,
7.375s, 2016 1,000 1,112,320
-----------
$ 33,084,547
- -----------------------------------------------------------------------------
Single Family Housing Revenue - 4.6%
AA Housing, NY, Corp. Rev., 5s, 2013 $3,000 $ 2,545,260
AA New York City Housing Development Corp.
(South Bronx Cooperatives), 8.1s, 2023 580 602,092
NR New York Mortgage Agency Rev., 7.375s, 2011 1,295 1,352,692
NR New York Mortgage Agency Rev., 8.05s, 2011 875 908,688
NR New York Mortgage Agency Rev., 8.05s, 2021 330 353,255
NR New York Mortgage Agency Rev., 8.05s, 2022 580 620,873
NR New York Mortgage Agency Rev., 7.75s, 2023 1,000 1,059,940
-----------
$ 7,442,800
- -----------------------------------------------------------------------------
Insured Health Care Revenue - 7.4%
AAA New York Dormitory Authority (St. Vincent's
Hospital), 7.375s, 2011 $2,500 $ 2,657,450
AAA New York Dormitory Authority (St. Vincent's
Hospital), 7.4s, 2030 2,400 2,546,832
AA New York Medical Care Facilities Finance
Agency (Long Island Hospital), 8.1s, 2022 1,500 1,625,550
AA New York Medical Care Facilities Finance
Agency (Montefiore Medical), 7.25s, 2009 3,200 3,388,640
AA New York Medical Care Facilities Finance
Agency (Montefiore Medical), 7.25s, 2024 1,750 1,853,163
-----------
$ 12,071,635
- -----------------------------------------------------------------------------
Health Care Revenue - 1.3%
NR Albany, NY, Industrial Development
Authority, Civic Facilities Rev. (Albany
Medical Center), 8.25s, 2004 $2,250 $ 2,185,853
- -----------------------------------------------------------------------------
Electric and Gas Utility Revenue - 2.1%
A+ New York Energy Research & Development
Authority, Electric Facilities Rev.
(Consolidated Edison Co.), 7.75s, 2024 $ 500 $ 528,925
AA New York State Power Authority, 8s, 2017 380 416,130
NR Virgin Islands Water & Power Authority,
Electric Systems Rev., 7.4s, 2011 2,450 2,517,326
-----------
$ 3,462,381
- -----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 14.4%
AAA New York City Municipal Water & Sewer
Finance Authority, 5.875s, 2012 $1,000 $ 952,670
AAA New York City Municipal Water & Sewer
Finance Authority, 5.5s, 2015 1,890 1,685,899
A- New York City Municipal Water & Sewer
Finance Authority, 7s, 2015 745 773,854
A- New York City Municipal Water & Sewer
Finance Authority, 7.6s, 2020 470 506,373
A- New York Environmental Facilities Corp.,
Pollution Control Rev., 5.75s, 2010 3,085 2,960,119
A New York Environmental Facilities Corp.,
Pollution Control Rev., 6.875s, 2010 2,000 2,083,760
A- New York Environmental Facilities Corp.,
Pollution Control Rev., 5.75s, 2011 2,500 2,382,650
A- New York Environmental Facilities Corp.,
Pollution Control Rev., 5.75s, 2012 2,000 1,892,780
A New York Environmental Facilities Corp.,
Pollution Control Rev., 7.5s, 2012 3,050 3,375,344
A- New York Environmental Facilities Corp.,
Pollution Control Rev., 5.875s, 2014 2,000 1,893,080
NR New York Environmental Facilities Corp.,
Water Facilities Rev. (American Water Co.),
8.85s, 2015 2,500 2,737,575
A Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 2,000 2,202,020
-----------
$ 23,446,124
- -----------------------------------------------------------------------------
Airport and Port Revenue - 0.7%
AAA Niagara, NY, Frontier Transportation
(Buffalo International Airport), 6s, 2008 $1,230 $ 1,206,175
- -----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 2.6%
A+ Allegany County, NY, Industrial Development
Authority, Solid Waste Rev. (Atlantic
Richfield Co.), 6.625s, 2016 $1,000 $ 1,024,050
NR Fulton County, NY, Industrial Development
Agency (Crossroads Incubator), 8.75s, 2009 1,195 1,265,242
NR Monroe County, NY, Industrial Development
Agency (Weyerhaeuser Co.), 9s, 2006 1,000 1,031,120
BB+ New York City Industrial Development
Agency, Special Facilities Rev. (American
Airlines), 6.9s, 2024 1,000 977,190
-----------
$ 4,297,602
- -----------------------------------------------------------------------------
Universities - 1.8%
AA New York Dormitory Authority (Cornell
University), 7.375s, 2020 $1,500 $ 1,643,400
AA New York Dormitory Authority (Menorah
Campus), 7.4s, 2031 1,100 1,211,331
-----------
$ 2,854,731
- -----------------------------------------------------------------------------
Other - 5.2%
AA Battery Park City Authority, NY, Rev.,
5.5s, 2010 $2,000 $ 1,814,620
NR Dutchess, NY, Industrial Development
Agency, Civic Facilities Rev. (New York
Assn. for Retarded Children), 8.625s, 2016 1,160 1,206,353
AA New York Energy Research & Development
Authority, Gas Facilities Rev., 7.674s, 2026 3,000 2,222,010
AAA Puerto Rico Telephone Authority Rev.,
5.69s, 2004 (Interest Rate Swap)* 2,750 2,321,495
BBB Virgin Islands Public Finance Authority,
Highway Rev., 7.7s, 2004 800 854,455
-----------
$ 8,418,933
- -------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $153,823,852) $156,568,239
- -------------------------------------------------------------------------------
Floating Rate Demand Notes - 0.7%
- -------------------------------------------------------------------------------
New York, NY, Municipal Water Finance
Authority, due 6/15/22 $ 300 $ 300,000
New York State Job Development Authority,
due 3/01/07 885 885,000
- ------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 1,185,000
- ------------------------------------------------------------------------------
Call Options Purchased - 0.3%
- ------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- -------------------------------------------------------------------------------
Georgia Municipal Electric Authority/2003/102 $ 5 $ 156,750
North Carolina Eastern Municipal Power Agency/
2003/102 5 137,500
State of New Jersey, "D"/2003/102 2 200,000
- -------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $555,000) $ 494,250
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $155,563,852) $158,247,489
Other Assets, Less Liabilities - 2.9% 4,670,515
- -----------------------------------------------------------------------------
Net Assets - 100.0% $162,918,004
- -----------------------------------------------------------------------------
*Indexed security. See Note 7.
See notes to financial statements
<PAGE> 108
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS NORTH CAROLINA MUNICIPAL BOND FUND
Municipal Bonds - 97.9%
- ----------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ----------------------------------------------------------------------------
General Obligation - 7.1%
AAA Charlotte, NC, Water & Sewer, 5.8s, 2013 $ 1,780 $ 1,721,064
AAA Charlotte, NC, Water & Sewer, 5.8s, 2014 5,050 4,850,475
AAA Cleveland County, NC, 5.1s, 2007 1,400 1,293,390
AAA Durham County, NC, 5.75s, 2009 1,010 983,659
AA+ Forsyth County, NC, 6.2s, 2004 1,010 1,044,502
AAA Greensboro, NC, 6.3s, 2010 1,000 1,022,480
AAA Greensboro, NC, 6.3s, 2011 4,165 4,262,461
BBB + Hertford County, NC, 9.5s, 2000 100 106,683
BBB + Hertford County, NC, 9.5s, 2001 100 106,756
BBB + Hertford County, NC, 9.5s, 2002 100 106,609
AAA Mecklenburg County, NC, 5.4s, 2008 3,000 2,848,920
AAA Mecklenburg County, NC, 5.5s, 2012 1,750 1,626,957
AAA Mecklenburg County, NC, 5.5s, 2013 2,715 2,504,180
AA+ Orange County, NC, 5.5s, 2013 2,000 1,853,540
AA- Pitt County, NC, 6.1s, 2008 1,500 1,504,380
AAA State of North Carolina, 4.7s, 2010 10,000 8,369,400
-----------
$ 34,205,456
- ---------------------------------------------------------------------------
State and Local Appropriation - 11.5%
AA Charlotte, NC, Certificates of
Participation (Cityfair Parking
Facilities Project), 6.125s, 2010 $ 2,000 $ 1,956,940
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2004 3,435 1,880,766
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2005 4,810 2,479,411
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2006 1,075 516,667
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2008 3,000 1,243,440
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 5.25s, 2013 8,250 7,216,688
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 5s, 2021 2,750 2,229,425
AA Charlotte, NC, Certificates of
Participation (Stadium Parking
Facilities Project), 6s, 2014 1,475 1,428,538
AAA Dare County, NC, 6.6s, 2006 2,100 2,196,432
AA Durham, NC, Certificates of
Participation, 6.375s, 2012 3,970 3,997,552
AA Durham, NC, Certificates of Participation
(New Durham Corp.), 6.875s, 2009 1,750 1,825,967
AA Durham County, NC, Certificates of
Participation (Hospital & Office
Facilities), 6s, 2014 1,000 955,480
AA Durham County, NC, Certificates of
Participation (Hospital & Office
Facilities), 6s, 2017 1,000 946,710
AA Greensboro, NC, Certificates of
Participation (Coliseum Arena Project),
6.25s, 2011 2,180 2,156,695
AAA Mooresville, NC, Graded School District,
Certificates of Participation, 6.3s,
2009 3,000 2,981,820
AAA Mooresville, NC, Graded School District,
Certificates of Participation, 6.35s,
2014 1,000 993,130
BBB Puerto Rico Housing, Bank & Finance
Agency, 7.5s, 2006 7,000 7,820,470
A Puerto Rico Public Buildings Authority,
6.27s, 2016 (Municipal Swap)* 6,500 5,590,130
AAA Rutherford County, NC, Certificates of
Participation, 6.2s, 2018 1,265 1,234,171
AAA Scotland County, NC, Certificates of
Participation (Jail/Courthouse
Project), 6.75s, 2011 1,000 1,040,360
AAA Thomasville, NC, Certificates of
Participation (City Hall), 6s, 2017 3,500 3,365,425
AAA Union County, NC, Certificates of
Participation, 6.375s, 2012 1,000 1,007,470
-----------
$ 55,063,687
- ---------------------------------------------------------------------------
Refunded and Special Obligation - 15.8%
NR Chapel Hill, NC, Parking Facilities Rev.
(Rosemary Street Project), 8.125s, 2013 $ 1,745 $ 2,027,969
NR Chapel Hill, NC, Parking Facilities Rev.
(Rosemary Street Project), 8.25s, 2023 3,305 3,862,388
AAA Charlotte, NC, Certificates of
Participation, 6.75s, 2021 4,250 4,670,878
AAA Charlotte-Mecklenburg, NC, Hospital
Authority, Health Care Systems Rev.,
7.7s, 2008 750 834,630
AAA Charlotte-Mecklenburg, NC, Hospital
Authority, Health Care Systems Rev.,
8.25s, 2013 2,995 3,258,830
AAA Charlotte-Mecklenburg, NC, Hospital
Authority, Health Care Systems Rev.,
7.875s, 2014 3,820 4,209,143
AAA Charlotte-Mecklenburg, NC, Hospital
Authority, Health Care Systems Rev.,
7.8s, 2018 3,780 4,220,030
AAA Charlotte-Mecklenburg, NC, Hospital
Authority, Health Care Systems Rev.,
8s, 2018 500 561,200
AAA Craven, NC, Regional Medical Authority,
7.2s, 2019 1,500 1,674,615
AAA Dare County, NC, School Bonds,
6.9s, 2008 800 875,384
AAA Dare County, NC, School Bonds, 6.9s, 2009 800 875,384
AAA Dare County, NC, School Bonds, 6.9s, 2010 500 547,115
AAA Mecklenburg County, NC, 6.25s, 2011 2,275 2,420,236
AAA North Carolina Eastern Municipal Power
Agency, 13s, 1998 3,000 3,708,780
A- North Carolina Eastern Municipal Power
Agency, 7.5s, 2010 2,595 2,999,197
AAA North Carolina Eastern Municipal Power
Agency, 7.75s, 2012 2,900 3,241,707
A- North Carolina Eastern Municipal Power
Agency, 5s, 2017 1,915 1,647,456
NR North Carolina Eastern Municipal Power
Agency, 8s, 2021 1,885 2,087,996
A- North Carolina Eastern Municipal Power
Agency, 8s, 2021 235 260,307
A- North Carolina Eastern Municipal Power
Agency, 7.25s, 2023 3,500 3,846,465
AAA North Carolina Medical Care Commission,
Hospital Rev. (Carolina Medicorp),
7.875s, 2015 1,000 1,092,350
AAA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Health
Services), 7.3s, 2015 1,000 1,121,490
AAA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Health
Services), 7.375s, 2020 12,315 13,858,193
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 0s, 2005 2,000 1,111,600
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 7.625s, 2014 820 899,999
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 7.875s, 2019 5,785 6,392,136
NR Pender County, NC, Certificates of
Participation (Pender County Prison),
7.6s, 2004 1,900 2,163,131
NR Pender County, NC, Certificates of
Participation (Pender County Prison),
7.7s, 2011 1,000 1,144,020
-----------
$ 75,612,629
- ---------------------------------------------------------------------------
Single Family Housing Revenue - 6.0%
A+ North Carolina Housing Finance Agency,
10.375s, 2007 $ 90 $ 92,072
A+ North Carolina Housing Finance Agency,
6.7s, 2018 3,315 3,294,778
A+ North Carolina Housing Finance Agency,
8.125s, 2019 2,390 2,480,199
A+ North Carolina Housing Finance Agency,
7.05s, 2020 2,430 2,451,943
A+ North Carolina Housing Finance Agency,
7.7s, 2021 2,785 2,868,244
A+ North Carolina Housing Finance Agency,
7.8s, 2021 2,955 3,066,433
A+ North Carolina Housing Finance Agency,
6.6s, 2026 4,000 3,896,080
A+ North Carolina Housing Finance Agency,
7.85s, 2028 6,900 7,183,935
A+ North Carolina Housing Finance Agency,
7.6s, 2032 3,410 3,537,636
-----------
$ 28,871,320
- ---------------------------------------------------------------------------
Multi-Family Housing Revenue - 4.1%
A Asheville, NC, Housing Authority
(Asheville Terrace Apartments), 7.1s,
2011 $ 5,000 $ 5,125,700
NR Charlotte, NC, Housing Authority
(Merrywood Senior Adult Project),
9.75s, 2019 6,710 6,441,600
NR New Bern, NC, Housing Authority, First
Mortgage Rev., 7.875s, 2004 200 204,378
NR New Bern, NC, Housing Authority, First
Mortgage Rev., 7.875s, 2010 700 715,323
AA North Carolina Housing Finance Agency,
6.9s, 2024 5,000 5,029,000
NR Salisbury, NC, Housing Corp., Inc.
(Yadkin Senior Citizens), 6.75s, 2022 2,190 2,178,787
-----------
$ 19,694,788
- ---------------------------------------------------------------------------
Insured Health Care Revenue - 5.2%
AAA Craven, NC, Regional Medical Authority,
5.5s, 2023 $ 1,800 $ 1,581,084
AAA Cumberland County, NC, Hospital
Facilities Rev. (Cumberland County
Hospital), 0s, 2009 1,800 696,096
AAA Cumberland County, NC, Hospital
Facilities Rev. (Cumberland County
Hospital), 6s, 2021 5,000 4,762,900
AAA North Carolina Medical Care Commission,
Hospital Rev. (Alamance Health Services,
Inc.), 5.5s, 2024 3,000 2,613,390
AAA North Carolina Medical Care Commission,
Hospital Rev. (St. Joseph's Hospital
Project), 5.1s, 2014 1,550 1,319,484
AAA North Carolina Medical Care Commission,
Hospital Rev. (Wayne Memorial
Hospital), 6s, 2021 2,420 2,272,670
AAA North Carolina Medical Care Commission,
Hospital Rev. (Wesley Long Community
Hospital), 5.25s, 2013 5,000 4,381,900
AAA Pitt County, NC, Hospital Rev. (Pitt
Memorial Hospital), 6.75s, 2014 2,800 2,930,368
AAA Wake County, NC, Hospital Rev., 5.125s,
2013 5,000 4,235,550
-----------
$ 24,793,442
- ---------------------------------------------------------------------------
Health Care Revenue - 12.9%
AA Charlotte-Mecklenburg, NC, Hospital
Authority, Health Care Systems Rev.,
6.25s, 2020 $ 1,000 $ 975,050
AA- North Carolina Medical Care Commission,
Hospital Rev. (Baptist Hospital), 6s,
2022 2,750 2,631,998
AA North Carolina Medical Care Commission,
Hospital Rev. (Carolina Medical
Project), 6s, 2021 20,100 19,126,355
AA North Carolina Medical Care Commission,
Hospital Rev. (Carolina Medicorp),
5.5s, 2015 3,185 2,851,561
A North Carolina Medical Care Commission,
Hospital Rev. (Gaston Health Care
Project), 0s, 2007 500 220,210
A North Carolina Medical Care Commission,
Hospital Rev. (Gaston Health Care
Project), 7.25s, 2019 1,400 1,466,598
NR North Carolina Medical Care Commission,
Hospital Rev. (Halifax Memorial
Hospital), 6.75s, 2014 2,765 2,783,470
NR North Carolina Medical Care Commission,
Hospital Rev. (Halifax Memorial
Hospital), 6.75s, 2024 4,500 4,513,905
NR North Carolina Medical Care Commission,
Hospital Rev. (Memorial Mission
Hospital), 9.1s, 2008 1,750 1,852,025
A- North Carolina Medical Care Commission,
Hospital Rev. (Mercy Hospital), 6.5s,
2015 1,650 1,585,634
A North Carolina Medical Care Commission,
Hospital Rev. (Moore Memorial
Hospital), 9.1s, 1999 800 845,048
A+ North Carolina Medical Care Commission,
Hospital Rev. (Moore Regional
Hospital), 5.2s, 2013 6,750 5,635,238
AA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Health
Services), 5.5s, 2020 4,000 3,514,000
AA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Hospital),
5.5s, 2014 3,450 3,119,145
NR North Carolina Medical Care Commission,
Hospital Rev. (Valdese General
Hospital), 8.75s, 2016 5,750 5,952,228
BBB Northern Hospital District, Surry County,
NC, Health Care Facilities Rev., 7.875s,
2021 4,530 4,733,533
-----------
$ 61,805,998
- ---------------------------------------------------------------------------
Electric and Gas Utility Revenue - 12.8%
A New Hanover County, NC, Industrial
Facilities Rev. (Carolina Power & Light
Co.), 6.9s, 2009 $ 1,000 $ 1,046,290
A- North Carolina Eastern Municipal Power
Agency, 7.25s, 2007 5,000 5,452,100
A- North Carolina Eastern Municipal Power
Agency, 7s, 2008 5,000 5,318,050
A- North Carolina Eastern Municipal Power
Agency, 6.125s, 2009 5,300 5,076,764
A- North Carolina Eastern Municipal Power
Agency, 7.5s, 2010 2,405 2,614,884
A- North Carolina Eastern Municipal Power
Agency, 6.5s, 2012 1,500 1,449,690
AAA North Carolina Eastern Municipal Power
Agency, 5.5s, 2017 2,500 2,207,400
A- North Carolina Eastern Municipal Power
Agency, 6.5s, 2017 3,500 3,367,875
AAA North Carolina Eastern Municipal Power
Agency, 6.25s, 2023 2,500 2,413,075
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 0s, 2008 8,000 3,412,560
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 0s, 2008 2,150 949,526
A North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 0s, 2009 10,000 3,858,600
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 6s, 2011 2,000 1,958,700
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 8.03s,
2012(S)(S)(S) 3,000 2,439,450
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 7.625s,
2014 180 192,857
A North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 5.75s,
2015 13,600 12,244,624
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 5.75s,
2020 1,920 1,753,210
AAA North Carolina Municipal Power Agency,
No. 1 Catawba Electric Rev., 8.23s, 2020 7,000 5,429,760
-----------
$ 61,185,415
- ---------------------------------------------------------------------------
Water and Sewer Utility Revenue - 4.4%
AAA Fayetteville, NC, Public Works Rev., 7s,
2011 $ 2,000 $ 2,197,780
AAA Gastonia, NC, Combined Utilities, 6s,
2014 1,000 967,400
AAA Gastonia, NC, Combined Utilities, 6.1s,
2019 1,290 1,251,584
AAA Kanapolis, NC, Certificates of
Participation, 7.375s, 2010 5,000 5,372,800
A Monroe, NC, Combined Enterprise, 6s, 2019 1,505 1,439,894
AA Orange Water & Sewer Authority, NC,
5.2s, 2016 3,000 2,607,540
A Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 3,000 3,303,030
AA+ Winston-Salem, NC, Water & Sewer Systems
Rev., 6.25s, 2012 4,000 4,031,200
-----------
$ 21,171,228
- ---------------------------------------------------------------------------
Airport and Port Revenue - 1.1%
AAA Piedmont Triad Airport, NC, Airport
Authority Rev., 5s, 2016 $ 2,645 $ 2,218,150
BB+ Raleigh-Durham, NC, Airport Authority
(American Airlines), 9.625s, 2015 3,000 3,177,750
-----------
$ 5,395,900
- ---------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 8.9%
NR Alamance County, NC, Industrial Facilities
& Pollution Control Finance Authority
(A.O. Smith Corp.), 7.375s, 2009 $ 1,000 $ 981,890
NR Chatham County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Weyerhaeuser Co.), 9s, 2006 1,260 1,304,894
A Craven County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Weyerhaeuser Co.), 6.35s, 2010 5,000 5,013,350
NR Gaston County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Combustion Engineering, Inc.), 8.85s,
2015 1,000 1,121,210
BBB Halifax County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Champion International Corp.), 8.15s,
2019 1,500 1,598,430
BBB Haywood County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Champion International Corp.), 8.1s,
2009 2,500 2,658,775
BBB Haywood County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Champion International Corp.), 5.5s,
2018 3,000 2,491,170
NR Henderson County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Figgie International Real
Estate Project), 8s, 2009 1,500 1,533,480
A Martin County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Weyerhaeuser Co.), 6.375s, 2010 5,500 5,440,655
A Martin County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Weyerhaeuser Co.), 7.25s, 2014 7,000 7,530,390
A Martin County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Weyerhaeuser Co.), 5.65s, 2023 7,595 6,439,876
AAA Mecklenburg County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Precision Steel), 7.75s, 2014 2,600 2,801,734
NR Surry County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 9.25s, 2002 1,500 1,812,075
NR Vance County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Keunemetal Co.), 8.05s, 1995 833 834,102
NR Wake County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Mallinckrodt), 6.75s, 2012 1,100 1,116,280
-----------
<PAGE> 109
$ 42,678,311
- ---------------------------------------------------------------------------
Universities - 7.3%
AAA Appalachian State University, NC, 6.1s,
2014 $ 1,140 $ 1,113,016
AAA Appalachian State University, NC,
6.125s, 2019 6,870 6,669,671
AA- North Carolina Education Facilities
Finance Agency (Davidson College),
6s, 2012 2,000 1,926,680
AA North Carolina Education Facilities
Finance Agency (Duke University),
6.75s, 2021 18,500 19,246,845
AA University of North Carolina (Chapel
Hill), 0s, 2012 9,105 2,730,954
AA University of North Carolina (Chapel
Hill), 0s, 2013 4,285 1,201,172
AA- University of North Carolina, Hospital
Rev. (Chapel Hill), 6s, 2024 2,200 2,059,111
-----------
$ 34,947,449
- ---------------------------------------------------------------------------
Miscellaneous Revenue - 0.8%
NR Iredell, NC, Solid Waste Systems Rev.,
6.25s, 2012 $ 1,250 $ 1,235,150
AAA Puerto Rico Telephone Authority Rev.,
5.69s, 2004 (Interest Rate Swap)* 2,750 2,321,495
-----------
$ 3,556,645
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $466,335,734) $468,982,268
- ------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.1%
- ------------------------------------------------------------------------------
Jackson County, MS, Pollution Control
Rev. (Chevron USA, Inc.), due 12/01/16 $ 2,800 $ 2,800,000
Uinta County, WY, Pollution Control Rev.
(Chevron USA, Inc.), due 8/15/20 1,400 1,400,000
Wake County, NC, Industrial Facilities &
Pollution Control Rev. (Carolina Power &
Light Co.), due 3/01/17 6,000 6,000,000
- ---------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 10,200,000
- ---------------------------------------------------------------------------
Total Investments (Identified Cost, $476,535,734) $479,182,268
Other Assets, Less Liabilities (262,799)
- ------------------------------------------------------------------------------
Net Assets - 100.0% $478,919,469
- ------------------------------------------------------------------------------
*Indexed security. See Note 7.
(S)(S)(S)Inverse floating rate security.
See notes to financial statements
<PAGE> 110
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS PENNSYLVANIA MUNICIPAL BOND FUND
Municipal Bonds - 99.0%
- ----------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ----------------------------------------------------------------------------
General Obligation - 13.1%
AAA Erie County, PA, 5.5s, 2016 $ 250 $ 222,552
AAA Lehigh County, PA, 5.125s, 2011 500 441,710
AAA Northeastern York County, PA, School
District, 0s, 2012 415 139,328
AAA Oley Valley, PA, School District, 0s, 2011 910 321,130
AAA Philadelphia, PA, School District, 5.45s,
2004 500 482,485
A Southeastern Area, PA, Special Schools
Authority Rev., 0s, 2007 360 150,833
AAA State of Pennsylvania, 5.4s, 2006 300 286,569
AA- State of Pennsylvania, 5s, 2010 250 218,692
AA- State of Pennsylvania, 5.375s, 2010 500 455,740
AAA York County, PA, School District, 5.7s,
2013 250 232,693
-----------
$ 2,951,732
- ----------------------------------------------------------------------------
State and Local Appropriation - 8.4%
AAA Philadelphia, PA, Municipal Authority Rev.,
5.625s, 2014 $1,150 $ 1,048,455
NR Philadelphia, PA, Municipal Authority Rev.,
8.625s, 2016 400 426,852
AAA State of Pennsylvania, Certificates of
Participation, 5.25s, 2010 250 221,413
AAA State of Pennsylvania, Certificates of
Participation, 5s, 2015 250 207,285
-----------
$ 1,904,005
- ----------------------------------------------------------------------------
Refunded and Special Obligation - 10.0%
AA Allegheny County, PA, Sanitation Authority,
7.45s, 2009 $ 200 $ 219,220
AAA Bethlehem, PA, Water Authority, 6.1s, 2018 500 522,695
AA Philadelphia, PA, Gas Works Rev., 6s, 2013 645 626,656
AAA Puerto Rico Highway & Transportation
Authority, Highway Rev., 6.5s, 2022 250 272,138
A Puerto Rico Public Buildings Authority,
6.875s, 2021 250 278,032
AAA Schuylkill, PA, Redevelopment Authority
Rev., 7s, 2007 300 332,478
-----------
$ 2,251,219
- ----------------------------------------------------------------------------
Single Family Housing Revenue - 4.4%
AA Pennsylvania Housing Finance Authority,
6.75s, 2014 $ 500 $ 500,000
AA Pennsylvania Housing Finance Authority,
6.4s, 2016 500 493,510
-----------
$ 993,510
- ----------------------------------------------------------------------------
Multi-Family Housing Revenue - 1.0%
NR Montgomery, PA, Redevelopment Authority
(KBF Associates), 6.5s, 2025 $ 250 $ 226,657
- ----------------------------------------------------------------------------
Insured Health Care Revenue - 10.7%
AAA Allegheny County, PA, Hospital Development
Authority (Presbyterian Health Center),
6s, 2012 $ 500 $ 482,255
AAA Butler County, PA, Hospital Authority,
Hospital Rev. (Butler Memorial Hospital),
5.25s, 2016 400 347,128
AAA Dauphin County, PA, General Authority
Hospital Rev., 5.8s, 2002 355 362,277
AAA Doylestown, PA, Hospital Authority,
Hospital Rev., 5s, 2014 500 425,485
AAA Lehigh County, PA, Hospital Rev. (Lehigh
Valley Hospital), 7s, 2016 250 266,213
NR Philadelphia, PA, Hospitals & Higher
Education Facilities Authority, Hospital
Rev. (Agnes Medical Center), 7.25s, 2031 500 523,295
-----------
$ 2,406,653
- ----------------------------------------------------------------------------
Health Care Revenue - 3.9%
AA Philadelphia, PA, Hospitals & Higher
Education Facilities Authority, Hospital
Rev. (Children's Hospital), 5.375s, 2014 $ 500 $ 432,800
BBB+ Philadelphia, PA, Hospitals & Higher
Education Facilities Authority, Hospital
Rev. (Temple University Hospital), 6.625s,
2023 250 229,383
NR Pottsville, PA, Hospital Authority
(Daughters of Charity), 5s, 2012 250 208,217
-----------
$ 870,400
- ----------------------------------------------------------------------------
Electric and Gas Utility Revenue - 7.4%
AAA Philadelphia, PA, Gas Works Rev., 5.5s,
2010 $ 300 $ 271,044
BB Philadelphia, PA, Gas Works Rev., 6.375s,
2014 500 484,850
BBB Philadelphia, PA, Gas Works Rev., 5.25s,
2015 250 205,157
AAA Philadelphia, PA, Water & Wastewater Rev.,
5s, 2019 585 481,379
NR Schuylkill County, PA, Industrial
Development Authority, Resource Recovery
Rev., 6.5s, 2010 250 230,915
-----------
$ 1,673,345
- ----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 5.0%
AAA Bethlehem, PA, Authority, Water Rev.,
5.2s, 2021 $ 250 $ 207,123
AAA Highland, PA, Sewer & Water Rev., 5.35s,
2013 500 440,750
AAA Lancaster, PA, Sewer Authority, 6.85s, 2011 250 260,330
AAA Meadville, PA, Area Water Authority,
5.125s, 2014 250 214,225
-----------
$ 1,122,428
- ----------------------------------------------------------------------------
Turnpike Revenue - 1.0%
AAA Pennsylvania Turnpike Commission, Turnpike
Rev., 5.5s, 2017 $ 250 $ 223,792
- ----------------------------------------------------------------------------
Airport and Port Revenue - 6.7%
AAA Allegheny County, PA, Airport Rev. (Greater
Pittsburgh International Airport), 7.75s,
2019 $1,000 $ 1,063,560
AAA Lehigh-Northampton, PA, Airport Rev.
(Allentown-Bethlehem International),
5.4s, 2012 500 450,960
-----------
$ 1,514,520
- ----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 3.1%
NR Hampden, PA, Industrial Development
Authority, 5.75s, 2008 $ 250 $ 227,260
A New Morgan, PA, Industrial Development Rev.
(Morgan Landfill Co.), 6.5s, 2019 500 480,970
-----------
$ 708,230
- ----------------------------------------------------------------------------
Universities - 14.0%
AAA Allegheny County, PA, Higher Education
Building Authority Rev. (Community
College), 5s, 2010 $ 500 $ 440,870
AAA Delaware County, PA, Authority, College
Rev. (Haverford College), 5.5s, 2023 250 219,537
AAA Lycoming County, PA, Authority, College
Rev. (Pennsylvania College of Technology),
0s, 2009 1,575 613,919
AAA Northampton County, PA, Higher Education
Authority Rev. (LaFayette College), 5s,
2015 690 573,480
AA- Pennsylvania State University, 5.5s, 2016 500 444,075
AA- Pennsylvania State University, 5.1s, 2018 250 209,190
AA State of Pennsylvania Higher Education
Facilities Authority, 5.7s, 2015 250 228,940
AA- State of Pennsylvania Higher Education
Facilities Authority (University of
Pennsylvania), 7s, 2008 400 438,716
-----------
$ 3,168,727
- -----------------------------------------------------------------------------
Other - 10.3%
BB Pennsylvania Convention Center Authority,
6.75s, 2019 $ 250 $ 236,964
AAA Pittsburgh, PA, Public Parking Authority,
Parking Rev., 5.875s, 2012 500 478,100
AAA Puerto Rico Telephone Authority Rev.,
5.69s, 2004 (Interest Rate Swap)* 250 211,045
AAA Reading, PA, Parking Authority, 0s, 2007 1,160 522,313
A State of Pennsylvania Finance Authority
Rev. (Municipal Capital Improvement
Program), 6.6s, 2009 500 502,070
AAA State of Pennsylvania Industrial
Development Authority Rev., 5.8s, 2009 400 386,672
-----------
$ 2,337,164
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $23,559,159) $ 22,352,382
- ------------------------------------------------------------------------------
Floating Rate Demand Note - 3.5%
- ------------------------------------------------------------------------------
Allegheny County, PA, Hospital Development
Authority Rev. (Presbyterian University
Hospital), due 3/01/20, at Identified Cost $ 800 $ 800,000
- ----------------------------------------------------------------------------
Total Investments (Identified Cost, $24,359,159) $ 23,152,382
Other Assets, Less Liabilities - (2.5)% (562,408)
- ------------------------------------------------------------------------------
Net Assets - 100.0% $ 22,589,974
- ------------------------------------------------------------------------------
*Indexed security. See Note 7.
See notes to financial statements
<PAGE> 111
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS SOUTH CAROLINA MUNICIPAL BOND FUND
Municipal Bonds - 96.7%
- ----------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ----------------------------------------------------------------------------
General Obligation - 5.0%
AA Charleston County, SC, 5.5s, 2014 $2,250 $ 2,024,640
AAA Horry County, SC, School District, 4.8s,
2004 2,215 2,072,332
AA- North Charleston, SC, 5.875s, 2010 780 746,803
A Williamsburg County, SC, School District,
7.8s, 2003 200 209,496
A Williamsburg County, SC, School District,
7.9s, 2005 250 261,855
A Williamsburg County, SC, School District,
7.9s, 2006 275 287,853
A Williamsburg County, SC, School District,
7.9s, 2007 300 313,938
A- York County, SC, 5s, 2011 3,940 3,396,556
-----------
$ 9,313,473
- ----------------------------------------------------------------------------
State and Local Appropriation - 4.7%
AAA Berkeley County, SC, School District, 6.3s,
2016 $1,100 $ 1,082,026
AAA Lexington County, SC, School District No.
1, Certificates of Participation (Gilbert
Middle School), 6.65s, 2012 1,000 1,026,840
BBB+ Myrtle Beach, SC, Public Finance Corp.,
Certificates of Participation (Convention
Center), 6.875s, 2017 2,500 2,469,600
AAA North Charleston, SC, Certificates of
Participation (Coliseum), 6s, 2016 1,355 1,286,166
A Puerto Rico Public Buildings Authority,
5.75s, 2010 1,000 941,380
NR Williamsburg County, SC, School District
Public Facilities Corp., Certificates of
Participation, 7.5s, 2006 175 166,003
NR Williamsburg County, SC, School District
Public Facilities Corp., Certificates of
Participation, 7.5s, 2007 190 179,765
NR Williamsburg County, SC, School District
Public Facilities Corp., Certificates of
Participation, 7.5s, 2008 205 193,489
NR Williamsburg County, SC, School District
Public Facilities Corp., Certificates of
Participation, 7.5s, 2009 220 207,185
NR Williamsburg County, SC, School District
Public Facilities Corp., Certificates of
Participation, 7.5s, 2012 270 244,666
NR Williamsburg County, SC, School District
Public Facilities Corp., Certificates of
Participation, 7.5s, 2014 315 284,117
NR Williamsburg County, SC, School District
Public Facilities Corp., Certificates of
Participation, 7.5s, 2018 635 568,560
-----------
$ 8,649,797
- ----------------------------------------------------------------------------
Refunded and Special Obligation - 19.2%
NR Anderson County, SC, 7.75s, 2008 $ 500 $ 547,470
AAA Berkeley County, SC, Water & Sewer Rev.,
6s, 2010 130 136,869
AA Charleston County, SC, 6.5s, 2011 1,315 1,417,083
AAA Charleston County, SC, Certificates of
Participation (Charleston Public
Facilities Corp.), 7.1s, 2011 2,000 2,227,600
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2004 1,500 890,850
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2006 2,045 1,050,087
AAA Commonwealth of Puerto Rico, Public
Improvement, 6.8s, 2021 425 470,654
AAA Grand Strand, SC, Water & Sewer Rev.,
7.75s, 2019 750 827,835
AAA Greenville Hospital System, SC, Hospital
Facilities Rev., "A", 7.8s, 2015 1,950 2,162,316
AAA Greenville Hospital System, SC, Hospital
Facilities Rev., "B", 7.8s, 2015 1,500 1,663,320
AAA Greenwood County, SC, Hospital Rev. (Self
Memorial Hospital), 8.25s, 2007 500 555,645
AAA Greenwood County, SC, Hospital Rev. (Self
Memorial Hospital), 8.375s, 2017 1,000 1,114,730
AAA Laurens, SC, Utility Systems Rev., 7.625s,
2018 1,100 1,216,721
AAA Lexington County, SC, School District No.
1, Certificates of Participation (White
Knoll Middle School), 7.65s, 2009 1,400 1,564,388
AAA Myrtle Beach, SC, Water & Sewer Rev., 6s,
2015 1,780 1,846,180
AAA Myrtle Beach, SC, Water & Sewer Rev., 6s,
2020 1,750 1,815,065
AAA North Charleston, SC, 7.5s, 2006 485 535,532
AAA North Charleston, SC, Sewer Rev., 7.75s,
2018 1,250 1,390,975
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 750 942,165
AA Richland County, SC, 6.25s, 2010 1,260 1,337,540
AAA Richland County, SC, Certificates of
Participation, 0s, 2005 1,160 638,441
AAA Richland County, SC, Certificates of
Participation, 0s, 2006 1,160 595,985
AAA Richland County, SC, Certificates of
Participation, 0s, 2007 1,160 558,610
A+ South Carolina Public Service Authority,
"B", 7.1s, 2021 2,000 2,223,520
A+ South Carolina Public Service Authority,
"C", 7.1s, 2021 1,220 1,356,347
AA- South Carolina Public Service Authority
(Santee Cooper), 6.625s, 2031 4,000 4,345,720
A+ South Carolina Public Service Authority,
Electric Rev., 7.875s, 2021 140 148,504
A- Spartanburg County, SC, Hospital Facilities
Rev. (Mary Black Hospital), 8.25s, 2008 500 564,690
AAA York County, SC, School District No. 3,
7.5s, 2007 575 632,977
AAA York, SC, Water & Sewer Rev., 7.875s, 2013 620 669,755
-----------
$ 35,447,574
- ----------------------------------------------------------------------------
Single Family Housing Revenue - 6.2%
AA South Carolina Housing Authority, 8.6s,
2019 $1,000 $ 1,048,910
AA South Carolina Housing Finance &
Development Authority, 7.55s, 2011 1,750 1,795,483
AA South Carolina Housing Finance &
Development Authority, 7.75s, 2022 2,650 2,753,668
AA South Carolina Housing Finance &
Development Authority, 7.8s, 2022 1,000 1,037,480
AA South Carolina Housing Finance &
Development Authority, 7.9s, 2032 4,610 4,805,925
-----------
$ 11,441,466
- ----------------------------------------------------------------------------
Multi-Family Housing Revenue - 1.1%
AA South Carolina Housing Finance &
Development Authority (Fairway
Apartments), 7.625s, 2033 $1,990 $ 2,090,813
- ----------------------------------------------------------------------------
Insured Health Care Revenue - 8.8%
AAA Anderson County, SC, Hospital Facilities
Rev. (Anderson Area Medical Center, Inc.),
5.1s, 2006 $2,745 $ 2,536,215
AAA Charleston County, SC, Hospital Rev. (Bon
Secours Health System Project), 5.625s,
2025 1,500 1,308,030
AAA Charleston County, SC, Hospital Rev.
(Medical Society Health Project), 5.5s,
2019 3,800 3,333,056
AAA Charleston County, SC, Hospital Rev.
(Medical Society Health Project), 5s, 2022 2,450 1,978,571
AAA Florence County, SC, Hospital Rev. (McLeod
Regional Medical Center), 5.25s, 2009 1,000 903,810
AAA Greenwood County, SC, Hospital Rev. (Self
Memorial Hospital), 5.875s, 2017 2,000 1,851,600
AAA Pickens & Richland Counties, SC, Hospital
Rev. (Baptist Hospital), 5.75s, 2021 3,635 3,269,137
AAA Richland County, SC, Hospital Facilities
Rev. (Providence Hospital), 5.25s, 2010 1,200 1,061,628
-----------
$ 16,242,047
- ----------------------------------------------------------------------------
Health Care Revenue - 8.5%
NR Charleston County, SC, First Mortgage Rev.
(Driftwood Health Care Center), 12.5s,
2014 $2,140 $ 2,216,034
NR Greenville County, SC, First Mortgage Rev.
(Chestnut Hill), 10.125s, 2016 1,975 2,068,615
AA- Greenville Hospital System, SC, Hospital
Facilities Rev., 5.5s, 2011 1,000 895,980
AA- Greenville Hospital System, SC, Hospital
Facilities Rev., 6s, 2020 4,400 4,142,336
NR Horry County, SC, Hospital Facilities Rev.
(Conway Hospital), 6.75s, 2012 4,500 4,339,395
NR South Carolina Jobs, Economic Development
Authority (Carolina Hospital System
Project), 7.55s, 2022 2,000 2,023,660
-----------
$ 15,686,020
- ---------------------------------------------------------------------------
Electric and Gas Utility Revenue - 13.4%
A Colleton & Dorchester Counties, SC,
Pollution Control Rev., 6.6s, 2014 $3,000 $ 2,982,360
A Fairfield County, SC, Pollution Control
Rev. (South Carolina Electric Co.), 6.5s,
2014 2,000 1,988,200
AAA Piedmont Municipal Power Agency, SC,
Electric Rev., 6.25s, 2021 4,600 4,506,482
AAA Piedmont Municipal Power Agency, SC,
Electric Rev., 6.3s, 2022 2,270 2,195,203
AAA South Carolina Public Service Authority,
7.375s, 2013(S)(S)(S) 3,000 2,499,660
AAA South Carolina Public Service Authority,
7.75s, 2015 3,155 3,301,392
AAA South Carolina Public Service Authority,
5.5s, 2021 5,930 5,081,358
AAA South Carolina Public Service Authority,
5.125s, 2032 2,000 1,547,660
AAA - South Carolina Public Service Authority,
Electric System Expansion Rev., 7.875s,
2021 650 681,356
-----------
$ 24,783,671
- ----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 15.9%
AAA Berkeley County, SC, Water & Sewer Rev.,
6s, 2010 $1,870 $ 1,815,770
AAA Cayce, SC, Waterworks & Sewer Rev.,
5.25s, 2015 3,500 3,007,970
AAA Charleston, SC, Waterworks & Sewer Rev.,
5s, 2022 3,150 2,570,180
AA- Charleston County, SC, Waterworks & Sewer
Rev., 6s, 2012 2,500 2,410,250
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2005 2,245 1,226,578
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2006 9,330 4,755,221
AA Columbia, SC, Waterworks & Sewer Rev.,
5.375s, 2012 1,750 1,593,585
NR Laurens County, SC, Water & Sewer
Commission, Sewer System Rev., 5.5s, 2014 1,080 935,626
AAA Myrtle Beach, SC, Water & Sewer Rev.,
5.5s, 2013 1,650 1,483,647
AAA Rock Hill, SC, Utility Systems Rev., 5s,
2020 1,285 1,048,483
A+ South Carolina Resources Authority (Local
Government Program), 7.25s, 2020 3,000 3,155,760
AAA St. Andrews, SC, Public Services District,
Sewer System Rev., 7.75s, 2018 1,000 1,084,020
AAA Union, SC, Combined Public Utility System
Rev., 5s, 2009 1,075 952,461
AAA Union, SC, Combined Public Utility System
Rev., 5s, 2021 1,650 1,354,204
AAA Western Carolina Regional Sewer Authority,
0s, 2007 4,400 2,080,584
-----------
$ 29,474,339
- ----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 12.1%
NR Aiken County, SC, Industrial Rev.
(Kimberly-Clark Project), 8.92s, 2005 $ 300 $ 316,914
BBB + Calhoun, SC, Solid Waste Disposal Rev.
(Eastman Kodak), 6.75s, 2017 1,000 1,018,460
A Charleston County, SC, Resource Recovery
Rev. (Foster Wheeler), 9.25s, 2010 1,750 1,933,610
BBB + Chester County, SC, Industrial Rev.
(Springs Industries, Inc.), 7.35s, 2014 1,000 1,044,690
BBB + Chester County, SC, Industrial Rev.
(Springs Industries, Inc.), 7.8s, 2014 1,025 1,096,934
AA- Darlington County, SC, Industrial
Development Rev. (Nucor Corp.), 5.75s,
2023 2,000 1,746,780
NR Fairfield County, SC, Industrial Rev. (Rite
Aid, Inc.), 7.9s, 2016 2,950 3,093,577
AA Florence County, SC, Pollution Control
Facility Rev. (E.I. du Pont de Nemours &
Co.), 6.35s, 2022 1,000 964,510
NR Greenville County, SC, Industrial Rev.
(Kroger Co.), 7.85s, 2015 500 531,955
NR Lexington County, SC, Industrial Rev.
(J.B. White & Co.), 8s, 2005 700 732,886
AA- Oconee County, SC, Pollution Control Rev.
(Duke Power Co.), 5.8s, 2014 2,975 2,798,731
AA- Oconee County, SC, Pollution Control Rev.
(Duke Power Co.), 7.5s, 2017 1,000 1,075,720
A- Richland County, SC, Pollution Control Rev.
(Union Camp Corp.), 6.625s, 2022 1,750 1,752,258
A- Richland County, SC, Solid Waste Facilities
Rev. (Union Camp Corp.), 6.75s, 2022 2,000 1,989,900
AA- York County, SC, Industrial Rev. (Hoechst
Celanese), 5.7s, 2024 2,725 2,367,262
-----------
$ 22,464,187
- ----------------------------------------------------------------------------
Other - 1.8%
A Puerto Rico Highway & Transportation
Authority Rev., 6.625s, 2018 $1,500 $ 1,543,996
AAA Puerto Rico Telephone Authority Rev.,
5.69s, 2004 (Interest Rate Swap)* 2,000 1,688,360
-----------
$ 3,232,356
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $178,555,131) $178,825,743
- ------------------------------------------------------------------------------
Floating Rate Demand Note - 1.6%
- ------------------------------------------------------------------------------
Charleston County, SC, Industrial Rev.
(Massey Coal), due 1/01/07, at Identified
Cost $3,000 $ 3,000,000
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $181,555,131) $181,825,743
Other Assets, Less Liabilities - 1.7% 3,140,153
- ------------------------------------------------------------------------------
Net Assets - 100.0% $184,965,896
- ------------------------------------------------------------------------------
*Indexed security. See Note 7.
(S)(S)(S)Inverse floating rate security.
See notes to financial statements
<PAGE> 112
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS Virginia Municipal Bond Fund
Municipal Bonds - 96.2%
- ----------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ----------------------------------------------------------------------------
General Obligation - 9.1%
AAA Arlington County, VA, 6s, 2011 $ 1,500 $ 1,499,550
AAA Arlington County, VA, 6s, 2012 1,500 1,491,525
AA Chesapeake, VA, Public Improvement,
5.25s, 2008 3,300 3,061,179
AAA Fairfax County, VA, 4.8s, 2003 3,500 3,316,320
AAA Fairfax County, VA, 5.375s, 2009 3,000 2,803,830
AAA Fairfax County, VA, 5.2s, 2012 3,150 2,813,769
AA- Hampton, VA, Public Improvement,
6.625s, 2010 1,500 1,616,025
NR Lebanon, VA, 7.6s, 2005 375 385,353
NR Lebanon, VA, 7.75s, 2010 310 319,594
AA- Newport News, VA, 4.95s, 2007 2,670 2,394,643
AA Norfolk, VA, 5.5s, 2011 2,100 1,941,513
AA Norfolk, VA, 5.5s, 2013 1,000 909,400
AA- Portsmouth, VA, 6.375s, 2012 1,555 1,569,213
AA- Portsmouth, VA, 5.5s, 2013 2,000 1,814,180
AA Richmond, VA, 0s, 2006 1,000 503,950
AA Richmond, VA, 0s, 2006 2,500 1,254,350
AA Richmond, VA, 0s, 2007 5,280 2,447,914
AA Richmond, VA, 0s, 2008 2,000 869,860
AA Richmond, VA, 0s, 2008 5,270 2,280,276
AA Richmond, VA, 0s, 2009 5,175 2,061,875
AA Richmond, VA, 5.5s, 2022 2,000 1,736,500
AAA State of Virginia (Higher Educational
Institute), 0s, 1995 725 706,281
AAA State of Virginia (Higher Educational
Institute), 0s, 1996 1,000 930,320
AAA State of Virginia (Higher Educational
Institute), 0s, 1998 1,295 1,077,738
AAA State of Virginia (Higher Educational
Institute), 0s, 1999 1,300 1,021,839
A Suffolk, VA, 6.5s, 2006 1,250 1,297,438
-----------
$ 42,124,435
- ----------------------------------------------------------------------------
State and Local Appropriation - 4.0%
NR Chesterfield County, VA, Industrial
Development Authority, Public Facilities
Lease Rev. (Correctional Enterprises),
7.5s, 2008 $ 1,720 $ 1,694,011
NR New Kent County, VA, Industrial Development
Authority, Public Facilities Lease Rev.
(New Kent County Courthouse), 7.5s, 2011 700 728,812
A Puerto Rico Public Buildings Authority,
6.27s, 2016 (Municipal Swap)* 6,500 5,590,130
AAA Virginia Public Building Authority, 0s,
2007 13,305 6,173,653
AAA Virginia Public Building Authority, 0s,
2008 10,650 4,592,386
-----------
$ 18,778,992
- ----------------------------------------------------------------------------
Refunded and Special Obligation - 20.1%
NR Arlington County, VA, Industrial
Development Authority (Arlington
Hospital), 7.125s, 2021 $ 4,450 $ 4,975,946
AAA Bedford, VA, Electric Systems Rev., 8.875s,
2015 2,000 2,101,840
AAA Bedford, VA, Electric Systems Rev., 9s,
2025 1,000 1,051,730
NR Carroll County, VA, Solid Waste Authority
Rev., 7.5s, 2006 2,265 2,574,195
NR Chesapeake, VA, Certificates of
Participation, 7.75s, 2006 1,250 1,340,025
NR Chesapeake, VA, Industrial Development
Authority Rev. (Sentara Life Care Corp.),
10s, 2012 1,130 1,300,246
AA Chesapeake, VA, Public Improvement,
6.75s, 2008 2,500 2,705,175
AAA Chesterfield County, VA, Water & Sewer
Rev., 9.125s, 2010 3,250 3,474,413
AAA Commonwealth of Puerto Rico, 7.9s, 2004 1,660 1,804,868
AAA Fairfax County, VA, Water Authority Rev.,
7.25s, 2027 3,090 3,423,874
AAA Frederick-Winchester, VA, Sewer System
Rev., 9.375s, 2015 1,500 1,615,965
AAA Henrico County, VA, Water & Sewer Rev.,
7.875s, 2013 3,500 3,744,615
AAA Nelson County, VA, Service Authority, Water
& Sewer Rev., 7.875s, 2018 1,000 1,065,680
NR Newport News, VA, 6.5s, 2008 875 946,313
NR Newport News, VA, 6.5s, 2010 2,205 2,384,708
NR Newport News, VA, 6.5s, 2011 2,325 2,514,488
AA Norfolk, VA, Industrial Development
Authority (Sentara Hospital), 7.875s, 2008 1,000 1,118,960
AA Norfolk, VA, Industrial Development
Authority (Sentara Hospital), 7.9s, 2018 2,000 2,243,660
NR Norfolk, VA, Industrial Development
Authority (Sentara Life Care Corp.), 10s,
2012 4,320 4,970,851
AA- Portsmouth, VA, 6.9s, 2019 1,500 1,644,720
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 4,150 5,213,313
AAA Puerto Rico Aqueduct & Sewer Authority,
10.25s, 2009 400 548,228
AAA Puerto Rico Electric Power Authority Rev.,
9.125s, 2015 1,500 1,600,545
AAA Puerto Rico Highway & Transportation
Authority, Highway Rev., 6.5s, 2022 1,750 1,904,962
AAA Puerto Rico Industrial, Medical &
Environmental Pollution Control Facilities
Finance Authority Rev., 9.75s, 2025 1,345 1,432,075
AAA Puerto Rico Public Buildings Authority,
8.875s, 2012 3,500 3,694,180
AAA Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Memorial
Hospital), 7.25s, 2010 1,750 1,951,758
A+ Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Memorial
Hospital), 7.5s, 2020 1,245 1,403,800
NR Salem, VA, 8.65s, 2003 525 552,657
AAA Southeastern Public Service Authority, VA,
Solid Waste System Rev., 9.25s, 2015 2,750 3,017,025
AAA Southeastern Public Service Authority, VA,
Solid Waste System Rev., 10.5s, 2015 5,600 5,962,152
AAA State of Virginia, Public School Authority,
8.5s, 2009 500 549,015
AAA University of Virginia, Hospital Rev., 9s,
2013 4,165 4,380,455
AAA Virginia Beach, VA, Certificates of
Participation (Judicial Center Project),
7.25s, 2010 4,955 5,538,253
A+ Virginia Beach, VA, Water & Sewer Rev.,
6.625s, 2017 2,400 2,600,424
NR Virginia College Building Authority
(Hampton University), 7.75s, 2014 750 839,115
AA Virginia Resources Authority, Water & Sewer
System Rev., 8.75s, 2003 500 613,335
NR Virginia Resources Authority, Water & Sewer
System Rev., 7.5s, 2020 1,180 1,310,213
AA Virginia Resources Authority, Water System
Rev., 7.875s, 2018 800 893,735
AAA Virginia Transportation Board, Contract
Rev. (Route 28), 7.7s, 2008 2,175 2,400,352
-----------
$ 93,407,864
- ----------------------------------------------------------------------------
Single Family Housing Revenue - 4.2%
AAA Puerto Rico Housing Finance Corp., 7.8s,
2021 $ 45 $ 46,989
AAA Virginia Housing Development Authority,
0s, 2010 560 126,263
A+ Virginia Housing Development Authority,
6.95s, 2010 2,000 2,039,060
NR Virginia Housing Development Authority,
7.92s, 2019(S)(S)(S) 7,500 6,279,300
AA+ Virginia Housing Development Authority,
6.45s, 2021 4,250 4,112,598
A+ Virginia Housing Development Authority,
7.1s, 2022 2,000 2,035,340
AA+ Virginia Housing Development Authority,
7.8s, 2028 2,000 2,057,540
AA+ Virginia Housing Development Authority,
0s, 2029 3,615 220,443
AA+ Virginia Housing Development Authority,
7.8s, 2038 2,500 2,559,925
-----------
$ 19,477,458
- ----------------------------------------------------------------------------
Multi-Family Housing Revenue - 6.6%
NR Alexandria, VA, Redevelopment & Housing
Authority (Jefferson Village Apartments),
9s, 2018 $ 4,000 $ 4,113,960
NR Fairfax County, VA, Redevelopment & Housing
Authority (Little River Glen), 8.95s, 2020 3,895 4,005,813
AAA Fairfax County, VA, Redevelopment & Housing
Authority (Mt. Vernon Apartments),
9.125s, 2020 500 515,290
NR Front Royal & Warren County, VA, Industrial
Development Authority Rev. (Heritage
Hall), 9.45s, 2024 1,000 1,104,800
AAA Harrisonburg, VA, Redevelopment & Housing
Authority, 7.375s, 2028 3,540 3,704,185
NR Norfolk, VA, Redevelopment & Housing
Authority (Dockside Apartments), 7.375s,
2028 2,000 2,100,520
NR Virginia Beach, VA, Development Authority
(Lake Point Associates Project), 12.125s,
2015 6,300 6,410,250
AA Virginia Housing Development Authority,
5.875s, 2017 4,480 3,989,127
AA+ Virginia Housing Development Authority,
5.9s, 2017 5,445 4,858,682
-----------
$ 30,802,627
- ----------------------------------------------------------------------------
Insured Health Care Revenue - 5.5%
NR Albemarle County, VA, Industrial
Development Authority, First Mortgage
Rev., 8.9s, 2026 $ 2,150 $ 2,548,460
AAA Augusta County, VA, Industrial Development
Authority (Augusta Hospital Corp.),
5.125s, 2021 3,000 2,432,850
AAA Chesapeake, VA, Hospital Authority, First
Mortgage Rev. (Chesapeake General
Hospital), 5.3s, 2008 1,500 1,406,010
AAA Chesapeake, VA, Hospital Authority, First
Mortgage Rev. (Chesapeake General
Hospital), 5.25s, 2018 2,250 1,901,880
AAA Hanover County, VA, Industrial Development
Authority (Richmond Memorial Hospital
Medical Center), 6s, 2021 1,000 937,910
AAA Henrico County, VA, Industrial Development
Authority Rev. (Bon Secours), 8.227s,
2027(S)(S)(S) 5,000 4,185,550
AAA Peninsula Ports Authority, VA, Hospital
Facilities Rev. (Wittaker Memorial
Hospital), 8.7s, 2023 2,100 2,243,619
AAA Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Roanoke Memorial
Hospital), 6.125s, 2017 6,000 5,774,640
AAA Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Roanoke Memorial
Hospital), 5.25s, 2025 5,000 4,120,750
-----------
$ 25,551,669
- ----------------------------------------------------------------------------
Health Care Revenue - 10.1%
NR Albemarle County, VA, Industrial
Development Authority (Martha Jefferson
Hospital),
5.5s, 2015 $ 2,000 $ 1,726,620
NR Albemarle County, VA, Industrial
Development Authority (Martha Jefferson
Hospital),
5.5s, 2020 1,000 839,940
NR Arlington County, VA, Industrial
Development Authority, Hospital Facilities
Rev. (Arlington Hospital), 5.3s, 2015 8,500 7,192,275
AA- Chesapeake, VA, Industrial Development
Authority (Sentara Life Care Corp.),
7.875s, 2008 1,000 1,098,200
AA- Chesapeake, VA, Industrial Development
Authority (Sentara Life Care Corp.),
8s, 2018 4,000 4,392,360
AA- Fairfax County, VA, Industrial Development
Authority Rev. (Health System Hospital),
5s, 2014 1,000 822,730
AA- Fairfax County, VA, Industrial Development
Authority Rev. (Health System Hospital),
5.25s, 2019 2,000 1,662,920
AA- Fairfax County, VA, Industrial Development
Authority Rev. (Inova Health System), 5s,
2011 3,000 2,524,590
NR Fairfax, Fauquier & Loudoun Counties, VA,
Health Center Commission, Nursing Home
Rev., 9s, 2020 1,950 2,008,871
A+ Henrico County, VA, Industrial Development
Authority (St. John's Hospital), 8.875s,
2015 975 1,019,606
NR Hopewell County, VA, Hospital Authority
(John Randolph Hospital), 8.85s, 2013 4,875 4,952,318
A+ Lynchburg, VA, Industrial Development
Authority (Central Health, Inc.), 8.125s,
2016 1,400 1,515,052
NR Martinsville, VA, Industrial Development
Authority (Beverly Enterprises), 6.75s,
2004 1,230 1,218,881
AA- Norfolk, VA, Industrial Development
Authority (Sentara Life Corp.), "A", 5,000 3,966,900
7.875s, 2008 1,000 1,091,310
AA- Norfolk, VA, Industrial Development
Authority (Sentara Life Corp.), "A", 7.9s,
2018 2,000 2,187,460
BBB + Peninsula Ports Authority, VA, Hospital
Facilities Rev. (Mary Immaculate
Hospital), 7.375s, 2017 3,000 3,037,620
A Suffolk, VA, Industrial Development
Authority (Louise Obici Memorial
Hospital), 7.875s, 2005 2,205 2,327,465
A+ Virginia Beach, VA, Hospital Facilities
Rev. (Virginia Beach General Hospital),
8.75s, 2017 2,875 3,187,340
-----------
$ 46,772,458
- ----------------------------------------------------------------------------
Electric and Gas Utility Revenue - 3.1%
A+ Halifax County, VA, Industrial Rev.
Authority (Old Dominion Electric
Cooperative Project)6s, 2022 $ 8,500 $ 7,901,005
AAA Southeastern Public Service Authority, VA,
Solid Waste System Rev., 5.15s, 2009 4,000 3,567,800
A- Southeastern Public Service Authority, VA,
Solid Waste System Rev., 6s, 2017 3,000 2,726,520
-----------
$ 14,195,325
- ----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 9.8%
A+ Chesapeake, VA, Water & Sewer, 5.125s, 2021 $ 1,200 $ 972,924
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2004 5,025 2,794,101
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2005 4,815 2,498,889
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2006 4,000 1,933,760
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2007 6,000 2,713,920
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2008 6,135 2,594,123
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2009 6,135 2,396,270
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2010 9,005 3,278,811
AAA Fairfax County, VA, Sewer Rev., 5.5s, 2013 5,000 4,537,100
AA- Fairfax County, VA, Water Authority Rev.,
6s, 2022 11,400 10,824,528
AAA Frederick-Winchester, VA, Service
Authority, Regional Sewer System Rev.,
5.75s, 2010 3,715 3,495,592
AA Hampton Roads, VA, Wastewater Improvement
Rev., 5s, 2023 5,000 4,041,500
AA Virginia Resources Authority, Sewer Systems
Rev., 9.3s, 2005 250 266,107
AA Virginia Resources Authority, Water & Sewer
System Rev. (Campell Utilities & Service
Co.), 5s, 2013 500 420,065
AA Virginia Resources Authority, Water & Sewer
System Rev. (Campell Utilities & Service
Co.), 5.125s, 2019 3,250 2,675,985
-----------
$ 45,443,675
- ----------------------------------------------------------------------------
Turnpike Revenue - 0.9%
AAA Chesapeake Bay, VA, Bridge & Tunnel
Authority, 0s, 2005 $ 4,535 $ 2,434,025
AAA Richmond, VA, Metropolitan Authority,
5.75s, 2022 2,000 1,810,280
-----------
$ 4,244,305
- ----------------------------------------------------------------------------
Airport and Port Revenue - 7.8%
AAA Metropolitan Washington, D.C., Airport
Rev., 6.625s, 2012 $ 3,000 $ 3,030,000
AA- Metropolitan Washington, D.C., Airport
Rev., 7.6s, 2014 5,030 5,417,411
AAA Metropolitan Washington, D.C., Airport
Rev., 8.2s, 2018 3,500 3,894,275
AAA Metropolitan Washington, D.C., Airport
Rev., 6.625s, 2019 7,375 7,421,831
AAA Metropolitan Washington, D.C., Airport
Rev., 5.75s, 2020 10,000 8,915,100
AA- Peninsula Airport Commission, VA, 7.3s,
2021 2,400 2,594,808
A+ Virginia Port Authority, 8.2s, 2008 4,500 4,989,195
-----------
$ 36,262,620
- ----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 3.9%
A Covington & Allegheny Counties, VA,
Pollution Control Rev. (Westvaco Corp.),
10.625s, 2014 $ 1,100 $ 1,158,190
A- Halifax, VA, Industrial Development
Authority (Tandy Corp.), 8.25s, 2008 3,500 3,794,525
A+ Henrico County, VA, Industrial Development
Authority (St. Mary's Hospital), 7.5s,
2007 870 952,789
A- Isle Wight County, VA, Industrial
Development Authority (Union Camp Corp.),
6.55s, 2024 8,000 7,756,320
NR Lynchburg, VA, Industrial Development
Authority (Kroger Co.), 7.9s, 2011 1,000 1,057,770
NR Virginia Beach, VA, Development Authority
(Beverly Enterprises), 10s, 2010 1,435 1,614,849
BBB - West Point, VA, Industrial Development
Authority (Chesapeake Corp.), 6.25s, 2019 2,000 1,840,200
-----------
$ 18,174,643
- ----------------------------------------------------------------------------
Universities - 4.7%
A+ Albemarle County, VA, Industrial
Development Authority Health Services Rev.
(University of Virginia Health Services
Foundation), 6.5s, 2022 $ 1,000 $ 972,350
A- Hampton Roads, VA, Medical College General
Rev., 6.875s, 2016 1,500 1,521,780
NR Loudoun County, VA, Industrial Development
Authority, University Facilities Rev.
(George Washington University), 6.25s,
2012 2,710 2,655,421
NR Rockingham County, VA, Industrial
Development Authority Rev. (Bridgewater
College), 5.95s, 2013 590 530,428
NR Rockingham County, VA, Industrial
Development Authority Rev. (Bridgewater
College), 6s, 2023 4,610 4,035,225
AA+ University of Virginia, University Rev.,
5.375s, 2014 3,690 3,295,760
AA+ University of Virginia, University Rev.,
5.2s, 2015 2,000 1,720,320
AA Virginia College Building Authority
(Washington & Lee University), 5.75s, 2019 5,000 4,613,000
BBB - Virginia College Building Authority,
<PAGE> 113
Educational Facilities Rev. (Marymount
University), 7s, 2022 2,500 2,501,725
-----------
$ 21,846,009
- ----------------------------------------------------------------------------
Other - 6.4%
NR Danville, VA, Industrial Development
Authority, Industrial Development Rev.
(Piedmont Mall), 8s, 2013 $ 3,240 $ 3,050,622
AA Fairfax County, VA, Economic Development
Authority Rev., 5.5s, 2014 6,250 5,592,750
AA Fairfax County, VA, Economic Development
Authority Rev., 5.5s, 2018 9,240 8,130,368
NR Pittsylvania County, VA, Industrial
Development Authority Rev., 7.5s, 2014 8,000 8,023,120
AA Virginia Public Building Authority, 5.4s,
2008 2,340 2,199,950
AAA Washington, D.C., Metropolitan Area
Transportation Authority, Gross Rev.,
5.125s, 2009 3,000 2,686,050
-----------
$ 29,682,860
- ----------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $445,848,752) $446,764,940
- ----------------------------------------------------------------------------
Floating Rate Demand Notes - 2.4%
- ----------------------------------------------------------------------------
New York, NY, Municipal Water Finance
Authority, due 6/15/23 $ 1,100 $ 1,100,000
Peninsula Ports Authority, VA (Shell Oil
Co.), due 12/01/05 9,500 9,500,000
Uinta County, WY, Pollution Control Rev.
(Chevron USA, Inc.), due 8/15/20 400 400,000
- ----------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 11,000,000
- ----------------------------------------------------------------------------
Call Options Purchased - 0.2%
- ----------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- ----------------------------------------------------------------------------
Georgia Municipal Electric Authority/2003/102 $ 20 $ 627,000
State of New Jersey, "D"/2003/102 5 500,000
- ----------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $576,800) $ 1,127,000
- ----------------------------------------------------------------------------
Total Investments (Identified Cost, $457,425,552) $458,891,940
Other Assets, Less Liabilities - 1.2% 5,366,562
- ----------------------------------------------------------------------------
Net Assets - 100.0% $464,258,502
- ----------------------------------------------------------------------------
*Indexed security. See Note 7.
(S)(S)(S)Inverse floating rate security.
See notes to financial statements
<PAGE> 114
PORTFOLIO OF INVESTMENTS (UNAUDITED) - September 30, 1994
MFS WEST VIRGINIA MUNICIPAL BOND FUND
Municipal Bonds - 96.3%
- ----------------------------------------------------------------------------
S&P Bond Principal Amount
Rating Issuer (000 Omitted) Value
- ----------------------------------------------------------------------------
General Obligation - 6.8%
AAA Cabell, WV, Board of Education, 6s, 2006 $ 500 $ 502,665
NR Charleston, WV, Public Improvement, 7.2s,
2008 1,240 1,354,155
NR Charleston, WV, Public Improvement, 7.2s,
2009 1,140 1,238,268
AAA Jefferson County, WV, Board of Education,
6.85s, 2009 1,680 1,768,838
AAA Monongalia County, WV, Board of Education,
7s, 2005 500 547,240
AAA Ohio County, WV, Board of Education,
5.25s, 2018 1,180 1,033,668
AAA State of West Virginia, Water Development
Authority, 6.2s, 2024 3,000 2,885,490
-----------
$ 9,330,324
- ----------------------------------------------------------------------------
State and Local Appropriation - 7.0%
A Puerto Rico Public Buildings Authority,
6.27s, 2016 (Municipal Swap)* $2,000 $ 1,720,040
AAA West Virginia Building Commission, Lease
Rev. (West Virginia Regional Jail), 0s, 2007 3,150 1,438,321
AAA West Virginia Building Commission, Lease
Rev. (West Virginia Regional Jail), 0s, 2008 3,050 1,292,193
AAA West Virginia Building Commission, Lease
Rev. (West Virginia Regional Jail), 0s, 2009 2,500 973,850
AAA West Virginia Building Commission, Lease
Rev. (West Virginia Regional Jail), 7s, 2015 1,000 1,053,450
A- West Virginia School Building Authority,
6.75s, 2015 3,000 3,087,510
-----------
$ 9,565,364
- ----------------------------------------------------------------------------
Refunded and Special Obligation - 15.9%
BBB + Charleston, WV, Parking Rev., 8.5s, 2006 $1,000 $ 1,080,070
NR Clarksburg, WV, Water Rev., 10.875s, 2020 450 469,413
A Kanawha County, WV, Building Commission
(Charleston Medical Center), 10.125s, 2008 510 522,949
AAA Kanawha County, WV, Building Commission
(St. Francis Hospital), 7.5s, 2007 275 309,364
AAA Monongalia County, WV, Hospital Rev. (West
Virginia University Hospitals, Inc.),
9.375s, 2018 2,245 2,365,871
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 1,500 1,884,330
AAA Puerto Rico Electric Power Authority Rev.,
8s, 2008 1,000 1,123,730
AAA Puerto Rico Highway & Transportation
Authority, Highway Rev., 6.625s, 2018 400 438,564
AAA Puerto Rico Industrial, Medical &
Environmental Pollution Control Facilities
Finance Authority Rev., 9.75s, 2025 350 372,659
AAA South Charleston, WV, Hospital Rev.
(Herbert J. Thomas Memorial Hospital), 8s,
2010 500 560,235
AAA West Virginia Hospital Finance Authority
(Monongalia General Hospital), 8.6s, 2017 1,000 1,095,330
AAA West Virginia Parkways, Economic
Development & Tourism Authority, 0s, 2005 2,250 1,202,603
AAA West Virginia Parkways, Economic
Development & Tourism Authority, 0s, 2006 2,500 1,246,250
AAA West Virginia Parkways, Economic
Development & Tourism Authority, 0s, 2007 2,000 928,040
AAA West Virginia Parkways, Economic
Development & Tourism Authority, 0s, 2008 610 268,290
AAA West Virginia Resources Recovery Authority,
Solid Waste Disposal Rev., 8.25s, 2009 700 753,886
AAA West Virginia Water Development Authority,
7.1s, 2009 250 273,302
BBB + West Virginia Water Development Authority,
9.375s, 2015 700 717,339
BBB + West Virginia Water Development Authority,
7.4s, 2019 750 847,402
BBB + West Virginia Water Development Authority,
9.5s, 2025 350 358,708
BBB + West Virginia Water Development Authority,
8.625s, 2028 750 857,280
AAA West Virginia Water Development Authority,
8.125s, 2029 2,015 2,270,623
BBB + West Virginia Water Development Authority,
8.125s, 2029 1,750 1,968,575
-----------
$ 21,914,813
- ----------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 0.6%
AAA Huntington, WV, Housing Corp., Multi-Family
Rev., 7.5s, 2024 $ 800 $ 838,608
- ----------------------------------------------------------------------------
Single Family Housing Revenue - 9.5%
AAA Berkeley, Brooke & Fayette Counties, WV,
9.1s, 2011 $ 100 $ 101,393
NR Berkeley County, WV, Residential Mortgage
Rev., 7.875s, 2012 385 392,176
NR Charles Town, WV, Residential Mortgage
Rev., 6.2s, 2011 1,055 1,025,819
NR Mason County, WV, Rev., 0s, 2014 1,700 386,427
A+ West Virginia Housing Development Fund,
7.85s, 2014 1,000 1,031,590
A+ West Virginia Housing Development Fund,
0s, 2015 5,185 620,022
A+ West Virginia Housing Development Fund,
5.55s, 2017 2,000 1,786,800
AA+ West Virginia Housing Development Fund,
7.95s, 2017 2,980 3,074,168
A+ West Virginia Housing Development Fund,
7.2s, 2020 2,000 2,057,540
AA+ West Virginia Housing Development Fund,
5.45s, 2021 3,000 2,600,340
-----------
$ 13,076,275
- ----------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.4%
NR Webster County, WV, Housing Development
Rev. (Circlebrook), 6.35s, 2008 $ 555 $ 547,180
- ----------------------------------------------------------------------------
Insured Health Care Revenue - 7.5%
AAA Monongalia County, WV, Building Commission,
Hospital Rev. (Monongalia General
Hospital), 6.625s, 2011 $1,000 $1,035,590
AAA West Virginia Hospital Finance Authority
(Cabell Huntington Hospital), 6.25s, 2019 4,000 3,873,280
AAA West Virginia Hospital Finance Authority
(West Virginia University Hospital, Inc.),
5s, 2016 3,250 2,736,598
AAA West Virginia Hospital Finance Authority
(West Virginia University Medical Corp.),
7.875s, 2007 1,500 1,633,860
AAA West Virginia Hospital Finance Authority
(West Virginia University Medical Corp.),
7.875s, 2018 1,000 1,082,720
-----------
$ 10,362,048
- ----------------------------------------------------------------------------
Health Care Revenue - 6.8%
NR Hampshire County, WV, First Mortgage Rev.
(Romney Health Care), 9.5s, 2022 $1,280 $ 1,285,875
NR Monongalia County, WV, Health Facilities
Rev. (Beverly Enterprises, Inc.), 10s,
2007 955 1,067,136
NR Princeton, WV, Hospital Rev. (Princeton
Community Hospital), 6s, 2018 2,000 1,780,360
NR West Virginia Hospital Finance Authority
(Charleston Area Medical Center), 6.5s,
2023 2,000 1,949,000
NR West Virginia Hospital Finance Authority
(Teays Valley Haven Project), 10s, 2005 205 201,681
NR West Virginia Hospital Finance Authority
(Teays Valley Haven Project), 10s, 2015 3,025 3,068,923
-----------
$ 9,352,975
- ----------------------------------------------------------------------------
Water and Sewer Utility Revenue - 7.8%
A Beckley, WV, Industrial Development Rev.
(Beckley Water Co.), 7s, 2017 $2,000 $ 2,043,960
AAA Charleston,WV, Sewer Rev., 6.5s, 2017 2,260 2,290,600
AA Clarksburg, WV, Water Rev., 6.25s, 2019 1,000 951,480
AAA Huntington, WV, Sewer Rev., 5.25s, 2018 1,500 1,304,235
AAA West Virginia Water Development Authority,
7.5s, 2009 1,100 1,199,660
BBB+ West Virginia Water Development Authority,
7.625s, 2009 500 532,155
AAA West Virginia Water Development Authority
(Loan Program No. 2), 5.75s, 2029 1,000 884,350
AAA Wheeling, WV, Waterworks & Sewer Rev.,
6.6s, 2012 1,500 1,515,885
-----------
$ 10,722,325
- ----------------------------------------------------------------------------
Turnpike Revenue - 1.8%
AAA West Virginia Parkways, Economic
Development & Tourism Authority, 0s, 2006 $1,885 $ 933,019
AAA West Virginia Parkways, Economic
Development & Tourism Authority, 8.032s,
2019(S)(S)(S) 1,800 1,508,940
-----------
$ 2,441,959
- ----------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 22.5%
NR Jackson County, WV, Pollution Control Rev.
(Kaiser Aluminium & Chemical Corp.),
6.5s, 2008 $1,380 $ 1,267,351
NR Kanawha County, WV, Commercial Development
Rev. (Kroger Co.), 8s, 2011 1,000 1,066,080
A Kanawha County, WV, Commercial Development
Rev. (May Department Stores Co.), 6.5s,
2003 3,000 3,116,910
BBB Kanawha County, WV, Pollution Control Rev.
(Union Carbide Corp.), 8s, 2020 2,000 2,143,500
AAA Marshall County, WV, Pollution Control Rev.
(Ohio Power Co.), 6.85s, 2022 3,150 3,237,444
BBB+ Marshall County, WV, Pollution Control Rev.
(Ohio Power Co.), 6.85s, 2022 2,000 2,030,020
NR McDowell County, WV, Industrial Development
Rev. (War Telephone Co.), 13.5s, 2001 500 507,575
NR Monongalia County, WV, Commercial
Development Rev. (Kroger Co.), 7.7s, 2012 2,000 2,087,980
NR Ohio County, WV, Industrial Development
Rev. (Kroger Co.), 8.125s, 2011 2,000 2,140,880
NR Putnam County, WV, Industrial Development
Rev. (Rite Aid, Inc.), 10.75s, 2002 590 610,254
AAA Putnam County, WV, Pollution Control Rev.
(Appalachian Power Co.), 6.6s, 2019 3,200 3,222,976
AAA Putnam, WV, Pollution Control Rev.
(Appalachian Power Co.), 5.45s, 2019 7,000 6,147,890
A Raleigh County, WV, Commercial Development
Rev. (K-Mart Corp.), 6.05s, 2006 670 625,198
BBB South Charleston, WV, Pollution Control
Rev. (Union Carbide Corp.), 7.625s, 2005 2,500 2,715,550
-----------
$ 30,919,608
- ----------------------------------------------------------------------------
Universities - 4.3%
AAA West Virginia University Rev. (West
Virginia University Dormitory Project),
6s, 2012 $5,000 $ 4,815,550
AAA West Virginia University Rev. (West
Virginia University Dormitory Project),
6.75s, 2017 1,000 1,032,120
-----------
$ 5,847,670
- ----------------------------------------------------------------------------
Other - 5.4%
BBB+ Charleston, WV, Parking Rev., 6s, 2013 $1,480 $ 1,362,695
A Harrison County, WV, Solid Waste Disposal
Rev. (West Pennsylvania Power Co.), 6.3s,
2023 2,500 2,307,500
A Puerto Rico Highway & Transportation
Authority Rev., 6.625s, 2018 1,600 1,620,097
NR West Virginia Hospital Finance Authority
(General Division Medical Building),
7.25s, 2014 2,000 2,065,360
-----------
$ 7,355,652
- ----------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $131,437,691) $132,274,801
- ----------------------------------------------------------------------------
Floating Rate Demand Notes - 1.9%
- ----------------------------------------------------------------------------
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon
Corp.), due 3/01/24 $ 300 $ 300,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 1,000 1,000,000
New York, NY, City Municipal Water Finance
Authority, due 6/15/24 1,200 1,200,000
Uinta County, WY, Pollution Control Rev.
(Chevron USA, Inc.), due 8/15/20 100 100,000
- ----------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 2,600,000
- ----------------------------------------------------------------------------
Total Investments (Identified Cost, $134,037,691) $134,874,801
Other Assets, Less Liabilities - 1.8% 2,508,970
- ----------------------------------------------------------------------------
Net Assets - 100.0% $137,383,771
- ----------------------------------------------------------------------------
*Indexed security. See Note 7.
(S)(S)(S)Inverse floating rate security.
See notes to financial statements
<PAGE> 115
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
September 30, 1994 Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments -
Identified cost $112,157,077 $ 86,457,736 $164,623,271 $260,798,931 $155,563,852
Unrealized appreciation (depreciation) (1,484,255) 1,341,347 (106,572) 5,634,816 2,683,637
----------- ----------- ----------- ----------- -----------
Total, at value $110,672,822 $ 87,799,083 $164,516,699 $266,433,747 $158,247,489
Cash 68,439 25,665 31,452 3,708 49,206
Receivable for investments sold 3,837,390 4,807,949 45,000 8,398,082 2,752,641
Receivable for Fund shares sold 260,314 170,943 125,289 162,717 237,297
Interest receivable 2,136,616 1,523,263 2,934,691 5,006,149 2,762,640
Deferred organization expenses 5,027 -- -- -- 184
Other assets 1,773 1,363 2,312 4,667 2,461
----------- ----------- ----------- ----------- -----------
Total assets $116,982,381 $ 94,328,266 $167,655,443 $280,009,070 $164,051,918
----------- ----------- ----------- ----------- -----------
Liabilities:
Distributions payable $ 345,078 $ 198,210 $ 338,259 $ 762,464 $ 282,710
Payable for investments purchased 3,765,675 3,541,236 -- 2,408,615 --
Payable for Fund shares reacquired 2,110,887 345,525 285,448 365,744 638,723
Payable for daily variation margin on open
futures contracts 62,500 40,000 71,250 56,250 50,000
Payable to affiliates -
Management fee 907 1,359 2,508 4,159 2,452
Shareholder servicing agent fee 473 385 703 1,148 688
Distribution fee 204 157 628 876 212
Accrued expenses and other liabilities 38,960 102,976 205,003 296,153 159,129
----------- ----------- ----------- ----------- -----------
Total liabilities $ 6,324,684 $ 4,229,848 $ 903,799 $ 3,895,409 $ 1,133,914
----------- ----------- ----------- ----------- -----------
Net assets $110,657,697 $ 90,098,418 $166,751,644 $276,113,661 $162,918,004
----------- ----------- ----------- ----------- -----------
Net assets consist of:
Paid-in capital $116,808,394 $ 90,525,427 $166,903,897 $274,456,095 $164,045,977
Unrealized appreciation (depreciation) on
investments (886,875) 1,669,714 1,236,382 5,786,064 2,925,483
Accumulated undistributed net realized gain
(loss) on investments (5,184,757) (1,894,919) (739,005) (3,169,714) (3,534,239)
Accumulated distributions in excess of net
investment income (79,065) (201,804) (649,630) (958,784) (519,217)
----------- ----------- ----------- ----------- -----------
Total $110,657,697 $ 90,098,418 $166,751,644 $276,113,661 $162,918,004
----------- ----------- ----------- ----------- -----------
Shares of beneficial interest outstanding:
Class A 10,677,647 8,044,977 14,557,624 25,209,338 14,798,608
Class B 1,060,304 752,278 898,896 620,475 1,003,958
----------- ----------- ----------- ----------- -----------
Total shares of beneficial interest outstanding 11,737,951 8,797,255 15,456,520 25,829,813 15,802,566
----------- ----------- ----------- ----------- -----------
Net assets:
Class A $100,673,310 $ 82,391,467 $157,059,270 $269,477,835 $152,569,818
Class B 9,984,387 7,706,951 9,692,374 6,635,826 10,348,186
----------- ----------- ----------- ----------- -----------
Total net assets $110,657,697 $ 90,098,418 $166,751,644 $276,113,661 $162,918,004
----------- ----------- ----------- ----------- -----------
<PAGE> 116
FINANCIAL STATEMENTS - continued
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
Class A shares:
Net asset value and redemption price per share
(net assets / shares of beneficial interest
outstanding) $ 9.43 $10.24 $10.79 $10.69 $10.31
----- ----- ----- ----- -----
Offering price per share (100/95.25 of net asset
value per share) $ 9.90 $10.75 $11.33 $11.22 $10.82
----- ----- ----- ----- -----
Class B shares:
Net asset value, offering price and redemption
price per share (net assets / shares of
beneficial interest outstanding) $ 9.42 $10.24 $10.78 $10.69 $10.31
----- ----- ----- ----- -----
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
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
South West
North Carolina Pennsylvania Carolina Virginia Virginia
September 30, 1994 Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments -
Identified cost $476,535,734 $ 24,359,159 $181,555,131 $457,425,552 $134,037,691
Unrealized appreciation (depreciation) 2,646,534 (1,206,777) 270,612 1,466,388 837,110
----------- ----------- ----------- ----------- ----------
Total, at value $479,182,268 $ 23,152,382 $181,825,743 $458,891,940 $134,874,801
Cash 30,015 46,626 66,801 70,770 91,384
Receivable for investments sold 14,291,357 -- 2,393,680 1,703,657 --
Receivable for Fund shares sold 1,340,213 26,722 109,517 712,841 186,391
Interest receivable 9,873,903 363,892 3,154,712 9,072,751 2,856,057
Deferred organization expenses -- 6,595 -- -- --
Other assets 6,588 -- 2,519 6,329 1,879
----------- ----------- ----------- ----------- -----------
Total assets $504,724,344 $ 23,596,217 $187,552,972 $470,458,288 $138,010,512
----------- ----------- ----------- ----------- -----------
Liabilities:
Distributions payable $ 860,800 $ 37,247 $ 356,574 $ 1,042,605 $ 279,270
Payable for investments purchased 23,052,810 949,021 1,864,768 3,605,856 --
Payable for Fund shares reacquired 1,315,071 -- 127,061 986,771 138,780
Payable for daily variation margin on open
futures contracts 156,250 12,750 50,000 162,500 43,750
Payable to affiliates -
Management fee 7,207 -- 2,780 6,988 2,063
Shareholder servicing agent fee 2,010 -- 782 1,941 577
Distribution fee 1,677 175 720 1,573 504
Accrued expenses and other liabilities 409,050 7,050 184,391 391,552 161,797
----------- ----------- ----------- ----------- -----------
Total liabilities $ 25,804,875 $ 1,006,243 $ 2,587,076 $ 6,199,786 $ 626,741
----------- ----------- ----------- ----------- -----------
Net assets $478,919,469 $ 22,589,974 $184,965,896 $464,258,502 $137,383,771
----------- ----------- ----------- ----------- -----------
Net assets consist of:
Paid-in capital $482,632,788 $ 23,752,650 $183,923,191 $467,973,489 $136,625,545
Unrealized appreciation (depreciation) on investments 3,715,328 (966,459) 1,213,036 1,857,634 970,050
Accumulated undistributed net realized gain
(loss) on investments (6,103,812) (200,737) 272,297 (4,101,536) 241,987
Accumulated undistributed (distributions in
excess of) net investment income (1,324,835) 4,520 (442,628) (1,471,085) (453,811)
----------- ----------- ----------- ---------- -----------
Total $478,919,469 $ 22,589,974 $184,965,896 $464,258,502 $137,383,771
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE> 117
FINANCIAL STATEMENTS - continued
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Shares of beneficial interest outstanding:
Class A 39,845,544 1,762,545 14,846,314 39,810,758 11,755,031
Class B 1,957,346 708,013 1,035,098 1,715,550 661,808
Class C 813,400 -- -- 1,005,487 --
----------- ----------- ----------- ----------- -----------
Total shares of beneficial interest outstanding 42,616,290 2,470,558 15,881,412 42,531,795 12,416,839
----------- ----------- ----------- ----------- -----------
Net assets:
Class A $447,795,897 $ 16,114,864 $172,912,562 $434,576,028 $130,063,348
Class B 21,988,601 6,475,110 12,053,334 18,718,484 7,320,423
Class C 9,134,971 -- -- 10,963,990 --
----------- ----------- ----------- ----------- -----------
Total net assets $478,919,469 $ 22,589,974 $184,965,896 $464,258,502 $137,383,771
----------- ----------- ----------- ----------- -----------
Class A shares:
Net asset value and redemption price per share
(net assets / shares of beneficial interest
outstanding) $11.24 $ 9.14 $11.65 $10.92 $11.06
----- ----- ----- ----- -----
Offering price per share (100/95.25 of net
asset value per share) $11.80 $ 9.60 $12.23 $11.46 $11.61
----- ----- ----- ----- -----
Class B shares:
Net asset value, offering price and redemption
price per share
(net assets / shares of beneficial interest
outstanding) $11.23 $ 9.15 $11.64 $10.91 $11.06
----- ----- ----- ----- -----
Class C shares:
Net asset value, offering price and redemption
price per share
(net assets / shares of beneficial interest
outstanding) $11.23 $ -- $ -- $10.90 $ --
----- ---- ----- ----- -----
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
</TABLE>
<PAGE> 118
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statements of Operations (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Six Months Ended September 30, 1994 Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $ 3,621,480 $ 3,015,764 $ 5,527,040 $10,033,242 $ 5,382,919
---------- ---------- ---------- ---------- ----------
Expenses -
Management fee $ 319,026 $ 252,001 $ 463,495 $ 774,465 $ 464,122
Trustees' compensation 7,253 8,001 8,836 8,965 8,052
Shareholder servicing agent fees (Class A) 80,029 63,672 120,238 206,857 120,237
Shareholder servicing agent fees (Class B) 10,082 8,021 9,047 6,396 9,150
Distribution and service fees (Class A) -- 149,860 280,555 482,665 281,336
Distribution and service fees (Class B) 45,832 36,467 41,128 29,075 41,593
Custodian fee -- 15,491 34,713 57,094 25,072
Printing 2,257 6,971 13,419 12,785 14,670
Postage 2,866 4,587 12,719 11,174 6,712
Auditing fees 5,000 7,200 2,375 2,115 12,650
Legal fees 1,815 1,207 8,984 5,786 822
Amortization of organization expenses 1,048 -- -- -- 896
Miscellaneous 22,833 33,884 48,190 63,145 29,956
---------- ---------- ---------- ---------- ----------
Total expenses $ 498,041 $ 587,362 $ 1,043,699 $ 1,660,522 $ 1,015,268
Reduction of expenses by investment adviser
and distributor (159,381) (42,679) -- -- (101,239)
---------- ---------- ---------- ---------- ----------
Net expenses $ 338,660 544,683 $ 1,043,699 $ 1,660,522 $ 914,029
---------- ---------- ---------- ---------- ----------
Net investment income $ 3,282,820 $ 2,471,081 $ 4,483,341 $ 8,372,720 $ 4,468,890
---------- ---------- ---------- ---------- ----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis)
Investment transactions $(5,010,724) $(2,103,287) $ (571,073) $(4,221,718) $(2,906,247)
Futures contracts 191,656 459,381 163,753 1,393,126 915,255
---------- ---------- ---------- ---------- ----------
Net realized gain (loss) on investments $(4,819,068) $(1,643,906) $ (407,320) $(2,828,592) $(1,990,992)
---------- ---------- ---------- ---------- ----------
Change in unrealized appreciation (depreciation) -
Investments $ 2,703,322 $ 600,858 $(1,975,217) $(1,803,350) $ 179,200
Futures contracts 235,370 78,080 1,013,328 (181,700) (197,553)
---------- ---------- ---------- ---------- ----------
Net unrealized gain (loss) on investments $(2,938,692) $ 678,938 $ (961,889) $(1,985,050) $ (18,353)
---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments $(1,880,376) $ (964,968) $(1,369,209) $(4,813,642) $(2,009,345)
---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets
from operations $ 1,402,444 $ 1,506,113 $ 3,114,132 $ 3,559,078 $ 2,459,545
---------- ---------- ---------- ---------- ----------
See notes to financial statements
</TABLE>
<PAGE> 119
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statements of Operations (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
Six Months Ended September 30, 1994 Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $15,728,502 $ 610,697 $ 6,011,497 $15,450,564 $ 4,616,970
---------- --------- ---------- ---------- ----------
Expenses -
Management fee $ 1,346,240 $ 58,026 $ 514,114 $ 1,283,671 $ 378,136
Trustees' compensation 9,154 7,413 8,790 9,791 8,818
Shareholder servicing agent fees (Class A) 346,267 11,557 132,072 333,135 97,635
Shareholder servicing agent fees (Class B) 21,515 6,259 12,323 18,254 7,202
Shareholder servicing agent fees (Class C) 6,223 -- -- 4,250 --
Distribution and service fees (Class A) 807,954 -- 307,563 777,314 230,112
Distribution and service fees (Class B) 97,793 28,510 56,006 82,972 32,734
Distribution and service fees (Class C) 41,477 -- -- 28,328 --
Custodian fee 93,200 -- 32,459 85,658 24,503
Printing 40,450 2,439 15,280 36,814 17,480
Postage 17,090 4,932 7,753 16,997 10,015
Auditing fees 4,175 4,800 9,450 1,800 8,550
Legal fees 4,442 767 4,647 3,067 2,688
Amortization of organization expenses -- 880 -- -- --
Miscellaneous 90,376 16,551 36,199 77,112 36,918
---------- --------- ---------- ---------- ----------
Total expenses $ 2,926,356 $ 142,134 $ 1,136,656 $ 2,759,163 $ 854,791
Reduction of expenses by investment adviser and
distributor -- (113,624) -- -- --
---------- --------- ---------- ---------- ----------
Net expenses $ 2,926,356 $ 28,510 $ 1,136,656 $ 2,759,163 $ 854,791
---------- --------- ---------- ---------- ----------
Net investment income $12,802,146 $ 582,187 $ 4,874,841 $12,691,401 $ 3,762,179
---------- --------- ---------- ---------- ----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(6,216,705) $(169,746) $ 57,250 $(5,520,387) $ (353,482)
Futures contracts 1,719,177 30,695 414,032 1,759,980 799,464
---------- --------- ---------- ---------- ----------
Net realized gain (loss) on investments $(4,497,528) $(139,051) $ 471,282 $(3,760,407) $ 445,982
---------- --------- ---------- ---------- ----------
Change in unrealized appreciation (depreciation) -
Investments $(1,616,197) $ (19,234) $(2,296,874) $(3,964,559) $(1,808,076)
Futures contracts 122,451 178,635 753,495 58,208 (66,883)
---------- --------- ---------- ---------- ----------
Net unrealized gain (loss) on investments $(1,493,746) $ 159,401 $(1,543,379) $(3,906,351) $(1,874,959)
---------- --------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments $(5,991,274) $ 20,350 $(1,072,097) $(7,666,758) $(1,428,977)
---------- --------- ---------- ---------- ----------
Increase (decrease) in net assets from
operations $ 6,810,872 $ 602,537 $ 3,802,744 $ 5,024,643 $ 2,333,202
---------- --------- ---------- ---------- ----------
</TABLE>
<PAGE> 120
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Six Months Ended September 30, 1994 Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 3,282,820 $ 2,471,081 $ 4,483,341 $ 8,372,720 $ 4,468,890
Net realized gain (loss) on investments (4,819,068) (1,643,906) (407,320) (2,828,592) (1,990,992)
Net unrealized gain (loss) on investments 2,938,692 678,938 (961,889) (1,985,050) (18,353)
----------- ---------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations $ 1,402,444 $ 1,506,113 $ 3,114,132 $ 3,559,078 $ 2,459,545
----------- ---------- ----------- ----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (2,940,072) $(2,101,424) $ (3,710,426) $ (7,178,486) $ (3,835,622)
From net investment income (Class B) (201,937) (149,171) (158,987) (129,478) (162,829)
From net realized gain on investments (Class A) (429,428) (47,015) -- (439,644) --
From net realized gain on investments (Class B) (32,782) (1,533) -- (7,060) --
In excess of net investment income (Class A) (72,815) (185,845) (617,963) (939,004) (493,647)
In excess of net investment income (Class B) (6,250) (15,959) (31,667) (19,780) (25,570)
In excess of net realized gain on investments
(Class A) (332,656) (229,548) (146,414) (332,928) (783,505)
In excess of net realized gain on investments
(Class B) (33,033) (21,465) (7,106) (8,194) (35,925)
----------- ---------- ----------- ----------- -----------
Total distributions declared to shareholders $ (4,048,973) $(2,751,960) $ (4,672,563) $ (9,054,574) $ (5,337,098)
----------- ---------- ----------- ----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 22,451,170 $ 6,362,720 $ 8,904,002 $ 9,362,866 $ 33,784,580
Net asset value of shares issued to shareholders
in reinvestment of distributions 1,498,408 1,195,805 2,562,470 3,984,920 3,055,827
Cost of shares reacquired (27,219,131) (8,722,705) (10,924,816) (14,479,743) (39,931,605)
----------- ---------- ----------- ----------- -----------
Increase (decrease) in net assets from Fund
share transactions $ (3,269,553) $(1,164,180) $ 541,656 $(1,131,957) $(3,091,198)
----------- ---------- ----------- ----------- -----------
Total increase (decrease) in net assets $ (5,916,082) $(2,410,027) $ (1,016,775) $(6,627,453) $ (5,968,751)
Net assets:
At beginning of period 116,573,779 92,508,445 167,768,419 282,741,114 168,886,755
----------- ---------- ----------- ----------- -----------
At end of period $110,657,697 $90,098,418 $166,751,644 $276,113,661 $162,918,004
----------- ---------- ----------- ----------- -----------
Accumulated undistributed (distributions in excess
of) net investment income included
in net assets at end of period $ (79,065) $ (201,804) $ (649,630) $ (958,784) $ (519,217)
----------- ---------- ----------- ----------- -----------
See notes to financial statements
</TABLE>
<PAGE> 121
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina West Virginia Virginia
Six Months Ended September 30, 1994 Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 12,802,146 $ 582,187 $ 4,874,841 $ 12,691,401 $ 3,762,179
Net realized gain (loss) on investments (4,497,528) (139,051) 471,282 (3,760,407) 445,982
Net unrealized gain (loss) on investments (1,493,746) 159,401 (1,543,379) (3,906,351) (1,874,959)
----------- ---------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations $ 6,810,872 $ 602,537 $ 3,802,744 $ 5,024,643 $ 2,333,202
----------- ---------- ----------- ----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $(10,932,962) $ (445,180) $ (4,214,915) $(10,787,239) $ (3,181,785)
From net investment income (Class B) (389,030) (134,970) (226,826) (337,223) (134,173)
From net investment income (Class C) (167,833) -- -- (119,830) --
From net realized gain on investments (Class A) (2,510,892) (15,007) (1,077,021) (1,725,336) (170,490)
From net realized gain on investments (Class B) (92,948) (3,116) (64,678) (51,898) (8,251)
From net realized gain on investments (Class C) (39,410) -- -- (6,850) --
In excess of net investment income (Class A) (1,249,531) -- (416,130) (1,397,851) (432,244)
In excess of net investment income (Class B) (52,878) -- (26,498) (54,632) (21,567)
In excess of net investment income (Class C) (22,426) -- -- (18,602) --
In excess of net realized gain on investments
(Class A) (1,501,876) (44,007) -- (318,481) --
In excess of net realized gain on investments
(Class B) (73,728) (17,679) -- (22,571) --
In excess of net realized gain on investments
(Class C) (30,680) -- -- (77) --
---------- ---------- ----------- ----------- -----------
Total distributions declared to shareholders $(17,064,194) $ (659,959) $ (6,026,068) $(14,840,590) $(3,948,510)
----------- ---------- ----------- ----------- ----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 29,980,472 $ 5,066,065 $ 12,143,110 $ 34,625,321 $ 7,540,223
Net asset value of shares issued to shareholders
in reinvestment of distributions 10,213,879 424,990 3,339,207 7,616,711 2,097,606
Cost of shares reacquired (33,870,495) (1,109,147) (11,694,505) (26,844,780) (6,821,162)
----------- ---------- ----------- ----------- -----------
Increase (decrease) in net assets from Fund
share transactions $ 6,323,856 $ 4,381,908 $ 3,787,812 $ 15,397,252 $ 2,816,667
----------- ---------- ----------- ----------- -----------
Total increase (decrease) in net assets $ (3,929,466) $ 4,324,486 $ 1,564,488 $ 5,581,305 $ 1,201,359
Net assets:
At beginning of period 482,848,935 18,265,488 183,401,408 458,677,197 136,182,412
----------- ---------- ----------- ----------- -----------
At end of period $478,919,469 $22,589,974 $184,965,896 $464,258,502 $137,383,771
----------- ---------- ----------- ----------- -----------
Accumulated undistributed (distributions in excess
of) net investment income included in net assets
at end of period $ (1,324,835) $ 4,520 $ (442,628) $ (1,471,085) $ (453,811)
----------- ---------- ----------- ----------- -----------
</TABLE>
<PAGE> 122
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Two Months Ended March 31, 1994 Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,041,913 $ 796,058 $ 1,469,464 $ 2,760,761 $ 1,505,625
Net realized gain (loss) on investments (186,980) (31,030) 112,977 (311,972) (1,543,247)
Net unrealized gain (loss) on investments (11,690,275) (8,100,490) (14,276,091) (21,787,632) (12,294,941)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations $(10,835,342) $(7,335,462) $(12,693,650) $(19,338,843) $(12,332,563)
----------- ----------- ----------- ----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (900,283) $ (555,677) $ (866,989) $ (1,689,972) $ (1,055,956)
From net investment income (Class B) (48,741) (40,573) (40,833) (35,550) (34,946)
In excess of net investment income (Class A) (134,544) (217,092) (610,058) (1,062,519) (465,777)
In excess of net investment income (Class B) (6,267) (3,394) (3,870) (2,237) (4,662)
----------- ----------- ----------- ----------- -----------
Total distributions declared to shareholders $ (1,089,835) $ (816,736) $(1,521,750) $ (2,790,278) $(1,561,341)
----------- ----------- ----------- ----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 7,972,609 $ 4,392,117 $ 6,146,983 $ 8,531,385 $ 7,401,369
Net asset value of shares issued to shareholders
in reinvestment of distributions 361,332 300,728 818,641 1,183,011 842,694
Cost of shares reacquired (11,209,415) (4,205,696) (3,746,022) (9,929,487) (14,814,451)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from Fund
share transactions $ (2,875,474) $ 487,149 $ 3,219,602 $ (215,091) $ (6,570,388)
----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets $(14,800,651) $ (7,665,049) $(10,995,798) $(22,344,212) $(20,464,292)
Net assets:
At beginning of period 131,374,430 100,173,494 178,764,217 305,085,326 189,351,047
----------- ----------- ----------- ----------- -----------
At end of period $116,573,779 $ 92,508,445 $167,768,419 $282,741,114 $168,886,755
----------- ----------- ----------- ----------- -----------
Accumulated distributions in excess of net
investment income included
in net assets at end of period $ (140,811) $ (220,486) $ (613,928) $ (1,064,756) $ (470,439)
----------- ----------- ----------- ----------- -----------
See notes to financial statements
</TABLE>
<PAGE> 123
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
Two Months Ended March 31, 1994 Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,203,404 $ 151,666 $ 1,579,465 $ 4,177,932 $ 1,251,482
Net realized gain (loss) on investments 1,515,887 4,779 190,664 663,599 (97,707)
Net unrealized gain (loss) on investments (38,809,798) (1,837,746) (14,851,919) (38,366,885) (10,480,494)
----------- ---------- ----------- ----------- ----------
Increase (decrease) in net assets from operations $(33,090,507) $(1,681,301) $(13,081,790) $(33,525,354) $ (9,326,719)
----------- ---------- ----------- ----------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (2,784,004) $ (126,697) $ (1,111,228) $ (2,609,189) $ (778,446)
From net investment income (Class B) (100,080) (27,938) (61,022) (89,058) (37,338)
From net investment income (Class C) (40,717) -- -- (10,232) --
In excess of net investment income (Class A) (1,306,778) -- (429,273) (1,444,664) (444,312)
In excess of net investment income (Class B) (4,647) (298) (3,827) (2,568) (1,909)
In excess of net investment income (Class C) (896) -- -- -- --
----------- ---------- ----------- ----------- -----------
Total distributions declared to shareholders $ (4,237,122) $ (154,933) $ (1,605,350) $ (4,155,711) $ (1,262,005)
----------- ---------- ----------- ----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 15,287,053 $ 3,134,962 $ 6,352,754 $ 12,645,887 $ 4,173,157
Net asset value of shares issued to shareholders in
reinvestment of distributions 2,359,236 98,162 824,924 2,052,195 638,534
Cost of shares reacquired (10,590,746) (519,303) (4,612,283) (9,383,022) (3,760,396)
----------- ---------- ----------- ----------- -----------
Increase in net assets from Fund share transactions $ 7,055,543 $ 2,713,821 $ 2,565,395 $ 5,315,060 $ 1,051,295
----------- ---------- ----------- ----------- -----------
Total increase (decrease) in net assets $(30,272,086) $ 877,587 $(12,121,745) $(32,366,005) $ (9,537,429)
Net assets:
At beginning of period 513,121,021 17,387,901 195,523,153 491,043,202 145,719,841
----------- ---------- ----------- ----------- -----------
At end of period $482,848,935 $18,265,488 $183,401,408 $458,677,197 $136,182,412
----------- ---------- ----------- ----------- -----------
Accumulated undistributed (distributions in excess of) net
investment income included in net assets at end of period $ (1,312,321) $ 2,483 $ (433,100) $ (1,447,109) $ (446,221)
----------- ---------- ----------- ----------- ----------
</TABLE>
<PAGE> 124
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 5,427,790 $ 4,153,287 $ 8,893,750 $ 16,518,127 $ 8,668,205
Net realized gain (loss) on investments 1,736,260 209,313 752,402 5,970,582 3,282,230
Net unrealized gain (loss) on investments 6,043,652 5,116,021 6,260,864 7,585,271 7,577,071
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations $ 13,207,702 $ 9,478,621 $ 15,907,016 $ 30,073,980 $ 19,527,506
----------- ----------- ----------- ----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (5,381,618) $ (3,996,380) $ (8,501,900) $(15,813,609) $ (8,469,259)
From net investment income (Class B) (57,121) (46,306) (47,693) (41,940) (39,087)
From net realized gain on investments (Class A) (1,086,402) (64,945) (893,666) (4,944,048) (2,679,907)
From net realized gain on investments (Class B) (44,845) (2,565) (13,619) (43,883) (39,115)
In excess of net investment income (Class A) (89,928) (197,747) (559,628) (1,033,469) (411,930)
In excess of net investment income (Class B) (2,961) (2,061) (2,014) (1,770) (2,793)
In excess of net realized gain on investments
(Class A) -- -- (285,695) -- --
In excess of net realized gain on investments
(Class B) -- -- (5,447) -- --
----------- ----------- ----------- ----------- -----------
Total distributions declared to shareholders $ (6,662,875) $ (4,310,004) $(10,309,662) $(21,878,719) $(11,642,091)
----------- ----------- ----------- ----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 78,036,466 $ 38,887,258 $ 38,166,091 $ 43,485,858 $ 68,527,297
Net asset value of shares issued to
shareholders in reinvestment of distributions 2,061,463 1,520,053 5,497,645 9,895,798 6,121,743
Cost of shares reacquired (29,597,409) (10,051,163) (16,291,085) (27,269,464) (28,931,917)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from Fund
share transactions $ 50,500,520 $ 30,356,148 $ 27,372,651 $ 26,112,192 $ 45,717,123
----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets $ 57,045,347 $ 35,524,765 $ 32,970,005 $ 34,307,453 $ 53,602,538
Net assets:
At beginning of period 74,329,083 64,648,729 145,794,212 270,777,873 135,748,509
----------- ----------- ----------- ----------- -----------
At end of period $131,374,430 $100,173,494 $178,764,217 $305,085,326 $189,351,047
----------- ----------- ----------- ----------- -----------
Accumulated distributions in excess of net
investment income included in net assets at end
of period $ (92,889) $ (199,808) $ (561,642) $ (1,035,239) $ (414,723)
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements
<PAGE> 125
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 23,639,673 $ 534,114 $ 8,700,854 $ 24,004,702 $ 7,020,710
Net realized gain (loss) on investments 1,621,795 22,452 762,732 4,746,234 1,599,326
Net unrealized gain (loss) on investments 19,979,696 711,886 9,029,209 16,123,082 6,029,100
----------- ----------- ----------- ----------- ----------
Increase (decrease) in net assets from
operations $ 45,241,164 $ 1,268,452 $ 18,492,795 $ 44,874,018 $ 14,649,136
----------- ----------- ----------- ----------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $(22,593,670) $ (499,013) $ (8,351,192) $(23,000,542) $ (6,693,640)
From net investment income (Class B) (111,740) (29,351) (65,754) (107,077) (40,005)
From net investment income (Class C) (2,176) -- -- (291) --
From net realized gain on investments (Class A) (441,976) (7,638) (179,941) (7,602,939) (1,373,948)
From net realized gain on investments (Class B) (6,972) (1,470) -- (52,284) (26,180)
In excess of net investment income (Class A) (1,275,110) -- (404,781) (1,466,322) (434,275)
In excess of net investment income (Class B) (3,178) -- (2,434) (2,976) (1,423)
In excess of net investment income (Class C) (315) -- -- (32) --
----------- ----------- ----------- ----------- ----------
Total distributions declared to shareholders $(24,435,137) $ (537,472) $ (9,004,102) $(32,232,463) $ (8,569,471)
----------- ----------- ----------- ----------- ----------
Fund share (principal) transactions -
Net proceeds from sale of shares $117,668,357 $ 17,437,556 $ 56,075,126 $ 93,022,362 $ 34,081,347
Net asset value of shares issued to
shareholders in reinvestment of distributions 13,376,861 350,218 4,481,087 16,799,726 4,199,846
Cost of shares reacquired (37,081,742) (1,130,853) (19,060,786) (31,116,518) (13,930,081)
----------- ----------- ----------- ---------- -----------
Increase (decrease) in net assets from Fund
share transactions $ 93,963,476 $ 16,656,921 $ 41,495,427 $ 78,705,570 $ 24,351,112
----------- ----------- ----------- ---------- -----------
Total increase (decrease) in net assets $114,769,503 $ 17,387,901 $ 50,984,120 $ 91,347,125 $ 30,430,777
Net assets:
At beginning of period 398,351,518 -- 144,539,033 399,696,077 115,289,064
----------- ----------- ----------- ---------- -----------
At end of period $513,121,021 $ 17,387,901 $195,523,153 $491,043,202 $145,719,841
----------- ----------- ----------- ---------- -----------
Accumulated undistributed (distributions in
excess of) net investment income included in
net assets at end of period $ (1,278,603) $ 5,750 $ (407,215) $ (1,469,330) $ (435,698)
-------------- ----------- ---------- ---------- ----------
See notes to financial statements
</TABLE>
<PAGE> 126
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Florida Fund
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31, September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F9> 1994<F8> 1994 1993<F1> 1994<F9> 1994<F8> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.65 $ 10.63 $ 9.89 $ 9.53 $ 9.64 $10.62 $10.69
----- ----- ----- ----- ----- ----- -----
Income from investment operations<F7>-
Net investment income<F5> $ 0.28 $ 0.09 $ 0.57 $ 0.58 $ 0.22 $0.07 $ 0.18
Net realized and unrealized gain
(loss) on investments (0.16) (0.98) 0.86 0.36 (0.15) (0.98) 0.03
----- ----- ----- ----- ----- ----- -----
Total from investment operations $ 0.12 $ (0.89) $ 1.43 $ 0.94 $ 0.07 (0.91) $ 0.21
----- ----- ----- ----- ----- ----- -----
Less distributions declared to shareholders-
From net investment income $ (0.26) $ (0.08) $ (0.57) $ (0.58) $(0.21) $(0.06) $(0.17)
From net realized gain on investments (0.04) -- (0.11) -- (0.04) -- (0.10)
In excess of net investment income (0.01) (0.01) (0.01) -- (0.01) (0.01) (0.01)
In excess of net realized gain
on investments (0.03) -- -- -- (0.03) -- --
----- ----- ----- ----- ----- ----- -----
Total distributions declared to
shareholders $ (0.34) $ (0.09) $ $(0.69) $ (0.58) $(0.29) $(0.07) $(0.28)
----- ----- ----- ----- ----- ----- -----
Net asset value - end of period $ 9.43 $ $9.65 $ $10.63 $ 9.89 $ 9.42 $9.64 $10.62
----- ----- ----- ----- ----- ----- -----
Total return<F6> 1.24%<F4> (8.39)%<F4> 14.71% 10.28%<F3> 0.70%<F4> (8.55)%<F4> 4.87%<F3>
Ratios (to average net assets)/Supplemental
data<F5>:
Expenses 0.50%<F3> 0.77%<F3> 0.49% 0.05%<F3> 1.55%<F3> 1.82%<F3> 1.64%<F3>
Net investment income 5.75%<F3> 5.15%<F3> 5.42% 6.27%<F3> 4.66%<F3> 4.08%<F3> 3.82%<F3>
Portfolio turnover 54% 19% 53% 54% 54% 19% 53%
Net assets at end of period (000 omitted) $100,673 $108,579 $124,131 $74,329 $ 9,984 $7,995 $7,244
<FN>
<F1>For the period from the commencement of investment operations, February 3, 1992 to January 31, 1993.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>Not annualized.
<F5>The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
Net investment income $ 0.27 $ 0.08 $ 0.52 $ 0.51 $ 0.21 $ 0.06 $ 0.16
Ratios (to average net assets):
Expenses 0.78%<F3> 1.12%<F3> 0.93% 0.81%<F3> 1.83%<F3> 2.17%<F3> 2.09%<F3>
Net investment income 5.48%<F3> 4.80%<F3> 4.97% 5.51%<F3> 4.38%<F3> 3.72%<F3> 3.38%<F3>
<F6>Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F7>Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F8>For the two months ended March 31, 1994.
<F9>For the period ended September 30, 1994.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 127
FINANCIAL STATEMENTS - CONTINUED
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F9> 1994<F8> 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
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 $10.38 $11.30 $10.57 $10.22 $ 9.83 $ 9.73
------ ------ ------ ------ ------ ------
Income from investment operations<F7> --
Net investment income <F5> $ 0.28 $ 0.09 $ 0.57 $ 0.58 $ 0.61 $ 0.63
Net realized and unrealized gain (loss) on
investments (0.11) (0.92) 0.75 0.38 0.46 0.12
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.17 $(0.83) $ 1.32 $ 0.96 $ 1.07 $ 0.75
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.26) $(0.06) $(0.55) $(0.60) $(0.66) $(0.63)
From net realized gain on investments -- -- (0.01) (0.01) (0.02) (0.02)
In excess of net investment income (0.02) (0.03) (0.03) -- -- --
In excess of net realized gain on
investments (0.03)<F10> -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.31) $(0.09) $(0.59) $(0.61) $(0.68) $(0.65)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.24 $10.38 $11.30 $10.57 $10.22 $9.83
------ ------ ------ ------ ------ ------
Total return<F6> 1.66%<F4> (7.34)%<F4> 12.71% 9.56% 11.29% 8.06%
Ratios (to average net assets)/ Supplemental
data<F5>:
Expenses 1.11%<F3> 1.18%<F3> 1.21% 1.08% 0.99% 0.74%
Net investment income 5.40%<F3> 5.05%<F3> 5.10% 5.75% 6.08% 6.46%
Portfolio turnover 24% 5% 14% 27% 36% 71%
Net assets at end of period (000 omitted) $82,391 $85,878 $94,407 $64,649 $47,869 $29,214
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31 January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1990 1989<F1> 1994<F9> 1994<F8> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.73 $ 9.53 $10.38 $11.30 $11.26
------ ------ ------ ------ ------
Income from investment operations<F7> -
Net investment income <F5> $ 0.66 $ 0.32 $ 0.24 $ 0.07 $ 0.19
Net realized and unrealized gain (loss) on
investments 0.02 0.14 (0.12) (0.91) 0.05
------ ------ ------ ------ ------
Total from investment operations $ 0.68 $ 0.46 $ 0.12 $(0.84) $ 0.24
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.66) $(0.26) $(0.21) $(0.07) $(0.18)
From net realized gain on investments (0.02) -- -- -- (0.01)
In excess of net investment income -- -- (0.02) (0.01) (0.01)
In excess of net realized gain on
investments -- -- (0.03)<F10> -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.68) $(0.26) $(0.26) $(0.08) $(0.20)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.73 $ 9.73 $10.24 $10.38 $11.30
------ ------ ------ ------ ------
Total return<F6> 7.19% 7.57%<F3> 1.24%<F4> (7.47)%<F4> 5.34%<F3>
Ratios (to average net assets)/
Supplemental data<F5>:
Expenses 0.42% 0.40%<F3> 1.92%<F3> 1.99%<F3> 1.97%<F3>
Net investment income 6.72% 6.18%<F3> 4.55%<F3> 4.17%<F3> 3.83%<F3>
Portfolio turnover 99% --% 24% 5% 14%
Net assets at end of period (000 omitted) $12,628 $4,383 $7,707 $6,631 $5,766
<FN>
<F1> For the period from the commencement of investment operations, June 6, 1988 to January 31, 1989.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3> Annualized.
<F4> Not annualized.
<F5> The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F9> 1994<F8> 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 0.28 $ 0.09 $ 0.56 $ 0.57 $ 0.60 $ 0.59
Ratios (to average net assets):
Expenses 1.21%<F3> 1.28%<F3> 1.31% 1.18% 1.09% 1.11%
Net investment income 5.30%<F3> 4.95%<F3> 5.00% 5.65% 5.98% 6.09%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31 January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1990 1989<F1> 1994<F9> 1994<F8> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 0.57 $ 0.29 $ 0.24 -- $ 0.19
Ratios (to average net assets):
Expenses 1.31% 1.07%<F3> 1.92%<F3> -- 1.97%<F3>
Net investment income 5.83% 5.51%<F3> 4.55%<F3> -- 3.83%<F3>
<F6> Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F7> Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F8> For the two months ended March 31, 1994.
<F9> For the period ended September 30, 1994.
<F10>Amounts include $0.005 of distributions from net realized gain on investments each for Class A and Class B shares.
</TABLE>
See notes to financial statements
<PAGE> 128
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland Fund
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F1> 1994<F2> 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.89 $ 11.81 $ 11.40 $ 11.20
------ ------ ------ ------
Income from investment operations<F3> -
Net investment income $ 0.29 $ 0.10 $ 0.62 $ 0.67
Net realized and unrealized gain (loss) on investments (0.08) (0.92) 0.53 0.24
------ ------ ------ ------
Total from investment operations $ 0.21 $ (0.82) $ 1.15 $ 0.91
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ (0.26) $ (0.06) $ (0.61) $ (0.69)
From net realized gain on investments -- -- (0.07) (0.02)
In excess of net investment income (0.04) (0.04) (0.04) --
In excess of net realized gain on investments (0.01) -- (0.02) --
From paid-in capital<F4> -- -- -- --
------ ------ ------ ------
Total distributions declared to sharehoders $ (0.31) $ (0.10) $ (0.74) $ (0.71)
------ ------ ------ ------
Net asset value - end of period $ 10.79 $ 10.89 $ 11.81 $ 11.40
------ ------ ------ ------
Total return<F6> 1.89%<F5> (6.96)%<F5> 10.27% 8.34%
Ratios (to average net assets)/Supplemental data:
Expenses 1.20%<F7> 1.23%<F7> 1.25% 1.14%
Net investment income 5.36%<F7> 4.97%<F7> 5.42% 6.13%
Portfolio turnover 17% 1% 25% 5%
Net assets at end of period (000 omitted) $157,059 $161,290 $173,419 $145,794
<FN>
<F1>For the period ended September 30, 1994.
<F2>For the two months ended March 31, 1994.
<F3>Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F4>For the year ended January 31, 1986, the per share distribution from paid-in capital was $0.0005.
<F5>Not annualized.
<F6>Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F7>Annualized.
</TABLE>
<PAGE> 129
FINANCIAL STATEMENTS - CONTINUED
Financial Highlights
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Massachusetts Fund
- ---------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ---------------------------------------------------------------------------------------------------------
1994<F2> 1994<F1> 1994 1993
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $10.90 $11.75 $11.41 $11.05
------ ------ ------ ------
Income from investment operations<F7> -
Net investment income $ 0.33 $ 0.11 $ 0.64 $ 0.68
Net realized and unrealized gain
(loss) on investments (0.19) (0.85) 0.58 0.39
------ ------ ------ ------
Total from investment operations $ 0.14 $(0.74) $ 1.22 $ 1.07
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.28) $(0.07) $(0.64) $(0.71)
From net realized gain on investments (0.02) -- (0.20) --
In excess of net investment income (0.04) (0.04) (0.04) --
In excess of net realized gain on investments (0.01) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.35) $(0.11) $(0.88) $(0.71)
------ ------ ------ ------
Net asset value - end of period $10.69 $10.90 $11.75 $11.41
------ ------ ------ ------
Total return<F6> 1.29%<F4> (6.34)%<F4> 11.02% 10.03%
Ratios (to average net
assets)/Supplemental data:
Expenses 1.16%<F3> 1.19%<F3> 1.19% 1.08%
Net investment income 5.96%<F3> 5.64%<F3> 5.71% 6.33%
Portfolio turnover 14% 4% 30% 32%
Net assets at end of period (000 omitted) $269,478 $277,748 $300,894 $270,778
</TABLE>
See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts Fund
- ------------------------------------------------------------------------------------------------------------------------------------
January 31, September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986<F1> 1994<F9> 1994<F8> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value -
beginning of period $10.68 $10.58 $10.65 $10.60 $11.25 $10.59 $ 9.52 $10.90 $11.75 $11.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F7> -
Net investment income $ 0.73 $ 0.71 $ 0.72 $ 0.72 $ 0.71 $ 0.74 $ 0.54 $ 0.28 $ 0.09 $ 0.23
Net realized and unrealized
gain (loss) on investments 0.43 0.11 (0.07) 0.05 (0.65) 0.68 0.99 (0.18) (0.85) 0.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.16 $ 0.82 $ 0.65 $ 0.77 $ 0.06 $ 1.42 $ 1.53 $ 0.10 $(0.76) $ 0.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income $(0.78) $(0.72) $(0.72) $(0.72) $(0.71) $(0.75) $(0.46) $(0.24) $(0.09)<F5> $(0.22)
From net realized gain on
investments -- -- -- -- -- (0.01) -- (0.01) -- (0.20)
In excess of net investment
income -- -- -- -- -- -- -- (0.04) -- (0.01)
In excess of net realized
gain on investments -- -- -- -- -- -- -- (0.02) -- --
From paid-in capital (0.01) -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.79) $(0.72) $(0.72) $(0.72) $(0.71) $(0.76) $(0.46) $(0.31) $(0.09) $(0.43)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $11.05 $10.68 $10.58 $10.65 $10.60 $11.25 $10.59 $10.69 $10.90 $11.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total return<F6> 11.23% 8.12% 6.28% 7.65% 0.80% 14.10% 20.51%<F3> 0.92%<F4> (6.46)%<F4> 5.89%<F3>
Ratios (to average net
assets)/Supplemental data:
Expenses 1.06% 1.07% 1.10% 1.07% 1.04% 0.87% 0.86%<F3> 1.88%<F3> 1.91%<F3> 1.81%<F3>
Net investment income 6.65% 6.74% 6.75% 6.90% 6.79% 6.83% 7.82%<F3> 5.21%<F3> 4.89%<F3> 4.62%<F3>
Portfolio turnover 51% 43% 52% 26% 27% 7% 27% 14% 4% 30%
Net assets at end of period
(000 omitted) $239,311 $213,679 $215,381 $212,763 $224,219 $242,119 $94,575 $6,636 $4,993 $4,191
<FN>
<F1> For the period from the commencement of investment operations, April 9, 1985 to January 31, 1986.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3> Annualized.
<F4> Not annualized.
<F5> Includes distributions in excess of net investment income of $0.0055 per share.
<F6> Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F7> Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F8> For the two months ended March 31, 1994.
<F9> For the period ended September 30, 1994.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 130
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
New York Fund
- -----------------------------------------------------------------------------------------------------------------------------------
September March January September March January
30, 31, 31, 30, 31, 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1994<F9> 1994<F8> 1994 1993 1992 1991 1990 1989<F1> 1994<F9> 1994<F8> 1994<F2>
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value -
beginning of period $10.50 $11.34 $10.78 $10.25 $ 9.90 $ 9.74 $ 9.79 $ 9.53 $10.50 $11.34 $11.46
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment
operations<F7> -
Net investment
income<F5> $ 0.28 $ 0.09 $ 0.59 $ 0.63 $ 0.65 $ 0.65 $ 0.68 $ 0.29 $ 0.22 $ 0.07 $ 0.18
Net realized and
unrealized gain
(loss) on
investments (0.14) (0.84) 0.74 0.58 0.44 0.16 0.01 0.21 (0.12) (0.83) 0.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.14 $(0.75) $ 1.33 $ 1.21 $ 1.09 $ 0.81 $ 0.69 $ 0.50 $ 0.10 $(0.76) $ 0.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
declared to
shareholders -
From net investment
income $(0.25) $(0.06) $(0.57) $(0.65) $(0.69) $(0.65) $(0.67) $(0.24) $(0.21) $(0.07) $(0.18)
From net realized
gain on
investments -- -- (0.17) (0.03) (0.05) -- (0.06) -- -- -- (0.15)
In excess of net
investment
income (0.03) (0.03) (0.03) -- -- -- -- -- (0.03) (0.01) (0.01)
In excess of net
realized gain on
investments (0.05) -- -- -- -- -- -- -- (0.05) -- --
From paid-in
capital -- -- -- -- -- -- (0.01) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.33) $(0.09) $(0.77) $(0.68) $(0.74) $(0.65) $(0.74) $(0.24) $(0.29) $(0.08) $(0.34)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $10.31 $10.50 $11.34 $10.78 $10.25 $ 9.90 $ 9.74 $ 9.79 $10.31 $10.50 $11.34
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total return<F6> 1.37%<F4> (6.58)%<F4> 12.69% 12.23% 11.42% 8.74% 7.33% 8.16%<F3> 0.95%<F4> (6.71)%<F4> 5.20%<F3>
Ratios (to average
net assets)/
Supplemental data:<F5>
Expenses 1.04%<F3> 1.03%<F3> 0.93% 0.53% 0.65% 0.54% 0.40% 0.40%<F3> 1.86%<F3> 1.87%<F3> 1.79%<F3>
Net investment
income 5.34%<F3> 5.09%<F3> 5.21% 6.16% 6.44% 6.73% 6.88% 5.93%<F3> 4.48%<F3> 4.21%<F3> 3.90%<F3>
Portfolio turnover 55% 15% 51% 61% 80% 188% 236% 32% 55% 15% 51%
Net assets at end of
period
(000 omitted) $152,570 $162,621 $184,523 $135,749 $79,524 $37,385 $20,156 $6,412 $10,348 $6,265 $4,828
<FN>
<F1> For the period from the commencement of investment operations, June 6, 1988 to January 31, 1989.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3> Annualized.
<F4> Not annualized.
<F5> The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
Net investment
income $ 0.27 $ 0.07 $ 0.56 $ 0.57 $ 0.60 $ 0.61 $ 0.59 $ 0.26 $ 0.22 $ 0.07 $ 0.17
Ratios (to average
net assets):
Expenses 1.17%<F3> 1.23%<F3> 1.23% 1.13% 1.16% 0.95% 1.32% 1.09%<F3> 1.89%<F3> 1.97%<F3> 2.00%<F3>
Net investment
income 5.22%<F3> 4.88%<F3> 4.90% 5.56% 5.93% 6.33% 5.96% 5.24%<F3> 4.45%<F3> 4.11%<F3> 3.69%<F3>
<F6> Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F7> Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F8> For the two months ended March 31, 1994.
<F9> For the period ended September 30, 1994.
</TABLE>
See notes to financial statements
<PAGE> 131
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
North Carolina Fund
- ------------------------------------------------------------------------------------------------------------------------------------
September March January
30, 31, 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F11> 1994<F10> 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning
of period $11.48 $12.37 $11.80 $11.45 $11.30 $11.18 $11.15 $11.13
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations## -
Net investment income $ 0.30 $ 0.10 $ 0.64 $ 0.65 $ 0.70 $ 0.72 $ 0.73 $ 0.74
Net realized and unrealized gain
(loss) on investments (0.14) (0.89) 0.58 0.37 0.26 0.17 0.03 0.02
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.16 $(0.79) $ 1.22 $ 1.02 $ 0.96 $ 0.89 $ 0.76 $ 0.76
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.27) $(0.07) $(0.61) $(0.67) $(0.76) $(0.72) $(0.73) $(0.74)
From net realized gain on
investments (0.06) -- (0.01) -- (0.01) (0.05) -- --
In excess of net investment
income (0.03) (0.03) (0.03) -- -- -- -- --
In excess of net realized gain on
investments (0.04) -- -- -- -- -- -- --
From paid-in capital<F6> -- -- -- -- (0.04) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.40) $(0.10) $(0.65) $(0.67) $(0.81) $(0.77) $(0.73) $(0.74)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $11.24 $11.48 $12.37 $11.80 $11.45 $11.30 $11.18 $11.15
------ ------ ------ ------ ------ ------ ------ ------
Total return<F7> 1.41%<F5> (6.39)%<F5> 10.59% 9.23% 8.82% 8.34% 6.97% 7.12%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.16%<F4> 1.16%<F4> 1.19% 1.07% 1.09% 1.09% 1.12% 1.11%
Net investment income 5.27%<F4> 4.96%<F4> 5.21% 5.80% 6.17% 6.47% 6.48% 6.70%
Portfolio turnover 23% 2% 12% 2% 39% 44% 61% 25%
Net assets at end of period
(000 omitted) $447,796 $460,321 $495,158 $398,352 $312,466 $226,806 $175,101 $129,287
</TABLE>
<PAGE> 132
FINANCIAL STATEMENTS -- continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina Fund
- ------------------------------------------------------------------------------------------------------------------------------------
January 31, September March 31, January September March 31, January
30, 31, 30, 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1988 1987 1986 1985<F1> 1994<F11> 1994<F10> 1994<F2> 1994<F11> 1994<F10> 1994<F3>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value -
beginning of period $11.82 $11.09 $10.01 $ 9.52 $11.47 $12.36 $12.36 $11.47 $12.36 $12.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F8> -
Net investment income $ 0.73 $ 0.75 $ 0.82 $ 0.21 $ 0.26 $ 0.08 $ 0.22 $ 0.26 $ 0.10 $ 0.02
Net realized and
unrealized gain
(loss) on investments (0.69) 0.90 1.12 0.42 (0.14) (0.89) 0.01 (0.13) (0.90) 0.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.04 $ 1.65 $ 1.94 $ 0.63 $ 0.12 $(0.81) $ 0.23 $ 0.13 $(0.80) $ 0.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
declared to
shareholders -
From net investment
income<F9> $(0.73) $(0.76) $(0.82) $(0.14) $(0.23) $(0.08) $(0.21) $(0.24) $(0.09) $(0.02)
From net realized gain
on investm -- (0.16) (0.04) -- (0.06) -- (0.01) (0.06) -- --
In excess of net
investment income -- -- -- -- (0.03) -- (0.01) (0.03) -- --
In excess of net realized
gain on investments -- -- -- -- (0.04) -- -- (0.04) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.73) $(0.92) $(0.86) $(0.14) $(0.36) $(0.08) $(0.23) $(0.37) $(0.09) $(0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $11.13 $11.82 $11.09 $10.01 $11.23 $11.47 $12.36 $11.23 $11.47 $12.36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total return<F7> 0.65% 15.76% 20.63% 25.82%<F4> 1.04%<F5> (6.51)%<F5> 4.58%<F4> 1.07%<F5> (6.50)%<F5> 16.50%<F4>
Ratios (to average
net assets)
/Supplemental data:
Expenses 1.08% 1.07% 0.90% 0.95%<F4> 1.87%<F4> 1.88%<F4> 1.84%<F4> 1.80%<F4> 1.82%<F4> 1.44%<F4>
Net investment income 6.71% 6.63% 8.02% 8.71%<F4> 4.51%<F4> 4.18%<F4> 4.03%<F4> 4.58%<F4> 4.25%<F4> 2.33%<F4>
Portfolio turnover 10% 10% 78% 39% 23% 2% 12% 23% 2% 12%
Net assets at end
of period
(000 omitted) $110,462 $105,668 $53,561 $20,243 $21,989 $15,866 $13,379 $9,135 $6,661 $4,584
<FN>
<F1>For the period from the commencement of investment operations, October 31, 1984 to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>For the period from the commencement of offering of Class C shares, January 3, 1994 to January 31, 1994.
<F4>Annualized.
<F5>Not annualized.
<F6>For the year ended January 31, 1991, the per share distribution from paid--in capital was $0.0005.
<F7>Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F8>Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F9>Includes distributions in excess of net investment income of $0.004 and $0.002, respectively, for Class B and Class C shares
for the two months ended March 31, 1994 and $0.003 per share for Class C shares for the year ended January 31, 1994.
<F10>For the two months ended March 31, 1994.
<F11>For the period ended September 30, 1994.
</TABLE>
See notes to financial statements
<PAGE> 133
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Pennsylvania Fund
- ------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31, September 30, March 31, January 31,
1994<F10> 1994<F9> 1994<F1> 1994<F10> 1994<F9> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
Class A 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 $ 9.15 $10.14 $ 9.53 $ 9.15 $10.15 $10.06
------ ------ ------ ------ ------ ------
Income from investment operations<F8> -
Net investment income<F6> $ 0.27 $ 0.09 $ 0.50 $ 0.22 $ 0.06 $ 0.17
Net realized and unrealized gain
(loss) on investments 0.03 (0.99) 0.62 0.04 (0.99) 0.10
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.30 $(0.90) $ 1.12 $ 0.26 $(0.93) $ 0.27
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income<F3> $(0.27) $(0.09) $(0.50) $(0.22) $(0.07) $(0.17)
From net realized gain on investments (0.01) -- (0.01) (0.01) -- (0.01)
In excess of net realized gain on
investments (0.03) -- -- (0.03) -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.31) $(0.09) $(0.51) $(0.26) $(0.07) $(0.18)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.14 $ 9.15 $10.14 $ 9.15 $ 9.15 $10.15
------ ------ ------ ------ ------ ------
Total return<F7> 3.22%<F5> (8.91)%<F5> 12.12% 2.81%<F5> (9.16)%<F5> 6.76%<F5>
Ratios (to average net assets)/
Supplemental data:<F6>
Expenses 0.00%<F4> 0.00%<F4> 0.00%<F4> 1.00%<F4> 1.00%<F4> 1.00%<F4>
Net investment income 5.80%<F4> 5.43%<F4> 5.30%<F4> 4.76%<F4> 4.37%<F4> 4.22%<F4>
Portfolio turnover 16% 1% 10% 16% 1% 10%
Net assets at end of period
(000 omitted) $16,115 $13,961 $13,987 $6,475 $4,304 $3,401
<FN>
<F1> For the period from the commencement of investment operations, February 1, 1993 to January 31, 1994.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3> For the two months ended March 31, 1994, Class B net investment income includes distributions in excess of net investment
income of less than $0.001 per share.
<F4> Annualized.
<F5> Not annualized.
<F6> The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
Net investment income $ 0.22 $ 0.06 $ 0.32 $ 0.17 $ 0.04 $ 0.05
Ratios (to average net assets):
Expenses 1.06%<F4> 1.84%<F4> 1.94%<F4> 2.13%<F4> 2.91%<F4> 2.50%<F4>
Net investment income 4.74%<F4> 3.60%<F4> 3.36%<F4> 3.63%<F4> 2.47%<F4> 1.29%<F4>
<F7> Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F8> Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding. For the two months
ended March 31, 1994.
<F9> For the period ended September 30, 1994.
<F10> For the period ended September 30, 1994.
</TABLE>
See notes to financial statements
<PAGE> 134
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F9> 1994<F8> 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
(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 $ 11.79 $ 12.74 $ 12.02 $ 11.74 $ 11.45 $ 11.30 $ 11.24
------ ------ ------ ------ ------ ------ ------
Income from investment operations<F7> -
Net investment income 0.31 0.08 0.63 0.67 0.70 0.71 0.72
Net realized and unrealized gain
(loss) on investments (0.07) (0.92) 0.74 0.34 0.40 0.21 0.06
------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 0.24 $ (0.84) 1.37 1.01 1.10 0.92 0.78
------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income (0.28) (0.08) (0.61) (0.69) (0.76) (0.71) (0.72)
From net realized gain on investments (0.07) -- (0.01) (0.04) (0.05) (0.06) --
In excess of net investment income (0.03) (0.03) (0.03) -- -- -- --
From paid-in capital<F5> -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $ (0.38) $ (0.11) $ (0.65) $ (0.73) $ (0.81) $ (0.77) $ (0.72)
------ ------ ------ ------ ------ ------ ------
Net asset value- end of period $ 11.65 $ 11.79 $ 12.74 $ 12.02 $ 11.74 $ 11.45 $ 11.30
------ ------ ------ ------ ------ ------ ------
Total return<F6> 2.07%<F4> (6.65)%<F4> 11.69% 8.89% 9.95% 8.46% 7.13%
Ratios (to average net
assets)/Supplemental data:
Expenses 1.17%<F3> 1.23%<F3> 1.22% 1.12% 1.15% 1.18% 1.21%
Net investment income 5.26%<F3> 5.09%<F3> 5.06% 5.74% 6.07% 6.30% 6.35%
Portfolio turnover 12% 4% 10% 11% 22% 47% 54%
Net assets at end of period (000 omitted) $172,913 $173,316 $187,307 $144,539 $101,434 $ 75,922 $ 57,675
See notes to financial statements
</TABLE>
<PAGE> 135
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina
- ------------------------------------------------------------------------------------------------------------------------------------
January 31, September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1989 1988 1987 1986 1985<F1> 1994<F9> 1994<F8> 1994<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value - beginning
of period $ 11.14 $ 11.54 $ 10.89 $ 9.95 $ 9.52 $ 11.78 $ 12.73 $12.67
------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F7> -
Net investment income $ 0.76 $ 0.77 $ 0.77 $ 0.84 $ 0.22 $ 0.27 $ 0.08 $ 0.21
Net realized and unrealized
gain (loss) on investments 0.11 (0.36) 0.69 0.95 0.35 (0.07) (0.94) 0.06
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.87 $ 0.41 $ 1.46 $ 1.79 $ 0.57 $ 0.20 $ (0.86) $ 0.27
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income $ (0.77) $ (0.77) $ (0.78) $ (0.84) $(0.14) $ (0.24) $ (0.08) $(0.20)
From net realized gain
on investments -- -- (0.03) (0.01) -- (0.07) -- --
In excess of net
investment income -- -- -- -- -- (0.03) (0.01) (0.01)
From paid-in capital<F5> -- (0.04) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $ (0.77) $ (0.81) $ (0.81) $ (0.85) $(0.14) $ (0.34) (0.09) (0.21)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $ 11.24 $ 11.14 $ 11.54 $ 10.89 $ 9.95 $ 11.64 $ 11.78 $12.73
------ ------ ------ ------ ------ ------ ------ ------
Total return<F6> 8.18% 3.92% 14.05% 19.13% 23.47%<F3> 1.70%<F4> (6.77)%<F4> 5.47%<F3>
Ratios (to average net assets)
/Supplemental data:
Expenses 0.97% 0.81% 0.99% 1.01% 0.95%<F3> 1.89%<F3> 1.96%<F3> 1.90%<F3>
Net investment income 6.90% 7.07% 7.00% 8.26% 9.09%<F3> 4.51%<F3> 4.29%<F3> 3.86%<F3>
Portfolio turnover 27% 12% 13% 28% 49% 12% 4% 10%
Net assets at end of
period (000 omitted) $45,391 $34,025 $27,978 $10,936 $ 3,052 $12,053 $10,085 8,217
<FN>
<F1>For the period from the commencement of investment operations, October 31, 1984 to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>Not annualized.
<F5>For the year ended January 31, 1986, the per share distribution from paid-in capital was $0.00042.
<F6>Total returns do not include the applicable sales charge. If the sales charge had been included, the results would
have been lower.
<F7>Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F8>For the two months ended March 31, 1994.
<F9>For the period ended September 30, 1994.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 136
FINANCIAL STATEMENTS - continued
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F7> 1994<F6> 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning
of period $11.15 $12.07 $11.72 $11.44 $11.16 $10.97 $10.91 $10.75
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment income $ 0.31 $ 0.10 $ 0.65 $ 0.68 $ 0.71 $ 0.73 $ 0.73 $ 0.74
Net realized and unrealized gain
(loss) on investments (0.18) (0.92) 0.56 0.30 0.34 0.19 0.06 0.16
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 0.13 $(0.82) $ 1.21 $ 0.98 $ 1.05 $ 0.92 $ 0.79 $ 0.90
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income $(0.27) $(0.06) $(0.62) $(0.70) $(0.77) $(0.73) $(0.73) $(0.74)
From net realized gain
on investments<F3> (0.04) -- (0.20) -- -- -- -- --
In excess of net investment income (0.04) (0.04) (0.04) -- -- -- -- --
In excess of net realized
gain on investments (0.01) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.36) $(0.10) $(0.86) $(0.70) $(0.77) $(0.73) $(0.73) $(0.74)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $10.92 $11.15 $12.07 $11.72 $11.44 $11.16 $10.97 $10.91
------ ------ ------ ------ ------ ------ ------ ------
Total return<F4> 1.13%<F2> (6.80)%<F2> 10.67% 8.88% 9.76% 8.74% 7.46% 8.76%
Ratios (to average net
assets)/Supplemental data:
Expenses 1.15%<F1> 1.17%<F1> 1.18% 1.08% 1.08% 1.11% 1.12% 1.09%
Net investment income 5.48%<F1> 5.33%<F1> 5.37% 6.02% 6.32% 6.64% 6.67% 6.91%
Portfolio turnover 11% 5% 22% 20% 13% 38% 41% 38%
Net assets at end of period
(000 omitted) $434,576 $443,580 $479,333 $399,696 $328,664 $275,202 $240,553 $207,680
<FN>
<F1>Annualized.
<F2>Not annualized.
<F3> For the year ended January 31, 1993, the per share distribution from net
realized gain on investments was $0.00348.
<F4>Total returns do not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
<F5>Per share data for the periods beginning after January 31, 1994 are based
on average shares outstanding.
<F6>For the two months ended March 31, 1994.
<F7>For the period ended September 30, 1994.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 137
FINANCIAL STATEMENTS - continued
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
January 31, September March 31, January September March 31, January 31,
30, 31, 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1988 1987 1986 1985<F1> 1994<F10> 1994<F10> 1994<F2> 1994<F10> 1994<F10> 1994<F3>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning
of period $11.38 $10.78 $10.01 $ 9.52 $11.14 $12.06 $12.14 $11.14 $12.06 $11.94
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment
operations<F8> -
Net investment
income $ 0.72 $ 0.74 $ 0.81 $ 0.22 $ 0.26 $ 0.09 $ 0.22 $ 0.27 $ 0.08 $ 0.02
Net realized and
unrealized gain
(loss) on
investments (0.57) 0.61 0.77 0.42 (0.17) (0.92) 0.01 (0.19) (0.91) 0.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations $ 0.15 $ 1.35 $ 1.58 $ 0.64 $ 0.09 $(0.83) $ 0.23 $ 0.08 $(0.83) $ 0.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
declared to
shareholders -
From net
investment
income $(0.71) $(0.75) $(0.80) $(0.15) $(0.23) $(0.09)<F11> $(0.21) $(0.23) $(0.09) $(0.02)<F11>
From net
realized
gain on
investments (0.05) -- (0.01) -- (0.04) -- (0.09) (0.04) -- --
In excess of
net
investment
income -- -- -- -- (0.04) -- (0.01) (0.04) -- --
In excess of net
realized gain on
investments -- -- -- -- (0.01) -- -- (0.01) -- --
From paid-in
capital<F6> (0.02) -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions
declared to
shareholders $(0.78) $(0.75) $(0.81) $(0.15) $(0.32) $(0.09) $(0.31) $(0.32) $(0.09) $(0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $10.75 $11.38 $10.78 $10.01 $10.91 $11.14 $12.06 $10.90 $11.14 $12.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total return<F7> 1.61% 13.12% 16.82% 26.53%<F4> 0.76%<F5> (6.92)%<F5> 4.93%<F4> 0.71%<F5> (6.91)%<F5> 17.05%<F4>
Ratios (to average
net assets)/
Supplemental data:
Expenses 1.04% 1.02% 0.83% 0.95%<F4> 1.87%<F4> 1.88%<F4> 1.82%<F4> 1.81%<F4> 1.82%<F4> 1.18%<F4>
Net investment
income 6.75% 6.73% 8.89% 8.87%<F4> 4.71%<F4> 4.52%<F4> 4.25%<F4> 4.80%<F4> 4.48%<F4> 1.79%<F4>
Portfolio turnover 11% 20% 23% 13% 11% 5% 22% 11% 5% 22%
Net assets at end
of period
(000 omitted) $192,104 $181,937 $85,706 $32,638 $18,718 13,337 $10,877 $10,964 $1,760 $ 833
<FN>
<F1> For the period from the commencement of investment operations, October 31, 1984 to January 31, 1985.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3> For the period from the commencement of offering of Class C shares, January 3, 1994 to January 31, 1994.
<F4> Annualized.
<F5> Not annualized.
<F6> For the years ended January 31, 1987 and 1986, the per share distributions from paid-in capital were $0.0005 and $0.0015,
respectively.
<F7> Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F8> Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F9> For the two months ended March 31, 1994.
<F10>For the period ended September 30, 1994.
<F11>Includes a distribution in excess of net investment income of $0.002 on Class B and Class C shares for the periods
indicated.
</TABLE>
See notes to financial statements
<PAGE> 138
FINANCIAL STATEMENTS - continued
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
West Virginia
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994<F1> 1994<F2> 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
(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 $ 11.19 $ 12.06 $ 11.50 $ 11.20 $ 10.93 $ 10.72 $ 10.68
------- ------- ------- ------- ------- ------- -------
Income from investment operations<F3> -
Net investment income 0.25 0.01 0.64 0.66 0.70 0.71 0.71
Net realized and unrealized gain (loss) on investments (0.06) (0.78) 0.69 0.34 0.34 0.21 0.04
------- ------- ------- ------- ------- ------- -------
Total from investment operations 0.19 (0.77) 1.33 1.00 1.04 0.92 0.75
------- ------- ------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income (0.27) (0.06) (0.61) (0.69) (0.76) (0.71) (0.71)
From net realized gain on investments (0.01) -- (0.12) (0.01) (0.01) -- --
In excess of net investment income (0.04) (0.04) (0.04) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total distributions declared to shareholders (0.32) (0.10) (0.77) (0.70) (0.77) (0.71) (0.71)
------- ------- ------- ------- ------- ------- -------
Net asset value - end of period $ 11.06 $ 11.19 $ 12.06 $ 11.50 $ 11.20 $ 10.93 $ 10.72
------- ------- ------- ------- ------- ------- -------
Total return<F4> 1.74%<F5> (6.37)%<F5> 11.80% 9.12% 9.84% 8.91% 7.26%
Ratios (to average net assets)/Supplemental data:
Expenses 1.21%<F6> 1.30%<F6> 1.24% 1.15% 1.17% 1.21% 1.22%
Net investment income 5.51%<F6> 5.36%<F6> 5.30% 5.97% 6.33% 6.59% 6.63%
Portfolio turnover 10% 2% 26% 19% 14% 37% 34%
Net assets at end of period (000 omitted) $130,063 $130,726 $141,190 $115,289 $80,440 $61,984 $52,398
<FN>
<F1>For the period ended September 30, 1994.
<F2>For the two months ended March 31, 1994.
<F3>Per share data for the periods beginning after January 31, 1994 are based
on average shares outstanding.
<F4>Total returns do not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
<F5>Not annualized.
<F6>Annualized.
</FN>
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
West Virginia
- ------------------------------------------------------------------------------------------------------------------------------------
January 31, September 30, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1989 1988 1987 1986 1985<F1> 1994<F2> 1994<F3> 1994<F4>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $10.51 $11.30 $10.77 $ 9.83 $ 9.52 $11.19 $12.06 $12.13
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment income $ 0.77 $ 0.77 $ 0.81 $ 0.84 $ 0.23 $ 0.27 $ 0.01 $ 0.22
Net realized and unrealized gain (loss)
on investments 0.18 (0.72) 0.56 0.96 0.23 (0.12) (0.87) 0.05
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.95 0.05 1.37 1.80 0.46 0.15 (0.86) 0.27
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income (0.78) (0.76 (0.81) (0.85) (0.15) (0.23) (0.01) (0.21)
From net realized gain on investments -- (0.02) (0.03) (0.01) -- (0.01) -- (0.12)
In excess of net investment income -- -- -- -- -- (0.04) -- (0.01)
From paid-in capital<F6> -- (0.06) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders (0.78) (0.84) (0.84) (0.86) (0.15) (0.28) (0.01) (0.34)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $10.68 $10.51 $11.30 $10.77 9.83 $11.06 $11.19 $12.06
------ ------ ------ ------ ------ ------ ------ ------
Total return<F7> 9.43% 0.76% 13.42% 19.42% 18.96%<F8> 1.37%<F9> (6.48)%<F9> 5.59%<F8>
Ratios (to average net assets)/Supplemental data:
Expenses 0.86% 0.79% 0.87% 1.00% 0.95%<F8> 1.93%<F8> 2.02%<F8> 1.89%<F8>
Net investment income 7.01% 7.32% 7.42% 8.40% 9.71%<F8> 4.75%<F8> 4.56%<F8> 4.14%<F8>
Portfolio turnover 9% 11% 9% 24% 14% 10% 2% 26%
Net assets at end of period (000 omitted) $43,026 $36,276 $34,436 $17,733 $7,039 $7,320 $5,456 $4,530
<FN>
<F1>For the period from the commencement of investment operations, October 31,1984 to January 31, 1985.
<F2>For the period ended September 30, 1994.
<F3>For the two months ended March 31, 1994.
<F4>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F5>Per share data for the periods beginning after January 31, 1994 are based on average shares outstanding.
<F6>For the years ended January 31, 1987 and 1986, the per share distributions from paid-in capital were $0.0018 and $0.0005,
respectively.
<F7>Total returns do not include the applicable sales charge. If the sales charge had been included, the results would have been
lower.
<F8>Annualized.
<F9>Not annualized.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 139
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Business and Organization
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. The Trust presently consists of nineteen Funds, as follows:
MFS Municipal Income Fund, MFS Alabama Municipal Bond Fund, MFS Arkansas
Municipal Bond Fund, MFS California Municipal Bond Fund, MFS Florida Municipal
Bond Fund* (Florida Fund), MFS Georgia Municipal Bond Fund* (Georgia Fund), MFS
Louisiana Municipal Bond Fund, MFS Maryland Municipal Bond Fund* (Maryland
Fund), MFS Massachusetts Municipal Bond Fund* (Massachusetts Fund), MFS
Mississippi Municipal Bond Fund, MFS New York Municipal Bond Fund* (New York
Fund), MFS North Carolina Municipal Bond Fund* (North Carolina Fund), MFS
Pennsylvania Municipal Bond Fund* (Pennsylvania Fund), MFS South Carolina
Municipal Bond Fund* (South Carolina Fund), MFS Tennessee Municipal Bond Fund,
MFS Texas Municipal Bond Fund, MFS Virginia Municipal Bond Fund* (Virginia
Fund), MFS Washington Municipal Bond Fund, and MFS West Virginia Municipal Bond
Fund* (West Virginia Fund). Each Fund, except MFS Municipal Income Fund, is
non-diversified.
The Funds denoted with an asterisk above are included within this semiannual
report.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates value. Futures contracts,
options and options on futures contracts listed on commodities exchanges are
valued at closing settlement prices. Over-the- counter options are valued by
brokers through the use of a pricing model which takes into account closing bond
valuations, implied volatility and short-term repurchase rates. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - Each Fund may enter into repurchase agreements with
institutions that the Trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. Each Fund requires
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Fund to obtain those securities
in the event of a default under the repurchase agreement. Each Fund monitors, on
a daily basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Deferred Organization Expenses - Costs incurred by the Funds in connection with
their organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of
operations of the Fund.
Written Options - Each Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Fund. Each Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option.
Futures Contracts - Each Fund may enter into financial 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, each Fund is required
to deposit either in cash or securities an amount equal to a certain percentage
of the contract amount. Subsequent payments are made or received by the Fund
each day, depending on the daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by the Fund. Each Fund's investment in financial futures contracts is
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
designed to hedge against anticipated future changes in interest rates. Such
transactions may also be entered into for non-hedging purposes to the extent
permitted by applicable law. Should interest rates move unexpectedly, the Fund
may not achieve the anticipated benefits of the financial 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,
market discount and original issue discount are amortized or accreted for both
financial statement and tax reporting purposes as required by federal income tax
regulations.
Tax Matters and Distributions - The Trust'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. Each 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 each Fund's tax return and, consequently, the character of
distributions to shareholders reported in the financial highlights may differ
from that reported to shareholders on Form 1099-DIV.
Distributions paid by each Fund from net interest received on tax-exempt
municipal bonds are not includable by shareholders as gross income for federal
income tax purposes because each Fund intends to meet certain requirements of
the Code applicable to regulated investment companies, which will enable the
Fund to pay exempt-interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986, may be considered
a tax preference item to shareholders. Distributions to shareholders are
recorded on the ex-dividend date.
Each Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as dis-
tributions in excess of net investment income or accumulated net realized gains.
Multiple Classes of Shares of Beneficial Interest - Each Fund offers both Class
A and Class B shares. Class B shares were first offered to the public on
September 7, 1993. Effective January 3, 1994, the North Carolina and Virginia
Funds began to offer Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees.
Shareholders of each class also bear certain expenses that pertain only to that
particular class. All shareholders bear the common expenses of the Fund pro rata
of each class, without distinction between share classes. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses, including distribution and shareholder service fees.
(3) Transactions with Affiliates
Investment Adviser - The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.55% of each Fund's average daily net assets. The investment adviser
voluntarily agreed to reduce its fees with respect to the Florida Fund to 0.10%
of average daily net assets until October 1, 1993, to be increased 0.05% each
quarter thereafter, not to exceed 0.55% of the Fund's average daily net assets;
with respect to the New York Fund to 0.35% of average daily net assets until
October 1, 1993, to be increased 0.05% each quarter thereafter, not to exceed
0.55% of the Fund's average daily net assets; and with respect to the
Pennsylvania Fund to 0% of average daily net assets. For the period ended
September 30, 1994, the investment adviser did not impose $159,381, $21,059 and
$58,026 of its fee in the case of the Florida, New York and Pennsylvania Funds,
respectively, which is reflected as a reduction of expenses in the Statement of
Operations.
<PAGE> 141
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
Under an expense reimbursement agreement with MFS, MFS has agreed to pay all of
the operating expenses, exclusive of management and distribution fees, of the
Pennsylvania Fund until December 31, 2002 or the date upon which the expenses
attributable to the Fund are repaid. To accomplish the reimbursement, the Fund
will pay an expense reimbursement fee to MFS of 0.40% of average daily net
assets, with a limitation that immediately after any such payment that aggregate
expenses of the Fund, including the management fee but excluding any
distribution plan fees, will not exceed 0.95% of average daily net assets. MFS
voluntarily reduced, for an indefinite period, its expense reimbursement fee to
0% of average daily net assets.
To the extent that actual expenses are under the agreed-upon expense
limitations, the excess of the limitation over actual expenses will be applied
to amounts reimbursed by the investment adviser in prior years. At September 30,
1994, unreimbursed expenses owed to the adviser by the Pennsylvania Fund were
$235,686.
The Trust pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain of the officers
and Trustees of the Trust are officers or directors of MFS, MFS Financial
Services, Inc. (FSI) and MFS Service Center, Inc. (MFSC). The Trust has an
unfunded defined benefit plan for all its independent Trustees. Included in
Trustees' compensation for the period ended September 30, 1994 is a net periodic
pension expense for each Fund, as follows:
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,371 $2,118 $2,954 $3,083 $2,169 $3,272 $1,531 $2,908 $2,909 $2,936
</TABLE>
Distributor - FSI, a wholly owned subsidiary of MFS, as distributor, received
$25,477, $21,270, $29,191, $33,683 $20,882, $82,432, $8,241, $33,403, $76,285
and $29,095 as its portion of the sales charge on sales of Class A shares of the
Florida, Georgia, Maryland, Massachusetts, New York, North Carolina,
Pennsylvania, South Carolina, Virginia and West Virginia Funds, respectively,
for the period ended September 30, 1994.
The Trustees have adopted separate distribution plans for each class of shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A Distribution Plan provides that each Fund will pay FSI up to 0.35%
of its average daily net assets attributable to Class A shares annually in order
that FSI may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with FSI of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to FSI of up to 0.10%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers and payments to FSI wholesalers for sales at or above a
certain dollar level, and other such distribution-related expenses that are
approved by the Fund. FSI is currently waiving the 0.10% distribution fee for
the Georgia and New York Funds which amounted to $42,679 and $80,180,
respectively, for the period ended September 30, 1994. In the case of the
Florida and Pennsylvania Funds, payments under the distribution plan will
commence on such date to be determined by the Trustees of the Trust.
Fees incurred under the distribution plan during the period ended September 30,
1994 attributable to Class A shares were:
<PAGE> 142
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Fee -- $149,860 $280,555 $482,665 $281,336 $807,954 -- $307,563 $777,314 $230,112
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
FSI Retained -- $ 3,821 $ 10,925 $ 42,726 $ 10,262 $ 15,648 -- $ 7,343 $ 15,617 $ 5,944
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
The Class B and Class C Distribution Plans provide that each Fund will pay FSI a
monthly distribution fee, equal to 0.75% per annum, and a quarterly service fee
of up to 0.25% per annum, of the Fund's average daily net assets attributable to
Class B and Class C shares. FSI will pay to securities dealers that enter into a
sales agreement with FSI all or a portion of the service fee attributable to
Class B and Class C shares and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended to
be additional consideration for services rendered by the dealer with respect to
Class B or Class C shares.
Fees incurred under the distribution plan during the period ended September 30,
1994 were 1.00% of average net assets attributable to Class B shares (on an
annualized basis) and amounted to the following:
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Fee $45,832 $36,467 $41,128 $29,075 $41,593 $97,793 $28,510 $56,006 $82,972 $32,734
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
FSI Retained -- $ 7 $ 195 $ 80 $ 111 $ 75 -- -- $ 68 $ 20
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Fees incurred under the distribution plan for the period ended September 30,
1994 were 1.00% of average daily net assets attributable to Class C shares (on
an annualized basis) for the North Carolina and Virginia Funds and amounted to
$41,477 and $28,328, respectively (of which FSI retained $2,206 and $936,
respectively).
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchase of $1 million or more, in the event of a share
redemption within 12 months following the share purchase. A contingent deferred
sales charge is imposed on shareholder redemptions of Class B shares in the
event of a shareholder redemption within six years of purchase. FSI receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the period ended September 30, 1994 on Class A and Class B shares were as
follows:
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $ 1,320 $ 2,683 $ -- $ -- $ 17 $65,043 $ -- $ 5,706 $ -- $ --
Class B 7,822 8,326 7,285 8,353 5,727 24,200 3,359 10,664 37,575 13,850
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$ 9,142 $11,009 $ 7,285 $ 8,353 $ 5,744 $89,243 $ 3,35 $16,370 $37,575 $13,850
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
There are no contingent deferred sales charges on Class C shares.
<PAGE> 143
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
fees for its services as shareholder servicing agent for the period ended
September 30, 1994, as specified below. The fee is calculated as a percentage
of average daily net assets of each class of shares at an effective annual
rate of up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A,
Class B and Class C shares, respectively.
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $80,029 $63,672 $120,238 $206,857 $120,237 $346,267 $11,557 $132,072 $333,135 $97,635
Class B 10,082 8,021 9,047 6,396 9,150 21,515 6,259 12,323 18,254 7,202
Class C -- -- -- -- -- 6,223 -- -- 4,250 --
</TABLE>
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, were as follows (000
Omitted):
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $64,609 $23,106 $26,926 $38,435 $86,047 $127,459 $ 8,592 $26,044 $76,644 $14,948
Sales 65,426 23,601 26,665 45,853 88,010 109,321 3,204 20,893 52,941 12,798
</TABLE>
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Funds at September 30, 1994, as computed on a federal income tax
basis, are as follows:
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate cost $112,157,077 $86,457,736 $164,623,271 $260,798,931 $155,563,852
------------ ----------- ------------ ------------ ------------
Gross unrealized appreciation $ 1,054,016 $ 2,783,021 $ 5,476,880 $ 11,552,628 $ 5,485,497
Gross unrealized depreciation (2,538,271) (1,441,674) (5,583,452) (5,917,812) (2,801,860)
------------ ----------- ------------ ------------ ------------
Net unrealized appreciation (depreciation) $ (1,484,255) $ 1,341,347 $ (106,572) $ 5,634,816 $ 2,683,637
------------ ----------- ------------ ------------ ------------
</TABLE>
<PAGE> 144
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
<TABLE>
<CAPTION>
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate cost $476,535,734 $24,359,159 $181,555,131 $457,425,552 $134,037,691
------------ ----------- ------------ ------------ ------------
Gross unrealized appreciation $ 14,717,305 $ 42,605 $ 5,741,231 $ 15,380,727 $ 4,715,722
Gross unrealized depreciation (12,070,771) (1,249,382) (5,470,619) (13,914,339) (3,878,612)
------------ ----------- ------------ ------------ ------------
Net unrealized appreciation (depreciation) $ 2,646,534 $(1,206,777) $ 270,612 $ 1,466,388 $ 837,110
------------ ----------- ------------ ------------ ------------
</TABLE>
At March 31, 1994, the Maryland and New York Funds, for federal income tax
purposes, had capital loss carryforwards of $2,044 and $1,103,848, respectively,
which may be applied against any net taxable realized gains of each succeeding
year until the earlier of their utilization or expiration on March 31, 2002.
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
Period Ended September 30, 1994 Florida Fund Georgia Fund Maryland Fund Massachusetts Fund New York Fund
(000 Omitted) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 2,045 $ 19,604 432 $ 4,486 428 $ 4,662 670 $ 7,295 2,807 $ 29,355
Shares issued to shareholders in
reinvestment of distributions 141 1,348 105 1,087 224 2,442 359 3,898 280 2,931
Shares reacquired (2,757) (26,430) (764) (7,921) (907) (9,867) (1,298) (14,092) (3,782) (39,642)
------ -------- ---- ------- ---- ------- ------ -------- ------ -------
Net decrease (571) $ (5,478) (227) $(2,348) (255) $(2,763) (269) $ (2,899) (695) $ (7,356)
------ -------- ---- ------- ---- ------- ------ -------- ------ --------
Period Ended March 31, 1994
(000 Omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 631 $ 6,400 267 $ 2,924 373 $ 4,289 645 $ 7,388 508 $ 5,533
Shares issued to shareholders in
reinvestment of distributions 33 332 26 278 71 791 104 1,163 76 818
Shares reacquired (1,087) (11,122) (376) (4,116) (309) (3,496) (886) (9,925) (1,357) (14,790)
------ -------- ---- ------- ----- ------- ---- -------- ------- --------
Net decrease (423) $ (4,390) (83) $ (914) 135 $ 1,584 (137) $ (1,374) (773) $ (8,439)
------ -------- ---- ------- ----- ------- ---- --------- ------- --------
Year Ended January 31, 1994
(000 Omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 6,785 $ 70,646 3,020 $33,191 2,812 $32,808 3,359 $39,196 5,703 $63,751
Shares issued to shareholders in
reinvestment of distributions 193 2,008 136 1,496 466 5,451 848 9,846 543 6,069
Shares reacquired (2,819) (29,380) (914) (10,041) (1,388) (16,230) (2,321) (27,134) (2,573) (28,924)
------ -------- ---- ------- ----- ------- ---- --------- ------- --------
Net increase 4,159 $ 43,274 2,242 $24,646 1,890 $22,029 1,886 $21,908 3,673 $40,896
------ -------- ---- ------- ----- ------- ---- --------- ------- --------
</TABLE>
<PAGE> 145
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
<TABLE>
<CAPTION>
North Pennsylvania South West
Period Ended September 30, 1994 Carolina Fund Fund Carolina Fund Virginia Fund Virginia Fund
(000 Omitted) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,610 $ 18,409 268 $ 2,468 816 $ 9,642 1,635 $ 18,218 490 $ 5,483
Shares issued to shareholders in
reinvestment of distributions 845 9,661 37 340 268 3,164 655 7,279 178 1,999
Shares reacquired (2,721) (30,969) (68) (629) (944) (11,135) (2,270) (25,232) (591) (6,614)
------ -------- --- ------- ---- -------- ------ -------- ---- -------
Net increase (decrease) (266) $ (2,899) 237 $ 2,179 140 $ 1,671 20 $ 265 77 $ 868
------ -------- --- ------- ---- -------- ------ -------- ---- -------
Period March 31, 1994 (000 Omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 714 $ 8,584 189 $ 1,823 307 $ 3,770 660 $ 7,747 226 $ 2,649
Shares issued to shareholders in
reinvestment of distributions 193 2,271 9 85 65 790 176 2,003 54 616
Shares reacquired (833) (9,920) (51) (503) (373) (4,586) (767) (8,945) (308) (3,531)
------ -------- --- ------- ---- -------- ------ -------- ---- -------
Net increase (decrease) 74 $ 935 147 $ 1,405 (1) $ (26) 69 $ 805 (28) $ (266)
------ -------- --- ------- ---- -------- ------ -------- ---- -------
Year Ended January 31, 1994 (000 Omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 8,229 $99,737 1,457 $14,093 3,853 $ 47,933 6,766 $ 80,897 2,488 $29,466
Shares issued to shareholders in
reinvestment of distributions 1,092 13,288 34 336 356 4,450 1,400 16,705 350 4,157
Shares reacquired (3,035) (36,932) (112) (1,101) (1,524) (19,046) (2,559) (30,600) (1,160) (13,791)
------ -------- --- ------- ------ -------- ------ -------- ---- -------
Net increase 6,286 $76,093 1,379<F1> $13,328<F1> 2,685 $ 33,337 5,607 $ 67,002 1,678 $19,832
------ -------- --- ------- ------ -------- ------ -------- ---- -------
<FN>
<F1>For the period from the commencement of investment operations, February 1, 1993 to January 31, 1994.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Period Ended September 30, 1994 Florida Fund Georgia Fund Maryland Fund Massachusetts Fund New York Fund
(000 Omitted) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 297 $ 2,847 181 $ 1,877 389 $ 4,242 190 $ 2,068 423 $ 4,430
Shares issued to shareholders in
reinvestment of distributions 16 151 10 109 11 120 8 87 12 125
Shares reacquired (82) (789) (77) (802) (97) (1,057) (35) (388) (28) (290)
---- ------- --- ------- --- ------- --- ------- --- -------
Net increase 231 $ 2,209 114 $ 1,184 303 $ 3,305 163 $ 1,767 407 $ 4,265
---- ------- --- ------- --- ------- --- ------- --- -------
Period Ended March 31, 1994
(000 Omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 153 $ 1,572 135 $ 1,468 162 $ 1,858 100 $ 1,143 171 $ 1,869
Shares issued to shareholders in
reinvestment of distributions 3 29 2 23 3 28 2 20 2 24
Shares reacquired (9) (87) (9) (90) (22) (250) (1) (4) (2) (24)
---- ------- --- ------- --- ------- --- ------- --- -------
Net increase 147 $ 1,514 128 $ 1,401 143 $ 1,636 101 $ 1,159 171 $ 1,869
---- ------- --- ------- --- ------- --- ------- --- -------
<PAGE> 146
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
Year Ended January 31, 1994
(000 Omitted)<F1>
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 698 $ 7,390 509 $ 5,696 454 $ 5,358 364 $ 4,290 422 $ 4,776
Shares issued to shareholders in
reinvestment of distributions 5 53 2 24 4 46 4 50 5 52
Shares reacquired (21) (217) (1) (10) (5) (61) (12) (135) (1) (8)
---- ------- --- ------- --- ------- --- ------- --- -------
Net increase 682 $ 7,226 510 $ 5,710 453 $ 5,343 356 $ 4,205 426 $ 4,820
---- ------- --- ------- --- ------- --- ------- --- -------
<FN>
<F1>For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
</FN>
</TABLE>
<TABLE>
<CAPTION>
North Pennsylvania South West
Period Ended September 30, 1994 Carolina Fund Fund Carolina Fund Virginia Fund Virginia Fund
(000 Omitted) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 646 $ 7,383 281 $ 2,598 212 $ 2,502 575 $ 6,398 184 $ 2,057
Shares issued to shareholders in
reinvestment of distributions 37 431 9 85 15 175 18 204 9 99
Shares reacquired (109) (1,246) (52) (480) (48) (560) (74) (827) (19) (207)
---- ------- --- ------- --- ------- --- ------- --- -------
Net increase 574 $ 6,568 238 $ 2,203 179 $ 2,117 519 $ 5,775 174 $ 1,949
---- ------- --- ------- --- ------- --- ------- --- -------
Period Ended March 31, 1994
(000 Omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 297 $ 3,550 135 $ 1,312 210 $ 2,583 313 $ 3,668 130 $ 1,524
Shares issued to shareholders in
reinvestment of distributions 6 75 1 13 3 35 4 43 2 23
Shares reacquired (2) (28) (2) (16) (2) (27) (22) (249) (20) (229)
---- ------- --- ------- --- ------- --- ------- --- -------
Net increase 301 $ 3,597 134 $ 1,309 211 $ 2,591 295 $ 3,462 112 $ 1,318
---- ------- --- ------- --- ------- --- ------- --- -------
Year Ended January 31, 1994
(000 Omitted)<F1>
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 1,087 $13,377 337 $ 3,345 644 $ 8,142 936 $11,282 384 $ 4,615
Shares issued to shareholders in
reinvestment of distributions 7 87 1 14 2 31 8 95 4 43
Shares reacquired (12) (150) (3) (29) (1) (15) (42) (500) (12) (139)
---- ------- --- ------- --- ------- --- ------- --- -------
Net increase 1,082 $13,314 335 $ 3,330 645 $ 8,158 902 $10,877 376 $ 4,519
---- ------- --- ------- --- ------- --- ------- --- -------
<FN>
<F1>For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
</FN>
</TABLE>
<PAGE> 147
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
Class C Shares North
Period Ended September 30, 1994 Carolina Fund Virginia Fund
(000 Omitted) Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold 367 $ 4,189 906 $10,009
Shares issued to shareholders in
reinvestment of distributions 11 122 12 135
Shares reacquired (145) (1,656) (70) (786)
---- ------- --- -------
Net Increase (decrease) 233 $ 2,655 848 $ 9,358
Period Ended March 31, 1994 (000 Omitted)
- --------------------------------------------------------------------------------
Shares sold 262 $ 3,153 104 $ 1,231
Shares issued to shareholders in
reinvestment of distributions 1 13 1 6
Shares reacquired (53) (642) (16) (189)
--- ------- --- -------
Net increase 210 $ 2,524 89 $ 1,048
--- ------- --- -------
Year Ended January 31, 1994 (000 Omitted)***
- --------------------------------------------------------------------------------
Shares sold 371 $4,555 70 $ 843
Shares issued to shareholders in
reinvestment of distributions 1 2 -- --
Shares reacquired (1) (1) (1) (16)
--- ------ -- -------
Net increase 371 $4,556 69 $ 827
--- ------ -- -------
*** For the period from the commencement of offering of Class C shares, January
3, 1993 to January 31, 1994.
(6) Line of Credit
The Trust entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $300 million, collectively.
Borrowings may be made to temporarily finance the repurchase of Trust 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 Trust for the
period ended September 30, 1994 ranged from $143 to $3,757.
(7) Financial Instruments
The Funds regularly trade financial instruments with off-balance sheet risk in
the normal course of their investing activities in order to manage exposure to
market risks such as interest rates. These financial instruments include written
options and futures contracts. The notional or contractual amounts of these
instruments represent the investment the Funds have in particular classes of
financial instruments and do not necessarily represent the amounts potentially
subject to risk. The measurement of the risks associated with these instruments
is meaningful only when all related and offsetting transactions are considered.
A summary of financial futures contracts at September 30, 1994 is as follows:
<TABLE>
<CAPTION>
Unrealized
Fund Description Expiration Contracts Position Appreciation
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Florida Fund U.S. Treasury Notes December 1994 250 Short $ 597,380
Georgia Fund U.S. Treasury Notes December 1994 160 Short $ 328,367
Maryland Fund U.S. Treasury Notes December 1994 285 Short $1,342,954
Massachusetts Fund U.S. Treasury Notes December 1994 225 Short $ 151,248
New York Fund U.S. Treasury Notes December 1994 200 Short $ 241,846
North Carolina Fund U.S. Treasury Notes December 1994 625 Short $1,068,794
Pennsylvania Fund U.S. Treasury Notes December 1994 51 Short $ 240,318
South Carolina Fund U.S. Treasury Notes December 1994 200 Short $ 942,424
Virginia Fund U.S. Treasury Notes December 1994 650 Short $ 391,246
West Virginia Fund U.S. Treasury Notes December 1994 175 Short $ 132,940
</TABLE>
<PAGE> 148
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - Continued
At September 30, 1994, each Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
The Trust also invests in indexed securities whose value may be linked to
interest rates, commodities, indices or other financial indicators. Indexed
securities are fixed-income securities whose proceeds at maturity
(principal-indexed securities) or interest rates (coupon-indexed securities)
rise and fall according to the change in one or more specified underlying
instruments. Indexed securities may be more volatile than the underlying
instrument itself. The following is a summary of such securities held at
September 30, 1994:
<TABLE>
<CAPTION>
Principal Unrealized
Fund Description Index (000 Omitted) Value Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maryland Fund Puerto Rico Public Buildings PSA Municipal Swap $3,000 $2,580,060 $419,940
Authority, 6.27s, 2016
Puerto Rico Telephone Corp. Swap Rate Curve $1,000 $ 844,180 $155,820
Authority Rev., 5.69s, 2004
Massachusetts Fund Mass. Health & Education PSA Municipal Swap $3,000 $2,626,470 $373,530
Facilities Authority (Tufts
University), 9.75s, 2018
New York Fund Puerto Rico Public Buildings PSA Municipal Swap $2,000 $1,720,040 $279,960
Authority, 6.27s, 2016
Puerto Rico Telephone Corp. Swap Rate Curve $2,750 $2,321,495 $428,505
Authority Rev., 5.69s, 2004
North Carolina Fund Puerto Rico Public Buildings PSA Municipal Swap $6,500 $5,590,130 $909,870
Authority, 6.27s, 2016
Puerto Rico Telephone Corp. Swap Rate Curve $2,750 $2,321,495 $428,505
Authority Rev., 5.69s, 2004
Pennsylvania Fund Puerto Rico Telephone Corp. Swap Rate Curve $ 250 $ 211,045 $ 38,955
Authority Rev., 5.69s, 2004
South Carolina Fund Puerto Rico Telephone Corp. Swap Rate Curve $2,000 $1,688,360 $311,640
Authority Rev., 5.69s, 2004
Virginia Fund Puerto Rico Public Buildings PSA Municipal Swap $6,500 $5,590,130 $909,870
Authority, 6.27s, 2016
West Virginia Fund Puerto Rico Public Buildings PSA Municipal Swap $2,000 $1,720,040 $279,960
Authority, 6.27s, 2016
</TABLE>
(8) Restricted Securities
The Funds may invest not more than 15% of their net assets in securities which
are subject to legal or contractual restrictions on resale. At September 30,
1994, the Georgia Fund owned the following restricted security (constituting
3.01% of net assets) which may not be publicly sold without registration under
the Securities Act of 1933. The Fund does not have the right to demand that this
security be registered. The value of this security is determined by valuations
supplied by a pricing service. This security may be offered and sold to
"qualified institutional buyers" under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Date of Par Amount
Fund Description Acquisition (000 omitted) Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Georgia Fund Georgia Municipal Electric Authority, Power Rev., 8.08s, 2023 3/31/93 $3,450 $3,490,000 $2,712,977
</TABLE>
----------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE> 149
MFS NEW YORK BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
("COMBINED SAI")
MARCH 29, 1995
This Combined SAI is not a prospectus but should be read in conjunction with the
related Proxy Statement and Prospectus (the "Prospectus") dated March 29, 1995
which covers shares of beneficial interest of MFS New York Municipal Bond Fund
(the "MFS Fund"), a series of MFS Municipal Series Trust (the "MFS Trust"), to
be issued in exchange for all of the net assets of The New York Portfolio (the
"Advantage Fund"), a series of The Advantage Municipal Bond Fund (the "Advantage
Trust"). Please retain this Combined SAI for further reference.
To obtain additional copies of the Prospectus or Combined SAI, please call
Advest Transfer Services, Inc. at 800-544-9268.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Introduction................................................................... 2
Additional Information About the Advantage Fund................................ 2
Cover Page and Table of Contents.......................................... 2
General Information and History........................................... 2
Investment Objective and Policies......................................... 2
Management of the Advantage Fund.......................................... 2
Investment Advisory and Other Services.................................... 2
Brokerage Allocation and Portfolio Turnover............................... 2
Shares of Beneficial Interest............................................. 2
Redemption and Pricing of Shares.......................................... 3
Tax Status................................................................ 3
Distribution Agreement.................................................... 3
Performance Information................................................... 3
Financial Statements...................................................... 3
Additional Information About the MFS Fund...................................... 3
Cover Page and Table of Contents.......................................... 3
General Information and History........................................... 3
Investment Objective and Policies......................................... 3
Management of the MFS Fund................................................ 3
Principal Holders of Securities........................................... 3
Investment Advisory and Other Services.................................... 3
Brokerage Allocation and Portfolio Turnover............................... 4
Shares of Beneficial Interest............................................. 4
Purchase, Redemption and Pricing of Shares................................ 4
Tax Status................................................................ 4
Distribution Agreement.................................................... 4
Performance Information................................................... 4
Financial Statements...................................................... 4
Exhibits
A -- The MFS Fund SAI, dated June 1, 1994, as supplemented, together with
the MFS Fund Annual Report for the year ended January 31, 1994, the
Annual Report for the two months ended March 31, 1994 and the
Semi-Annual Report for the six months ended September 30, 1994
B -- The Advantage Fund Prospectus dated April 18, 1994, as supplemented
C -- The Advantage Fund SAI dated April 18, 1994, as supplemented,
together with the Advantage Fund Annual Report for the year ended
December 31, 1994 and the Annual Report for the year ended December
31, 1993
</TABLE>
<PAGE> 150
INTRODUCTION
This Combined SAI is intended to supplement the information provided in the
Prospectus. The Prospectus has been sent to the shareholders of the Advantage
Fund in connection with the solicitation of proxies by the management of the
Advantage Fund to be voted at the Special Meeting of Shareholders of the
Advantage Fund to be held on April 27, 1995. This Combined SAI includes the
Statement of Additional Information of the MFS Fund dated June 1, 1994 (the "MFS
Fund SAI"), the Annual Report of the MFS Fund for the year ended January 31,
1994 (the "MFS Fund's Annual Report"), the Annual Report of the MFS Fund for the
two months ended March 31, 1994 (the "MFS Fund's Interim Annual Report"), the
Semi-Annual Report of the MFS Fund for the six-month period ended September 30,
1994 (the "MFS Fund's Semi-Annual Report"), the Prospectus of the Advantage Fund
dated April 18, 1994, as supplemented (the "Advantage Fund Prospectus"), the
Statement of Additional Information of the Advantage Fund dated April 18, 1994,
as supplemented (the "Advantage Fund SAI"), the Annual Report of the Advantage
Fund for the year ended December 31, 1994 (the "Advantage Fund's 1994 Annual
Report") and the Annual Report for the Advantage Fund for the year ended
December 31, 1993 (the "Advantage Fund's 1993 Annual Report"). Each of the MFS
Fund SAI, together with the financial statements from the MFS Fund's Annual
Report, MFS Fund's Interim Annual Report and the MFS Fund's Semi-Annual Report,
the Advantage Fund Prospectus and the Advantage Fund SAI, together with the
financial statements from the Advantage Fund's 1994 Annual Report and the
Advantage Fund's 1993 Annual Report, is included with this Combined SAI as
Exhibits A, B and C, respectively, and is incorporated herein by reference.
ADDITIONAL INFORMATION ABOUT THE ADVANTAGE FUND
COVER PAGE AND TABLE OF CONTENTS
See the cover page and inside cover page of the Advantage Fund SAI.
GENERAL INFORMATION AND HISTORY
For additional information about the Advantage Fund generally and its history,
see "Description of the Fund" in the Advantage Fund SAI.
INVESTMENT OBJECTIVE AND POLICIES
For additional information about the Advantage Fund's investment objective and
policies, see "Investment Policies and Techniques" and "Investment Restrictions"
in the Advantage Fund SAI.
MANAGEMENT OF THE ADVANTAGE FUND
For additional information about the Advantage Trust's Trustees and officers,
see "Trustees and Officers" in the Advantage Fund SAI.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about the Advantage Fund's investment adviser,
custodian, principal underwriter, shareholder servicing agent and independent
accountants, see "Investment Adviser," "Transfer Agent and Dividend Disbursing
Agent," "Distribution Agreement and Rule 12b-1 Plans" and "Financial Statements"
in the Advantage Fund SAI, and the Advantage Fund's 1994 Annual Report and the
Advantage Fund's 1993 Annual Report.
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER
For additional information about the Advantage Fund's brokerage allocation
practices and portfolio turnover rate, see "Portfolio Transactions" in the
Advantage Fund SAI, and the Advantage Fund's 1994 Annual Report and the
Advantage Fund's 1993 Annual Report.
SHARES OF BENEFICIAL INTEREST
For additional information about the voting rights and other characteristics of
the Advantage Fund shares of beneficial interest, see "Description of the Fund"
in the Advantage Fund SAI.
2
<PAGE> 151
REDEMPTION AND PRICING OF SHARES
For additional information about the redemption of the Advantage Fund shares of
beneficial interest and the determination of net asset value, see "Special
Redemptions" and "Net Asset Value" in the Advantage Fund SAI.
TAX STATUS
For additional information about tax matters affecting the Advantage Fund and
its shareholders, see "Taxation" in the Advantage Fund SAI.
DISTRIBUTION AGREEMENT
For additional information about the Advantage Fund's distributor and the
distribution agreement between the distributor and the Advantage Fund, see
"Distribution Agreement and Rule 12B-1 Plans" in the Advantage Fund SAI.
PERFORMANCE INFORMATION
For additional information about the investment performance of the Advantage
Fund, see "Net Asset Value" and "Performance Information" in the Advantage Fund
SAI, and the Advantage Fund's 1994 Annual Report and the Advantage Fund's 1993
Annual Report.
FINANCIAL STATEMENTS
Audited financial statements of the Advantage Fund as at December 31, 1994 are
set forth in the Advantage Fund's 1994 Annual Report, and audited financial
statements of the Advantage Fund as at December 31, 1993 are set forth in the
Advantage Fund's 1993 Annual Report, each of which is attached hereto as Exhibit
C.
ADDITIONAL INFORMATION ABOUT THE MFS FUND
COVER PAGE AND TABLE OF CONTENTS
See the cover page of the MFS Fund SAI.
GENERAL INFORMATION AND HISTORY
For additional information about the MFS Fund generally and its history, see
"The Trust" and "Description of Shares, Voting Rights and Liabilities" in the
MFS Fund SAI.
INVESTMENT OBJECTIVE AND POLICIES
For additional information about the MFS Fund's investment objective and
policies, see "Investment Objective, Policies and Restrictions" in the MFS Fund
SAI.
MANAGEMENT OF THE MFS FUND
For additional information about the MFS Trust's Trustees and officers, see
"Management of the Trust" in the MFS Fund SAI.
PRINCIPAL HOLDERS OF SECURITIES
For additional information about principal holders of the shares of beneficial
interest of the MFS Fund, see "Management of the Trust" in the MFS Fund SAI.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about the MFS Fund's investment adviser, custodian,
principal underwriter, shareholder servicing agent and independent accountants,
see "Management of the Trust," "Management of the Trust -- Investment Adviser,
Custodian, Shareholder Servicing Agent and Distributor" and "Independent
Accountants and Financial Statements" in the MFS Fund SAI and the MFS Fund's
Annual Report, the MFS Fund's Interim Annual Report and the MFS Fund's
Semi-Annual Report.
3
<PAGE> 152
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER
For additional information about the MFS Fund's brokerage allocation practices
and portfolio turnover rate, see "Portfolio Transactions" in the MFS Fund SAI,
and the MFS Fund's Annual Report, the MFS Fund's Interim Annual Report and the
MFS Fund's Semi-Annual Report.
SHARES OF BENEFICIAL INTEREST
For additional information about the voting rights and other characteristics of
the MFS Fund shares of beneficial interest, see "Description of Shares, Voting
Rights and Liabilities" in the MFS Fund SAI.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of the MFS Fund
shares of beneficial interest and the determination of net asset value, see
"Shareholder Services," "Management of the Trust -- Distributor" and
"Determination of Public Offering Price and Net Asset Value; Valuation of
Portfolio Securities" in the MFS Fund SAI.
TAX STATUS
For additional information about tax matters affecting the MFS Fund and its
shareholders, see "Taxation" in the MFS Fund SAI.
DISTRIBUTION AGREEMENT
For additional information about the MFS Fund's distributor and the distribution
agreement between the distributor and the MFS Fund, see "Management of the Trust
- -- Distributor" in the MFS Fund SAI.
PERFORMANCE INFORMATION
For additional information about the investment performance of the MFS Fund, see
"Performance Information" in the MFS Fund SAI, and the MFS Fund's Annual Report,
the MFS Fund Interim Annual Report and the MFS Fund's Semi-Annual Report.
FINANCIAL STATEMENTS
Audited financial statements of the MFS Fund as at January 31, 1994 and March
31, 1994, and unaudited financial statements of the MFS Fund as at September 30,
1994, are set forth in the MFS Fund's Annual Report, the MFS Fund's Interim
Annual Report and the MFS Fund's Semi-Annual Report, respectively, included in
Exhibit A hereto.
4
<PAGE> 153
MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) NEW YORK MUNICIPAL BOND FUND
SUPPLEMENT TO THE CURRENT PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
Effective April 16, 1993 MFS Financial Services, Inc. will pay dealers an
additional commission equal to 0.25% of the public offering price of shares of
the Fund sold by such dealers. These commissions are in addition to the regular
dealer allowance or commission described in the Prospectus. Purchases of $1
million or more for each shareholder account will not entitle a dealer to such
additional commission.
THE DATE OF THIS SUPPLEMENT IS APRIL 16, 1993
MST-16N 4/93 36M
<PAGE> 154
MFS(R) MUNICIPAL STATEMENT OF
SERIES TRUST ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) June 1, 1994
- ------------------------------------------------------------------------------
Page
----
1. The Trust ............................................................ 2
2. Investment Objective, Policies and Restrictions ...................... 2
3. Performance Information .............................................. 8
4. Determination of Public Offering Price and Net Asset Value;
Valuation of Portfolio Securities .................................... 10
5. Management of the Trust .............................................. 10
Trustees ........................................................... 10
Officers ........................................................... 10
Investment Adviser ................................................. 13
Custodian .......................................................... 14
Shareholder Servicing Agent ........................................ 14
Distributor ........................................................ 15
6. Taxation ............................................................. 16
7. Shareholder Services ................................................. 17
8. Description of Shares, Voting Rights and Liabilities ................. 20
9. Portfolio Transactions ............................................... 20
10. Distribution Plans ................................................... 21
11. Independent Accountants and Financial Statements ..................... 22
Appendix A -- Performance Results .................................... 24
Appendix B -- Sales Charges Received ................................. 28
Appendix C -- Amounts Paid Under the Distribution Plans .............. 30
MFS MUNICIPAL SERIES TRUST
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Trust's
Prospectus dated June 1, 1994. This Statement of Additional Information should
be read in conjunction with the Prospectus, a copy of which may be obtained
without charge by contacting the Shareholder Servicing Agent (see last page for
address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
1. THE TRUST
MFS Municipal Series Trust (the "Trust") is an open-end management investment
company which was organized as a business trust under the laws of The
Commonwealth of Massachusetts in 1984. On August 27, 1993, the Trust changed its
name from MFS Multi-State Municipal Bond Trust. On August 3, 1992 the Trust
changed its name from "MFS Managed Multi-State Municipal Bond Trust." The Trust
was known as "MFS Managed Multi-State Tax-Exempt Trust" until its name was
changed effective August 12, 1988. The Trust presently consists of 19 separate
series, including: the Alabama Fund, the Arkansas Fund, the California Fund, the
Florida Fund, the Georgia Fund, the Louisiana Fund, the Maryland Fund, the
Massachusetts Fund, the Mississippi Fund, the New York Fund, the North Carolina
Fund, the Pennsylvania Fund, the South Carolina Fund, the Tennessee Fund, the
Texas Fund, the Virginia Fund, the Washington Fund and the West Virginia Fund,
each of which is referred to as either a "State Fund" or a "Fund." Shares of MFS
Municipal Income Fund, the nineteenth series of the Trust, are offered and sold
pursuant to a separate prospectus and statement of additional information. The
California Fund was organized as a series of the Trust on June 3, 1993. Prior
thereto, the California Fund was organized as a separate Massachusetts business
trust.
Massachusetts Financial Services Company, a Delaware corporation ("MFS" or the
"Adviser"), is the Trust's investment adviser. References in this Statement of
Additional Information to the "Prospectus" are to the Prospectus dated June 1,
1994.
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE -- The investment objective of each State Fund is to
provide current income exempt from federal income taxes and from the personal
income taxes, if any, of that State. There can be no assurance that any State
Fund will achieve its investment objective. Shareholder approval is not required
to change the investment objective of any State Fund.
INVESTMENT POLICIES -- As a fundamental policy, the Trust seeks to achieve the
investment objective of each State Fund by investing the assets of that State
Fund primarily (i.e., at least 80% of its assets under normal conditions) in
municipal bonds and notes and other debt instruments the interest on which is
exempt from federal income taxes and from the personal income taxes, if any, of
that State. These obligations are issued primarily by that State, its political
subdivisions, municipalities, agencies, instrumentalities or public authorities.
The Trust may purchase for any Fund municipal bonds the interest on which may be
subject to an alternative minimum tax. The investment policies of the Funds are
described in detail in the Prospectus.
"WHEN-ISSUED" SECURITIES: As described in the Prospectus under "Investment
Objective and Policies", each Fund may purchase new issues of tax-exempt
securities on a "when-issued" basis. In order to invest the Funds' assets
immediately, while awaiting delivery of securities purchased on a "when- issued"
basis, short-term obligations that offer same day settlement and earnings will
normally be purchased. Although short-term investments will normally be in
tax-exempt securities, short-term taxable securities may be purchased if
suitable short-term tax-exempt securities are not available. When a commitment
to purchase a security on a "when-issued" basis is made, procedures are
established consistent with the General Statement of Policy of the Securities
and Exchange Commission (the "SEC") concerning such purchases. Since that policy
currently recommends that an amount of the Funds' assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
cash, short-term money market instruments or high quality debt securities
sufficient to cover any commitments are always expected to be available.
However, although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a "when-issued" basis may
involve more risk than other types of purchases. For example, when the time
comes to pay for a "when-issued" security, portfolio securities of the Fund may
have to be sold in order for the Fund to meet its payment obligations, and a
sale of securities to meet such obligations carries with it a potential for the
realization of capital gain, which is not tax-exempt. Also, if it is necessary
to sell the "when-issued" security before delivery, the Fund may incur a loss
because of market fluctuations since the time the commitment to purchase the
"when-issued" security was made. Moreover, any gain resulting from any such sale
would not be tax-exempt. Additionally, because of market fluctuations between
the time of commitment to purchase and the date of purchase, the "when-issued"
security may have a lesser (or greater) value at the time of purchase than the
Fund's payment obligations with respect to the security.
REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements with
sellers who are member firms or a subsidiary thereof of the New York Stock
Exchange or members of the Federal Reserve System, recognized primary U.S.
Government securities dealers or institutions which the Adviser has determined
to be of comparable creditworthiness. The securities that a Fund purchases and
holds through its agent are U.S. Government securities, the values of which are
equal to or greater than the repurchase price agreed to be paid by the seller.
The repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to the Fund together with the repurchase price
on repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If, at the
time the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
VARIABLE AND FLOATING RATE OBLIGATIONS: Investments in floating or variable rate
securities normally will involve industrial development or revenue bonds which
provide that the rate of interest is set as a specific percentage of a
designated base rate, such as rates on Treasury Bonds or Bills or the prime rate
at a major commercial bank, and that a bondholder can demand payment of the
obligations on behalf of the Fund on short notice at par plus accrued interest,
which amount may be more or less than the amount the bondholder paid for them.
The maturity of floating or variable rate obligations (including participation
interests therein) is deemed to be the longer of (i) the notice period required
before the Fund is entitled to receive payment of the obligation upon demand or
(ii) the period remaining until the obligation's next interest rate adjustment.
If not redeemed by the Fund through the demand feature, the obligations mature
on a specified date which may range up to thirty years from the date of
issuance.
INVERSE FLOATING RATE OBLIGATIONS. Each Fund may invest in so called "inverse
floating rate obligations" or "residual interest bonds" or other obligations or
certificates relating thereto structured to have similar features. In creating
such an obligation, a municipality issues a certain amount of debt and pays a
fixed interest rate. Half of the debt is issued as variable rate short-term
obligations, the interest rate of which is reset at short intervals, typically
35 days. The other half of the debt is issued as inverse floating rate
obligations, the interest rate of which is calculated based on the difference
between a multiple of (approximately two times) the interest paid by the issuer
and the interest paid on the short-term obligation. Under usual circumstances,
the holder of the inverse floating rate obligation can generally purchase an
equal principal amount of the short-term obligation and link the two obligations
in order to create long-term fixed-rate bonds. Because the interest rate on the
inverse floating rate obligation is determined by subtracting the short-term
rate from a fixed amount, the interest rate will decrease as the short-term rate
increases and will increase as the short-term rate decreases. The magnitude of
increases and decreases in the market value of inverse floating rate obligations
may be approximately twice as large as the comparable change in the market value
of an equal principal amount of long-term bonds which bear interest at the rate
paid by the issuer and have similar credit quality, redemption and maturity
provisions.
OPTIONS: Each Fund may, subject to any applicable laws, write covered put and
call options and purchase put and call options on fixed income securities that
are traded on U.S. securities exchanges and over-the-counter on behalf of the
Fund only for hedging purposes. Call options written by the Funds give the
holder the right to buy the underlying securities from the Fund at a fixed
exercise price; put options written by the Fund give the holder the right to
sell the underlying securities to the Fund at a fixed exercise price. A call
option written by a Fund is "covered" if the Fund owns the underlying security
covered by the call on the Fund or has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) on behalf of a
Fund upon conversion or exchange of other securities held in its portfolio. A
call option is also covered if the Fund holds a call on the same security and in
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or high grade government securities in a
segregated account with its custodian. A put option written by a Fund is
"covered" if the Fund maintains in a segregated account with its custodian cash
or high grade government securities with a value equal to the exercise price, or
else holds a put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to or greater than
the exercise price of the put written or less than the exercise price of the put
written if the difference is maintained by the Fund in cash or high grade
government securities in a segregated account with its custodian. Put and call
options written by a Fund may also be covered in such other manner as may be in
accordance with the requirements of the exchange on which, or the counterparty
with which, the option is traded, and applicable laws and regulations. The
writer of an option may have no control over when the underlying securities must
be sold, in the case of a call option, or purchased, in the case of a put
option, since with regard to certain options, the writer may be assigned an
exercise notice at any time prior to the termination of the obligation.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash or short-term
securities. Such transactions permit a Fund to generate additional premiums,
which will partially offset declines in the value of portfolio securities or
increases in the cost of securities to be acquired for that Fund. Also,
effecting a closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be used for other
Fund investments. If a Fund desires to sell a particular security on which it
has written a call option, it will effect a closing transaction for that Fund
prior to or concurrent with the sale of the security.
A Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; a Fund will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the closing out of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary market
for an option of the same series. If a secondary market does not exist, it might
not be possible to effect closing transactions in particular options with the
result a Fund would have to exercise the options in order to realize any profit.
If the Fund is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by a national securities exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation (the "OCC") may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the OCC as a result of trades on that exchange would continue to
be exercisable in accordance with their terms.
A Fund may write options in connection with buy-and-write transactions; that is,
the Fund may purchase a security and then write a call option against that
security. The exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at- the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. If the call options are exercised in such
transactions, the Fund's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the difference between the
Fund's purchase price of the security and the exercise price. If the options are
not exercised and the price of the underlying security declines, the amount of
such decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options may be used by a Fund
in the same market environments that call options are used in equivalent
buy-and-write transactions.
A Fund may write combinations of put and call options on the same security, a
practice known as a "straddle." By writing a straddle, the Fund undertakes a
simultaneous obligation to sell and purchase the same security in the event that
one of the options is exercised. If the price of the security subsequently rises
sufficiently above the exercise price to cover the amount of the premium and
transaction costs, the call will likely be exercised and the Fund will be
required to sell the underlying security at a below market price, This loss may
be offset, however, in whole or in part, by the premiums received on the writing
of the two options. Conversely, if the price of the security declines by a
sufficient amount, the put will likely be exercised. The writing of straddles
will likely be effective, therefore, only where the price of a security remains
stable and neither the call nor the put is exercised. In an instance where one
of the options is exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
A Fund may purchase put options to hedge against a decline in the value of the
Fund's portfolio. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
A Fund may purchase call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing for the Fund's portfolio in the
future. The premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund, upon exercise of the option,
and, unless the price of the underlying security rises sufficiently, the option
may expire worthless to the Fund. The Fund may also purchase put and call
options for hedging and non-hedging purposes.
A Fund may purchase detachable call options on municipal securities, which are
options issued by an issuer of the underlying municipal securities giving the
purchaser the right to purchase the securities at a fixed price, up to a stated
time in the future or, in some cases, on a future date. A Fund may purchase
detachable call options either in connection with its purchase of the underlying
municipal securities or in separate transactions unrelated to purchases of the
underlying municipal securities. In general, however, a Fund will only purchase
detachable call options that are issued at the same time as the underlying
municipal securities. A Fund may or may not purchase the underlying municipal
securities. Because detachable call options may be long term instruments, their
value could be subject to greater volatility and, if the Fund seeks to sell an
option it has purchased, it could sustain a loss of all or a portion of the
amount paid to purchase the option. In this regard, detachable call options have
only recently been introduced and there is not yet an established market for the
sale of such instruments. In addition, depending on changes in the value of the
underlying municipal security, it may not be profitable for the Fund to exercise
an option it has purchased. In that event, the Fund will lose the amount of the
purchase price paid for the option.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities held by a Fund, cannot
exceed 15% of the Fund's assets. Although the Adviser disagrees with this
position, the Adviser intends to limit each Fund's writing of over-the-counter
options in accordance with the following procedure. Except as provided below,
each Fund intends to write over-the-counter options only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. Also, the contracts each Fund has in place with such primary dealers will
provide that the Fund has the absolute right to repurchase an option it writes
at any time at a price which represents the fair market value, as determined in
good faith through negotiation between the parties, but which in no event will
exceed a price determined pursuant to a formula in the contract. Although the
specific formula may vary between contracts with different primary dealers, the
formula will generally be based on a multiple of the premium received by the
Fund for writing the option, plus the amount, if any, of the option's intrinsic
value (i.e., the amount that the option is in-the-money). The formula may also
include a factor to account for the difference between the price of the security
and the strike price of the option if the option is written out-of-the-money.
Each Fund will treat all or a portion of the formula amount as illiquid for
purposes of the 15% test imposed by the SEC staff. Each Fund may also write
over-the-counter options with non-primary dealers and will treat the assets used
to cover these options as illiquid for purposes of such 15% test.
FUTURES CONTRACTS: Each Fund intends to enter into Futures Contracts for hedging
purposes and for non-hedging purposes, to the extent permitted by applicable
law. A Futures Contract is a bilateral agreement providing for the purchase and
sale for future delivery of a fixed income security, a contract for the purchase
or sale for future delivery of Eurodollar deposits or a futures contract based
on municipal bond or other financial indices, including any index of fixed
income securities. A "sale" of a Futures Contract means a contractual obligation
to deliver the securities called for by the contract at a specified price on a
specified date. A "purchase" of a Futures Contract means a contractual
obligation to acquire the securities called for by the contract at a specified
price on a specified date. Futures Contracts have been designed by exchanges
which have been designated as "contract markets" by the Commodity Futures
Trading Commission (the "CFTC"), and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Presently, Futures Contracts are based on such debt securities
as long-term U.S. Treasury Bonds, Treasury Notes, three-month U.S. Treasury
Bills and bank certificates of deposit and on an index of municipal bonds and
Eurodollar deposits. Existing contract markets include the Chicago Board of
Trade and the International Monetary Market of the Chicago Mercantile Exchange.
Futures Contracts are traded on these markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange.
At the same time a Futures Contract is purchased or sold for a Fund, the Fund
must allocate cash or securities as a deposit payment ("initial deposit"). The
initial deposit varies but may be as low as 5% or less of the value of the
contract. Daily thereafter, the Futures Contract is valued on a marked-to-
market basis and the Fund may be required to pay or receive additional
"variation margin", based on any decline or increase in the contract's value.
At the time of delivery of securities pursuant to a Futures Contract based on
fixed income securities, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate from that
specified in the contract. In some (but not many) cases, securities called for
by a Futures Contract may not have been issued when the contract was written.
A Futures Contract based on an index of securities, such as a municipal bond
index Futures Contract, provides for a cash payment equal to the amount, if any,
by which the value of the index at maturity is above or below the value of the
index at the time the contract was entered into, times a fixed index
"multiplier". The index underlying such a Futures Contract is generally a broad
based index of securities designed to reflect movements in the relevant market
as a whole. The index assigns weighted values to the securities included in the
index and its composition is changed periodically. In addition, Futures
Contracts on Eurodollar deposits also provide for the payment and acceptance of
a cash settlement, based on changes in the value of the underlying instrument.
<PAGE> 155
Although Futures Contracts call for the actual delivery or acquisition of
securities or, in the case of Futures Contracts based on an index, the making or
acceptance of a cash settlement at a specified future time, the contractual
obligation is usually fulfilled before such date by buying or selling, as the
case may be, on a commodities exchange, an identical Futures Contract calling
for settlement in the same month, subject to the availability of a liquid
secondary market. A Fund incurs brokerage fees when the Trust purchases and
sells Futures Contracts for it.
The purpose of the purchase or sale of a Futures Contract entered into for
hedging purposes, in the case of a portfolio such as that of each of the Funds
which holds or intends to acquire long-term fixed income securities, is to
attempt to protect the Funds from fluctuations in interest rates without
actually buying or selling long-term fixed income securities. For example, if a
Fund owns long-term bonds, and interest rates were expected to increase, the
Fund might enter into Futures Contracts for the sale of debt securities. Such a
sale would have much the same effect as selling an equivalent value of the
long-term bonds owned by the Fund. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value of the Futures
Contracts would increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. The
Fund could accomplish similar results by selling bonds with long maturities
investing in bonds with short maturities when interest rates are expected to
increase. However, the use of Futures Contracts as an investment technique
allows the Fund to maintain a hedging position without having to sell its
portfolio securities.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to attempt to hedge against anticipated purchases of
long-term bonds at higher prices. Since the fluctuations in the value of Futures
Contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the Futures
Contracts could be liquidated and the Fund could then buy long-term bonds on the
cash market. To the extent a Fund enters into Futures Contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such Futures Contracts, on behalf of the
Fund, will consist of cash or short-term money market instruments from its
portfolio in an amount equal to the difference between the fluctuating market
value of such Futures Contracts and the aggregate value of the initial and
variation margin payments made by the Fund, with respect to such Futures
Contracts. The Funds also may enter into transactions in Futures Contracts for
non-hedging purposes, to the extent permitted by applicable law.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out Futures Contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, Futures Contracts entail risks. Although each Fund believes that
use of such contracts will benefit the Fund, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, the Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Fund, has hedged against the possibility of an
increase in interest rates which would adversely affect the price of bonds held
in its portfolio and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its bonds which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have to sell bonds
from its portfolio to meet daily variation margin requirements. Such sales of
bonds may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund, may have to sell securities at a time when it may be
disadvantageous to do so. Transactions entered into for non-hedging purposes
involve greater risk and could result in losses which are not offset by gains on
other portfolio assets.
OPTIONS ON FUTURES CONTRACTS: Each Fund, subject to any applicable laws, may
purchase and write options on Futures Contracts ("Options on Futures Contracts")
for hedging purposes and for non-hedging purposes. An Option on a Futures
Contract provides the holder with the right to enter into a "long" position in
the underlying Futures Contract (i.e., a purchase of the Futures Contract), in
the case of a call option, or a "short" position in the underlying Futures
Contract (i.e., a sale of the Futures Contract), in the case of a put option, at
a fixed exercise price up to a stated expiration date or, in the case of certain
options, on such date. Such Options on Futures Contracts will be traded on
contract markets regulated by the CFTC. Depending on the pricing of the option
compared to either the price of the Futures Contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the Futures Contract or underlying debt securities. As with
the purchase of Futures Contracts, when a Fund's portfolio is not fully invested
the Fund may purchase a call Option on a Futures Contract on behalf of that Fund
to hedge against a market advance due to declining interest rates.
The writing of a call Option on a Futures Contract by a Fund may constitute a
partial hedge against declining prices of the securities which are deliverable
upon exercise of the Futures Contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund portfolio holdings. The writing of a put Option on a
Futures Contract may constitute a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the Futures Contract. If the
futures price at expiration of the options is higher than the exercise price,
the Fund will retain the full amount of the option premium, less related
transaction costs, which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund may incur a loss which will be
reduced by the amount of the premium it receives, less related transaction
costs. Depending on the degree of correlation between changes in the value of
the portfolio securities of a Fund and changes in the value of its futures
positions, the Fund's losses from existing Options on Futures Contracts, may to
some extent be reduced or increased by changes in the value of the Fund's
portfolio securities. The writer of an Option on a Futures Contract is subject
to the requirement of initial and variation margin payments.
Each Fund may cover the writing of call Options on Futures Contracts (a) through
purchases of the underlying Futures Contract, (b) through ownership of the
security or securities included in the index underlying the Futures Contract, or
(c) through the holding of a call on the same Futures Contract and in the same
principal amount as the call written where the exercise price of the call held
(i) is equal to or less than the exercise price of the call written or (ii) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, cash equivalents or U.S. Treasury securities in
a segregated account with its custodian. The Trust may cover the writing of put
Options on Futures Contracts on behalf of a Fund (a) through sales of the
underlying Futures Contract, (b) through segregation of cash, cash equivalents
or U.S. Treasury securities in an amount equal to the value of the security or
index underlying the Futures Contract, or (c) through the holding of a put on
the same Futures Contract and in the same principal amount as the put written
where the exercise price of the put held is (i) equal to or greater than the
exercise price of the put written or (ii) less than the exercise price of the
put written if the difference is maintained by the Fund in cash, cash
equivalents or U.S. Treasury securities in a segregated account with its
custodian. Put and call Options on Futures Contracts written by a Fund may also
be covered in such other manner as may be in accordance with the requirements of
the exchange on which they are traded and applicable laws and regulations.
Each Fund may purchase a put option on a Futures Contract to hedge its
portfolio. Purchases of such put options will therefore be made for the same
types of purposes as protective put options on portfolio securities. A Fund will
purchase a put option on a Futures Contract to hedge the Fund's portfolio
against the risk of rising interest rates.
The amount of risk a Fund assumes when it purchases an Option on a Futures
Contract is the premium paid for the option plus related transaction costs,
although in order to realize a profit it may be necessary to exercise the option
and close out the underlying Futures Contract, subject to the risks of futures
trading described herein. In addition to the correlation risks discussed above,
the purchase of an option also entails the risk that changes in the value of the
underlying Futures Contract will not be fully reflected in the value of the
option purchased. The writing of an Option on a Futures Contract, however,
involves all of the risks of futures trading, including the requirement to make
initial and variation margin payments. Transactions in Options on Futures
Contracts entered into for non-hedging purposes involve greater risk and could
result in losses which are not offset by gains on other portfolio assets.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS: Various additional risks exist with respect to the trading of
options, Futures Contracts and Options on Futures Contracts. For example, a
Fund's ability effectively to hedge all or a portion of its portfolio through
transactions in such instruments will depend on the degree to which price
movements in the underlying index or instrument correlate with price movements
in the relevant portion of the Fund's portfolio. The trading of Futures
Contracts and options entails the additional risk of imperfect correlation
between movements in the Futures or option price and the price of the underlying
index or obligation, while the writing of options also entails the risk of
imperfect correlation between securities used to cover options written and the
securities underlying such options. The anticipated spread between the prices
may be distorted because of various factors, which are set forth under
"Investment Objective, Policies and Restrictions -- Futures Contracts".
Transactions in options, Futures Contracts and Options on Futures Contracts
entered into for non-hedging purposes involve greater risk and may result in
losses which are not offset by gains on other portfolio assets.
A Fund's ability to engage in options and futures strategies will also depend on
the availability of liquid markets in such instruments. "Options" above sets
forth certain reasons why a liquid secondary market may not exist. Transactions
in these instruments are also subject to the risk of brokerage firm or clearing
house insolvencies.
The liquidity of a secondary market in a Futures Contract or option thereon may
be adversely affected by "daily price fluctuation limits", established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limit, which could
make it difficult or impossible to establish or liquidate positions. In
addition, the exchanges on which futures and options are traded may impose
limitations governing the maximum number of positions on the same side of the
market and involving the same underlying instruments which may be held by a
single investor, whether acting alone or in concert with others (regardless of
whether such contracts are held on the same or different exchanges or held or
written in one or more accounts or through one or more brokers.)
Options on securities may be traded over-the-counter. In an over-the-counter
trading environment, many of the protections afforded to exchange participants
will not be available. For example, there are no clearing house performance
guarantees. In addition, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost.
In order to assure that the Funds will not be deemed to be a "commodity pool"
for purposes of the Commodity Exchange Act, regulations of the CFTC require that
the Fund enter into transactions in Futures Contracts and Options on Futures
Contracts only (i) for bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes, provided that the aggregate
initial margin and premiums on such non-hedging positions does not exceed 5% of
the liquidation value of the Fund's assets. In addition, the Funds must comply
with the requirements of various state securities laws in connection with such
transactions. Neither of the restrictions would be changed by the Trust's Board
of Trustees without considering the policies and concerns of the various federal
and state regulatory agencies.
PORTFOLIO TRADING: The Funds intend to fully manage their portfolios by buying
and selling securities, as well as by holding securities to maturity. In
managing the portfolio of each Fund, the Trust seeks to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers, which may include use of the following strategies:
(1) shortening the average maturity of a Fund's portfolio in anticipation
of a rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of its portfolio in anticipation of a
decline in interest rates so as to maximize tax-exempt yield;
(3) selling one type of debt security (e.g., revenue bonds) and buying
another (e.g., general obligation bonds) when disparities arise in the
relative values of each; and
(4) changing from one debt security to an essentially similar debt security
when their respective yields are distorted due to market factors.
Distribution of gains, if any, realized from the sale of Municipal Obligations
or other securities are subject to federal income taxes and state personal
income taxes. (See "Taxation" in this Statement and "Tax Status" in the
Prospectus.) The Trust cannot predict the annual portfolio turnover rate for any
Fund, but it is anticipated that the annual turnover rate of a Fund generally
should not exceed 200% (excluding turnover of obligations having a maturity of
one year or less). A 200% annual turnover rate would occur, for example, if all
the securities in a Fund's portfolio (excluding short-term obligations) were
replaced twice in a period of a year. A high turnover rate may involve greater
expenses to a Fund.
SPECIAL FACTORS AFFECTING INVESTORS IN STATE OBLIGATIONS: Investors should be
aware of special factors affecting investments in each State's Municipal
Obligations. For a discussion of these special factors, which does not purport
to be complete, see Appendix D to the Prospectus which pertains to the relevant
Fund.
INVESTMENT RESTRICTIONS -- The Trust has adopted the following restrictions
which apply to each of the Funds and which cannot be changed with respect to any
Fund without the approval of the holders of a majority of the shares of that
Fund (which, as used in this Statement of Additional Information, means the
lesser of (i) more than 50% of the outstanding shares of that Fund (or the Trust
or class, as applicable) or (ii) 67% or more of the outstanding shares of that
Fund (or the Trust or class, as applicable) present at a meeting at which
holders of more than 50% of the Fund's outstanding shares (or the Trust or
class, as applicable) are represented in person or by proxy).
The Trust may not, on behalf of any Fund:
(1) borrow money or pledge, mortgage or hypothecate assets of the Fund,
except that as a temporary measure for extraordinary or emergency purposes it
may borrow in an amount not to exceed 1/3 of the current value of the net
assets of the Fund, including the amount borrowed, and may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings (it is
intended that the Trust would borrow money on behalf of a Fund only from banks
and only to accommodate requests for the repurchase of shares of the Fund
while effecting an orderly liquidation of portfolio securities) (for the
purpose of this restriction, collateral arrangements with respect to options,
Futures Contracts and Options on Futures Contracts and payment of initial and
variation margin in connection therewith are not considered a pledge of
assets); for additional related restrictions, see clause (i) under the caption
"State and Federal Restrictions" below.
(2) purchase any security or evidence of interest therein on margin, except
that the Trust may obtain such short-term credit on behalf of a Fund as may be
necessary for the clearance of purchases and sales of securities and except
that the Trust may make deposits on behalf of a Fund on margin in connection
with Options, Futures Contracts and Options on Futures Contracts;
(3) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent the purchase, ownership, holding or sale
of Futures or the writing (in the case of each Fund except the California
Fund), purchasing and selling of puts, calls or combination thereof with
respect to securities and Futures Contracts;
(4) underwrite securities issued by other persons except insofar as the
Trust may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(5) make loans to other persons except by purchase of debt instruments
consistent with a Fund's investment policies or except through the use of
repurchase agreements or the purchase of short-term obligations and provided
that not more than 10% of a Fund's total assets will be invested in repurchase
agreements maturing in more than seven days;
(6) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except in connection with Futures Contracts, Options on Futures Contracts
and, in the case of each Fund except the California Fund, options) in the
ordinary course of business (the Trust reserves the freedom of action to hold
for a Fund's portfolio and to sell real estate acquired as a result of that
Fund's ownership of securities);
(7) purchase securities of any issuer if such purchase at the time thereof
would cause more than 10% of the voting securities of such issuer to be held
by any Fund; or
(8) issue any senior security (as that term is defined in the Investment
Company Act of 1940 (the "1940 Act")) if such issuance is specifically
prohibited by the 1940 Act or the rules and regulations promulgated
thereunder.
For purposes of the investment restrictions described above and the state and
federal restrictions described below, the issuer of a tax-exempt security is
deemed to be the entity (public or private) ultimately responsible for the
payment of the principal of and interest on the security.
As a non-fundamental policy, each Fund will not knowingly invest in illiquid
securities including securities subject to legal or contractual restrictions on
resale or for which there is no readily available market (e.g., trading in the
security is suspended, or, in the case of unlisted securities, where no market
exists) if more than 15% of the Fund's assets (taken at market value) would be
invested in such securities. Securities that are not registered under the
Securities Act of 1933, as amended, and sold in reliance on Rule 144A
thereunder, but are determined to be liquid by the Trust's Board of Trustees (or
its delegee), will not be subject to this 15% limitation.
In addition, the Trust has adopted the following operating policy for each Fund
which is not fundamental and which may be changed without shareholder approval.
The Trust may enter into repurchase agreements (a purchase of and a simultaneous
commitment to resell a security at an agreed upon price on an agreed upon date)
on behalf of a Fund (other than the California Fund) only with member banks of
the Federal Reserve System and broker-dealers and only for U.S. Government
securities. The Trust may enter into repurchase agreements on behalf of the
California Fund with a vendor, which is usually a member bank of the Federal
Reserve or a member firm (or a subsidiary thereof) of the New York Stock
Exchange, and only for U.S. Government securities. If the vendor of a repurchase
agreement fails to pay the sum agreed to on the agreed upon delivery date, the
Trust would have the right to sell the U.S. Government securities for that Fund,
but might incur a loss in so doing and in certain cases may not be permitted to
sell the U.S. Government securities. As noted in paragraph (5) above, the Trust
may not invest more than 10% of the total assets of any Fund in repurchase
agreements maturing in more than seven days.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain federal and
state statutes and regulatory policies, as a matter of operating policy of the
Trust, the Trust will not, on behalf of: (i) any Fund borrow money for any
purpose in excess of 10% of the Fund's total assets (taken at cost) (moreover,
the Trust will not purchase any securities for the portfolio of the Fund at any
time at which borrowings exceed 5% of the Fund's total assets (taken at market
value)); (ii) any Fund (except the California Fund) invest more than 5% of the
Fund's total assets at the time of investment in unsecured obligations of
issuers which, including predecessors, controlling persons, general partners and
guarantors, have a record of less than three years' continuous business
operation or relevant business experience; (iii) any Fund (except the California
Fund) purchase or retain in the Fund's portfolio any securities of an issuer any
of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is a member, partner, officer or Director of the
Adviser if, after the purchase of the securities of such issuer, one or more of
such persons owns beneficially more than 1/2 of 1% of the shares or securities,
or both, of such issuer and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5% of such shares or
securities, or both; (iv) any Fund sell any security which the Fund does not own
unless by virtue of its ownership of other securities the Fund has at the time
of sale a right to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon the same conditions; (v) any Fund
invest for the purpose of exercising control or management; (vi) any Fund
purchase securities issued by any registered investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that the Trust will not purchase
on behalf of any Fund the securities of any registered investment company if
such purchase at the time thereof would cause more than 10% of the total assets
of the Fund (taken at the greater of cost or market value) to be invested in the
securities of such issuers or would cause more than 3% of the outstanding voting
securities of any such issuer to be held by the Fund; and provided, further,
that the Trust shall not purchase on behalf of any Fund securities issued by any
open-end investment company; (vii) any Fund (except the California Fund) invest
more than 15% of the Fund's total assets (taken at the greater of cost or market
value) in unmarketable securities (included under the 15% limit on investments
in illiquid securities are OTC options, repurchase agreements maturing in more
than seven days and unmarketable securities) or; (viii) any Fund (except the
California Fund) purchase securities (other than bonds, notes, and obligations
issued or guaranteed by the United States or any agency or instrumentality of
the United States, which may be purchased without limitation) if as a result, at
the close of any quarter in the Trust's taxable year, more than 25% of a Fund's
total assets would be invested in securities of any one issuer. In addition, the
Trust will not on behalf of the California Fund: (i) pledge, mortgage or
hypothecate for any purpose in excess of 15% of such Fund's net assets (taken at
market value); or (ii) invest more than 10% of such Fund's total assets (taken
at the greater of cost or market value) in securities that are not readily
marketable. These policies are not fundamental and may be changed by the Trust
with respect to any Fund without shareholder approval in response to changes in
the various state and federal requirements.
<PAGE> 156
PERCENTAGE AND RATING RESTRICTIONS: Except for Investment Restriction (1), these
investment restrictions are adhered to at the time of purchase or utilization of
assets; a subsequent change in circumstances will not be considered to result in
a violation of policy.
3. PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Trust will calculate the total rate of return for each
class of shares of a Fund for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment of
$1,000 (made with all distributions reinvested and reflecting the CDSC or
maximum offering price) to reach the value of that investment at the end of the
periods. The Trust may also calculate on behalf of each class of shares of a
Fund (i) a total rate of return, which is not reduced by the CDSC (5% maximum
for Class B shares purchased on and after January 1, 1993, but before September
1, 1993 and 4% maximum for Class B shares purchased on and after September 1,
1993) and therefore may result in a higher rate of return, (ii) a total rate of
return assuming an initial account value of $1,000, which will result in a
higher rate of return since the value of the initial account will not be reduced
by the sales charge applicable to Class A shares (4.75% maximum), and/or (iii)
total rates of return which represent aggregate performance over a period or
year-by-year performance, and which may or may not reflect the effect of the
maximum or other sales charge or CDSC. Total rate of return quotations for each
Class of each Fund are presented in Appendix A attached hereto under the heading
"Performance Quotations."
PERFORMANCE RESULTS: The performance results presented in Appendix A attached
hereto under the heading "Performance Results" assume an initial investment of
$10,000 in Class A shares and cover the period from the initial public offering
date of Class A shares, as indicated, to December 31, 1993. It has been assumed
that dividends and capital gain distributions for each Fund were reinvested in
additional shares. These performance results, as well as any yield,
tax-equivalent yield, current distribution rate or total rate of return
quotation provided by the Trust, on behalf of a Fund, and presented in Appendix
A, should not be considered as representative of the performance of the Fund in
the future since the net asset value and public offering price of shares of the
Fund will vary based not only on the type, quality and maturities of the
securities held in the Fund's portfolio, but also on changes in the current
value of such securities and on changes in the expenses of the Fund. These
factors and possible differences in the methods used to calculate performance
quotations should be considered when comparing performance quotations of a Fund
to performance quotations published for other investment companies or other
investment vehicles. Total rate of return reflects the performance of both
principal and income. Current net asset value and account balance information
may be obtained by calling 1-800-MFS-TALK (637-8255).
YIELD: Any yield quotation for a class of shares of a Fund is based on the
annualized net investment income per share of the Fund attributable to that
class over a 30-day period. The yield for a class of shares of a Fund is
calculated by dividing the net investment income per share allocated to that
class earned during the period by the maximum offering price per share of that
class of shares on the last day of that period. The resulting figure is then
annualized. Net investment income per share of a class is determined by dividing
(i) the dividends and interest earned by the Fund allocated to that class during
the period, minus accrued expenses of that class for the period, by (ii) the
average number of shares of the class entitled to receive dividends during the
period multiplied by the maximum offering price per share on the last day of the
period. The yield calculations for Class A shares assume a maximum sales charge
of 4.75%. The yield calculations for Class B shares assume no CDSC is paid.
Yield quotations for each class of each Fund are presented in Appendix A
attached hereto under the heading "Performance Quotations."
TAX-EQUIVALENT YIELD: The tax-equivalent yield for a class of shares of a Fund
is calculated by determining the rate of return that would have to be achieved
on a fully taxable investment in such shares to produce the after-tax equivalent
of the yield of that class. In calculating tax-equivalent yield, a Fund assumes
certain federal tax brackets for shareholders and does not take into account
state taxes. Tax-equivalent yield quotations for each class of each Fund are
presented in Appendix A attached hereto under the heading "Performance
Quotations."
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid to shareholders of each class are
reflected in the quoted "current distribution rate" for that class. The current
distribution rate for a class is computed by dividing the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months by the maximum public offering price of that class at the end of
such period. Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing, short-term
capital gains and return of invested capital, and is calculated over a different
period of time. The Fund's current distribution rate calculation for Class A
shares assumes a maximum sales charge of 4.75%. The Fund's current distribution
rate calculation for Class B shares assumes no CDSC is paid. (See "Appendix A"
attached hereto.) Current distribution rate quotations for each Class of each
Fund are presented in Appendix A attached hereto under the heading "Performance
Quotations."
GENERAL: From time to time each Fund may, as appropriate, quote Fund rankings or
reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to the
following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal
Finance, The Wall Street Journal, Barron's, Investors Business Daily, Newsweek,
Financial World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as the first mutual
fund in America.
-- 1932 -- One of the first internal research departments is established to
provide in-house analytical capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund to register
under the Securities Act of 1933.
-- 1936 -- Massachusetts Investors Trust is the first mutual fund to let
shareholders take capital gain distributions either in additional shares
or in cash.
-- 1976 -- MFS Municipal Bond Fund is among the first municipal bond funds
established.
-- 1981 -- MFS World Governments Fund is established as America's first
globally diversified fixed-income mutual fund.
-- 1984 -- MFS Municipal High Income Fund is the first mutual fund to seek
high tax-free income from lower- rated municipal securities.
-- 1986 -- MFS Managed Sectors Fund becomes the first mutual fund to target
and shift investments among industry sectors for shareholders.
-- 1986 -- MFS Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.
-- 1986 -- MFS Lifetime Investment ProgramSM is established as the first
complete family of 12b-1 mutual funds with no initial sales charge.
-- 1987 -- MFS Multimarket Income Trust is the first closed-end, multimarket
high income fund listed on the New York Stock Exchange.
-- 1990 -- MFS World Total Return Fund is the first global balanced fund.
4. DETERMINATION OF PUBLIC OFFERING PRICE AND NET ASSET VALUE; VALUATION OF
PORTFOLIO SECURITIES
Descriptions of the manner in which the shares of the State Funds are offered to
the public, including the methods used in determining the public offering price
of shares in each Fund, appear in the Prospectus under the heading "Purchases."
The net asset value per share of each class of shares of each Fund is determined
each day during which the New York Stock Exchange (the "Exchange") is open for
trading. (As of the date of this Statement of Additional Information, the
Exchange is open for trading every weekday except for the following holidays or
the days on which they are observed: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.) This determination is made once during each such day as of the
close of regular trading on the Exchange by deducting the amount of the
liabilities attributable to a class from the value of the assets attributable to
the class and dividing the difference by the number of shares of the class
outstanding. As described in the Prospectus, debt securities (other than
short-term obligations) in each Fund's portfolio are valued on the basis of
valuations furnished by a pricing service since such valuations are believed to
reflect the fair value of such securities. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate 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 quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Use of the pricing service has
been approved by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued based upon dealer supplied
valuations. Other short-term obligations are valued at amortized cost, which
constitutes fair value as determined by the Board of Trustees. Positions in
listed options, Options on Futures Contracts and Futures Contracts will normally
be valued at the closing settlement price on the commodities exchange on which
they are primarily traded. Portfolio securities (other than short-term
obligations) for which there are no such valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
5. MANAGEMENT OF THE TRUST
The Trust's Board of Trustees provides broad supervision over the affairs of the
Trust. The Adviser is responsible for the investment management of the portfolio
of each Fund, and the officers of the Trust are responsible for its operations.
The Trustees and officers are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(until September 30, 1991)
MARSHALL N. COHAN
Private Investor; Skane Knit, Inc., President and Treasurer (prior to June
1989)
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D.
Brigham and Women's Hospital, Chief of Cardiac Surgery; Harvard Medical
School, Professor of Surgery.
Address: 75 Francis Street, Boston, Massachusetts
THE HON. SIR J. DAVID GIBBONS, KBE
Edmund Gibbons Limited, Chief Executive Officer; Bank of NT Butterfield & Son
Limited, Chairman.
Address: 21 Reid Street, Hamilton, Bermuda HM 12
ABBY M. O'NEILL
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: Room 5600, 30 Rockefeller Plaza, New York, New York
WALTER E. ROBB, III
Benchmark Advisors, Inc. (financial consultants), President and Treasurer
Address: 110 Broad Street, Boston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
J. DALE SHERRATT
Insight Resources, Inc. (acquisition planning specialists), President (since
January, 1990); The Kendall Company (health care products), Chairman and Chief
Executive Officer (prior to January, 1990); Colgate-Palmolive Company, Senior
Executive Vice President (prior to January, 1990).
Address: One Liberty Square, Boston, Massachusetts
WARD SMITH
NACCO Industries (holding company), Chairman; Sundstrand Corporation
(diversified mechanical manufacturer), Director
Address: 5875 Landerbrook Drive, Mayfield Heights, Ohio
OFFICERS
CYNTHIA M. BROWN,* Vice President
Massachusetts Financial Services Company, Vice President -- Investments
ROBERT A. DENNIS,* Vice President -- Investments
Massachusetts Financial Services Company, Senior Vice President
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary (since December 1989); The Boston Company
Advisors, Inc., President and General Counsel (prior to December 1989)
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President (since June, 1989);
Deloitte & Touche, Manager (prior to June, 1989)
JAMES R. BORDEWICK, JR.,* Assistant Secretary and Assistant Clerk
Massachusetts Financial Services Company, Vice President and Associate General
Counsel (since September 1990); Ropes & Gray (attorneys), Associate (prior to
August 1990)
LINDA J. HOARD,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Assistant General
Counsel
- ---------
*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose address
is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of FSI,
Messrs. Scott and Shames, Directors of FSI, and Mr. Cavan, the Secretary of
FSI, hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)"), the corporate parent of MFS.
The Trust has adopted a retirement plan for non-interested Trustees. Under this
plan, a Trustee will retire upon reaching age 75 and if the Trustee has
completed at least five years of service, he would be entitled to annual
payments during his lifetime of up to 50% of such Trustee's average annual
compensation (based on the three years prior to his retirement) depending on his
length of service. A Trustee may also retire prior to age 75 and receive reduced
payments if he has completed at least five years of service. Under the plan, a
Trustee (or his beneficiaries) will also receive benefits for a period of time
in the event the Trustee is disabled or dies. These benefits will also be based
on the Trustee's average annual compensation and length of service. There is no
retirement plan provided by the Trust for the interested Trustees. However, Mr.
Bailey retired as Chairman of MFS as of September 30, 1991 and will eventually
become eligible for retirement benefits. The Trust will accrue compensation
expenses each year to cover current year's service and amortize past service
cost.
As of April 30, 1994, officers and Trustees of the Trust owned less than 1% of
the outstanding shares of any class of any Fund of the Trust.
Listed in the chart below are the name, address and percentage of ownership of
each person who owns of record or is known by the Trust to own of record or
beneficially five percent or more of any class of any Fund's outstanding
securities as of April 30, 1994.
<TABLE>
<CAPTION>
FUND NUMBER % OF
OWNER & ADDRESS AND CLASS OF SHARES CLASS
- --------------- --------- --------- -----
<S> <C> <C> <C>
Smith Barney Shearson, Inc., 388 Greenwich Street, Alabama 2,488,443 30.83
New York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Alabama 2,198,140 27.24
45286, Jacksonville, Florida Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Alabama 103,624 35.02
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Arkansas 4,444,754 22.10
45286, Jacksonville, Florida Class A
Stephens Inc. for the Exclusive Benefit of our Arkansas 1,562,371 7.77
Customers, P.O. Box 34127, Little Rock, Arkansas Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Arkansas 152,570 23.74
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Florida 1,916,889 16.93
45286, Jacksonville, Florida Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New Florida 694,122 6.13
York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Florida 91,268 10.49
45286, Jacksonville, Florida Class B
Lester Muenchow & Donald Muenchow, Lake Worth, Florida Florida 48,040 5.52
Class B
Smith Barney Shearson, Inc., 388 Greenwich Street, New Georgia 2,231,376 27.10
York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Georgia 797,613 9.69
45286, Jacksonville, Florida Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Georgia 48,340 7.47
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Louisiana 109,651 7.55
45286, Jacksonville, Florida Class A
Bill G. Halley, Farmerville, Louisiana 105,423 7.26
Louisiana Class A
Alan C. Fernbaugh & Carolyn Fernbaugh, Baton Rouge, Louisiana 10,192 5.21
Louisiana Class B
Edwin K. Hunter, Lake Charles, Louisiana Louisiana 24,485 12.52
Class B
Michael Scaffidi & Steven Louisiana 9,950 5.09
Scaffidi, Kenner, Louisiana Class B
Cora Lee Mixon Smith, Baton Rouge, Louisiana Louisiana 13,151 6.72
Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Louisiana 21,148 10.81
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Maryland 1,563,001 10.64
45286, Jacksonville, Florida Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Maryland 69,193 10.53
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Massachusetts 4,180,356 16.55
45286, Jacksonville, Florida Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Mississippi 1,364,948 15.54
45286, Jacksonville, Florida Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New Mississippi 577,193 6.57
York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Mississippi 159,045 21.52
45286, Jacksonville, Florida Class B
Smith Barney Shearson, Inc., 388 Greenwich Street, New New York 1,820,482 11.74
York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box New York 1,860,589 11.99
45286, Jacksonville, Florida Class A
BHC Securities, Inc., 100 N. 20th Street, Philadelphia, New York 1,301,336 8.39
Pennsylvania Class A
Stanley Waxman & Linda New York 39,102 6.00
Waxman, Sands Point, New York Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box New York 32,967 5.06
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box North Carolina 2,252,419 5.64
45286, Jacksonville, Florida Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New North Carolina 2,838,144 7.11
York, New York Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New North Carolina 122,205 19.60
York, New York Class C
Smith Barney Shearson, Inc., 388 Greenwich Street, New North Carolina 40,734 6.53
<PAGE> 157
York, New York Class C
Smith Barney Shearson, Inc., 388 Greenwich Street, New North Carolina 40,453 6.49
York, New York Class C
Alex Brown & Sons, Inc., P.O., Box 1346, Baltimore, North Carolina 33,941 5.44
Maryland Class C
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box North Carolina 100,112 16.05
45286, Jacksonville, Florida Class C
R & R Investment Assoc., 1062 Lancaster Ave., Rosemont, Pennsylvania 133,961 8.43
Pennsylvania Class A
Evora Morgan, Bryn Mawr, Pennsylvania 81,654 16.39
Pennsylvania Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box South Carolina 1,470,333 10.08
45286, Jacksonville, Florida Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New South Carolina 1,170,038 8.02
York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box South Carolina 139,749 16.08
45286, Jacksonville, Florida Class B
Smith Barney Shearson, Inc., 388 Greenwich Street, New Tennessee 690,359 6.02
York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Tennessee 1,081,498 9.44
45286, Jacksonville, Florida Class A
Garney B. Scott, Jr., Nashville, Tennessee Tennessee 42,675 7.91
Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Tennessee 89,119 16.52
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Texas 148,967 7.97
45286, Jacksonville, Florida Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New Texas 166,839 8.92
York, New York Class A
Alfreda M. Taylor, Taylor Living Trust, Friendswood, Texas 101,843 5.45
Texas Class A
Wes-Tex Telecommunications Texas 286,486 15.32
Inc., P.O. Box 1329 W. Loop 214, Stanton, Texas Class A
John P. Marcum, Hurst, Texas Texas 9,251 7.79
Class B
Clem Lyons, San Antonio, Texas Texas 17,169 14.46
Class B
Texas Commerce Bank, Texas 6,892 5.81
Trustee, P.O. Box 311388, Class B
New Braunfels, Texas
Annice M. Elliott, Fort Worth, Texas Texas 7,448 6.27
Class B
Jaqueline M. Robertson & Texas 9,259 7.80
Ronald B. Robertson, Class B
Hitchcock, Texas
Gladys L. Wallace, Longview, Texas Texas 9,257 7.80
Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Virginia 3,074,118 7.75
45286, Jacksonville, Florida Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Virginia 228,270 18.23
45286, Jacksonville, Florida Class B
Painewebber, Newtown, Virginia 8,320 6.62
Virginia Class C
Dale Daniels & Atha Daniels, Newport News, Virginia Virginia 8,000 6.37
Class C
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Virginia 7,164 5.70
45286, Jacksonville, Florida Class C
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Washington 168,885 8.63
45286, Jacksonville, Florida Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New Washington 264,739 13.54
York, New York Class A
Patricia Burke, Medina, Washington 201,827 10.32
Washington Class A
Esther M. Austin, Seattle, Washington 13,813 6.55
Washington Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box Washington 22,959 10.90
45286, Jacksonville, Florida Class B
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box West Virginia 783,006 6.73
45286, Jacksonville, Florida Class A
Smith Barney Shearson, Inc., 388 Greenwich Street, New West Virginia 853,009 7.33
York, New York Class A
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box West Virginia 31,047 5.89
45286, Jacksonville, Florida Class B
</TABLE>
The Declaration of Trust provides that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless,
as to liabilities to the Trust or its shareholders, it is finally adjudicated
that they engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices, or with respect to
any matter, unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or other
disposition or by a reasonable determination pursuant to the Declaration of
Trust, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) which in turn is a
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Prospectus
contains information with respect to the management of the Adviser and to the
investment companies for which MFS serves as investment adviser.
The Adviser manages each Fund (except the Arkansas, California, Florida,
Louisiana, Mississippi, Pennsylvania, Texas and Washington Funds) pursuant to an
Investment Advisory Agreement, dated as of August 24, 1984 (the "Advisory
Agreement"). The Adviser manages the Arkansas, Florida, and Texas Funds pursuant
to separate Investment Advisory Agreements, each dated as of February 1, 1992.
The Advisor manages the Mississippi and Washington Funds pursuant to separate
Investment Advisory Agreements each dated August 1, 1992. The Adviser manages
the Louisiania and Pennsylvania Funds pursuant to separate Investment Advisory
Agreements each dated February 1, 1993. The Adviser manages the California Fund
pursuant to an Investment Advisory Agreement dated August 1, 1993. The Adviser
provides each Fund with overall investment advisory and administrative services,
and general office facilities and administrative services for the Trust. Subject
to such policies as the Trustees may determine, the Adviser makes investment
decisions for each Fund. For these services and facilities the Adviser receives
a management fee from each Fund computed and paid monthly at the annual rate of
0.55% of the average daily net assets of the Fund for its then-current fiscal
year. The Adviser has voluntarily reduced the management fee for an indefinite
period with respect to each of the Arkansas, California, Florida, Louisiana,
Mississippi, New York, Pennsylvania, Texas and Washington Funds. See "Management
of the Trust -- Investment Adviser" in the Prospectus.
For the Trust's fiscal years ended January 31, 1994, 1993 and 1992, MFS received
the following aggregate fees and MFS waived the following fees, in whole or in
part, for the same periods. For the Fiscal Year Ended January 31, 1994:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND MFS MFS
- ---- ----------- ---------
Alabama .................................... $ 439,235 $ --
Arkansas ................................... 940,077 502,194
Florida .................................... 552,640 444,758
Georgia .................................... 449,179 --
Louisiana .................................. 54,035 54,035
Maryland ................................... 903,650 --
Massachusetts .............................. 1,591,974 --
Mississippi ................................ 367,101 349,609
New York ................................... 916,193 340,615
North Carolina ............................. 2,501,986 --
Pennsylvania ............................... 56,065 56,065
South Carolina ............................. 947,476 --
Tennessee .................................. 627,398 --
Texas ...................................... 75,954 75,954
Virginia ................................... 2,459,087 --
Washington ................................. 80,180 80,180
West Virginia .............................. 728,874 --
For the Fiscal Year Ended January 31, 1993:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND MFS MFS
- ---- ----------- ---------
Alabama ................................... $ 314,930 $ --
Arkansas .................................. 420,294 401,418
Florida ................................... 198,400 198,400
Georgia ................................... 306,527 --
Louisiana ................................. -- --
Maryland .................................. 722,388 --
Massachusetts ............................. 1,403,440 --
Mississippi ............................... 63,783 63,783
New York .................................. 582,415 --
North Carolina ............................ 1,936,501 530,016
South Carolina ............................ 659,247 --
Tennessee ................................. 497,708 --
Texas ..................................... 23,750 23,750
Virginia .................................. 1,975,139 --
Washington ................................ 13,388 13,388
West Virginia ............................. 527,345 --
For the Fiscal Year Ended January 31, 1992:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND MFS MFS
- ---- ----------- ---------
Alabama ................................... $ 189,857 $ 867
Georgia ................................... 213,349 1,080
Maryland .................................. 603,450 --
Massachusetts ............................. 1,240,475 --
New York .................................. 308,894 223,175
North Carolina ............................ 1,496,200 --
South Carolina ............................ 485,856 --
Tennessee ................................. 443,707 --
Virginia .................................. 1,675,215 --
West Virginia ............................. 390,061 --
See "Expenses" in the Prospectus.
For the 11-month period ended January 31, 1994 and the fiscal years ended
February 28, 1993 and February 29, 1992, MFS received aggregate fees from the
California Fund under the Advisory Agreement of $1,641,620 (of which $585,888
was not imposed), $1,202,697 (of which $837,662 was not imposed), $679,423 (of
which $304,852 was not imposed).
The Adviser pays the compensation of the officers of the Trust and of any
Trustee who is an officer of MFS. The Adviser furnishes at its own expense all
necessary administrative services, office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the investments of the Funds, effecting the portfolio
transactions of the Funds and, in general, administering the Trust's affairs
(with the exception of the services, facilities and personnel provided by the
Shareholder Servicing Agent or the Custodian, see below). See "Expenses" in the
Prospectus for a description of expenses paid by the Trust and reimbursement
arrangements in effect between the Adviser and the Trust.
The Advisory Agreements will remain in effect until August 1, 1994 (or, in the
case of the California Fund, August 1, 1995) and will continue in effect
thereafter with respect to any Fund only if such continuance is specifically
approved at least annually by the Trustees or by vote of the holders of a
majority of the shares of that Fund (as defined in "Investment Restrictions"
above) and, in either case, by a majority of the Trustees who are not parties to
the Advisory Agreement or interested persons of any such party. The Advisory
Agreements terminate automatically if they are assigned and may be terminated
without penalty by vote of the holders of a majority of the shares of that Fund
(as defined in "Investment Restrictions") or by either party on not more than 60
days' nor less than 30 days' written notice. The Advisory Agreements provide
that if MFS ceases to serve as the Adviser for each Fund of the Trust, the Trust
will change its name so as to delete the term "MFS". The Advisory Agreements
further provide that MFS may render similar services to others and may permit
investment company clients in addition to the Trust to use the term "MFS" in
their names. The Advisory Agreements also provide that neither the Adviser nor
its personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution and management of the Trust, except for wilful misfeasance, bad faith
or gross negligence in the performance of its or their duties or by reason of
reckless disregard of its or their obligations and duties under the Advisory
Agreements.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Trust's assets. The Custodian's responsibilities include safekeeping and
controlling the Trust's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Trust's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of each Fund. The Custodian does not
determine the investment policies of the Trust or decide which securities the
Trust will buy or sell. The Trust may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also serves as the dividend disbursing agent of the
Trust. The Custodian has contracted with the Adviser for the Adviser to perform
certain accounting functions related to options transactions for which the
Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc., a wholly owned subsidiary of MFS (the "Shareholder
Servicing Agent"), is the Trust's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 1, 1985 (the "Agency
Agreement") with the Trust. The Shareholder Servicing Agent's responsibilities
under the Agency Agreement include administering and performing transfer agent
functions and the keeping of records, in connection with the issuance, transfer
and redemption of each class of shares of each Fund. For these services, the
Shareholder Servicing Agent will receive a fee based on the net assets of each
class of shares of each Fund, computed and paid monthly. In addition, the
Shareholder Servicing Agent will be reimbursed by the Trust for certain expenses
incurred by the Shareholder Servicing Agent on behalf of the Trust. For the year
ended January 31, 1994, each Fund paid the Shareholder Servicing Agent the
following amounts under the Agency Agreement for services rendered to each such
Fund:
FUND CLASS AMOUNT PAID
- ---- ----- -----------
Alabama .................................... A $120,071
Alabama .................................... B 1,192
Arkansas ................................... A 254,967
Arkansas ................................... B 2,489
California* ................................ A 443,991
California* ................................ B 10,010
California* ................................ C 18
Florida .................................... A 148,754
Florida .................................... B $ 3,323
Georgia .................................... A 120,863
Georgia .................................... B 2,662
Louisiana .................................. A 14,232
Louisiana .................................. B 776
Maryland ................................... A 246,218
Maryland ................................... B 2,480
Massachusetts .............................. A 435,306
Massachusetts .............................. B 1,995
Mississippi ................................ A 97,793
Mississippi ................................ B 3,356
New York ................................... A 249,913
New York ................................... B 2,205
North Carolina ............................. A 680,484
North Carolina ............................. B 6,100
North Carolina ............................. C 140
Pennsylvania ............................... A 14,283
Pennsylvania ............................... B 1,554
South Carolina ............................. A 258,192
South Carolina ............................. B 3,745
Tennessee .................................. A 170,752
Tennessee .................................. B 2,044
Texas ...................................... A 20,364
Texas ...................................... B 510
Virginia ................................... A 670,876
Virginia ................................... B 5,541
Virginia ................................... C 24
Washington ................................. A 21,402
Washington ................................. B 786
West Virginia .............................. A 199,099
West Virginia .............................. B 2,124
- ---------
*For the 11-month period ended January 31, 1994.
State Street Bank and Trust Company, the dividend and distribution disbursing
agent of the Trust, has contracted with the Shareholder Servicing Agent to
administer and perform certain dividend and distribution disbursing functions
for the Trust.
DISTRIBUTOR
FSI, a wholly owned subsidiary of MFS, serves as the distributor for the
continuous offering of shares of the Fund pursuant to a Distribution Agreement,
dated as of December 19, 1986, as amended and restated April 14, 1993 (the
"Distribution Agreement"), with the Trust.
CLASS A SHARES: FSI acts as agent in selling shares of the Trust to dealers. The
public offering price of Class A shares of each Fund is their net asset value
next computed after the sale plus a sales charge which varies based upon the
quantity purchased. The public offering price of Class A shares of each Fund is
calculated by dividing the net asset value of a Class A share of such Fund by
the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of each Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS Funds")
and other funds (as noted under Right of Accumulation) by any person, including
members of a family unit (e.g., husband, wife and minor children) and bona fide
trustees, and also applies to purchases made under the Right of Accumulation or
a Letter of Intent (see "Investment and Withdrawal Programs" below). A group
might qualify to obtain quantity sales charge discounts (see "Investment and
Withdrawal Programs" in this Statement of Additional Information).
Class A shares of each Fund may be sold at their net asset value to certain
persons and in certain instances, as described in the Prospectus. Such sales are
made without a sales charge to promote good will with employees and others with
whom MFS, FSI and/or the Trust have business relationships, and because the
sales effort, if any, involved in making such sales is negligible.
FSI allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to a Fund
and (b) the dealer commission is the commission paid to the distributor. Because
of rounding in the computation of offering price, the portion of the sales
charge paid to the distributor may vary and the total sales charge may be more
or less than the sales charge calculated using the sales charge expressed as a
percentage of offering price or as a percentage of the net amount invested as
listed in the Prospectus. In the case of the maximum sales charge, the dealer
retains 4% and FSI retains approximately 3/4 of 1% of the public offering price.
In addition, FSI pays a commission on purchases of $1 million or more as
described in the Prospectus.
CLASS B AND CLASS C SHARES: FSI acts as agent in selling Class B and Class C
shares of the Trust to dealers. The public offering price of Class B and Class C
shares is their net asset value next computed after the sale (see "Purchases" in
the Prospectus).
GENERAL: From time to time FSI, at its expense, may provide additional
commissions, compensation or promotional incentives ("concessions") to dealers
which sell shares of the Trust. The staff of the SEC has indicated that dealers
who receive more than 90% of the sales charge may be considered underwriters.
Such concessions provided by FSI may include financial assistance to dealers in
connection with preapproved conferences or seminars, sales or training programs
for invited registered representatives, payment for travel expenses, including
lodging, incurred by registered representatives and members of their families or
other invited guests to various locations for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding one
or more MFS Funds, and/or other dealer-sponsored events. In some instances,
these concessions may be offered to dealers or only to certain dealers who have
sold or may sell, during specified periods, certain minimum amounts of shares of
the Trust. From time to time, FSI may make expense reimbursements for special
training of a dealer's registered representatives in group meetings or to help
pay the expenses of sales contests. In addition, FSI may, from time to time, pay
additional compensation to MFS Investor Services, Inc., an affiliated
broker-dealer, in connection with assistance provided by such broker-dealer in
selling Trust shares. In some instances, promotional incentives to dealers may
be offered only to certain dealers who have sold or may sell significant amounts
of Fund shares, From time to time, FSI or its affiliate may offer a small gift
of nominal value to shareholders who elect to participate in certain investment
programs (e.g., the Automatic Exchange Plan) or other shareholder services.
Other concessions may be offered to the extent not prohibited by the laws of any
state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. (the "NASD"). On occasion, FSI may obtain brokers loans
from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. FSI may
benefit from its temporary holding of funds paid to it by investment dealers for
the purchase of Fund shares. Neither FSI nor dealers are permitted to delay
placing orders to benefit themselves by a price change.
See Appendix B attached hereto for information regarding the amount of sales
charges received by FSI, dealers, banks and certain other financial
institutions.
The Distribution Agreement will remain in effect until August 1, 1994 and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
applicable Fund's shares and, in either case, by a majority of the Trustees who
are not parties to the Distribution Agreement or interested persons of any such
party. The Distribution Agreement terminates automatically if it is assigned and
may be terminated without penalty by either party on not more than 60 days' nor
less than 30 days' notice.
6. TAXATION
<PAGE> 158
The Trust intends to qualify each Fund each year as a separate "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), by having each of them meet all applicable requirements of
Subchapter M, including the requirements as to the nature of their gross income,
the amount of their distributions (as a percentage of both overall income and
tax-exempt income) and the composition and holding period of their portfolio
assets. Because the Funds intend to distribute all of their net investment
income and net realized capital gains to shareholders in accordance with the
timing requirements imposed by the Code, it is not expected that any Fund will
be required to pay any federal income or excise taxes. If any Fund should fail
to qualify as a "regulated investment company" in any year, such Fund would
incur a regular corporate federal income tax upon its taxable income and Fund
distributions would generally be taxable as ordinary dividend income to the
shareholders.
That part of a Fund's net investment income which is attributable to interest
from tax-exempt securities and which is distributed to shareholders will be
designated by the Trust as an "exempt-interest dividend" under the Code and will
generally be exempt from federal income tax in the hands of shareholders so long
as at least 50% of the total value of the Fund's assets consists of tax-exempt
securities at the close of each quarter of the Fund's taxable year.
Distributions of tax exempt interest earned from certain securities may,
however, be treated as a tax preference item for purposes of the alternative
minimum tax, and all exempt-interest dividends may increase a corporate
shareholder's alternative minimum tax. The percentage of income designated as
tax-exempt will be applied uniformly to all distributions by a Fund during each
fiscal year and may differ from the actual tax-exempt percentage for any
particular month. Shareholders are required to report exempt-interest dividends
received from the Fund on their federal income tax returns.
A Fund may also recognize some net investment income that is not tax-exempt from
investments in taxable securities and from certain securities (including
Municipal Obligations) purchased at a market discount, as well as capital gains
and losses as a result of the disposition of securities and from certain options
and futures transactions. Shareholders of any such Fund will have to pay federal
income taxes on the non-exempt interest dividends and capital gain distributions
they receive from the Fund; however, the Funds do not expect that the
non-tax-exempt portion of their net investment income, if any, will be
substantial.
That portion of net investment income distributions not designated as tax-exempt
and any distributions from net short-term capital gains (whether received in
cash or reinvested in additional shares) are taxable to shareholders as ordinary
income. Distributions from net capital gains (i.e., the excess of net capital
gains over net short-term capital losses) are taxable to shareholders as
long-term capital gains for federal income tax purposes without regard to the
length of time shareholders have owned their shares. Distributions will be
treated in the same manner for Federal income tax purposes whether paid in cash
or additional shares. No portion of a Fund's distributions will qualify for the
dividends received deduction. For Federal income tax purposes, dividends, if
any, declared in October, November or December as of a record date in such a
month and paid the following January will be treated as if received on December
31 of the year in which they are declared.
Any distribution of net capital gains or net short-term capital gains will have
the effect of reducing the per share net asset value of shares in a Fund by the
amount of the taxable distribution. Shareholders purchasing shares shortly
before the record date of any such distribution may thus pay the full price for
the shares and then effectively receive a portion of the purchase price back as
a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of a
Fund by a shareholder that holds such shares as a capital asset will be treated
as long-term capital gain or loss if the shares have been held for more than
twelve months and otherwise as short-term capital gain or loss. However, any
loss realized upon a disposition of shares held for six months or less will be
disallowed to the extent of any exempt-interest income received with respect to
those shares and, if not disallowed, any such loss will be treated as a
long-term capital loss to the extent of any distributions of net capital gain
made with respect to those shares. Any loss realized upon a redemption of shares
may also be disallowed under rules relating to wash sales. Gain may be increased
(or loss reduced) upon a redemption of Class A shares of a Fund within 90 days
after their purchase followed by any purchase (including purchases by exchange
or by reinvestment) without payment of an additional sales charge of Class A
shares of any Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Trust's current dividend and accounting policies may affect the amount,
timing and character of distributions to shareholders, and may under certain
circumstances make an economic return of capital taxable to shareholders. Any
investment in zero coupon securities, securities calling for deferred interest
and certain securities purchased at a market discount will cause a Fund to
realize income prior to the receipt of cash payments with respect to these
securities. In order to distribute this income the Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.
The Funds' transactions in options, Futures Contracts and Forward Contracts will
be subject to special tax rules that may affect the amount, timing, and
character of Fund income and distributions to shareholders. For example, certain
positions held by a Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if closed out) on such day, and any gain or
loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by a fund that
substantially diminish its risk of loss with respect to other positions on its
portfolio may constitute "straddles" and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles which may alter the effects of these
rules. Each Fund will limit its activities in options, Futures Contracts, and
Forward Contracts to the extent necessary to meet the requirements of Subchapter
M of the Code.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible for federal income tax purposes.
Exempt-interest dividends are taken into account in calculating the amount of
social security and railroad retirement benefits that may be subject to federal
income tax. Entities or persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by certain private activity bonds
should consult their tax advisers before purchasing shares of a Fund.
"Substantial user" is defined generally as including a "non-exempt person" who
regularly uses in its trade or business a part of a facility financed from the
proceeds of certain private activity bonds.
Federal income tax information will be reported to shareholders annually, as
described under "Tax Status" in the Prospectus and under "Shareholder Services
- -- Account and Confirmation Statements" below. Shareholders are required to
report their receipt of tax-exempt distributions on their federal income tax
returns.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Trust intends
to withhold tax at the rate of 30% on taxable dividends and other payments made
to Non-U.S. Persons that are subject to such withholding regardless of whether a
lower treaty rate may be permitted. Any amounts over withheld may be recovered
by such persons by filing a claim for refund with the U.S. Internal Revenue
Service within the time period applicable to such claims. The Trust is also
required in certain circumstances to apply backup withholding of 31% of taxable
dividends and redemption proceeds paid to any shareholder (including a Non-U.S.
Person) who does not furnish to the Trust certain information and certifications
or who is otherwise subject to backup withholding. However, backup withholding
will not be applied to payments which have been subject to 30% withholding.
Distributions received from the Trust by Non-U.S. Persons may also be subject to
tax under the laws of their own jurisdiction.
The Trust is organized as a Massachusetts business trust, and each Fund will not
be subject to any Massachusetts income or excise taxes so long as it qualifies
as a regulated investment company under the Code.
Fund distributions that are derived from interest on obligations of the U.S.
government and certain of its agencies and instrumentalities (but generally not
from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. In other states, arguments can be made on the
basis of a U.S. Supreme Court decision to the effect that such distributions
should be exempt from state and local taxes. Each Fund intends to advise
shareholders of the extent, if any, to which its distributions consist of such
interest. Shareholders are urged to consult their tax advisors regarding the
possible exclusion of such portion of their dividends for state and local income
tax purposes as well as regarding the tax consequences of an investment in any
Fund.
7. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Trust makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and, in certain
cases, in the Prospectus. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Trust.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $100,000 or more of Class A shares of a Fund alone
or in combination with shares of any class of other MFS Funds or MFS Fixed Fund
(a bank collective investment fund) within a 13-month period (or a 36-month
period in the case of purchases of $1 million or more), the shareholder may
obtain Class A shares of such Fund at the same reduced sales charge as though
the total quantity were invested in one lump sum by completing the Letter of
Intent section of the Account Application or filing a separate Letter of Intent
application (available from the Shareholder Servicing Agent) within 90 days of
the commencement of purchases. Subject to acceptance by FSI and the conditions
mentioned below, each purchase of Class A shares will be made at a public
offering price applicable to a single transaction of the dollar amount specified
in the Letter of Intent application. The shareholder or his dealer must inform
FSI that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36 months in the case of purchases of $1 million
or more) plus the value of shares credited toward completion of the Letter of
Intent do not total the sum specified, he will pay the increased amount of the
sales charge as described below. Instructions for issuance of shares in the name
of a person other than the person signing the Letter of Intent application must
be accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other funds
in the MFS Family of Funds (the "MFS Funds") automatically reinvested in shares
of a Fund pursuant to the Distribution Investment Program will also not apply
toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month (or 36-month period, as applicable), the
shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of all classes of shares
of that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund) reaches a discount level. See "Purchases" in the Prospectus for
the sales charges on quantity discounts. For example, if a shareholder owns
shares with a current offering price value of $75,000 and purchases an
additional $25,000 of Class A shares of a Fund, the sales charge for the $25,000
purchase would be at the rate of 4% (the rate applicable to single transactions
of $100,000). A shareholder must provide the Shareholder Servicing Agent (or his
investment dealer must provide FSI) with information to verify that the quantity
sales charge discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of net investment income and
capital gains made by a Fund with respect to a particular class of shares may be
automatically invested in the same class of shares of one of the other MFS Funds
if shares of the fund are available for sale. Such investments will be subject
to additional purchase minimums. Distributions will be invested at net asset
value (exclusive of any sales charge) and will not be subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Option
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder (except a $3 Million Shareholder)
may direct the Shareholder Servicing Agent to send him (or anyone he designates)
regular periodic payments, as designated on the Account Application and based
upon the value of his account. Each payment under a Systematic Withdrawal Plan
("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B shares in any year pursuant to a SWP generally
are limited to 10% of the value of the account at the time of the establishment
of the SWP. SWP payments are drawn from the proceeds of the redemption of shares
held in the shareholder's account (which would be a return of principal and, if
reflecting a gain, would be taxable). Redemptions of Class B shares will be made
in the following order: (i) to the extent necessary, any "Free Amount"; (ii) any
"Reinvested Shares"; (iii) to the extent necessary, the "Direct Purchase"
subject to the lowest CDSC (as such terms are defined in "Contingent Deferred
Sales Charge" in the Prospectus). The CDSC will be waived in the case of
redemptions of Class B shares pursuant to a SWP, but will not be waived in the
case of SWP redemptions of Class A shares which are subject to the CDSC. To the
extent that redemptions for such periodic withdrawals exceed dividend income
reinvested in the account, such redemptions will reduce and may eventually
exhaust the number of shares in the shareholder's account. All dividends and
capital gain distributions for an account with a SWP will be reinvested in
additional full and fractional shares of a Fund at the net asset value in effect
at the close of business on the last day of the month for such distributions. To
initiate this service, shares having an aggregate value of at least $10,000
either must be held on deposit by, or certificates for such shares must be
deposited with, the Shareholder Servicing Agent. With respect to Class A shares,
maintaining a withdrawal plan concurrently with an investment program would be
disadvantageous because of the sales charges included in share purchases and the
imposition of a CDSC on certain redemptions. The shareholder by written
instruction to the Shareholder Servicing Agent may deposit into the account
additional shares of a Fund, change the payee or change the dollar amount of
each payment. The Shareholder Servicing Agent may charge the account for
services rendered and expenses incurred beyond those normally assumed by the
Trust with respect to the liquidation of shares. No charge is currently assessed
against the account, but one could be instituted by the Shareholder Servicing
Agent on 60 days' notice in writing to the shareholder in the event that the
Trust ceases to assume the cost of these services. The Trust may terminate any
SWP for an account if the value of the account falls below $5,000 as a result of
share redemptions (other than as a result of a SWP) or an exchange of shares of
a Fund for shares of another MFS Fund. Any SWP may be terminated at any time by
either the shareholder or the Trust.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
the other MFS Funds and in the case of Class C shares for shares of MFS Money
Market Fund under the Automatic Exchange Plan. The Automatic Exchange Plan
provides for automatic transfers of funds from the shareholder's account in an
MFS Fund for investment in the same class of shares of other MFS Funds selected
by the shareholder. Under the Automatic Exchange Plan, transfers of at least $50
each may be made to up to four different funds effective on the seventh day of
each month or of every third month, depending whether monthly or quarterly
transfers are elected by the shareholder. If the seventh day of the month is not
a business day, the transaction will be processed on the next business day.
Generally, the initial transfer will occur after receipt and processing by the
Shareholder Servicing Agent of an application in good order. Transfers will
continue to be made from a shareholder's account in any MFS Fund as long as the
balance of the account is sufficient to complete the transfers. Additional
payments made to a shareholder's account will extend the period that transfers
will continue to be made under the Automatic Exchange Plan. However, if
additional payments are added to an account subject to the Automatic Exchange
Plan shortly before a transfer is scheduled, such funds may not be available for
transfers until the following month; therefore, care should be used to avoid
inadvertently terminating the Automatic Exchange Plan through exhaustion of the
account balance.
No transaction fee for transfers will be charged in connection with the
Automatic Exchange Plan. However, transfers of shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
will be subject to any applicable sales charge. Changes in amounts to be
transferred to each fund, the funds to which transfers are to be made and the
timing of transfers (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing --signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request is received
by telephone or in writing before the close of business on the last business day
of a month, the Exchange Change Request will be effective for the following
month's transfer.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding Automatic Transfer Plan, including the treatment of any
CDSC, see "Exchange Privilege" below.
INVEST BY MAIL: Additional investments of $50 or more may be made at any
time by mailing a check payable to the Trust directly to the Shareholder
Servicing Agent. The shareholder's account number and the name of his investment
dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent) obtain quantity sales charge discounts on the purchase of Class A shares
if the group (1) gives its endorsement or authorization to the investment
program so it may be used by the investment dealer to facilitate solicitation of
the membership, thus effecting economies of sales effort; (2) has been in
existence for at least six months and has a legitimate purpose other than to
purchase mutual fund shares at a discount; (3) is not a group of individuals
whose sole organizational nexus is as credit cardholders of a company,
policyholders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups; and (4) agrees to
provide certification of membership of those members investing money in the MFS
Funds upon the request of FSI.
REINSTATEMENT PRIVILEGE: Shareholders of each Fund and shareholders of the
other MFS Funds (except the MFS Money Market Fund, MFS Government Money Market
Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where
shares of such funds are acquired through direct purchase or reinvested
dividends) who have redeemed their shares have a one-time right to reinvest the
redemption proceeds in the same class of shares of any of the MFS Funds (if
shares of the fund are available for sale) at net asset value (without a sales
charge) and, if applicable, with credit for any CDSC paid. In the case of shares
reinvested in the MFS Money Market Fund, MFS Government Money Market Fund and
Class A shares of MFS Cash Reserve Fund, the shareholder has the right to
exchange such shares for shares of another MFS Fund at net asset value pursuant
to the exchange privilege described below. Such a reinvestment must be made
within 90 days of the redemption and is limited to the amount of the redemption
proceeds. If the shares credited for any CDSC paid are then redeemed within six
years of the initial purchase in the case of Class B shares or 12 months of the
initial purchase in the case of Class A shares, such CDSC will be imposed upon
redemption. Although redemptions and repurchases of shares are taxable events, a
reinvestment within a certain period of time in the same fund may be considered
a "wash sale" and may result in the inability to recognize currently all or a
portion of any loss realized on the original redemption for federal income tax
purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares of any Fund for which payment has been received by the Fund (i.e.
an established account) may be exchanged for shares of the same class of any
other Fund or any of the other MFS Funds (if available for sale), at their net
asset value. In addition, Class C shares may be exchanged for shares of MFS
Money Market Fund at net asset value. Exchanges will be made only after
instructions in writing or by telephone (an "Exchange Request") are received for
an established account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing, signed by the
record owner(s) exactly as the shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record), and
each exchange must involve either shares having an aggregate value of at least
$1,000 (except that the minimum is $50 for accounts of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by MFS
Service Center, Inc.) or all the shares in the account. Each exchange involves
the redemption of the shares of the Fund to be exchanged and the purchase at net
asset value (i.e., without a sales charge) of the shares of the same class of
the other Fund or the other MFS Fund. Any gain or loss on the redemption of the
shares exchanged is reportable on the shareholder's federal income tax return,
unless both the shares received and the shares surrendered in the exchange are
held in a tax-deferred retirement plan or other tax-exempt account. If the
Exchange Request is received by the Shareholder Servicing Agent on any business
day prior to the close of regular trading on the Exchange, the exchange usually
will occur on that day if all the restrictions set forth above have been
complied with at that time. However, payment of the redemption proceeds by the
Trust, and thus the purchase of shares of the other MFS Fund, may be delayed for
up to seven days if the Trust determines that such a delay would be in the best
interest of all its shareholders. Investment dealers which have satisfied
criteria established by FSI may also communicate a shareholder's Exchange
Request to FSI by facsimile subject to the restrictions set forth above. No more
than five exchange requests may be made in any one telephone Exchange Request.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares.
<PAGE> 159
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers, or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other MFS Fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except the MFS Money Market Fund, MFS Government Money Market Fund
and Class A shares of MFS Cash Reserve Fund for shares acquired through direct
purchase and dividends reinvested prior to June 1, 1992) have the right to
exchange their shares for shares of any Fund, subject to the conditions, if any,
set forth in their respective prospectuses. In addition, unitholders of the MFS
Fixed Fund (a bank collective investment fund) have the right to exchange their
units (except units acquired through direct purchases) for shares of the Fund,
subject to the conditions, if any, imposed upon such unitholders by the MFS
Fixed Fund.
Any state income tax advantages for investment in shares of each Fund may only
benefit residents of such states. Investors should consult with their own tax
advisers to be sure this is an appropriate investment, based on their residency
and each state's income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may
be purchased by all types of tax-deferred retirement plans. FSI makes available
through investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non- employed
spouses who desire to make limited contributions to a tax-deferred retirement
program and, if eligible, to receive a federal income tax deduction for
amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents and forms provided by FSI designate a trustee or custodian
(unless another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or FSI, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
FSI may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan
qualified under Internal Revenue Code section 401(a) or 403(b) if the retirement
plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available by
the Shareholder Servicing Agent.
8. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust presently has 19 series of shares and has reserved the right to create
additional series of shares. In addition to the Funds described in this
Statement of Additional Information, the Trust offers shares of MFS Municipal
Income Fund pursuant to a separate prospectus and statement of additional
information. Each share of a class of a series represents an equal proportionate
interest in that series with each other share of that series subject to any
expenses attributable to that class. The shares of a class of each series
participate equally in the earnings, dividends and assets of the particular
series subject to any expenses attributable to that class. Shares have no
pre-emptive or conversion rights (except as set forth in "Purchases --
Conversion to Class B Shares" in the Prospectus). Shares when issued are fully
paid and non-assessable. Shareholders are entitled to one vote for each share
held and may vote in the election of Trustees and on other matters submitted to
meetings of shareholders. Although Trustees are not elected annually by the
shareholders, shareholders have under certain circumstances the right to remove
one or more Trustees. Shareholders of each series would be entitled to share pro
rata in the net assets of that series available for distribution to shareholders
should the Trust or that series be liquidated. Any series may be terminated (i)
upon the merger or consolidation of the series with another organization or upon
the sale of all or substantially all of its assets to another open-end
management investment company, if approved by the vote of the holders of
two-thirds of the outstanding shares of the series, except that if the Trustees
recommend such merger, consolidation or sale of assets, the approval by vote of
the holders of a majority of the shares of the series (as defined in "Investment
Restrictions" above) will be sufficient, or (ii) upon liquidation and
distribution of the assets of the series, if approved by the vote of the holders
of a majority of the shares of the series (as defined in "Investment
Restrictions" above) or by the Trustees. Unless each series is so terminated,
the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust". Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides for
indemnification and reimbursement of expenses out of the Trust property for any
shareholder held personally liable for the obligations of the Trust. The Trust's
Declaration of Trust also provides that it shall maintain appropriate insurance
(for example, fidelity bonding and errors and omissions insurance) for the
protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to act,
but nothing in the Declaration of Trust protects a Trustee against any liability
to which he would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
9. PORTFOLIO TRANSACTIONS
Specific decisions to purchase or sell securities for each Fund are made by a
portfolio committee consisting of employees of the Adviser who are appointed and
supervised by its senior officers. Changes in the Funds' investments are
reviewed by the Board of Trustees. The portfolio committee or any of its members
may serve other Fund and other clients of the Adviser or any subsidiary of the
Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. Municipal
Obligations and other debt securities are traded principally in the
over-the-counter market on a net basis through dealers acting for their own
account and not as brokers. The cost of securities purchased from underwriters
includes an underwriter's commission or concession, and the prices at which
securities are purchased and sold from and to dealers include a dealer's mark-up
or mark-down. Securities firms may receive brokerage commissions on transactions
involving futures. The Adviser attempts to negotiate with underwriters to
decrease the commission or concession for the benefit of the Fund. The Adviser
normally seeks to deal directly with the primary market makers unless, in its
opinion, better prices are available elsewhere. Securities firms or futures
commission merchants may receive brokerage commissions on transactions involving
Futures Contracts or Options on Futures Contracts. Consistent with the foregoing
primary consideration, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of each Fund and of the other
investment company clients of FSI as a factor in the selection of broker-dealers
to execute the Trust's portfolio transactions. Also, subject to the requirement
of seeking execution at the best available price, securities may, as authorized
by the Advisory Agreement, be bought from or sold to dealers who have furnished
statistical, research and other information or services to the Adviser.
In certain instances there may be securities which are suitable for a Fund as
well as that of another Fund or one or more other clients of the Adviser or any
subsidiary of the Adviser. Investment decisions for the Trust and for such other
clients are made with a view to achieving their respective investment
objectives. It may develop that the same investment decision is made for more
than one client or that a particular security is bought or sold for only one
client even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as any Fund is concerned.
In some cases, however, it is believed that the ability of a Fund to participate
in volume transactions will produce better executions for the Fund.
10. DISTRIBUTION PLANS
The Trustees have adopted a Distribution Plan for each of Class A, Class B and
Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule") after having concluded that there is
a reasonable likelihood that each distribution plan would benefit the applicable
funds and the respective classes of shareholders. The Distribution Plans are
designed to promote sales, thereby increasing the net assets of each Fund. Such
an increase may reduce the expense ratio to the extent the Fund's fixed costs
are spread over a larger net asset base. Also, an increase in net assets may
lessen the adverse effects that could result were the Fund required to liquidate
portfolio securities to meet redemptions. There is, however, no assurance that
the net assets of a Fund will increase or that the other benefits referred to
above will be realized.
Each Distribution Plan is described below. Appendix C attached hereto contains
information concerning amounts paid with respect to each class of each Fund
under the Distribution Plans for the period ended January 31, 1994.
CLASS A DISTRIBUTION PLAN: Each Class A Distribution Plan provides that the Fund
will pay FSI up to (but not necessarily all of) an aggregate of 0.35% per annum
of the average daily net assets attributable to the Class A shares of a Fund in
order that FSI may pay expenses on behalf of that Fund related to the
distribution and servicing of its Class A shares. The expenses to be paid by FSI
on behalf of each Fund include a service fee to securities dealers which enter
into a sales agreement with FSI of up to 0.25% of the portion of the Fund's
average daily net assets attributable to the Class A shares owned by investors
for whom that securities dealer is the holder or dealer of record. These
payments are partial consideration for personal services and/or account
maintenance performed by such dealers with respect to Class A shares. FSI may
from time to time reduce the amount of the service fee paid for shares sold
prior to a certain date. Service fees may be reduced for a securities dealer
that is the holder or dealer of record for an investor who owns shares of a Fund
having a net asset value at or above a certain dollar level. No service fee will
be paid (i) to any securities dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time (FSI,
however, may waive this minimum amount requirement from time to time if the
dealer satisfies certain criteria), or (ii) to any insurance company which has
entered into an agreement with the Trust and FSI that permits such insurance
company to purchase shares from a Fund at their net asset value in connection
with annuity agreements issued in connection with the insurance company's
separate accounts. FSI may also retain a distribution fee of 0.10% of a Fund's
average daily net assets attributable to Class A shares. Any remaining funds may
be used to pay for other distribution related expenses as described in the
Prospectus. FSI has voluntarily waived all or a portion of the fee payable under
the Class A Distribution Plan for certain Funds and payments under the Class A
Distribution Plan have not commenced for certain Funds (see "Distribution Plans"
in the Prospectus). FSI or its affiliates are entitled to retain all service
fees payable under each Class A Distribution Plan for which there is no dealer
of record or for which qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
performed by FSI or its affiliates for shareholder accounts. Certain banks and
other financial institutions that have agency agreements with FSI will receive
agency transaction and service fees that are the same as commissions and service
fees to dealers.
CLASS B DISTRIBUTION PLAN: Each Class B Distribution Plan provides that the Fund
shall pay FSI a daily distribution fee equal on an annual basis to 0.75% of the
Fund's average daily net assets attributable to Class B shares and will pay FSI
a service fee of up to 0.25% per annum of the Fund's average daily net assets
attributable to Class B shares (which FSI will in turn pay to securities dealers
which enter into a sales agreement with FSI at a rate of up to 0.25% per annum
of the Fund's average daily net assets attributable to Class B shares owned by
investors for whom that securities dealer is the holder or dealer of record).
The first year service fee will be paid as noted below. This service fee is
intended to be additional consideration for all personal services and/or account
maintenance services rendered by the dealer with respect to Class B shares. FSI
will advance to dealers the first year service fee at a rate equal to 0.25% of
the amount invested. As compensation therefor, FSI may retain the service fee
paid by a Fund with respect to such shares for the first year after purchase.
Dealers will become eligible for additional service fees with respect to such
shares commencing in the thirteenth month following purchase. Except in the case
of the first year service fee, no service fee will be paid to any securities
dealer who is the holder or dealer of record for investors who own Class B
shares having an aggregate net asset value of less than $750,000 or such other
amount as may be determined from time to time by FSI. FSI, however, may waive
this minimum amount requirement from time to time if the dealer satisfies
certain criteria. Dealers may from time to time be required to meet certain
other criteria in order to receive service fees. FSI has voluntarily waived all
or a portion of the service fee payable under the Class B Distribution Plan for
certain Funds (see "Distribution Plans" in the Prospectus). FSI or its
affiliates are entitled to retain all service fees payable under the Class B
Distribution Plans for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by FSI or its affiliates
for shareholder accounts.
The purpose of distribution payments to FSI under each Class B Distribution Plan
is to compensate FSI for its distribution services to the Funds. FSI pays
commissions to dealers as well as expenses of printing prospectuses and reports
used for sales purposes, expenses with respect to the preparation and printing
of sales literature and other distribution related expenses, including, without
limitation, the cost necessary to provide distribution- related services, or
personnel, travel office expenses and equipment. Each Class B Distribution Plan
also provides that FSI will receive all CDSCs attributable to Class B shares
(see "Distribution Plans" and "Purchases" in the Prospectus).
CLASS C DISTRIBUTION PLAN: Each Class C Distribution Plan (applicable to the
California, North Carolina and Virginia Funds only) provides that the Fund will
pay FSI a distribution fee of up to 0.75% per annum of the Fund's average daily
net assets attributable to Class C shares and will pay FSI a service fee of up
to 0.25% per annum of the Fund's average daily net assets attibutable to Class C
shares (which FSI will in turn pay to securities dealers which enter into a
sales agreement with FSI at a rate of up to 0.25% per annum of the Fund's daily
net assets attributable to Class C shares owned by investors for whom that
securities dealer is the holder or dealer of record).
The distribution/service fees attributable to Class C shares are designed to
permit an investor to purchase such shares through a broker-dealer without the
assessment of an initial sales charge or a CDSC while allowing FSI to compensate
broker-dealers in connection with the sale of such shares.
The service fee is intended to be additional consideration for all personal
services and/or account maintenance services rendered by the dealer with respect
to Class C shares. FSI or its affiliates are entitled to retain all service fees
payable under the Class C Distribution Plan with respect to accounts for which
there is no dealer of record as partial consideration for personal services
and/or account maintenance services performed by FSI or its affiliates for
shareholder accounts.
The purpose of the distribution payments to FSI under the Class C Distribution
Plan is to compensate FSI for its distribution services to the Fund.
Distribution payments under the Plan will be used by FSI to pay securities
dealers a distribution fee in an amount equal on an annual basis to 0.75% of the
Fund's average daily net assets attributable to Class C shares owned by
investors for whom securities dealer is the holder or dealer of record.
(Therefore, the total amount of distribution/service fees paid to a dealer on an
annual basis is 1.00% of the Fund's average daily net assets attributable to
Class C shares owned by investors for whom the securities dealer is the holder
or dealer of record.) FSI also pays expenses of printing prospectuses and
reports used for sales purposes, expenses with respect to the preparation and
printing of sales literature and other distribution-related expenses, including,
without limitation, the compensation of personnel and all costs of travel,
office expense and equipment. Since FSI's compensation is not directly tied to
its expenses, the amount of compensation received by FSI during any year may be
more or less than its actual expenses. For this reason, this type of
distribution fee arrangement is characterized by the staff of the SEC as being
of the "compensation" variety. However, the Fund is not liable for any expenses
incurred by FSI in excess of the amount of compensation it receives. Certain
banks and other financial institutions that have agency agreements with FSI will
receive agency transaction and service fees that are the same as distribution
and service fees to dealers. Fees payable under the Class C Distribution Plan
are charged to, and therefore reduce, income allocated to Class C shares.
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1994, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties to such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Trust and FSI each shall
provide to the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under such Plan.
Each of the Distribution Plans may be terminated at any time by vote of a
majority of the Distribution Plan Qualified Trustees or by vote of the holders
of a majority of the respective class of the Fund's shares (as defined in
"Investment Restrictions"). All agreements relating to any of the Distribution
Plans entered into between the Trust or FSI and other organizations must be
approved by the Board of Trustees, including a majority of the Distribution Plan
Qualified Trustees. Agreements under any of the Distribution Plans must be in
writing, will be terminated automatically if assigned, and may be terminated at
any time without payment of any penalty, by vote of a majority of the
Distribution Plan Qualified Trustees or by vote of the holders of a majority of
the respective class of the Fund's shares. None of the Distribution Plans may be
amended to increase materially the amount of permitted distribution expenses
without the approval of a majority of the respective class of the Fund's shares
(as defined in "Investment Restrictions") or may be materially amended in any
case without a vote of the Trustees and a majority of the Distribution Plan
Qualified Trustees. The selection and nomination of Distribution Plan Qualified
Trustees shall be committed to the discretion of the non-interested Trustees
then in office. No Trustee who is not an "interested person" has any financial
interest in any of the Distribution Plans or in any related agreement.
11. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche are the Trust's independent certified public accountants.
For each Fund, except the California Fund, the Portfolios of Investments at
January 31, 1994, the Statements of Assets and Liabilities at January 31, 1994,
the Statements of Operations for the year ended January 31, 1994, the Statements
of Changes in Net Assets for each of the two years in the period ended January
31, 1994, the Financial Highlights for each of the ten years in the period ended
January 31, 1994, the Notes to Financial Statements and the Reports of
Independent Auditors, each of which is included in the Annual Reports to
shareholders of the Trust, are incorporated by reference into this Statement of
Additional Information and have been so incorporated in reliance upon the report
of Deloitte & Touche, independent certified public accountants, as experts in
accounting and auditing.
For the California Fund, the Portfolio of Investments at January 31, 1994, the
Statement of Assets and Liabilities at January 31, 1994, the Statements of
Operations for the eleven months ended January 31, 1994 and the year ended
February 28, 1993, the Statements of Changes in Net Assets for the eleven months
ended January 31, 1994 and each of the two years ended February 28, 1993, the
Financial Highlights for the eleven months ended January 31, 1994 and for each
of the eight years in the period ended February 28, 1993, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders, are incorporated by reference into this
Statement of Additional Information and have been so incorporated in reliance
upon the report of Deloitte & Touche, independent certified public accountants,
as experts in accounting and auditing. A copy of the Annual Reports accompany
this Statement of Additional Information.
APPENDIX A
The performance results and quotations below should not be considered as
representative of the performance of any Fund in the future since the net asset
value and public offering price of shares of the Funds will vary. See
"Performance Information" in the Statement of Additional Information.
PERFORMANCE RESULTS
CLASS A SHARES
VALUE OF VALUE OF VALUE OF
INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
YEAR ENDED INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
- ---------- --------------- ------------- --------- -----
ALABAMA FUND
December 31, 1990(1) $ 9,629 $ 0 $ 517 $10,146
December 31, 1991 9,999 66 1,272 11,337
December 31, 1992 10,260 81 1,998 12,339
December 31, 1993 10,930 110 2,851 13,891
ARKANSAS FUND
December 31, 1992(2) $ 9,780 $ 0 $ 549 $10,329
December 31, 1993 10,400 2 1,209 11,611
CALIFORNIA FUND
December 31, 1985(3) $ 9,320 $ 0 $ 225 $ 9,545
December 31, 1986 10,520 45 1,006 11,571
December 31, 1987 9,760 68 1,622 11,450
December 31, 1988 10,160 71 2,462 12,693
<PAGE> 160
December 31, 1989 10,480 73 3,389 13,942
December 31, 1990 10,460 73 4,304 14,837
December 31, 1991 10,940 124 5,604 16,668
December 31, 1992 11,200 151 6,839 18,190
December 31, 1993 11,820 229 8,483 20,532
FLORIDA FUND
December 31, 1992(2) $ 9,800 $ 0 $ 547 $10,347
December 31, 1993 10,540 25 1,321 11,886
GEORGIA FUND
December 31, 1988(4) $ 9,690 $ 0 $ 211 $ 9,901
December 31, 1989 9,860 20 919 10,799
December 31, 1990 9,790 44 1,638 11,472
December 31, 1991 10,270 78 2,539 12,887
December 31, 1992 10,480 80 3,373 13,933
December 31, 1993 11,210 86 4,425 15,721
LOUISIANA FUND
December 31, 1993(5) $10,050 $ 0 $ 517 $10,567
MARYLAND FUND
December 31, 1984(6) $ 9,660 $ 0 $ 76 $ 9,736
December 31, 1985 10,130 67 975 11,172
December 31, 1986 11,010 73 1,940 13,023
December 31, 1987 10,310 88 2,617 13,015
December 31, 1988 10,700 92 3,629 14,421
December 31, 1989 10,940 104 4,674 15,718
December 31, 1990 10,900 115 5,698 16,713
December 31, 1991 11,240 152 7,104 18,496
December 31, 1992 11,320 179 8,330 19,829
December 31, 1993 11,730 291 9,868 21,889
MASSACHUSETTS FUND
December 31, 1985(7) $10,080 $ 0 $ 426 $10,506
December 31, 1986 11,020 11 1,326 12,357
December 31, 1987 10,280 12 2,033 12,325
December 31, 1988 10,590 12 3,003 13,605
December 31, 1989 10,690 12 3,993 14,695
December 31, 1990 10,630 12 5,008 15,650
December 31, 1991 11,110 13 6,466 17,589
December 31, 1992 11,310 13 7,762 19,085
December 31, 1993 11,660 308 9,233 21,221
<PAGE> 161
VALUE OF VALUE OF VALUE OF
INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
YEAR ENDED INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
- ---------- --------------- ------------- --------- -----
MISSISSIPPI FUND
December 31, 1992(8) $ 9,290 $ 0 $ 205 $ 9,495
December 31, 1993 9,930 0 812 10,742
NEW YORK FUND
December 31, 1988(4) $ 9,740 $ 0 $ 189 $ 9,929
December 31, 1989 9,910 80 904 10,894
December 31, 1990 9,820 80 1,652 11,552
December 31, 1991 10,370 148 2,612 13,130
December 31, 1992 10,670 194 3,558 14,422
December 31, 1993 11,270 248 4,811 16,329
NORTH CAROLINA FUND
December 31, 1984(6) $ 9,670 $ 0 $ 70 $ 9,740
December 31, 1985 10,690 48 992 11,730
December 31, 1986 11,530 240 1,987 13,757
December 31, 1987 10,790 225 2,737 13,752
December 31, 1988 11,070 231 3,788 15,089
December 31, 1989 11,320 236 4,909 16,465
December 31, 1990 11,230 311 5,967 17,508
December 31, 1991 11,600 404 7,425 19,429
December 31, 1992 11,710 408 8,677 20,795
December 31, 1993 12,290 438 10,308 23,036
PENNSYLVANIA FUND
December 31, 1993(5) $10,050 $ 0 $ 488 $10,538
SOUTH CAROLINA FUND
December 31, 1984(6) $ 9,680 $ 0 $ 69 $ 9,749
December 31, 1985 10,490 14 1,004 11,508
December 31, 1986 11,340 47 2,011 13,398
December 31, 1987 10,830 99 2,845 13,774
December 31, 1988 11,200 103 3,976 15,279
December 31, 1989 11,460 105 5,103 16,668
December 31, 1990 11,390 187 6,155 17,732
December 31, 1991 11,810 273 7,639 19,722
December 31, 1992 11,940 356 8,916 21,212
December 31, 1993 12,660 402 10,649 23,711
TENNESSEE FUND
December 31, 1988(9) $ 9,650 $ 0 $ 117 $ 9,767
December 31, 1989 9,900 0 821 10,721
December 31, 1990 9,850 20 1,531 11,401
December 31, 1991 10,140 82 2,379 12,601
December 31, 1992 10,320 102 3,198 13,620
December 31, 1993 10,840 108 4,141 15,089
TEXAS FUND
December 31, 1992(2) $ 9,930 $ 0 $ 533 $10,463
December 31, 1993 10,750 0 1,270 12,020
VIRGINIA FUND
December 31, 1984(6) $ 9,630 $ 0 $ 78 $ 9,708
December 31, 1985 10,340 11 966 11,317
December 31, 1986 11,120 17 1,923 13,060
December 31, 1987 10,470 94 2,658 13,222
December 31, 1988 10,860 97 3,742 14,699
December 31, 1989 11,110 99 4,870 16,079
December 31, 1990 11,100 99 5,972 17,171
December 31, 1991 11,500 103 7,451 19,054
December 31, 1992 11,620 110 8,738 20,468
December 31, 1993 11,990 441 10,277 22,708
WASHINGTON FUND
December 31, 1992(10) $ 9,450 $ 0 $ 193 $ 9,643
December 31, 1993 10,170 10 889 11,069
<PAGE> 162
VALUE OF VALUE OF VALUE OF
INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
YEAR ENDED INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
- ---------- --------------- ------------- --------- -----
WEST VIRGINIA FUND
December 31, 1984(6) $ 9,620 $ 0 $ 78 $ 9,698
December 31, 1985 10,330 13 1,022 11,365
December 31, 1986 11,100 51 2,061 13,212
December 31, 1987 10,250 149 2,816 13,215
December 31, 1988 10,620 154 3,973 14,747
December 31, 1989 10,850 157 5,104 16,111
December 31, 1990 10,870 158 6,213 17,241
December 31, 1991 11,250 177 7,703 19,130
December 31, 1992 11,410 188 9,031 20,629
December 31, 1993 11,970 351 10,761 23,082
(1) Based on initial investment made on February 1, 1990, the initial public
offering date of Class A shares.
(2) Based on initial investment made on February 3, 1992, the initial public
offering date of Class A shares.
(3) Based on initial investment made June 18, 1985, the initial public offering
date of the predecessor of Class A shares.
(4) Based on initial investment made on June 6, 1988, the initial public
offering date of Class A shares.
(5) Based on initial investment made February 1, 1993, the initial public
offering date of the predecessor of Class A shares.
(6) Based on initial investment made on October 31, 1984, the initial public
offering date of Class A shares.
(7) Based on initial investment made on April 9, 1985, the initial public
offering date of Class A shares.
(8) Based on initial investment made on August 6, 1992, the initial public
offering date of Class A shares.
(9) Based on initial investment made on August 12, 1988, the initial public
offering date of Class A shares.
(10) Based on initial investment made on August 7, 1992, the initial public
offering date of Class A shares.
EXPLANATORY NOTES:
The results in the table assume that income dividends and capital gain
distributions were invested in additional shares. The results also assume that
the initial investment in Class A shares was reduced by the current maximum
applicable sales charge. No adjustment has been made for any income taxes, if
any, payable by shareholders.
<PAGE> 163
PERFORMANCE QUOTATIONS
All performance quotations are for the periods ending January 31, 1994.
<TABLE>
<CAPTION>
ACTUAL
ACTUAL TAX EQUIVALENT TAX EQUIVALENT
30-DAY 30-DAY 30-DAY YIELD 30-DAY YIELD
AVERAGE ANNUAL TOTAL RETURNS YIELD YIELD (INCLUDING (WITHOUT
---------------------------- AGGREGATE (INCLUDING (WITHOUT ANY WAIVERS) ANY WAIVERS) CURRENT
LIFE OF TOTAL ANY ANY ------------ ------------- DISTRIBUTION
FUND 1 YEAR 5 YEAR FUND RETURN WAIVERS) WAIVERS) TAX BRACKETS: TAX BRACKETS: RATE<F14>
- ----------------------- ------ ------- ------- ------- ------- ------- -------------- -------------- -------------
28% 31% 28% 31%
----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama Fund Class A
with sales charge 6.9% --% 8.8%<F1> --% 4.50% 4.41% 6.25% 6.52% 6.13% 6.39% 4.77%
Alabama Fund Class A
without sales charge 12.3 -- 10.1<F1> --
Alabama Fund Class B
with CDSC -- -- -- -1.7<F2> 3.59 4.99 5.20 4.09
Alabama Fund Class B
without CDSC -- -- -- 2.3<F2>
Arkansas Fund Class A
with sales charge 6.7 -- 8.4<F3> -- 4.98 4.79 6.92 7.22 6.65 6.94 5.10
Arkansas Fund Class A
without sales charge 12.0 -- 11.1<F3> --
Arkansas Fund Class B
with CDSC -- -- -- -1.8<F2> 3.99 3.79 5.54 5.78 5.26 5.49 4.13
Arkansas Fund Class B
without CDSC -- -- -- 2.2<F2>
California Fund Class A
with sales charge 2.6<F6> 9.0 8.8<F4> -- 4.88 4.73 6.78 7.07 6.57 6.86 5.21
California Fund Class A
without sales charge 7.6<F6> 10.1 9.4<F4> --
California Fund Class B
with CDSC -- -- -- -2.3<F2> 4.12 3.97 5.72 5.97 5.51 5.75 4.18
California Fund Class B
without CDSC -- -- -- 1.7<F2>
California Fund Class C -- -- -- 1.2<F5> 1.51 2.10 2.19 2.69
Florida Fund Class A
with sales charge 9.3 -- 9.8<F3> -- 4.89 4.55 6.79 7.09 6.32 6.59 5.17
Florida Fund Class A
without sales charge 14.7 -- 12.5<F3> --
Florida Fund Class B
with CDSC -- -- -- -2.0<F2> 3.94 3.58 5.47 5.71 4.97 5.19 4.18
Florida Fund Class B
without CDSC -- -- -- 2.0<F2>
Georgia Fund Class A
with sales charge 7.3 8.7 8.6<F7> -- 4.40 4.31 6.11 6.38 5.99 6.25 4.85
Georgia Fund Class A
without sales charge 12.7 9.7 9.5<F7> --
Georgia Fund Class B
with CDSC -- -- -- -1.9<F2> 3.62 5.03 5.25 4.14
Georgia Fund Class B
without CDSC -- -- -- 2.1<F2>
Louisiana Fund Class A
with sales charge 7.0 -- 7.0<F8> -- 5.34 4.43 7.42 7.74 6.15 6.42 4.91
Louisiana Fund Class A
without sales charge 12.3 -- 12.3<F8> --
Louisiana Fund Class B
with CDSC -- -- -- -1.5<F2> 4.48 3.52 6.22 6.49 4.89 5.10 4.46
Louisiana Fund Class B
without CDSC -- -- -- 2.5<F2>
Maryland Fund Class A
with sales charge 5.0 7.7 9.0<F9> -- 4.64 6.44 6.72 5.25
Maryland Fund Class A
without sales charge 10.3 8.7 9.5<F9> --
Maryland Fund Class B
with CDSC -- -- -- -2.2<F2> 4.19 5.82 6.07 4.63
Maryland Fund Class B
without CDSC -- -- -- 1.8<F2>
Massachusetts Fund
Class A with
sales charge 5.7 8.3 9.1<F10> -- 5.11 7.10 7.41 5.81
Massachusetts Fund
Class A without
sales charge 11.0 9.3 9.7<F10> --
Massachusetts Fund
Class B with CDSC -- -- -- -1.6<F2> 4.24 5.89 6.14 4.95
Massachusetts Fund
Class B without
CDSC -- -- -- 2.3<F2>
Mississippi Fund
Class A with
sales charge 7.4 -- 5.8<F11> -- 5.28 4.51 7.33 7.65 6.26 6.54 5.26
Mississippi Fund
Class A without
sales charge 12.8 -- 9.3<F11> --
Mississippi Fund
Class B with CDSC -- -- -- -1.7<F2> 4.47 3.66 6.21 6.48 5.08 5.30 4.52
Mississippi Fund
Class B without
CDSC -- -- -- 2.3<F2>
New York Fund
Class A with
sales charge 7.3 9.4 9.3<F7> -- 4.69 4.50 6.51 6.80 6.25 6.52 5.05
New York Fund
Class A without
sales charge 12.7 10.5 10.2<F7> --
New York Fund
Class B with CDSC -- -- -- -1.9<F2> 4.00 3.89 5.56 5.80 5.40 5.64 4.35
New York Fund
Class B without
CDSC -- -- -- 2.1<F2>
North Carolina Fund
Class A with
sales charge 5.3 7.7 9.6<F9> -- 4.35 6.04 6.30 5.18
North Carolina Fund
Class A without
sales charge 10.6 8.8 10.1<F9> --
North Carolina Fund
Class B with CDSC -- -- -- -2.2<F2> 3.92 5.44 5.68 4.28
North Carolina Fund
Class B without CDSC -- -- -- 1.8<F2>
North Carolina Fund
Class C -- -- -- 1.2<F5> 2.28 3.17 3.30 2.32
Pennsylvania Fund
Class A with
sales charge 6.8 -- 6.8<F8> -- 5.18 4.27 7.19 7.51 5.93 6.19 4.72
Pennsylvania Fund
Class A without
sales charge 12.1 -- 12.1<F8> --
Pennsylvania Fund
Class B with CDSC -- -- -- -1.3<F2> 4.44 3.49 6.17 6.43 4.85 5.06 4.22
Pennsylvania Fund
Class B without
CDSC -- -- -- 2.7<F2>
South Carolina Fund
Class A with
sales charge 6.4 8.2 9.9<F9> -- 4.34 6.03 6.29 4.79
South Carolina Fund
Class A without
sales charge 11.7 9.1 10.5<F9> --
South Carolina Fund
Class B with CDSC -- -- -- -1.8<F2> 3.67 5.10 5.32 4.25
South Carolina Fund
Class B without
CDSC -- -- -- 2.2<F2>
Tennessee Fund
Class A with
sales charge 5.9 8.1 8.1<F12> -- 4.72 6.56 6.84 4.93
Tennessee Fund
Class A without
sales charge 11.2 9.4 9.0<F12> --
Tennessee Fund
Class B with CDSC -- -- -- -1.5<F2> 4.57 6.35 6.62 4.07
Tennessee Fund
Class B without
CDSC -- -- -- 2.5<F2>
Texas Fund Class A
with sales charge 9.6 -- 10.5<F3> -- 5.17 4.26 7.18 7.49 5.92 6.17 5.34
Texas Fund Class A
without sales charge 15.1 -- 13.2<F3> --
Texas Fund Class B
with CDSC -- -- -- -1.3<F2> 4.49 3.54 6.24 6.51 4.92 5.13 4.55
Texas Fund Class B
without CDSC -- -- -- 2.7<F2>
Virginia Fund
Class A with
sales charge 5.5 8.1 9.4<F9> -- 4.47 6.21 6.48 5.20
Virginia Fund
Class A without
sales charge 10.7 9.1 10.0<F9> --
Virginia Fund
Class B with CDSC -- -- -- -2.0<F2> 4.01 5.57 5.81 4.47
Virginia Fund
Class B without
CDSC -- -- -- 2.0<F2>
Virginia Fund
Class C -- -- -- 1.2<F5> 1.64 2.28 2.38 2.50
Washington Fund
Class A with
sales charge 9.1 -- 8.0<F13> -- 5.29 4.37 7.35 7.67 6.07 6.33 5.29
Washington Fund
Class A without
sales charge 14.6 -- 11.6<F13> --
Washington Fund
Class B with CDSC -- -- -- -1.7<F2> 4.43 3.47 6.15 6.42 4.82 5.03 4.50
Washington Fund
Class B without
CDSC -- -- -- 2.3<F2>
West Virginia Fund
Class A with
sales charge 6.5 8.3 9.6<F9> -- 4.72 6.56 6.84 5.09
West Virginia Fund
Class A without
sales charge 11.8 9.4 10.2<F9> --
West Virginia Fund
Class B with CDSC -- -- -- -1.8<F2> 4.12 5.72 5.97 4.44
West Virginia Fund
Class B without CDSC -- -- -- 2.2<F2>
<FN>
- -----------
<F1>From the initial public offering date of Class A shares on February 1, 1990.
<F2>Aggregate total return from September 7, 1993 (commencement of public
offering of Class B shares).
<F3>From the initial public offering date of Class A shares on February 3, 1992.
<F4>From the initial public offering date of Class A shares on June 18, 1985.
<F5>Aggregate total return from January 3, 1994 (commencement of public offering
of Class C shares).
<F6>Due to a change in the Fund's fiscal year end, the performance figures cited
are for the 11-month period ended January 31, 1994.
<F7>From the intitial public offering date of Class A shares on June 6, 1988.
<F8>From the initial public offering date of Class A shares on February 1, 1993.
<F9>From the initial public offering date of Class A shares on October 31, 1984.
<F10>From the initial public offering date of Class A shares on April 9, 1985.
<F11>From the initial public offering date of Class A shares on August 6, 1992.
<F12>From the initial public offering date of Class A shares on August 12, 1988.
<F13>From the initial public offering date of Class A shares on August 7, 1992.
<F14>Class B and Class C current distribution rates have been annualized.
</FN>
</TABLE>
<PAGE> 164
APPENDIX B
SALES CHARGES
<TABLE>
<CAPTION>
CDSC CDSC IMPOSED
IMPOSED ON ON CLASS A CLASS A CLASS A
REDEMPTION REDEMPTION SALES SALES CHARGES GROSS SALES
OF CLASS B OF CLASS A CHARGES RECEIVED CHARGES
SHARES SHARES RECEIVED BY FSI BY DEALERS<F1> 12 MONTHS
9/7/93 THRU 12 MONTHS 12 MONTHS 12 MONTHS ENDED
FUND 1/31/94 ENDED 1/31/94 ENDED 1/31/94 ENDED 1/31/94 1/31/94
<S> <C> <C> <C> <C> <C>
Alabama Fund Class A $ 73 $ 91,928 $ 558,082 $ 650,010
Alabama Fund Class B $ 39
Arkansas Fund Class A 3 455,067 2,809,535 3,264,602
Arkansas Fund Class B 4,730
California Fund Class A<F2> 55,328 231,916 1,967,665 2,199,581
California Fund Class B<F2> 7,146
California Fund Class C<F2>
Florida Fund Class A 10,737 219,779 1,359,226 1,579,005
Florida Fund Class B 939
Georgia Fund Class A 366 89,931 573,488 663,419
Georgia Fund Class B 393
Louisiana Fund Class A 0 40,802 422,946 463,748
Louisiana Fund Class B 9,891
Maryland Fund Class A 162 161,689 1,043,078 1,204,767
Maryland Fund Class B 2,407
Massachusetts Fund Class A 9,456 128,547 811,164 939,711
Massachusetts Fund Class B 753
Mississippi Fund Class A 2,460 217,195 1,368,892 1,586,087
Mississippi Fund Class B 212
New York Fund Class A 129 170,823 1,592,278 1,763,101
New York Fund Class B --
North Carolina Fund Class A 989 421,999 2,666,700 3,088,699
North Carolina Fund Class B 2,001
North Carolina Fund Class C
Pennsylvania Fund Class A -- 39,557 466,418 505,975
Pennsylvania Fund Class B --
South Carolina Fund Class A 39,579 184,187 1,120,745 1,304,932
South Carolina Fund Class B --
Tennessee Fund Class A 438 113,280 681,131 794,411
Tennessee Fund Class B 1,775
Texas Fund Class A . 0 36,054 221,631 257,685
Texas Fund Class B . 316
Virginia Fund Class A 12 380,623 2,323,173 2,703,796
Virginia Fund Class B 417
Virginia Fund Class C
Washington Fund Class A 0 44,300 289,144 333,444
Washington Fund Class B 2,004
West Virginia Fund Class A 77 160,768 1,036,761 1,197,529
West Virginia Fund Class B 6,028
CDSC
IMPOSED ON CLASS A
REDEMPTION CLASS A SALES CHARGES
CLASS A OF CLASS A SALES CHARGES RECEIVED
FUND ASSETS SHARES RECEIVED BY FSI BY DEALERS <F1>
SOLD 12 12 MONTHS 12 MONTHS 12 MONTHS
MONTHS ENDED ENDED ENDED
FUND ENDED 1/31/94 1/31/93 1/31/93 1/31/93
<S> <C> <C> <C> <C>
Alabama Fund Class A $ 22,229,059 $ 54 $117,454 $ 461,270
Alabama Fund Class B
Arkansas Fund Class A 80,468,316 3 586,418 4,816,692
Arkansas Fund Class B
California Fund Class A<F2> 114,935,752 23,687 262,500 2,258,987
California Fund Class B<F2>
California Fund Class C<F2>
Florida Fund Class A 52,007,077 -- 179,386 1,899,665
Florida Fund Class B
Georgia Fund Class A 29,940,646 162 102,867 642,144
Georgia Fund Class B
Louisiana Fund Class A 13,166,947 -- 0 0
Louisiana Fund Class B
Maryland Fund Class A 35,398,730 -- 190,010 994,473
Maryland Fund Class B
Massachusetts Fund Class A 40,161,491 2 179,413 910,590
Massachusetts Fund Class B
Mississippi Fund Class A 43,993,195 -- 41,412 1,530,908
Mississippi Fund Class B
New York Fund Class A 57,532,037 1 226,320 1,980,698
New York Fund Class B
North Carolina Fund Class A 106,750,838 48 535,492 2,751,651
North Carolina Fund Class B
North Carolina Fund Class C
Pennsylvania Fund Class A 12,814,354 -- -- --
Pennsylvania Fund Class B
South Carolina Fund Class A 48,658,649 1 204,106 1,081,263
South Carolina Fund Class B
Tennessee Fund Class A 23,309,416 20 109,307 574,113
Tennessee Fund Class B
Texas Fund Class A . 9,215,825 -- 35,238 337,875
Texas Fund Class B .
Virginia Fund Class A 90,094,203 298 496,098 2,515,485
Virginia Fund Class B
Virginia Fund Class C
Washington Fund Class A 9,944,597 -- 14,925 396,025
Washington Fund Class B
West Virginia Fund Class A 31,951,976 -- 178,376 931,283
West Virginia Fund Class B
</TABLE>
<PAGE> 165
SALES CHARGES
<TABLE>
<CAPTION>
CDSC
IMPOSED ON CLASS A
CLASS A REDEMPTION SALES CHARGES
GROSS SALES CLASS A OF CLASS A RECEIVED
CHARGES FUND ASSETS SHARES BY FSI
12 MONTHS SOLD 12 MONTHS 12 MONTHS 12 MONTHS
FUND ENDED 1/31/93 ENDED 1/31/93 ENDED 1/31/92 ENDED 1/31/92
<S> <C> <C> <C> <C>
Alabama Fund Class A $ 578,724 $ 20,784,102 -- $ 63,250
Alabama Fund Class B
Arkansas Fund Class A 5,403,110 125,078,925 -- 20
Arkansas Fund Class B
California Fund Class A<F2> 2,521,487 109,995,843 -- 141,689
California Fund Class B<F2>
California Fund Class C
Florida Fund Class A 2,079,051 61,449,275 -- -
Florida Fund Class B
Georgia Fund Class A 745,011 21,866,434 -- 51,199
Georgia Fund Class B
Louisiana Fund Class A --
Louisiana Fund Class B
Maryland Fund Class A 1,184,483 31,512,575 -- 113,369
Maryland Fund Class B
Massachusetts Fund Class A 1,090,003 42,927,270 --
Massachusetts Fund Class B 143,180
Mississippi Fund Class A 1,572,320 40,051,576 --
Mississippi Fund Class B
New York Fund Class A 2,207,018 56,353,466 -- 124,739
New York Fund Class B
North Carolina Fund Class A 3,287,143 97,502,355 -- 496,183
North Carolina Fund Class B
North Carolina Fund Class C
Pennsylvania Fund Class A
Pennsylvania Fund Class B
South Carolina Fund Class A 1,285,369 42,987,052 -- 156,093
South Carolina Fund Class B
Tennessee Fund Class A 683,420 18,954,377 -- 93,375
Tennessee Fund Class B
Texas Fund Class A 373,113 8,735,109 --
Texas Fund Class B
Virginia Fund Class A 3,011,583 84,365,465 -- 327,398
Virginia Fund Class B
Virginia Fund Class C
Washington Fund Class A 410,950 9,272,688 --
Washington Fund Class B
West Virginia Fund Class A 1,109,659 36,961,767 -- 106,391
West Virginia Fund Class B
</TABLE>
<TABLE>
<CAPTION>
CLASS A
SALES CHARGES CLASS A
RECEIVED GROSS SALES CLASS A
BY DEALERS<F1> CHARGES FUND ASSETS
12 MONTHS 12 MONTHS SOLD 12 MONTHS
FUND ENDED 1/31/92 ENDED 1/31/92 ENDED 1/31/92
<S> <C> <C> <C>
Alabama Fund Class A $ 897,745 $ 960,995 $ 26,539,178
Alabama Fund Class B
Arkansas Fund Class A 2,138 2,158 42,942
Arkansas Fund Class B
California Fund Class A<F2> 2,174,353 2,316,042 95,066,044
California Fund Class B <F2>
California Fund Class C
Florida Fund Class A - - --
Florida Fund Class B
Georgia Fund Class A 672,960 724,159 20,040,344
Georgia Fund Class B
Louisiana Fund Class A
Louisiana Fund Class B
Maryland Fund Class A 744,810 858,179 23,467,526
Maryland Fund Class B
Massachusetts Fund Class A
Massachusetts Fund Class B 879,779 1,022,959 37,527,014
Mississippi Fund Class A
Mississippi Fund Class B
New York Fund Class A 1,927,809 2,052,548 47,285,442
New York Fund Class B
North Carolina Fund Class A 3,246,058 3,742,241 100,110,856
North Carolina Fund Class B
North Carolina Fund Class C
Pennsylvania Fund Class A
Pennsylvania Fund Class B
South Carolina Fund Class A 967,522 1,123,615 29,155,908
South Carolina Fund Class B
Tennessee Fund Class A 608,472 701,847 19,647,528
Tennessee Fund Class B
Texas Fund Class A
Texas Fund Class B
Virginia Fund Class A 2,177,131 2,504,529 69,576,145
Virginia Fund Class B
Virginia Fund Class C
Washington Fund Class A
Washington Fund Class B
West Virginia Fund Class A 678,096 784,487 19,614,647
West Virginia Fund Class B
<FN>
<F1> Includes dealers, banks and other financial institutions.
<F2> For the eleven months ended January 31, 1994 and the years ended February 28/29, 1993 and 1992.
</TABLE>
<PAGE> 166
<TABLE>
APPENDIX C
AMOUNTS PAID UNDER EACH OF THE DISTRIBUTION PLANS
<CAPTION>
TOTAL
PAID
UNDER % OF AVG. AMOUNT % OF AVG. % OF AVG. AMOUNT % OF AVG.
DISTRIBUTION DAILY NET WAIVED BY DAILY NET AMOUNT PAID DAILY NET RETAINED DAILY NET
FUND PLAN<F1> ASSETS FSI ASSETS TO DEALERS<F2> ASSETS BY FSI ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama Fund Class A $ 199,518 .25% $79,373 .10% $ 199,518 .25% -- --
Alabama Fund Class B 5,420 1.0 -- -- 1,354 .25 $4,068 .75%
Arkansas Fund Class A -- -- -- -- -- -- -- --
Arkansas Fund Class B 11,348 1.0 -- -- 2,837 .25 8,511 .75
California Fund Class A<F3> -- -- -- -- -- -- -- --
California Fund Class B<F3> 45,499 1.0 -- -- 11,375 .25 34,124 .75
California Fund Class<F3> 117 1.0 -- -- 117 1.0 -- --
Florida Fund Class A -- -- -- -- -- -- -- --
Florida Fund Class B 15,105 1.00 -- -- 3,776 .25 11,329 .75
Georgia Fund Class A 205,165 .25 80,561 .10 205,165 .25 -- --
Georgia Fund Class B 12,102 1.00 -- -- 3,025 .25 9,077 .75
Louisiana Fund Class A -- -- -- -- -- -- -- --
Louisiana Fund Class B 3,592 1.0 -- -- 898 .25 2,694 .75
Maryland Fund Class A 574,461 .35 -- -- 410,329 .25 164,132 .10
Maryland Fund Class B 11,271 1.00 -- -- 2,818 .25 8,453 .75
Massachusetts Fund Class A 1,015,715 .35 -- -- 725,511 .25 290,204 .10
Massachusetts Fund Class B 9,068 1.00 -- -- 2,267 .25 6,801 .75
Mississippi Fund Class A -- -- -- -- -- -- -- --
Mississippi Fund Class B 15,256 1.0 -- -- 3,814 .25 11,442 .75
New York Fund Class A 416,521 .25 165,700 .10 416,521 .25 -- --
New York Fund Class B 10,025 1.00 -- -- 2,506 .25 7,519 .75
North Carolina Fund Class A 1,600,277 .35 -- -- 1,146,621 .25 453,656 .10
North Carolina Fund Class B 27,726 1.00 -- -- 6,931 .25 20,795 .75
North Carolina Fund Class C 935 1.00 -- -- 935 1.00 -- --
Pennsylvania Fund Class A -- -- -- -- -- -- -- --
Pennsylvania Fund Class B 7,063 1.00 -- -- 1,766 .25 5,297 .75
South Carolina Fund Class A 600,720 .35 -- -- 429,081 .25 171,639 .10
South Carolina Fund Class B 17,021 1.00 -- -- 4,255 .25 12,766 .75
Tennessee Fund Class A 398,420 .35 -- -- 284,586 .25 113,834 .10
Tennessee Fund Class B 9,294 1.0 -- -- 2,329 .25 6,965 .75
Texas Fund Class A -- -- -- -- -- -- -- --
Texas Fund Class B 2,372 1.0 -- -- 593 .25 1,779 .75
Virginia Fund Class A 1,565,376 .35 -- -- 1,118,126 .25 447,250 .10
Virginia Fund Class B 25,182 1.00 -- -- 6,296 .25 18,886 .75
Virginia Fund Class C 162 1.00 -- -- 162 1.00 -- --
Washington Fund Class A -- -- -- -- -- -- -- --
Washington Fund Class B 3,575 1.0 -- -- 894 .25 2,681 .75
West Virginia Fund Class A 463,603 .35 -- -- 330,870 .25 132,733 .10
West Virginia Fund Class B 9,655 1.00 -- -- 2,414 .25 7,241 .75
<FN>
<F1> Amounts paid under the Class A Distribution Plan for the 12 months ended
January 31, 1994. Amounts paid under the Class B Distribution Plan for the
period September 7, 1993 (commencement of public offering of Class B
shares) through January 31, 1994. Amounts paid under the Class C
Distribution Plan for the period January 3, 1994 (commencement of public
offering of Class C shares) through January 31, 1994.
<F2> Includes securities dealers, certain banks and other financial
institutions.
<F3> For the 11-month period ended January 31, 1994.
</TABLE>
<PAGE> 167
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Financial Services, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: 800-225-2606
MAILING ADDRESS:
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT ACCOUNTANTS
Deloitte & Touche
125 Summer Street, Boston, MA 02110
MFS(R)
MUNICIPAL
SERIES TRUST
500 BOYLSTON STREET
BOSTON. MA 02116
MST-13-6/94/1M
<PAGE> 168
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS FLORIDA MUNICIPAL BOND FUND
Municipal Bonds - 96.6%
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
General Obligation - 7.3%
AAA Dade County, FL, Seaport, 6.25s, 2021 $ 750 $ 804,375
AAA Dade County, FL, Seaport, 6.5s, 2023 2,500 2,756,250
AA Florida Board of Education, 9.125s,2014 2,600 3,818,750
AA Florida Board of Education, 7.25s, 2023 490 568,400
AAA Florida Division of Bond Finance, Department of
General Services Rev. (Natural Resources
Preservation), 6.25s, 2013 1,000 1,086,250
AAA Orange County, FL, Tourist Development Tax
Rev., 7.25s, 2010 500 578,750
------------
$ 9,612,775
- --------------------------------------------------------------------------------
Refunded and Special Obligation - 6.1%
AAA Broward County, FL, School District,
7.125s, 2008 $ 250 $ 290,000
AAA Dade County, FL, School District, 7.375s, 2008 1,000 1,178,750
AA Florida Board of Education, 7.25s, 2023 510 606,262
AA Florida Board of Education, 9.125s, 2014 400 598,500
AAA Florida Municipal Power Agency Rev. (Stanton
No. 2 Project), 6.5s, 2020 2,000 2,342,500
AAA Florida Turnpike Authority Rev., 7.125s, 2018 1,250 1,498,437
AAA Gainesville, FL, Utility Systems Rev.,
7.25s, 2013 500 582,500
A Puerto Rico Public Buildings Authority,
6.875s, 2021 740 887,075
------------
$ 7,984,024
- --------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 0.1%
NR Dade County, FL, Housing Finance Authority,
7s, 2024 $ 75 $ 81,469
- --------------------------------------------------------------------------------
Single Family Housing Revenue - 0.8%
AAA Dade County, FL, Housing Finance Authority,
6.95s, 2012 $1,000 $ 1,091,250
- --------------------------------------------------------------------------------
Multi-Family Housing Revenue - 1.2%
NR Florida Housing Finance Agency (Southlake
Apartments), 8.7s, 2021 $1,500 $ 1,522,500
- --------------------------------------------------------------------------------
Insured Health Care Revenue - 16.4%
AAA Brevard County, FL, Health Facilities
Authority Rev. (Wuesthoff Memorial),
6.5s, 2007 $1,000 $ 1,126,250
AAA Charlotte County, FL, Health Facilities
Authority Rev. (Bon Secours), 9.353s, 2027 5,000 5,662,500
AAA Dade County, FL, Health Facilities Authority
Rev. (Baptist Hospital/Miami), 5.25s, 2021 3,000 2,962,500
AAA Dade County, FL, Public Facilities Rev. (Jackson
Memorial Hospital), 4.875s, 2015 3,000 2,872,500
AAA Jacksonville, FL, Hospital Rev. (Baptist
Medical), 7.3s, 2019 1,900 2,168,375
AAA Jacksonville, FL, Hospital Rev. (University
Medical Center, Inc.), 6.6s, 2013 500 556,875
AAA Jacksonville, FL, Hospital Rev. (University
Medical Center, Inc.), 6.6s, 2021 3,000 3,341,250
AAA Marion County, FL, Hospital District Rev.
(Monroe Regional Medical Center), 6.25s, 2012 1,750 1,905,313
AAA Tampa, FL, Allegany Health Systems Rev. (St.
Josephs), 5.125s, 2023 1,000 966,250
------------
$ 21,561,813
- --------------------------------------------------------------------------------
<PAGE> 169
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Health Care Revenge - 10.9%
NR Brevard County, FL, Health Facilities Authority
Rev. (Friendly Village), 9.25s, 2012 $ 375 $ 397,031
NR Brevard County, FL, Health Facilities Authority
Rev. (Wuesthoff Memorial), 7.2s, 2013 1,000 1,103,750
BBB+ Escambia County, FL, Health Facilities Authority
(Baptist Hospital), 6s, 2014 2,500 2,537,500
BBB+ Escambia County, FL, Health Facilities Authority
(Baptist Hospital & Baptist Manor),
6.75s, 2014 1,000 1,082,500
NR Jacksonville, FL, Health Facilities Authority,
Hospital Rev. (Daughters of Charity), 5s, 2015 4,500 4,297,500
NR Jacksonville, FL, Health Facilities Authority,
Industrial Development Rev. (Cypress Village),
7s, 2014 1,250 1,373,437
NR Jacksonville, FL, Health Facilities Authority,
Industrial Development Rev. (National
Benevolent Assn./Cypress), 6.4s, 2016 1,475 1,570,875
NR Orange County, FL, Industrial Development
Authority Rev. (Friendly Village), 9.25s, 2012 335 355,938
A- Palm Beach County, FL, Health Facilities
Authority Rev. (Good Samaritan Health System),
6.2s, 2011 1,000 1,065,000
NR St. Petersburg, FL, Health Facilities Authority
Rev. (Swanholm Nursing), 10s, 2022 490 546,350
------------
$ 14,329,881
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 19.0%
AAA Charlotte County, FL, Utility Systems Rev.,
5.25s, 2021 $1,000 $ 996,250
A+ Citrus County, FL, Pollution Control Rev.
(Florida Power Corp.), 6.625s, 2027 500 555,625
AAA Clay County, FL, Utilities System Rev., 5s, 2023 2,250 2,182,500
AAA Escambia County, FL, Pollution Control Rev.
(Gulf Power Co.), 6.75s, 2022 500 543,750
AAA Escambia County, FL, Utilities District, Utility
Systems Rev., 6.25s, 2016 1,500 1,725,000
AAA Florida Municipal Power Agency Rev. (St. Lucie),
5.5s, 2012 4,000 4,080,000
AAA Fort Myers, FL, Uti1ity Rev., 5s, 2019 2,000 1,950,000
AA- Hillsborough County, FL, Industrial Development
Authority, Pollution Control Rev. (Tampa
Electric Co.), 8s, 2022 1,000 1,231,250
AA Jacksonville, FL, Electric Authority Rev.
(St. Johns River Power), 6.5s, 2014 500 548,125
AAA Manatee County, FL, Public Utilities Rev.,
5s, 2013 2,000 1,990,000
AA- Orlando, FL, Utilities Commission, Water &
E1ectric Rev., 6.75s, 2017 250 303,125
AA- Orlando, FL, Utilities Commission, Water &
Electric Rev., 6s, 2020 1,500 1,586,250
AA- Orlando, FL, Utilities Commission, Water &
Electric Rev., 5.25s, 2023 1,780 1,759,975
AAA Palm Bay, FL, Uti1ity Rev. (Palm Bay Utility
Corp.), 5s, 2014 1,000 980,000
A- Puerto Rico Electric Power Authority Rev.,
7s, 2011 240 272,700
A- Puerto Rico Electric Power Authority Rev.,
6.25s, 2017 4,000 4,300,000
------------
$ 25,004,550
- --------------------------------------------------------------------------------
<PAGE> 170
PORTFOLIO OF INVESTMENTS - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 12.7%
AAA Dade County, FL, Water & Sewer System Rev.,
5s, 2013 $4,580 $ 4,482,675
AAA Fort Pierce, FL, Utility Authority Rev.,
5.25s, 2016 2,500 2,518,750
A Jacksonville, FL, Water & Sewer Suburban
Utilities Rev., 6.75s, 2022 1,500 1,689,375
AAA Lakeland, FL, Wastewater Improvement Rev.,
5.5s, 2016 1,000 1,022,500
BBB Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 1,000 1,162,500
AAA Seacoast, FL, Utilities Authority, Water & Sewer
Rev., 5.5s, 2017 2,400 2,502,000
AAA Seminole, FL, Water & Sewer Improvement Rev.,
6s, 2019 3,000 3,348,750
------------
$ 16,726,550
- --------------------------------------------------------------------------------
Turnpike Revenue - 6.4%
AAA Florida Turnpike Authority Rev., Department of
Transportation, "A", 5s, 2013 $4,000 $ 3,930,000
AAA Orlando-Orange County, FL, Expressway
Authority Rev., 5.25s, 2014 4,500 4,505,625
------------
$ 8,435,625
- --------------------------------------------------------------------------------
Airport and Port Revenue - 1.7%
AAA Dade County, FL, Aviation Facilities Rev.,
6.55s, 2013 $1,000 $ 1,117,500
AAA Port Everglades, FL, Port Improvement Rev.,
0s, 2005 2,000 1,135,000
------------
$ 2,252,500
- --------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 2.4%
AAA Jacksonville, FL, Excise Tax Rev., 0s, 2010 $1,000 $ 410,000
AAA Jacksonville, FL, Excise Tax Rev., 0s, 2011 1,000 385,000
AAA Puerto Rico Highway & Transportation Authority
Rev., 6.25s, 2018 500 560,000
AAA St. Petersburg, FL, Excise Tax Rev., 5s, 2010 1,850 1,836,125
------------
$ 3,191,125
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 4.9%
BBB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 6 8s, 2012 $1,000 $ 1,090,000
BBB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 6.95s, 2012 2,500 2,740,625
BBB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 5.875s, 2022 2,530 2,555,300
------------
$ 6,385,925
- --------------------------------------------------------------------------------
Other - 6.7%
AAA Hillsborough County, FL, Capital Improvement
Rev., 5.125s, 2013 $3,000 $ 2,992,500
A Hillsborough County, FL, Capital Improvement
Rev., 6.75s, 2022 2,000 2,222,500
BBB+ Lake Country, FL, Resource Recovery, Industrial
Development Authority Rev., 5.85s, 2009 2,000 2,032,500
AAA Palm Beach County, FL, Criminal Justice
Facilities Rev., 5.375s, 2010 1,495 1,543,588
------------
$ 8,791,088
- --------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $119,106,367) $126,971,075
- --------------------------------------------------------------------------------
<PAGE> 171
Floating Rate Demand Notes - 3.3%
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Hillsborough County, FL, Industrial Development
Authority, Pollution Control Rev. (Tampa
Electric Co.), due 5/15/18 $1,600 $ 1,600,000
Jackson County, MS, Port Facilities (Chevron
Corp.), due 6/01/23 1,500 1,500,000
Kemmerer, WY, Pollution Control Rev. (Exxon
Corp.), due 11/01/14 4,00 400,000
Perry County, MS, Pollution Control Rev. (Leaf
River Forest), due 3/01/02 800 800,000
- --------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 4,300,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $123,406,367) $131,271,075
Other Assets, Less Liabilities - 0.1% 103,355
- --------------------------------------------------------------------------------
Net Assets - 100.0% $131,374,430
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE> 172
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS GEORGIA MUNICIPAL BOND FUND
MunicipaI Bonds - 98.7%
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
General Obligation - 7.0%
AA Atlanta, GA, 4.7s, 2010 $1,555 $ 1,500,575
AA+ DeKalb County, GA, 5.25s, 2013 1,500 1,524,375
AA Fulton County, GA, School District, 6.375s, 2010 1,000 1,141,250
AA+ State of Georgia, 6.25s, 2011 2,000 2,307,500
NR Territory of Virgin Islands, 7.75s, 2006 460 522,675
------------
$ 6,996 375
- --------------------------------------------------------------------------------
State and Local Appropriation - 3.6%
AA Fulton County, GA, Building Authority Rev.
(Judicial Center Project), 0s, 2011 $3,000 $ 1,252,500
AA Fulton County, GA, Building Authority Rev.
(Judicial Center Project), 0s, 2012 6,015 2,368,406
------------
$ 3,620,906
- --------------------------------------------------------------------------------
Refunded and Special Obligation - 10.5%
AAA Atlanta, GA, Downtown Development Authority,
Industrial Development Rev. (Underground
Atlantic Project), 7.75s, 2016 $1,500 $ 1,689,375
AA+ DeKalb County, GA, 7.5s, 2020 780 927,225
AAA Fulton County, GA, Building Authority Rev.
Judicial Center Project), 8.2s, 2015 1,840 2,106,800
AAA Fulton County, GA, School District,
7.625s, 2017 500 75,000
A Fulton County, GA, Water and Sewer Rev.,
8.25s, 2014 500 89,375
NR Hogansville, GA, Combined Public Utility
Systems Rev., 9s, 2015 2,200 2,854,500
AAA Metropolitan Atlanta, GA, Rapid Transit
Authority, Sales Tax Rev., 8s, 2018 1,500 1,777,500
------------
$ 10,519,775
- --------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 4.9%
AAA DeKalb County, GA, Housing Authority Rev.
(Avondale Project), 6.75s, 2021 $1,000 $ 1,067,500
AAA DeKalb County, GA, Housing Authority Single
Family Mortgage Rev., 7.75s, 2022 495 517,894
AA+ Georgia Residential Finance Authority Rev.,
8.25s, 2019 290 309,575
AA+ Georgia Residential Finance Authority Rev.,
8.375s, 2019 400 428,500
AA+ Georgia Residential Finance Authority Rev.,
8s, 2020 445 463,356
AA+ Georgia Residential Finance Authority Rev.,
7.25s, 2021 365 387,356
AAA Puerto Rico Housing Finance Corp., 7.8s, 2021 40 42,400
AAA St. Mary's, GA (Cumberland Oaks), 7.375s, 2022 1,470 1,642,725
------------
$ 4,859,306
- --------------------------------------------------------------------------------
<PAGE> 173
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Single Family Housing Revenue -1.2%
AA+ Georgia Housing & Finance Authority Rev.,
6.5s, 2011 $ 465 $ 496,969
NR Gwinnett County, GA, Housing Authority Rev.,
0s, 2016 6,000 697,500
------------
$ 1,194 469
- --------------------------------------------------------------------------------
Multi-Family Housing Revenue - 4.1%
A Cobb County, GA, Housing Authority Rev.
(Signature Place Project), 6.875s, 2017 $3,000 $ 3,165,000
NR Hinesville, GA, Leased Housing Corp. Rev.
(Baytree Apartments), 6.7s, 2017 900 973,125
------------
$ 4,138,125
- --------------------------------------------------------------------------------
Insured Health Care Revenue - 11.8%
AAA Chatham County, GA, Hospital Authority Rev.
(Memorial Medical Center), 6.85s, 2021 $ 500 $ 560,625
AAA Fulton County, GA, Hospital Authority Rev.
(Northside Hospital Inc.), 5.125s, 2016 2,000 1,970,000
AAA Gwinnett County, GA, Hospital Authority Rev.
(Gwinnett Hospital System, Inc.), 5s, 2010 935 915,131
AAA Gwinnett County, GA, Hospital Authority Rev.
Gwinnett Hospital System, Inc.), 5s, 2013 1,000 971,250
AAA Gwinnett County, GA, Hospital Authority Rev.
(Gwinnett Hospital System, Inc.), 5s, 2019 2,500 2,406,250
AAA Macon-Bibb County, GA, Hospital Authority
Rev. (Medical Center), 5s, 2014 2,500 2,440,625
AAA Marietta, GA, Development Authority Rev. (Life
College, Inc.), 7.2s, 2009 1,250 1,418,750
AAA Marietta, GA, Development Authority Rev. (Life
College, Inc.), 7.25s, 2019 1,000 1,137,500
------------
$ 1,820,131
- --------------------------------------------------------------------------------
Health Care Revenue- 5.4%
NR Fulton County, GA, Residential Care Facilities,
Elderly Authority Rev. (Lenbrook Square
Foundation), 9.75s, 2017 $1,080 $ 1,150,200
NR Richmond County, GA, Development Authority,
Nursing Home Rev. (Beverly Enterprises),
8.75s, 2011 1,190 1,344,700
NR Royston, GA, Hospital Authority Rev. (Cobb
Health), 7.375s, 2014 1,565 1,684,331
BBB+ Savannah, GA, Hospital Authority Rev. (Candler
Hospital), 7s, 2023 1,095 1,175,756
------------
$ 5,354,987
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 11.3%
AAA Georgia Municipal Electric Authority, Power
Rev., 0s, 2008 $2,500 $1,240,625
AAA Georgia Municipal Electric Authority, Power
Rev., 0s, 2009 1,500 699,375
AAA Georgia Municipal Electric Authority, Power
Rev. 8.1s, 2012 250 280,625
<PAGE> 174
Municipal Bonds-continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue - continued
AAA Georgia Municipal Electric Authority, Power
Rev., 0s, 2013 1,675 613,469
AA- Georgia Municipal Electric Authority, Power
Rev., 8s, 2023+ 3,450 3,605,250
AA- Municipal Electric Authority, GA, Special
Obligation, 8.125s, 2017 1,500 1,728,750
AA- Municipal Electric Authority, GA, Special
Obligation, 6.5s, 2020 885 1,029,919
A- Puerto Rico Electric Power Authority Rev.,
6.25s, 2017 2,000 2,150,000
------------
$ 11,348,013
- --------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 14.6%
AA- Atlanta, GA, Water & Sewer Rev., 5s, 2015 $1,000 $ 986,250
NR Barnesville, GA, Water & Sewer Rev., 6.9s, 2022 1,715 1,860,775
AAA Brunswick, GA, Water & Sewer Rev., 6.1s, 2014 1,000 1,108,750
AAA Cartersville, GA, Water & Sewer Rev., 7.2s, 2012 2,225 2,567,094
AAA Clayton County, GA, 5.25s, 2012 1,000 1,005,000
AAA Columbia County, GA, Water & Sewer Rev.,
6.9s, 2011 1,000 1,131,250
AA DeKalb County, GA, Water & Sewer Rev.,
5.125s, 2014 1,500 1,483,125
AAA Fulton County, GA, Water & Sewer Rev.,
6.375s, 2014 1,250 1,453,125
AAA Gainesville, GA, Water & Sewer Rev.,
5.25s, 2010 2,000 2,047,500
A+ Macon, GA, Water Authority, Water & Sewer,
5s, 2016 1,000 965,000
------------
$ 14,607,869
- --------------------------------------------------------------------------------
Turnpike Revenue - 2.5%
A Commonwealth of Puerto Rico, Highway &
Transportation Authority, 5.5s, 2015 $2,490 $ 2,539,800
- --------------------------------------------------------------------------------
Airport and Port Revenue - 5.1%
AAA Atlanta, GA, Airport Facilities Rev., 0s, 2010 $3,500 $ 1,478,750
AAA Atlanta, GA, Airport Facilities Rev., 0s, 2010 6,000 2,535,000
A Atlanta, GA, Airport Facilities Rev.,
6.25s, 2021 500 530,625
BB Clayton County, GA, Development Authority,
Special Facilities Rev. (Delta Airlines
Project), 7.625s, 2020 500 542,500
------------
$ 5,086,875
- --------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.0%
AAA Metropolitan Atlanta, GA, Rapid Transit
Authority, Sales Tax Rev., 6.25s, 2020 $ 900 $ 1,046,250
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 12.0%
NR Adel County, GA, Industrial Development
Authority, Pollution Control Rev.
(Weyerhaeuser Co.), 9s, 2006 $1,000 $ 1,031,250
BB Atlanta, GA, Special Purpose Facilities Rev.
(Delta Airlines Project), 7.9s, 2018 1,000 1,093,750
BBB+ Burke County, GA, Development Authority,
Pollution Control Rev. (Georgia Power
Co./Vogtle Project), 8.375s, 2017 1,000 1,141,250
A- Burke County, GA, Pollution Control Rev.
(Georgia Power Co./Vogtle Project),
9.375s, 2017 1,000 1,183,750
- --------------------------------------------------------------------------------
<PAGE> 175
Municipal Bonds-continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - continued
AA- Cartersville, GA, Development Authority Rev.,
Water & Wastewater Facilities (Anheuser-Busch
Cos., Inc.), 7.4s, 2010 $ 500 $ 635,000
B+ Effingham County, GA, Development Authority,
Pollution Control Rev. (Fort Howard Corp.),
7.9s, 2005 1,750 1,944,688
NR Emanuel County, GA, Development Authority
(Figgie Properties Project), 7.95s, 2004 475 488,062
AA- Monroe County, GA, Development Authority,
Pollution Control Rev. (Oglethorpe Power
Corp.), 6.8s, 2012 1,000 1,175,000
AA- Savannah, GA, Economic Development Authority,
Industrial Development Rev. (Hershey Foods
Corp.), 6.6s, 2012 1,000 1,110,000
BBB Savannah, GA, Port Authority, Pollution Control
Rev. (Union Carbide Corp.), 7.55s, 2004 1,000 1,066,250
BBB Wayne County, GA, Solid Waste Rev. (ITT-
Rayonier, Inc.), 8s, 2015 1,000 1,162,500
------------
$ 12,031,500
- --------------------------------------------------------------------------------
Other - 3.7%
AA Downtown Savannah Authority, GA, Rev.
(Chatham County), 5s, 2011 $2,000 $ 1,992,500
AA- George L. Smith II/Georgia World Congress
Center Authority (Domed Stadium Project),
7.875s, 2020 1,475 1,694,406
------------
$ 3,686,906
- --------------------------------------------------------------------------------
Total Municipal Bonds (ldentified Cost, $89,760,021) $ 98,851,287
- --------------------------------------------------------------------------------
Floating Rate Demand Notes - 4.6%
- --------------------------------------------------------------------------------
Hillsborough County, FL, Industrial Development
Authority, Pollution Contol Rev. (Tampa Electric
Co.), due 5/15/18 $1,400 $ 1,400,000
Hospital Equipment Financing Authority, GA,
due 12/01/95 600 600,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 12/01/15 100 100,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 900 900,000
New York Job Development Authority,
due 3/01/07 200 200,000
Perri County, MS, Pollution Control Rev. (Leaf
River Forest), due 3/01/02 100 100,000
State of Georgia, Hospital Financing Authority
Rev., due 3/01/01 1,158 1,158,000
Wake County, NC, Industrial Facilities &
Pollution Control Financing Authority Rev.
(Carolina Power & Light Co. ), due 3/01/17 200 200,000
- --------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at ldentified Cost $ 4,658,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $94,418,021) $l03,509,287
Other Assets, Less Liabilities - (3.3)% (3,335,793)
- --------------------------------------------------------------------------------
Net Assets - 100.0% $100,173,494
- --------------------------------------------------------------------------------
+SEC Rule 144A restriction. Inverse floating rate.
See notes to financial statenents
<PAGE> 176
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS MARYLAND MUNICIPAL BOND FUND
Municipal Bonds - 97.0%
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
General Obligation - 16.6%
AAA Baltimore, MD, 7s, 2009 $ 1,000 $ 1,211,250
A Baltimore, MD, 7.15s, 2009 2,000 2,507,500
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2008 675 700,313
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2009 700 716,625
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2010 815 830,281
AAA Baltimore MD, Consolidated Public
Improvement, 5.375s, 2011 900 924,750
AAA Baltimore, MD, Consolidated Public
Improvement, 5.375s, 2013 770 797,912
AA+ Baltimore County, MD, 4.3s, 2003 1,000 1,002,500
AA+ Baltimore County, MD, Metropolitan District,
4.3s, 2004 1,000 995,000
AAA Cecil County, MD, 4.9s, 2005 825 841,500
AA+ Howard County, MD, Metropolitan District,
0s, 2008 1,975 955,406
AAA Montgomery County, MD, Public Improvement,
0s, 2009 11,500 5,175,000
AA- Prince George's County, MD, 0s, 2007 5,110 2,580,550
AAA Prince George's County, MD, Public
Improvement, 5.5s, 2013 2,000 2,070,000
AAA State of Maryland, 9s, 1999 350 437,063
AAA State of Maryland, 4.2s, 2002 1,000 1,002,500
AA Washington Suburban Sanitation District, MD,
6.9s, 2013 1,045 1,206,975
AA Washington Suburban Sanitation District, MD,
6.1s, 2015 1,070 1,177,000
AA Washington Suburban Sanitation District, MD
(General Construction), 5.25s, 2015 4,460 4,510,175
------------
$ 29,642,300
- --------------------------------------------------------------------------------
State and Community Lease Revenue - 13.6%
NR Calvert County, MD, Community Lease Rev.,
7.2s, 2010 $ 750 $ 860,625
AA+ Howard County, MD, Certificates of Participation,
"A", 8s, 2019 805 1,090,775
AA+ Howard County, MD, Certificates of Participation,
"B", 8s, 2019 385 521,675
AA+ Howard County, MD, Certificates of Participation,
"C", 8s, 2019 680 921,400
AA+ Howard County, MD, Certificates of Participation,
8.15s, 2021 450 649,687
AA- Maryland Stadium Authority, Sports Facilities
Leasing Rev., 7.6s, 2019 2,580 2,973,450
A+ Montgomery County, MD, Rev. Authority, Lease
Rev. (Regional Indoor Swim Center Project),
7.6s, 2008 750 824,062
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2005 2,495 1,447,100
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2006 2,490 1,360,163
AAA Prince George's County, MD, Certificates
of Participation, 0s, 2011 3,675 1,479,188
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2004 980 602,700
- --------------------------------------------------------------------------------
<PAGE> 177
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
State and Community Lease Revenue - continued
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2006 $ 1,800 $ 983,250
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2009 1,500 678,750
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2010 2,730 1,167,075
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2011 2,810 1,131,025
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2012 2,480 945,500
AAA Prince George's County, MD, Industrial
Development Authority 5.25s, 2019 3,500 3,500,000
A Puerto Rico Public Buildings Authority,
7.97s, 2016 3,000 3,210,000
------------
$ 24 346 425
- --------------------------------------------------------------------------------
Refunded and Special Obligation - 15.2%
AAA Baltimore, MD, Water Utility Rev.,
6.5s, 2020 $ 540 $ 612,225
AAA Cecil County, MD, 9.25s, 2003 230 257,025
AAA Commonwealth of Puerto Rico, Public
Improvement, 6.8s, 2021 1,500 1,788,750
AAA Government of Guam, Limited
Obligation Highway Rev., 9.25s, 2005 550 603,625
AAA Howard County, MD, Metropolitan
District, 7.15s, 2020 500 587,500
AAA Maryland Board of Trustees, College &
University Rev., 7.625s, 2012 1,730 1,900,837
AAA Maryland Health & Higher Education
Facilities Authority Rev. (Johns Hopkins
University), 9.25s, 2015 3,000 3,315,000
AAA Maryland Health & Higher Education Facilities
Authority Rev. (Sinai Hospital/Baltimore),
7s, 2019 2,000 2,347,500
AAA Maryland Health & Higher Education Facilities
Authority Rev. (University of Maryland
Medical System), 7s, 2017 1,840 2,185,000
AAA Maryland Health & Higher Education
Facilities Authority Rev. (University
of Maryland Medical System), 6.5s, 2021 1,000 1,141,250
AAA Maryland Transportation Authority, Transportation
Facilities Project Co., 9s, 2015 5,300 5,843,250
AAA Morgan State University, MD, Academic &
Auxiliary Facilities & Fees Rev., 0s, 2006 1,135 625,669
AAA Morgan State University, MD, Academic &
Auxiliary Facilities & Fees Rev., 0s, 2008 1,400 680,750
AAA Prince George's County, MD, 8.2s, 2000 220 242,000
AAA Prince George's County, MD, 8.2s, 2004 330 363,000
AAA Puerto Rico Aqueduct & Sewer Authority,
10.25s, 2009 500 748,125
AAA Puerto Rico Electric Power Authority, 9.125s, 2015 250 279,063
AAA Puerto Rico Industrial, Medical & Environmental
Pollution Control Facilities Finance
Authority, 9.75s, 2025 450 504,562
AAA St. Mary's County, MD, 7.75s, 2016 2,050 2,319,063
AAA Washington Suburban Sanitation District, MD,
9.75s, 2008 250 267,187
AAA Washington Suburban Sanitation District, MD,
8.5s, 2010 500 550,000
------------
$ 27,161,381
- --------------------------------------------------------------------------------
<PAGE> 178
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 4.7%
AAA Anne Arundel County, MD, Mortgage Rev.
(Regency Club ll), 5.75s, 2021 $ 1,500 $ 1,505,625
BBB Baltimore, MD, City Housing Corp. Rev.,
7.75s, 2009 1,110 1,196,025
AAA Baltimore, MD, City Housing Corp. Rev.,
7.25s, 2023 3,285 3,531,375
AAA Montgomery County, MD, Housing Opportunities
Commission, 8.125s, 2010 500 518,750
AAA Prince George's County, MD, Housing Authority
(Regent), 5.95s, 2019 1,200 1,206,000
AAA Prince George's County, MD, Housing Authority
(Stevenson Apartments), 6.35s, 2020 500 531,250
------------
$ 8 489,025
- --------------------------------------------------------------------------------
Single Family Housing Revenue - 5.5%
NR Maryland Community Development
Administration, 7.75s, 2009 $ 1,500 $ 1,575,000
NR Maryland Community Development
Administration, 7.7s, 2015 685 737,231
AA Maryland Community Development
Administration, 8.25s, 2017 1,300 1,418,625
NR Maryland Community Development
Administration, 7.625s, 2020 2,500 2,631,250
NR Maryland Community Development
Administration, 8.25s, 2020 500 545,625
NR Maryland Community Development
Administration, 7.625s, 2029 1,000 1,061,250
NR Maryland Community Development
Administration, 7.85s, 2029 765 821,419
NR Maryland Community Development
Administration, 0s, 2032 11,605 623,769
NR Montgomery County, MD, Housing Opportunities
Commission, 7.5s, 2017 435 467,625
------------
$ 9,881,794
- --------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.5%
NR Maryland Community Development
Administration, 7.375s, 2021 $ 425 $ 457,406
NR Maryland Community Development
Administration, 9.625s, 2026 140 145,600
NR Maryland Community Development
Administration, 8.4s, 2029 1,320 1,415,700
NR Maryland Community Development
Administration, 7.5s, 2031 65 68,657
NR Maryland Community Development
Administration, 7.8s, 2032 1,200 1,287,000
NR Montgomery County, MD, Housing Opportunities
Commission, 7.375s, 2032 1,045 1,093,331
------------
$ 4,467,694
- --------------------------------------------------------------------------------
<PAGE> 179
Municipal Bonds - continued
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Insured Health Care Revenue - 3.2%
A Frederick County, MD, Rev. (Northhampton
Manor), 10.5s, 2024 $ 245 $ 254,188
AAA Maryland Health & Higher Education Facilities
Authority Rev. (Greater Baltimore Medical
Center), 5.375s, 2008 2,000 2,070,000
AAA Maryland Health & Higher Education Facilities
Authority Rev. (Mercy Medical Center),
5.5s, 2022 1,000 1,020,000
AAA Maryland Health & Higher Education Facilities
Authority Rev. (North Arundel Hospital),
6s, 2018 500 535,625
AAA Maryland Industrial Development Finance
Authority, Economic Development Rev. (Bon
Secours), 9.2s, 2022 1,500 1,790,625
------------
$ 5,670,438
- --------------------------------------------------------------------------------
Health Care Revenue - 11.5%
NR Berlin, MD, Hospital Rev. (Atlantic General
Hospital), 8.375s, 2022 $ 1,400 $ 1,512,000
AA- Maryland Health & Higher Education Facilities
Authority Rev. (John Hopkins Hospital),
0s, 2010 4,535 1,921,706
AA- Maryland Health & Higher Education Facilities
Authority Rev. (John Hopkins Hospital),
0s, 2012 9,220 3,492,075
AA- Maryland Health & Higher Education Facilities
Authority Rev. (Kaiser Permanente Hospital),
9.125s, 2015 500 546,250
NR Maryland Health & Higher Education Facilities
Authority Rev. (Medlantic Hospital Care Corp.),
8.375s, 2014 3,800 4,051,750
A Maryland Health & Higher Education Facilities
Authority Rev. (Suburban Hospital),
5.125s, 2021 5,000 4,831,250
NR Prince George's County, MD, Hospital Rev.
(Dimensions Health Corp.), 7.25s, 2017 2,000 2,260,000
NR Prince George's County, MD, Hospital Rev.
(Southeast Healthcare System), 6.375s, 2023 1,900 1,978,375
------------
$ 20,593,406
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 1.3%
AA- Prince George's County, MD, Pollution Control
Rev. (Potomac Electric Project), 6.375s, 2023 $ 500 $ 547,500
A- Puerto Rico Electric Power Authority Rev.,
8s, 2008 500 585,000
A- Puerto Rico Electric Power Authority Rev.,
7s, 2011 1,000 1, 136,250
------------
$ 2,268,750
- --------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 2.3%
AAA Baltimore, MD, Wastewater Rev., 8.62s, 2020 $ 3,000 $ 3,390,000
AA Maryland Water Quality Finance Administration,
Revolving Loan Fund Rev., 0s, 2008 1,475 715,375
------------
$ 4, 105,375
- --------------------------------------------------------------------------------
<PAGE> 180
Municipal Bonds - continued
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Turnpike Revenue - 1.1%
AA Maryland Department Transport, County Transit
Rev., 4.8s, 2004 $ 2,000 $ 2,057,500
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 5.3%
A Allegheny County, MD, Pollution Control Rev.
(Westvaco Corp.), 10.5s, 2004 $ 250 $ 267,812
NR Baltimore, MD, Industrial Rev. Board
(Weyerhaeuser Co.), 9s, 2006 3,150 3,232,688
AA Baltimore, MD, Port Facilities Rev. (E.I. du Pont
de Nemours & Co.), 6.5s, 2011 1,500 1,681,875
NR Maryland Industrial Development Finance
Authority, Economic Development Rev.,
9.875s, 2005 185 198,644
AAA Northeast Maryland, Waste Disposal Authority
(Harford County Resource Recovery), 7.2s, 2005 1,000 1,201,250
A Northeast Maryland, Waste Disposal Authority
(Harford County Resource Recovery), 8.6s, 2008 1,000 1,067,500
NR Northeast Maryland, Waste Disposal Authority
(Montgomery County Resource Recovery),
6s, 2006 1,000 1,065,000
NR Upper Potomac River Commission, MD, Pollution
Control Rev. (Westvaco Corp.), 10.5s, 2004 150 161,062
A Upper Potomac River Commission, MD, Pollution
Control Rev. (Westvaco Corp.), 9. 125s, 2015 500 553, 125
------------
$ 9,428,956
- -------------------------------------------------------------------------------
Universities - 1.6%
NR Maryland Health & Higher Education Facilities
Authority Rev. (Mt. St. Mary's College),
6.5s, 2009 $ 836 $ 750,996
AA+ University of Maryland, Auxiliary Facilities &
Tuition Rev., 0s, 2004 1,000 612,500
AA+ University of Maryland, Auxiliary Facilities &
Tuition Rev., 6s, 2009 1,500 1,582,500
------------
$ 2,945,996
- -------------------------------------------------------------------------------
Special Assessment District - 3.2%
NR Northeast Maryland, Waste Disposal Authority
(Montgomery County Resource Recovery),
6.3s, 2016 $ 5,400 $ 5,683,500
- -------------------------------------------------------------------------------
Other- 9.4%
BBB Maryland Health & Higher Education Facilities
Authority Rev. (Kennedy Institute),
6.75s, 2022 $ 500 $ 534,375
BBB Maryland Industrial Development Finance
Authority (America Center for Physics),
6.625s, 2017 1,500 1,606,875
NR Maryland Industrial Development Finance
Authority (YMCA/Baltimore), 8s, 2012 2,825 3,001,563
NR Maryland Industrial Development Finance
Authority (YMCA/Baltimore), 8.25s, 2012 965 1,020,487
A Prince George's County, MD, 5.25s, 2013 4,500 4,483,125
AAA Puerto Rico Telephone Authority Rev.,
7.25s, 2004 1,000 1,032,500
AAA Washington D.C., Metropolitan Area Transit
Authority, Gross Rev., 5.125s, 2008 2,000 2,037,500
AAA Washington D.C., Metropolitan Area Transit
Authority, Gross Rev., 5.25s, 2014 3,000 3,007,500
------------
$ 16,723,925
- -------------------------------------------------------------------------------
Total Municipal Bonds (ldentified Cost, $156,916,638) $173,466,465
- -------------------------------------------------------------------------------
<PAGE> 181
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Floating Rate Demand Notes- 1.3%
- -------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/06 $ 100 $ 100,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/07 100 100,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.),
due 3/01/24 100 100,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 1,700 1,700,000
Massachusetts Health & Educational Facilities
Authority Rev., due 7/01/05 200 200,000
St. Charles Parish, LA, Pollution Control Rev.
(Shell Oil Co.), due 10/01/22 100 100,000
- -------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 2,300,000
- -------------------------------------------------------------------------------
Total Investments (ldentified Cost, $159,216,638) $175,766,465
Other Assets, Less Liabilities- 1.7% 2,997,752
- -------------------------------------------------------------------------------
Net Assets- 100.0% $178,764,217
- -------------------------------------------------------------------------------
See notes to financial statements
<PAGE> 182
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS MASSACHUSETTS MUNICIPAL BOND FUND
Municipal Bonds - 98.2%
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Student Loan Revenue - 0.1%
NR Massachusetts Education Loan Authority, 9s, 2001 $ 145 $ 154,787
- --------------------------------------------------------------------------------
General Obligation - 11.1%
AAA Boston, MA, 6.5s, 2012 $ 2,000 $ 2,255,000
A+ Commonwealth of Massachusetts, 0s, 2004 10,000 6,000,000
A+ Commonwealth of Massachusetts, 4.5s, 2004 2,000 1,980,000
AAA Commonwealth of Massachusetts, 7.5s, 2004 2,850 3,509,062
A+ Commonwealth of Massachusetts, 0s, 2005 6,500 3,680,625
AAA Commonwealth of Massachusetts, 0s, 2006 4,000 2,190,000
AAA Commonwealth of Massachusetts, 7s, 2009 1,250 1,514,062
NR Commonwealth of Massachusetts, 5s, 2014 3,000 2,932,500
A+ Commonwealth of Massachusetts, "A", 0s, 2005 2,000 1,150,000
AAA Gloucester, MA, 7s, 2009 225 254,531
AAA Gloucester, MA, 7s, 2010 215 243,219
AAA Haverhill, MA, 7s, 2012 1,250 1,440,625
AAA Holyoke, MA, 8s, 2001 1,700 2,059,125
AAA Holyoke, MA, 8.1s, 2005 500 635,000
NR Holyoke, MA, Electric Rev., 8s, 2001 855 957,600
AAA Lawrence, MA, 9.75s, 2002 600 813,000
NR Lowell, MA, 8.4s, 2009 1,000 1,210,000
NR Northbridge, MA, 7.6s, 2001 325 382,281
AAA Princeton, MA, 7.25s, 2009 490 567,787
------------
$ 33,774,417
- --------------------------------------------------------------------------------
State and Local Appropriation - 5.8%
A+ Mass. Bay Transportation Authority, 5.5s, 2012 $ 5,000 $ 5,275,000
A+ Mass. Bay Transportation Authority, 6.2s, 2016 10,975 12,593,812
------------
$ 17,868,812
- --------------------------------------------------------------------------------
Refunded and Special Obligation - 20.2%
AAA Boston, MA, 7.75s, 2008 $ 500 $ 587,500
A+ Commonwealth of Massachusetts, 6.875s, 2010 11,000 13,021,250
AAA Government of Guam, Limited Obligation
Highway Rev., 9.25s, 2005 650 713,375
NR Holyoke, MA, 9.85s, 2008 425 502,563
NR Lowell, MA, 7.625s, 2010 4,875 5,722,031
AAA Mass. Bay Transportation Authority, 8.7s, 2005 435 475,781
AAA Mass. Bay Transportation Authority, 8.5s, 2014 3,000 3,671,250
AAA Mass. Bay Transportation Authority, 7.875s, 2021 1,500 1,850,625
AAA Mass. Federally Assisted Housing, 0s, 2023 4,285 873,069
A- Mass. Health & Education Facilities Authority
(Addison Gilbert Hospital), 9.25s, 2014 1,500 1,657,500
AA Mass. Health & Education Facilities Authority
(Children's AA Hospital), 7.75s, 2018 2,425 2,843,313
AAA Mass. Health & Education Facilities Authority
(Harvard Community Health), 9.125s, 2017 4,250 4,690,938
AAA Mass. Health & Education Facilities Authority
(Harvard University), 8.5s, 2015 9,520 10,531,500
AAA Mass. Health & Education Facilities Authority
(Harvard University), 8.5s, 2016 2,500 2,765,625
NR Mass. Health & Education Facilities Authority
(Saint Elizabeth's Hospital), 7.75s, 2027 1,250 1,437,500
AAA Mass. Health & Education Facilities Authority
(South Shore Hospital), 8.125s, 2017 1,070 1,242,538
NR Mass. Health & Education Facilities Authority
(Suffolk University), 8s, 2010 1,750 2,145,938
NR Mass. Industrial Finance Agency (Cape Cod Health
System), 8.5s, 2020 500 635,000
BBB+ Mass. Municipal Wholesale Electric Co.,
13.625s, 2017 1,015 1,143,144
BBB+ Mass. Municipal Wholesale Electric Co.,
13s, 2018 1,880 2,089,150
<PAGE> 183
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Refunded and Special Obligation - continued
AAA Mass. Municipal Wholesale Electric Co., "A",
13s, 2018 $ 255 $ 283,369
AAA Mass. Port Authority Rev., 12.75s, 2002 485 718,406
AAA Mass. Port Authority Rev., 13s, 2013 780 1,390,350
AAA Palmer, MA, 7.7s, 2010 500 611,250
------------
$ 61,602,965
- --------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 2.6%
AAA Mass. Housing Finance Agency, 9.125s, 2020 $ 490 $ 531,038
BBB+ Mass. Housing Finance Agency, 8.88s, 2021 1,995 2,099,738
AAA Mass. Housing Finance Agency, 6.9s, 2024 2,000 2,185,000
AAA Mass. Housing Finance Agency, 7.65s, 2028 2,000 2,085,000
AAA Somerville, MA, Housing Authority Revenue
(Clarendon Hill), 7.85s, 2010 1,000 1,096,250
------------
$ 7,997,026
- --------------------------------------------------------------------------------
Single Family Housing Revenue - 4.2%
A+ Mass. Housing Finance Agency, 6.3s, 2013 $ 2,000 $ 2,105,000
A+ Mass. Housing Finance Agency, 9.5s, 2016 2,175 2,270,156
A+ Mass. Housing Finance Agency, 8.1s, 2020 2,735 2,902,519
A+ Mass. Housing Finance Agency, 8.1s, 2021 2,000 2,130,000
A+ Mass. Housing Finance Agency, 7.95s, 2023 1,000 1,056,250
A Mass. Housing Finance Agency, 7.5s, 2029 2,200 2,274,250
------------
$ 12,738,175
- --------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.3%
BBB+ Mass. Housing Finance Agency, 8.4s, 2021 $ 4,400 $ 4,581,500
BBB+ Mass. Housing Finance Agency, 8.2s, 2027 2,200 2,351,250
------------
$ 6,932,750
- --------------------------------------------------------------------------------
Insured Health Care Revenue - 9.6%
AAA Mass. Health & Education Facilities Authority
(Baystate Medical Center), 5s, 2012 $ 3,000 $ 2,940,000
AAA Mass. Health & Education Facilities Authority
(Beth Israel Hospital), 9s, 2025 4,000 4,530,000
AAA Mass. Health & Education Facilities Authority
(Lahey Clinic), 5.375s, 2023 5,500 5,493,125
AAA Mass. Health & Education Facilities Authority
(Mass. General Hospital), 5.25s, 2023 7,500 7,425,000
AAA Mass. Health & Education Facilities Authority
(Newton-Wellesley Hospital), 8s, 2018 2,500 2,915,625
A Mass. Health & Education Facilities Authority
(Youville Hospital), 9s, 2007 540 606,150
A Mass. Health & Education Facilities Authority
(Youville Hospital), 9.1s, 2015 455 502,775
NR Mass. Industrial Finance Agency (Meadow Green
Nursing Home), 9.6s, 2027 1,485 1,659,487
AAA Quincy, MA, Rev. (Quincy Hospital), 7.62s, 2011 3,000 3,071,250
------------
$ 29 143,412
- --------------------------------------------------------------------------------
<PAGE> 184
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Health Care Revenue - 13.7%
NR Boston, MA, Industrial Development Finance
Authority (Stonehedge Convalescent Center),
10.75s, 2011 $ 855 $ 955,462
A Mass. Health & Education Facilities Authority
(Beth Israel Hospital), 7s, 2014 3,000 3,371,250
A+ Mass. Health & Education Facilities Authority
(Brigham & Women's Hospital), 6.75s, 2024 1,000 1,112,500
NR Mass. Health & Education Facilities Authority
(Central New England Health), 6.125s, 2013 2,200 2,241,250
A- Mass. Health & Education Facilities Authority
(Charlton Memorial Hospital), 7.25s, 2013 1,700 1,916,750
BBB Mass. Health & Education Facilities Authority
(Emerson Hospital), 8s, 2018 1,865 2,142,419
NR Mass. Health & Education Facilities Authority
(Fairview Extended Care Facility),
10.25s, 2021 $ 2,000 $ 2,215,000
A- Mass. Health & Education Facilities Authority
(Jordan Hospital), 6.875s, 2015 1,000 1,088,750
A- Mass. Health & Education Facilities Authority
(Jordan Hospital), 6.875s, 2022 2,750 3,055,938
BBB Mass. Health & Education Facilities Authority
(Mass. Eye & Ear Infirmary), 7.375s, 2011 2,400 2,682,000
AAA Mass. Health & Education Facilities Authority
(Northeastern University), 7.5s, 2008 1,250 1,442,188
BBB Mass. Health & Education Facilities Authority
(Sisters of Providence Health System),
6.5s, 2008 1,000 1,063,750
NR Mass. Industrial Finance Agency (Beverly
Enterprises), 8.375s, 2009 2,000 2,212,500
NR Mass. Industrial Finance Agency (Continental
Healthcare 11.875s, 2015 5,525 5,973,906
NR Mass. Industrial Finance Agency (Evanswood
Bethzatha Corp.), 9s, 2020 1,000 1,181,250
NR Mass. Industrial Finance Agency (Martha's
Vineyard Long-Term Care), 9.25s, 2022 3,000 3,135,000
NR Mass. Industrial Finance Agency (Mass.
Biomedical Research), 0s, 2004 5,000 2,906,250
NR Mass. Industrial Finance Agency (Mass.
Biomedical Research), 0s, 2010 5,300 2,100,125
NR Mass. Industrial Finance Agency (Needham/
Hamilton House), 11s, 2010 900 952,875
------------
$ 41,749,163
- -------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 4.3%
AAA Chicopee, MA, Electric System Rev.,
9.125s, 2005 $ 2,200 $ 2,351,250
AAA Mass. Municipal Wholesale Electric Co.,
5.1s, 2006 4,795 4,908,881
AAA Mass. Municipal Wholesale Electric Co.,
5s, 2010 2,500 2,465,625
AAA Mass. Municipal Wholesale Electric Co.,
8s, 2018 3,500 3,521,875
------------
$ 13,247,631
- -------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 7.1%
A Boston, MA, Water & Sewer Commission,
5.25s, 2019 $ 4,750 $ 4,755,937
A+ Mass. Water Pollution Abatement Trust (MWRA
Loan Program), 5.25s, 2014 3,700 3,755,500
A Mass. Water Resources Authority, 5.5s, 2015 4,000 4,000,000
A Mass. Water Resources Authority, 6.5s, 2019 8,000 9,200,000
------------
$ 21,711,437
- -------------------------------------------------------------------------------
<PAGE> 185
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Turnpike Revenue - 2.3%
NR Mass. Industrial Finance Agency, Tunnel Rev.
(Mass. Turnpike), 9s, 2020 $ 5,360 $ 5,674,900
AAA Mass. Turnpike Authority, Turnpike Rev.,
5.125s, 2023 1,340 1,311,525
------------
$ 6,986,425
- -------------------------------------------------------------------------------
Airport and Port Revenue - 2.3%
AA- Mass. Port Authority Rev., 9.375s, 2015 $ 1,520 $ 1,675,800
AAA Mass. Port Authority Rev., 7.5s, 2020 4,500 5,225,625
------------
$ 6,901,425
- -------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.7%
NR Clinton, MA, Industrial Rev. Board (Zayre
Corp.), 8.5s, 2009 $ 824 $ 889,921
NR Mass. Industrial Finance Agency (Automatic Data
Processing, Inc.), 8.25s, 2019 900 934,875
NR Springfield, MA, Industrial Development Finance
Agency (Terminal Building), 10s 2001 460 460,680
------------
$ 2,285,476
- --------------------------------------------------------------------------------
Universities - 7.4%
A+ Mass. Health & Education Facilities Authority
(Boston College), 5.25s, 2010 $ 1,625 $ 1,643,282
AAA Mass. Health & Education Facilities Authority
(Boston University), 10.45s, 2031 5,000 6,043,750
AAA Mass. Health & Education Facilities Authority
(Tufts University), 9.31s, 2018 3,000 3,213,750
AA+ Mass. Health & Education Facilities Authority
(Wellesley College), 5.375s, 2019 3,000 3,048,750
AAA Mass. Health & Education Facilities Authority
(Wentworth Technology Institute), 5.5s, 2023 1,500 1,490,625
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2004 1,000 598,750
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2005 1,000 563,750
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2009 1,000 440,000
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2010 1,000 417,500
AAA Mass. Industrial Finance Agency (Brandeis
University), 0s, 2011 500 196,875
NR Mass. Industrial Finance Agency (Emerson
College), 8.9s, 2018 1,000 1,178,750
AA Mass. Industrial Finance Agency (Phillips
Academy), 5.375s, 2023 3,735 3,805,031
------------
$ 22,640,813
- --------------------------------------------------------------------------------
Other - 4.5 %
NR Martha's Vineyard, MA, Land Bank, 8.125s, 2011 $ 4,500 $ 4,747,500
NR Mass. Health & Education Facilities Authority
(Learning Center for Deaf Children),
9.25s, 2014 2,250 2,404,688
BBB Mass. Industrial Finance Agency (Dexter School),
7.5s, 2011 1,720 1,952,200
BBB Mass. Industrial Finance Agency (Dexter School),
7.5s, 2021 2,900 3,284,250
NR Nantucket Island, MA, Land Bank, 7.75s, 2020 1,200 1,405,500
------------
$ 13,794,138
- --------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $270,022,211) $299,528,852
- --------------------------------------------------------------------------------
<PAGE> 186
Call Option Purchased - 0.1%
- --------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------
Georgia Municipal Electric Authority/2003/102
(Premium Paid, $131,400) $ 10 $ 325,000
- --------------------------------------------------------------------------------
Total Investments (ldentified Cost, $270,153,611) $299,853,852
Other Assets, Less Liabilities- 1.7% 5,231,474
- --------------------------------------------------------------------------------
Net Assets - 100.0% $305,085,326
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE> 187
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS NEW YORK MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
Municipal Bonds - 97.5%
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
General Obligation - 10.2%
AAA Nassau County, NY, 5.3s, 2007 $1,000 $ 1,051,250
A - New York, NY, 8s, 2015 500 596,875
A - New York, NY, 8.25s, 2016 160 194,400
A - New York, NY, 7.5s, 2018 4,000 4,655,000
A - New York, NY, 8s, 2018 6,000 7,125,000
NR Oswego County NY, 6.7s, 2009 1,000 1,173,750
AAA Port Byron, NY, Central School District,
7.4s, 2012 500 641,250
AAA Port Byron, NY, Central School District,
7.4s, 2013 500 645,625
AAA Port Byron, NY, Central School District,
7.4s, 2014 500 650,000
AAA Port Byron, NY, Central School District,
7.4s, 2015 500 654,375
NR Territory of Virgin Islands, 7.75s, 2006 460 522,675
AAA Washingtonville, NY, Central School District,
7.35s, 2008 550 682,687
AAA Washingtonville, NY, Central School District,
7.35s, 2009 550 682,000
------------
$ 19,274,887
- -------------------------------------------------------------------------------
State and Local Appropriation - 32.2%
BBB Metropolitan Transportation Authority, NY,
Services Contract, 0s, 2008 $4,700 $2,132,625
BBB Metropolitan Transportation Authority, NY,
Services Contract, 7.375s, 2008 4,335 5,142,393
BBB Metropolitan Transportation Authority, NY,
Services Contract, 0s, 2009 1,000 426,250
BBB Metropolitan Transportation Authority, NY.
Services Contract, 5.75s, 2013 3,500 3,618,125
BBB Metropolitan Transportation Authority, NY,
Services Contract, 5.75s, 2013 500 516,875
AAA Metropolitan Transportation Authority, NY,
Transportation Facilities Rev., 0s, 2012 2,320 887,400
BBB New York Dormitory Authority (City University),
8.125s, 2008 1,500 1,796,250
BBB New York Dormitory Authority (City University),
5.75s, 2013 5,315 5,474,450
BBB New York Dormitory Authority (City University),
5.75s, 2013 200 206,000
AAA New York Dormitory Authority (College
University), 0s, 2006 1,700 909,500
BBB+ New York Dormitory Authority (Court Facilities
Lease), 5.375s, 2016 2,500 2,459,375
BBB+ New York Dormitory Authority (State
University), 5.5s, 2013 2,500 2,518,750
A New York Local Government Assistance Corp.,
5.625s, 2013 1,000 1,021,250
A New York Local Government Assistance Corp.,
5.25s, 2016 3,425 3,399,313
A New York Local Government Assistance Corp.,
5.5s, 2017 6,000 6,150,000
AAA New York Medical Care Facilities Finance
Agency, 5.8s, 2022 2,000 2,087,500
AAA New York Medical Care Facilities Finance Agency
(Long-Term Care Facility), 6.8s, 2014 1,000 1,135,000
BBB New York Medical Care Facilities Finance Agency
(Wyckoff Heights), 7.35s, 2011 1,385 1,585,825
BBB+ New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities, 6s, 2003 1,500 1,597,500
BBB+ New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
8.875s, 2007 290 334,950
<PAGE> 188
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
State and Local Appropriation - continued
BBB+ New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.875s, 2008 $ 265 $ 313,363
BBB+ New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.4s, 2018 1,805 2,071,238
BBB+ New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.875s, 2020 430 505,250
BBB+ New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Rev., 7.3s, 2021 250 290,625
AAA New York Thruway Authority, 5.75s, 2019 4,000 4,170,000
BBB New York Urban Development Capital Corp.
(Correctional Facilities), 5.4s, 2006 1,485 1,505,419
BBB New York Urban Development Capital Corp.
(Correctional Facilities), 5.45s, 2007 500 507,500
BBB New York Urban Development Capital Corp.
(Correctional Facilities), 5.25s, 2013 2,000 1,940,000
AAA New York Urban Development Corp.
(Correctional Facilities), 5.25s, 2014 2,000 2,027,500
BBB New York Urban Development Corp., State
Facilities Rev., 7.5s, 2020 1,000 1,151,250
A Puerto Rico Public Buildings Authority,
7.97s, 2016 2,000 2,140,000
NR Troy, NY, Certificate of Participation,
Recreational Facilities Rev., 9.75s, 2010 955 1,079,150
------------
$ 61,100,626
- -------------------------------------------------------------------------------
Refunded and Special Obligation - 14.0%
A- New York City Municipal Water & Sewer Finance
Authority, 7.375s, 2013 $2,000 $ 2,427,500
A New York Local Government Assistance Corp.,
7s, 2016 6,500 7,735,000
A New York Local Government Assistance Corp.,
7.25s, 2018 2,500 3,012,500
AA New York Medical Care Facilities Finance
Agency, 8.3s, 2022 515 614,781
AA New York Medical Care Facilities Finance Agency
(Presbyterian Hospital), 7.7s, 2009 750 916,875
AAA New York Medical Care Facilities Finance Agency
(St. Luke's Hospital), 7.45s, 2029 2,600 3,094,000
AAA New York Medical Care Facilities Finance Agency
(St. Luke's Hospital), 7.45s, 2029 2,000 2,385,000
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities Rev.,
8.875s, 2007 260 311,025
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities Rev.,
7.875s, 2008 225 277,313
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities Rev.,
7.875s, 2020 560 690,200
AAA New York Medical Care Facilities Finance
Agency, Mental Health Services Facilities Rev.,
7.3s, 2021 750 912,187
A- New York, NY, 8.25s, 2016 1,840 2,357,500
BBB New York Urban Development Corp.,
Correctional Facilities Rev., 8.125s, 2014 200 236,000
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 250 344,375
AAA Triborough Bridge & Tunnel Authority, NY,
7.375s, 2016 1,000 1,185,000
------------
$ 26,499,256
- -------------------------------------------------------------------------------
<PAGE> 189
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Single Family Housing Revenue - 2.9%
AA New York City Housing Development Corp.
(South Bronx Cooperatives), 8.1s, 2023 $ 590 $ 622,450
NR New York Mortgage Agency Rev., 7.375s, 2011 1,315 1,439,925
NR New York Mortgage Agency Rev., 8.05s, 2011 895 967,718
NR New York Mortgage Agency Rev., 8.05s, 2021 345 384,675
A+ New York Mortgage Agency Rev., 8.05s, 2022 810 898,088
NR New York Mortgage Agency Rev., 7.75s, 2023 1,000 1,111,250
------------
$ 5,424,106
- -------------------------------------------------------------------------------
Insured Health Care Revenue - 9.1%
AAA New York City Health & Hospital Corp. Rev.,
5.625s, 2013 $2,000 $ 2,082,500
AAA New York Dormitory Authority (St. Vincent's
Hospital), 7.375s, 2011 2,500 2,862,500
AAA New York Dormitory Authority (St. Vincent's
Hospital), 7.4s, 2030 2,400 2,742,000
AAA New York Medical Care Facilities Finance
Agency, 5.25s, 2014 1,725 1,718,531
AAA New York Medical Care Facilities Finance Agency
(Buffalo General Hospital), 7.7s, 2022 500 571,875
AA New York Medical Care Facilities Finance Agency
(Long Island Hospital), 8.1s, 2022 1,500 1,717,500
AA New York Medical Care Facilities Finance Agency
(Montefiore Medical), 7.25s, 2009 3,210 3,591,188
AA New York Medical Care Facilities Finance Agency
(Montefiore Medical), 7.25s, 2024 1,750 1,957,812
------------
$ 17,243,906
- -------------------------------------------------------------------------------
Health Care Revenue - 2.6%
NR Albany, NY, Industrial Development Authority,
Civic Facilities Rev. (Albany Medical Center),
8.25s, 2004 $2,250 $ 2,289,375
BBB New York City Health & Hospital Corp. Rev.,
6.3s, 2020 2,500 2,603,125
------------
$ 4,892,500
- -------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 3.8%
AA- New York Energy Research & Development
Authority, Electric Facilities Rev.
(Consolidated Edison Co.), 7.75s, 2024 $3,500 $ 3,959,375
AA New York State Power Authority, 8s, 2017 380 438,900
NR Virgin Islands Water & Power Authority,
Electric Systems Rev., 7.4s, 2011 2,450 2,842,000
------------
$ 7,240,275
- -------------------------------------------------------------------------------
<PAGE> 190
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 8.2%
AA Monroe County, NY, Water Authority, Water
Rev., 5.25s, 2013 $1,000 $ 1,013,750
AAA New York City Municipal Water & Sewer Finance
Authority, 5.875s, 2012 1,000 1,080,000
A- New York City Municipal Water & Sewer Finance
Authority, 7s, 2015 1,500 1,687,500
A- New York City Municipal Water & Sewer Finance
Authority, 7.6s, 2020 470 538,737
A New York Environmental Facilities Corp.,
Pollution Control Rev., 6.875s, 2010 2,000 2,315,000
A New York Environmental Facilities Corp.,
Pollution Control Rev., 7.5s, 2012 3,050 3,621,875
NR New York Environmental Facilities Corp., Water
Facilities Rev. (American Water Co.),
8.85s, 2015 2,500 2,918,750
BBB Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 2,000 2,325,000
------------
$ 15,500,612
- -------------------------------------------------------------------------------
Turnpike Revenue - 4.1%
AAA New York City Transit Authority, Transit
Facilities Rev. (Livingston Plaza Project),
5.4s, 2018 $4,000 $ 4,125,000
AAA Niagara Falls, NY, Bridge Commission,
5.25s, 2015 2,000 2,055,000
A+ Triborough Bridge & Tunnel Authority, NY,
5.5s, 2017 1,415 1,480,444
------------
$ 7,660,444
- -------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.4%
NR 34th Street Partnership Inc., NY (34th Street
Business Improvement), 5.5s, 2023 $1,500 $ 1,515,000
A Grand Central District Management Assn., NY,
5.125s, 2014 1,175 1,151,500
------------
$ 2,666,500
- -------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 1.8%
A+ Allegany, NY, Industrial Development Authority,
Solid Waste Rev. (Atlantic Richfield Co.),
6.625s, 2016 $1,000 $ 1,117,500
NR Fulton County, NY, Industrial Development
Agency (Crossroads Incubator), 8.75s, 2009 1,195 1,311,513
NR Monroe County, NY, Industrial Development
Agency (Weyerhaeuser Co.), 9s, 2006 1,000 1,026,250
------------
$ 3,455,263
- --------------------------------------------------------------------------------
Universities - 2.9%
AA+ New York Dormitory Authority (Columbia
University), 4.75s, 2014 $2,500 $ 2,403,125
AA New York Dormitory Authority (Cornell
University), 7.375s, 2020 1,500 1,764,375
AA- New York Dormitory Authority (Menorah
Campus), 7.4s, 2031 1,100 1,298,000
------------
$ 5,465,500
- --------------------------------------------------------------------------------
<PAGE> 191
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Other - 4.3%
NR Dutchess, NY, Industrial Development Agency,
Civic Facilities Rev. (New York Assn. for
Retarded Children), 8.625s, 2016 $1,160 $ 1,271,650
AAA New York Energy Research & Development
Authority, Gas Facilities Rev., 8.75s, 2026 3,000 3,232,500
AAA Puerto Rico Telephone Authority Rev.,
7.91s, 2004 (Interest rate swap)* 2,750 2,839,375
BBB Virgin Islands Public Finance Authority,
Highway Rev., 7.7s, 2004 800 906,000
------------
$ 8,249,525
- -------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $169,523,373) $184,673,400
- -------------------------------------------------------------------------------
Floating Rate Demand Notes - 3.2%
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/10 $1,000 $ 1,000,000
New York State Job Development Authority,
due 3/01/05 2,300 2,300,000
New York State Job Development Authority,
due 3/01/07 2,010 2,010,000
Perry County, MS, Pollution Control Rev. (Leaf
River Forest), due 3/01/02 800 800,000
- -------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 6,110,000
- -------------------------------------------------------------------------------
Call Options Purchased - 0.4%
- -------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted) Value
- -------------------------------------------------------------------------------
Georgia Municipal Electric Aurhority/2003/102 $ 5 $ 162,500
North Carolina Eastern Municipal Power Agency/2003/102 5 193,750
State of New Jersey "D"/2003/102 2 287,500
- -------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $555,000) $ 643,750
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $176,188,373) $191,427,150
Other Assets, Less Liabilities-(1.1)% (2,076,103)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $189,351,047
- -------------------------------------------------------------------------------
* Indexed security. See Note 7.
See notes to financial statements
<PAGE> 192
Portfolio of Investments-January 31, 1994
MFS NORTH CAROLINA MUNICIPAL BOND FUND
Municipal Bonds - 99.8%
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
General Obligation - 5.0%
AAA Brunswick County, NC, 4.5s, 200 $ 3,285 $ 3,313,744
AAA Dare County, NC, 4.75s, 2003 1,445 1,484,738
AAA Dare County, NC, 4.8s, 2004 1,250 1,281,250
AAA Durham County, NC, 5.75s, 2009 1,010 1,081,963
AAA Fayetteville, NC, 4.75s, 2003 2,795 2,871,863
AAA Forsyth County, NC, 6.2s, 2004 1,010 1,126,150
AAA Greensboro, NC, 6.3s, 2010 1,000 1,108,750
AAA Greensboro, NC, 6.3s, 2011 4,165 4,617,944
BBB+ Hertford County, NC, 9.5s, 2000 100 111,250
BBB+ Hertford County, NC, 9.5s, 2001 100 111,375
BBB+ Hertford County, NC, 9.5s, 2002 100 111,125
AA- Pitt County, NC, 6.1s, 2008 1,500 1,655,625
AAA Rutherford County, NC, 5s, 2007 1,945 1,983,900
AAA State of North Carolina, 6.698s, 2010 5,000 4,981,250
------------
$ 25,840,927
- -------------------------------------------------------------------------------
State and Local Appropriation - 9.2%
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2004 $ 3,435 $ 2,030,944
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2005 4,810 2,681,575
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2006 1,075 563,031
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 0s, 2008 3,000 1,380,000
AAA Charlotte, NC, Certificates of
Participation (Convention Facilities
Project), 5.25s, 2013 2,750 2,767,187
AAA Dare County, NC, 6.6s, 2006 2,100 2,349,375
AAA Duplin County, NC, Certificates of
Participation (Law Enforcement & Public
Schools Project), 5.25s, 2014 1,750 1,736,875
AA Durham, NC, Certificates of
Participation, 6.375s, 2012 3,970 4,327,300
AA Durham, NC, Certificates of
Participation (New Durham Corp.),
6.875s, 2009 1,750 1,966,563
AA Greensboro, NC, Certificates of
Participation (Coliseum Arena Project),
6.25s, 2011 2,180 2,357,125
AAA Mooresville, NC, Graded School
District, Certificates of Participation,
6.3s, 2009 3,000 3,296,250
AAA Mooresville, NC, Graded School
District, Certificates of Participation,
6.35s, 2014 1,000 1,098,750
NR Pender County, NC, Certificates of
Participation (Pender County Prison),
7.6s, 2004 1,900 2,170,750
<PAGE> 193
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
State and Local Appropriation - continued
NR Pender County, NC, Certificates of
Participation (Pender County Prison),
7.7s, 2011 $ 1,000 $ 1,140,000
A Puerto Rico Public Buildings
Authority, 7.97s, 2016 6,500 6,955,000
AAA Scotland County, NC, Certificates
of Participation (Jail/Courthouse Project),
6.75s, 2011 1,000 1,122,500
AAA Thomasville, NC, Certificates of
Participation (City Hall), 6s, 2017 4,000 4,290,000
AAA Union County, NC, Certificates of
Participation, 6.375s, 2012 1,000 1,105,000
AAA Wayne County, NC, Certificates of
Participation, 4.9s, 2007 1,605 1,600,988
AAA Wayne County, NC, Certificates of
Participation, 5.1s, 2010 1,500 1,494,375
AA+ Winston-Salem, NC, Certificates of
Participation (Housing & Dining System),
5s, 2011 1,000 988,750
------------
$ 47,422,338
- -------------------------------------------------------------------------------
Refunded and Special Obligation - 18.4%
NR Buncombe County, NC, Metropolitan
Sewer District, Sewer System Rev.,
8.75s, 2015 $ 1,000 $ 1,097,500
AAA Buncombe County, NC, School Bonds, 9.5s, 2006 300 309,375
AAA Charlotte, NC, Certificates of
Participation, 6.75s, 2021 4,250 5,009,687
AAA Charlotte-Mecklenberg, NC, Hospital
Authority, Health Care Systems Rev.,
7.7s, 2008 750 885,937
AAA Charlotte-Mecklenberg, NC, Hospital
Authority, Health Care Systems Rev.,
8.25s, 2013 2,995 3,410,556
AAA Charlotte-Mecklenberg, NC, Hospital
Authority, Health Care Systems Rev.,
7.875s, 2015 3,820 4,431,200
AAA Charlotte-Mecklenberg, NC, Hospital
Authority, Health Care Systems Rev.,
7.8s, 2018 3,780 4,484,025
AAA Charlotte-Mecklenberg, NC, Hospital
Authority, Health Care Systems Rev.,
8s, 2018 500 596,875
NR Concord, NC, Water & Sewer Bonds, 10s, 2002 270 278,438
AAA Craven, NC, Regional Medical
Authority, 7.2s, 2019 1,500 1,790,625
AAA Dare County, NC, School Bonds, 6.9s, 2008 800 939,000
AAA Dare County, NC, School Bonds, 6.9s, 2009 800 939,000
AAA Dare County, NC, School Bonds, 6.9s, 2010 500 586,875
AAA Mecklenburg County, NC, 6.2s, 2007 1,000 1,130,000
AAA Mecklenburg County, NC, 6.25s, 2011 2,275 2,584,969
AAA North Carolina Eastern Municipal
Power Agency, 13s, 1998 3,000 3,982,500
A- North Carolina Eastern Municipal
Power Agency, 7.5s, 2010 2,595 3,341,062
AAA North Carolina Eastern Municipal
Power Agency, 7.75s, 2012 2,900 3,432,875
A- North Carolina Eastern Municipal
Power Agency, 5s, 2017 1,915 1,941,331
A- North Carolina Eastern Municipal
Power Agency, 8s, 2021 1,885 2,205,450
A- North Carolina Eastern Municipal
Power Agency, 8s, 2021 235 274,950
A- North Carolina Eastern Municipal
Power Agency, 7.25s, 2023 3,500 4,068,750
<PAGE> 194
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Refunded and Special Obligation - continued
AAA North Carolina Medical Care
Commission, Hospital Rev.
(Carolina Medicorp), 7.875s, 2015 1,000 1,148,750
AA North Carolina Medical Care
Commission, Hospital Rev. (Duke
University), 8.625s, 2010 1,000 1,092,500
AAA North Carolina Medical Care
Commission, Hospital Rev. (Mercy
Hospital), 9.625s, 2015 2,500 2,784,375
AAA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Health
Services), 7.3s, 2015 $ 1,000 $ 1,196,250
AAA North Carolina Medical Care
Commission, Hospital Rev. (Presbyterian
Health Services), 7.375s, 2020 12,315 14,793,394
A North Carolina Medical Care
Commission, Hospital Rev. (Southeastern
General Hospital), 8.875s, 2005 250 273,750
A North Carolina Medical Care
Commission, Hospital Rev. (Southeastern
General Hospital), 9s, 2012 1,350 1,479,937
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric Rev.,
0s, 2005 2,000 1,187,500
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric Rev.,
8.75s, 2005 6,500 7,271,875
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric Rev.,
7.625s, 2014 820 948,125
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric Rev.,
8.5s, 2017 5,000 5,568,750
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric Rev.,
7.875s, 2019 6,785 7,904,525
AA Orange, NC, Water & Sewer Authority
Rev., 9.5s, 2011 1,000 1,108,750
------------
$ 94,479,46
- -------------------------------------------------------------------------------
Single Family Housing Revenue - 5.6%
A+ North Carolina Housing Finance
Agency, 10.375s, 2007 $ 105 $ 107,756
A+ North Carolina Housing Finance
Agency, 0s, 2015 3,055 358,962
A+ North Carolina Housing Finance
Agency, 6.7s, 2018 3,350 3,630,562
A+ North Carolina Housing Finance
Agency, 8.125s, 2019 3,240 3,397,950
A+ North Carolina Housing Finance
Agency, 7s, 2020 2,430 2,648,700
A+ North Carolina Housing Finance
Agency, 7.7s, 2021 2,785 2,910,325
A+ North Carolina Housing Finance
Agency, 7.8s, 2021 3,420 3,586,725
A+ North Carolina Housing Finance
Agency, 7.85s, 2028 7,075 7,402,219
A+ North Carolina Housing Finance
Agency, 7.6s, 2032 3,510 3,703,050
AAA Puerto Rico Housing Finance Corp.,
6.85s, 2024 1,000 1,081,250
------------
$ 28,827,499
- -------------------------------------------------------------------------------
<PAGE> 195
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Multi-Family Housing Revenue - 3.6%
A Asheville, NC, Housing Authority (Asheville
Terrace Apartments), 7.1s, 2011 $ 5,000 $ 5,462,500
NR Charlotte, NC, Housing Authority (Merrywood
Senior Adult Project), 9.75s, 2019 6,710 6,441,600
NR New Bern, NC, Housing Authority,
First Mortgage Rev., 7.875s, 2004 200 205,000
NR New Bern, NC, Housing Authority,
First Mortgage Rev., 7.875s, 2010 700 717,500
AA North Carolina Housing Finance
Agency, 6.9s, 2024 5,000 5,481,250
------------
$ 18,307,850
- -------------------------------------------------------------------------------
Insured Health Care Revenue - 6.2%
AAA Cumberland County, NC, Hospital
Facilities Rev. (Cumberland County
Hospital), 0s, 2009 $ 1,800 $ 792,000
AAA Cumberland County, NC, Hospital
Facilities Rev. (Cumberland County
Hospital), 6s, 2021 5,000 5,250,000
AAA North Carolina Medical Care
Commission, Hospital Rev. (St. Joseph's
Hospital Project), 5.1s, 2014 6,550 6,451,750
AAA North Carolina Medical Care
Commission, Hospital Rev. (Wayne
Memorial Hospital), 6s, 2021 6,550 6,926,625
AAA North Carolina Medical Care
Commission, Hospital Rev. (Wesley Long
Community Hospital), 5.25s, 2013 5,000 5,012,500
AAA Pitt County, NC, Hospital Rev.
(Pitt Memorial Hospital), 6.75s, 2014 2,800 3,181,500
AAA Wake County, NC, Hospital Rev., 4.5s, 2003 2,000 2,007,500
AAA Wake County, NC, Hospital Rev., 4.7s, 2005 1,000 1,003,750
AAA Wake County, NC, Hospital Rev., 4.8s, 2006 1,000 1,003,750
------------
$ 31,629,375
- -------------------------------------------------------------------------------
Health Care Revenue - 14.0%
AA- North Carolina Medical Care Commission,
Hospital Rev. (Baptist Hospital), 6s, 2022 $ 2,750 $ 2,921,875
AA North Carolina Medical Care
Commission, Hospital Rev. (Carolina
Medical Project), 6s, 2021 21,600 22,680,000
AA North Carolina Medical Care
Commission, Hospital Rev. (Carolina
Medicorp), 5.5s, 2015 2,935 2,990,031
A North Carolina Medical Care
Commission, Hospital Rev. (Gaston
Health Care Project), 0s, 2007 500 221,875
A North Carolina Medical Care
Commission, Hospital Rev. (Gaston
Health Care Project), 7.25s, 2019 1,400 1,548,750
NR North Carolina Medical Care
Commission, Hospital Rev. (Halifax Memorial
Hospital), 6.75s, 2014 2,765 3,038,044
NR North Carolina Medical Care
Commission, Hospital Rev. (Halifax Memorial
Hospital), 6.75s, 2024 4,500 4,927,500
NR North Carolina Medical Care
Commission, Hospital Rev. (Memorial Mission
Hospital), 9.1s, 2008 1,750 1,929,375
A- North Carolina Medical Care Commission,
Hospital Rev. (Mercy Hospital), 6.5s, 2015 2,650 2,858,687
A North Carolina Medical Care
Commission, Hospital Rev. (Moore Memorial
Hospital), 9.15, 1999 800 881,000
- -------------------------------------------------------------------------------
<PAGE> 196
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Health Care Revenue - continued
A+ North Carolina Medical Care Commission,
Hospital Rev. (Moore Regional Hospital),
5.2s, 2013 5,000 4,887,500
A+ North Carolina Medical Care Commission,
Hospital Rev. (Moore Regional Hospital),
5s, 2018 4,000 3,765,000
AA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Hospital),
5.5s, 2014 7,700 7,805,875
NR North Carolina Medical Care Commission,
Hospital Rev. (Valdese General Hospital),
8.75s, 2016 5,750 6,051,875
BBB Northern Hospital District, Surry County, NC,
Health Care Facilities Rev., 7.875s, 2021 4,530 5,164,200
------------
$ 71,671,587
- -------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 15.0%
AAA Fayetteville, NC, Public Works
Commission Rev., 4.8s, 2007 $ 3,600 $ 3,546,000
A New Hanover County, NC, Industrial Facilities
Rev. (Carolina Power & Light Co.),
6.76s, 2009 1,000 1,116,250
A- North Carolina Eastern Municipal
Power Agency, 7s, 2007 5,000 5,856,250
A- North Carolina Eastern Municipal
Power Agency, 7.25s, 2007 5,000 5,975,000
A- North Carolina Eastern Municipal
Power Agency, 7s, 2008 5,000 5,875,000
A- North Carolina Eastern Municipal
Power Agency, 7.5s, 2010 2,405 2,934,100
A- North Carolina Eastern Municipal
Power Agency, 6.5s, 2012 1,500 1,603,125
A- North Carolina Eastern Municipal
Power Agency, 6s, 2013 5,000 5,131,250
AAA North Carolina Eastern Municipal
Power Agency, 5.5s, 2017 9,000 9,033,750
A- North Carolina Eastern Municipal
Power Agency, 6.5s, 2017 3,500 3,740,625
AAA North Carolina Eastern Municipal
Power Agency, 6.25s, 2023 7,060 7,633,625
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 5.25s, 2006 2,000 2,090,000
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 0s, 2008 8,000 3,870,000
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric
Rev., 0s, 2009 10,000 4,387,500
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric
Rev., 8s, 2012 3,000 3,135,000
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric
Rev., 7.625s, 2014 180 204,750
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric
Rev., 5.75s, 2015 2,000 2,077,500
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric
Rev., 5.75s, 2020 1,500 1,552,500
AAA North Carolina Municipal Power
Agency, No. 1 Catawba Electric
Rev., 8.23s, 2020 7,000 7,306,250
------------
$ 77,068,475
- -------------------------------------------------------------------------------
<PAGE> 197
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 3.7%
AAA Fayetteville, NC, Public Works
Rev., 7s, 2011 $ 2,000 $ 2,340,000
AAA Kanapolis, NC, Certificates of
Participation, Water Facilities
Rev., 7.375s, 2010 5,000 5,737,500
AA Orange County, NC, Water & Sewer
Authority Rev., 5.2s, 2016 3,000 3,030,000
BBB Puerto Rico Aqueduct & Sewer
Authority, 7.875s, 2017 3,000 3,487,500
AA+ Winston-Salem, NC, Water & Sewer
Systems Rev., 6.25s, 2012 4,000 4,325,000
------------
$ 18,920,000
- -------------------------------------------------------------------------------
Airport and Port Revenue - 2.1%
AAA Piedmont Triad Airport, NC, Airport
Authority Rev., 5.125s, 2012 $ 4,835 $ 4,847,088
AAA Piedmont Triad Airport, NC, Airport
Authority Rev., 5s, 2016 2,645 2,595,406
BB+ Raleigh-Durham, NC, Airport Authority
(American Airlines), 9.625s, 2015 3,000 3,240,000
------------
$ 10,682,494
- -------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 8.8%
NR Alamance County, NC, Industrial
Facilities & Pollution Control Finance
Authority (A.O. Smith Corp.),
7.375s, 2009 $ 1,000 $ 1,057,500
NR Chatham County, NC, Industrial
Facilities & Pollution Control
Finance Authority (Weyerhaeuser Co.),
9s, 2006 1,260 1,293,075
A Craven County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Weyerhaeuser Co.), 6.35s, 2010 5,000 5,493,750
NR Gaston County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Combustion Engineering, Inc.),
8.85s, 2015 1,000 1,246,250
BBB Halifax County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Champion International Corp.),
8.15s, 2019 1,500 1,693,125
BBB Haywood County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Champion International Corp.),
8.1s, 2009 2,500 2,834,375
<PAGE> 198
Municipal Bonds-continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - continued
BBB Haywood County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Champion International Corp.),
5.5s, 2018 3,000 2,947,500
NR Henderson County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Figgie International Real Estate
Project), 8s, 2009 1,500 1,552,500
A Martin County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Weyerhaeuser Co.), 6.375s, 2010 5,500 5,988,125
A Martin County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 7.25s, 2014 7,000 8,111,250
A Martin County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 5.65s, 2023 5,000 5,025,000
AA+ Mecklenburg County, NC, Industrial Facilities
& Pollution Control Finance Authority
(Precision Steel), 7.75s, 2014 2,600 2,983,500
NR Surry County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Weyerhaeuser Co.), 9.25s, 2002 1,500 1,976,250
NR Vance County, NC, Industrial
Facilities & Pollution Control Finance
Authority (Keunemetal Co.), 8s, 1995 1,666 1,677,085
NR Wake County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Mallinckrodt), 6.75s, 2012 1,100 1,200,375
------------
$ 45,079,660
- -------------------------------------------------------------------------------
<PAGE> 199
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Universities - 6.3%
AA- North Carolina Education Facilities
Finance Agency (Davidson College),
6s, 2012 $ 2,000 $ 2,120,000
AA North Carolina Education Facilities
Finance Agency (Duke University),
6.75s, 2021 18,500 21,113,125
AA University of North Carolina (Chapel Hill),
0s, 2012 9,105 3,061,556
AA University of North Carolina
(Chapel Hill), 0s, 2013 4,285 1,344,419
AA- University of North Carolina,
Hospital Rev. (Chapel Hill), 6s, 2024 4,500 4,719,375
------------
$ 32,358,475
- -------------------------------------------------------------------------------
Other - 1.9%
NR Chapel Hill, NC, Parking Facilities Rev.
(Rosemary Street Project), 8.125s, 2013 $ 1,745 $ 1,967,488
NR Chapel Hill, NC, Parking Facilities Rev.
(Rosemary Street Project), 8.25s, 2023 3,305 3,726,387
NR Iredell, NC, Solid Waste Systems Rev.,
6.25s, 2012 1,250 1,342,187
AAA Puerto Rico Telephone Authority Rev.,
7.91s, 2004 2,750 2,839,375
------------
$ 9,875,437
- -------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, S468,144,706) $512,163,578
- -------------------------------------------------------------------------------
Floating Rate Demand Notes - 1.4%
- -------------------------------------------------------------------------------
Jackson County, MS, Port Facilities
(Chevron Corp.), due 6/01/23 $ 2,400 $ 2,400,000
Uinta County, WY, Pollution Control
Rev. (Chevron Corp.), due 12/01/22 300 300,000
Wake County, NC, Industrial Facilities &
Pollution Control Rev. (Carolina
Power & Light), due 3/01/17 4,200 4,200,000
- -------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at ldentified Cost $ 6,900,000
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $475,044,706) $519,063,578
Other Assets, Less Liabilities - (1.2)% (5,942,557)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $513,121,021
- -------------------------------------------------------------------------------
See notes to financial statements
<PAGE> 200
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS PENNSYLVANIA MUNICIPAL BOND FUND
Municipal Bonds - 97.4%
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
General Obligation - 14.0%
A Commonwealth of Puerto Rico, Public
Improvement, 6s, 2014 $ 350 $ 368,375
AAA Erie County, PA, 5.5s, 2016 250 257,813
AAA Lehigh County, PA, 5.125s, 2011 500 503,750
AAA Northeastern York County, PA, School
District, 0s, 2012 415 157,181
AAA Oley Valley, PA, School District, 0s, 2011 910 360,587
A Southeastern Area, PA, Special Schools
Authority Rev., 0s, 2007 360 167,850
AA- State of Pennsylvania, 5s, 2010 250 249,687
AAA Washington County, PA, School District, 0s, 2010 250 104,688
AAA York County, PA, School District, 5.7s, 2013 250 259,063
-----------
$ 2,428,994
- -------------------------------------------------------------------------------
State and Local Appropriation - 7.6%
AAA Philadelphia, PA, Municipal Authority
Rev.,5.625s, 2014 $ 800 $ 824,000
AAA State of Pennsylvania, Certificates of
Participation, 5.25s, 2010 250 251,563
AAA State of Pennsylvania, Certificates of
Participation, 5s, 2015 250 242,812
-----------
$ 1,318,375
- -------------------------------------------------------------------------------
Refunded and Special Obligation - 3.4%
AAA Puerto Rico Highway & Transportation
Authority, Highway Rev., 6.5s, 2022 $ 250 $ 293,125
A Puerto Rico Public Buildings Authority,
6.875s, 2021 250 299,687
-----------
$ 592,812
- -------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.9%
NR Montgomery, PA, Redevelopment Authority (KBF
Associates), 6.5s, 2025 $ 250 $ 254,687
AAA Pennsylvania Housing Finance Agency, 5.8s, 2022 250 254,375
-----------
$ 509,062
- -------------------------------------------------------------------------------
Insured Health Care Revenue - 11.9%
AAA Allegheny County, PA, Hospital Development
Authority Rev. (Presbyterian Health
Center),6s, 2012 $ 500 $ 530,000
AAA Allegheny County, PA, Hospital Development
Authority Rev. (Presbyterian Health
Center),6s, 2023 375 396,094
AAA Butler County, PA, Hospital Authority,
Hospital Rev. (Butler Memorial Hospital),
5.25s, 2016 400 396,500
AAA Doylestown, PA, Hospital Authority, Hospital
Rev., 5s, 2014 500 484,375
AAA Washington County, PA, Hospital Authority
Rev. (Shadyside Hospital), 6s, 2018 250 264,375
-----------
$ 2,071,344
- -------------------------------------------------------------------------------
<PAGE> 201
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Health Care Revenue - 10.6%
NR Philadelphia, PA, Hospitals & Higher
Education Facilities Authority, Hospital
Rev. (Agnes Medical Center), 7.25s, 2031 $ 500 $ 571,250
AA Philadelphia, PA, Hospitals & Higher
Education Facilities Authority, Hospital
Rev. (Children's Hospital), 5.375s, 2014 500 501,250
BBB+ Philadelphia, PA, Hospitals & Higher
Education Facilities Authority, Hospital
Rev. (Temple University Hospital),
6.625s, 2023 250 265,313
NR Pottsville PA, Hospital Authority (Daughters
of Charity), 5s, 2012 250 240,937
AAA Washington County, PA, Hospital Authority
Rev. (Washington Hospital Project),
5.625s 2023 250 256,875
-----------
$ 1,835,625
- -------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 9.1%
BBB Philadelphia, PA, Gas Works Rev., 5.25s, 2015 $ 250 $ 240,313
BBB Philadelphia, PA, Gas Works Rev., 6.375s, 2026 500 531,875
AAA Philadelphia, PA, Water & Wastewater Rev.,
5s, 2019, 585 563,062
NR Schuylkill County, PA, Industrial
Development Authority, Resource Recovery
Rev., 6.5s, 2010 250 250,937
-----------
$ 1,586,187
- -------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 7.4%
AAA Bethlehem, PA, Authority, Water Rev., 6.1s, 2018 $ 500 $ 535,000
AAA Southwest Delaware County, PA, Municipal
Authority, Sewer Rev., 5.85s, 2022 250 263,438
AAA Wilkinsburg, PA, Water Authority, Water
Rev., 5s 2012 500 492,500
-----------
$ 1,290,938
- -------------------------------------------------------------------------------
Turnpike Revenue - 1.5 %
AAA Pennsylvania Turnpike Commission, Turnpike
Rev., 5.5s, 2017 $ 250 $ 254,687
- -------------------------------------------------------------------------------
Airport and Port Revenue - 2.9%
AAA Lehigh-Northampton, PA, Airport
Rev.(Allentown-Bethlehem International),
5.4s, 2012 $ 500 $ 508,750
- -------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 1.5%
NR Hampden, PA, Industrial Development
Authority, 5.75s, 2008 $ 250 $ 252,813
- -------------------------------------------------------------------------------
Universities - 12.1%
AAA Delaware County, PA, Authority, College
Rev. (Haverford College), 5.5s, 2023 $ 250 $ 254,375
AAA Lycoming County, PA, Authority, College
Rev. (Pennsylvania College of Technology),
0s, 2009 1,575 679,219
AAA Northampton County, PA, Higher Education
Authority Rev. (Lafayette College), 5s, 2015 690 676,200
AAA Pennsylvania Higher Education Facilities
Authority, College & University Rev.
(Temple University), 5.75s, 2031 250 256,250
AA- Pennsylvania State University, 5.1s, 2018 250 246,875
-----------
$ 2,112,919
- -------------------------------------------------------------------------------
<PAGE> 202
Municipal Bonds - continued
- -------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Other - 12.5%
AAA Pittsburgh, PA, Public Parking Authority
Parking Rev., 5.875s, 2012 $ 500 $ 526,250
AAA Puerto Rico Telephone Authority Rev.,
7.91s, 2004 (Interest rate swap)* 250 258,125
AAA Reading, PA, Parking Authority, 0s, 2007 1,160 578,550
A State of Pennsylvania Finance Authority
Rev. (Municipal Capital Improvement
Program), 6.6s, 2009 500 550,000
AAA State of Pennsylvania Higher Education
Facilities Authority, 5.7s, 2015 250 258,125
-----------
$ 2,171,050
- -------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $16,215,362) $16,933,556
- -------------------------------------------------------------------------------
Floating Rate Demand Note - 0.6%
- -------------------------------------------------------------------------------
Allegheny County, Hospital Development
Authority Rev. (Presbyterian University
Hospital), due 3/01/20, at Identified Cost $ 100 $ 100,000
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $16,315,362) $17,033,556
Other Assets, Less Liabilities - 2.0% 354,345
- -------------------------------------------------------------------------------
Net Assets - 100.0% $17,387,901
- -------------------------------------------------------------------------------
*Indexed security. See Note 7.
See notes to financial statements
<PAGE> 203
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS SOUTH CAROLINA MUNICIPAL BOND FUND
Municipal Bonds - 97.8%
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
General Obligation - 5.1%
AA Charleston County, SC, 6.5s 2011 $ 1,315 $ 1,459,650
AAA Horry County, SC, School District,
4.8s, 2004 2,215 2,259,300
AA Richland County, SC, 6.25s, 2010 1,260 1,354,500
A Williamsburg County, SC, School
District, 7.8s, 2003 200 215,500
A Williamsburg County, SC, School
District, 7.9s, 2005 250 269,375
A Williamsburg County, SC, School
District, 7.9s, 2006 275 295,969
A Williamsburg County, SC, School
District, 7.9s, 2007 300 322,875
A- York County, SC, 5s, 2011 3,940 3,866,125
------------
$ 10,043,294
- --------------------------------------------------------------------------------
State and Local Appropriation - 6.1%
AAA Charleston County, SC, Certificates of
Participation (Charleston Public
Facilities Corp.), 7.1s, 2011 $2,000 $ 2,317,500
AAA Lexington County, SC, School District
No. 1, Certificates of Participation
(Gilbert Middle School), 6.65s, 2012 1,000 1,103,750
AAA Lexington County, SC, School District
No. 1, Certificates of Participation
(White Knoll Middle School), 7.65s, 2009 1,400 1,615,250
BBB+ Myrtle Beach, SC, Public Finance Corp.
Certificates of Participation
(Convention Center), 6.875s, 2017 2,500 2,681,250
AA- North Charleston, SC, 5.875s, 2010 780 834,600
AAA North Charleston, SC, Certificates of
Participation (Coliseum), 6s, 2016 1,355 1,429,525
NR Williamsburg County, SC, School
District Public Facilities Corp.,
Certificates of Participation,
7.5s, 2006 175 170,188
NR Williamsburg County, SC, School
District Public Facilities Corp.,
Certificates of Participation,
7.5s, 2007 190 184,538
NR Williamsburg County, SC, School
District Public Facilities Corp.,
Certificates of Participation,
7.5s, 2008 205 198,850
NR Williamsburg County, SC, School
District Public Facilities Corp.,
Certificates of Participation,
7.5s, 2009 220 213,125
NR Williamsburg County, SC, School
District Public Facilities Corp.,
Certificates of Participation,
7.5s, 2012 270 260,888
NR Williamsburg County, SC, School
District Public Facilities Corp.,
Certificates of Participation,
7.5s, 2014 315 303,975
NR Williamsburg County, SC, School
District Public Facilities Corp.,
Certificates of Participation,
7.5s, 2018 635 611,188
------------
$ 11,924,627
- --------------------------------------------------------------------------------
Refunded and Special Obligation - 16.8%
NR Anderson County, SC, 7.75s, 2008 $ 500 $574,375
AAA Charleston County, SC, Water & Sewer
Rev., 9.625s, 2016 400 454,000
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2004 1,500 941,250
AA Columbia, SC, Waterworks & Sewer Rev.,
0s 2006 2,045 1,119,637
<PAGE> 204
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Refunded and Special Obligation - continued
AAA Commonwealth of Puerto Rico, Public
Improvement, 6.8s, 2021 $ 425 $ 506,813
AAA Florence County, SC, Hospital Rev.
(McLeod Regional Medical Center),
8.75s, 2009 560 624,400
AAA Grand Strand, SC, Water & Sewer Rev.,
7.75s, 2019 750 881,250
AAA Greenville Hospital System, SC,
Hospital Facilities Rev., "A",
7.8s, 2015 2,950 3,458,875
AAA Greenville Hospital System, SC,
Hospital Facilities Rev., "B",
7.8s, 2015 1,500 1,758,750
AAA Greenwood County, SC, Hospital Rev.
(Self Memorial Hospital), 8.25s, 2007 500 586,875
AAA Greenwood County, SC, Hospital Rev.
(Self Memorial Hospital), 8.375s, 2017 1,000 1,180,000
NR Medical University, SC, Hospital
Facilities Rev., 9s, 2005 250 275,312
AAA Myrtle Beach, SC, Water & Sewer Rev.,
6s, 2015 1,780 1,960,225
AAA Myrtle Beach, SC, Water & Sewer Rev.,
6s, 2020 1,750 1,927,188
AAA North Charleston, SC, 7.5s, 2006 485 567,450
AAA North Charleston, SC, Sewer Rev.,
7.75s, 2018 1,250 1,473,437
AAA Orangeburg & Calhoun Counties, SC,
Hospital Facilities Rev. (Regional
Hospital), 9.5s, 2011 500 561,250
AAA Puerto Rico Aqueduct & Sewer
Authority, 9s, 2009 750 1,033,125
AAA Richland County, SC, Certificates of
Participation, 0s, 2005 1,160 687,300
AAA Richland County, SC, Certificates of
Participation, 0s, 2006 1,160 648,150
AAA Richland County, SC, Certificates of
Participation, 0s, 2007 1,160 609,000
A+ South Carolina Public Service
Authority, "B", 7.1s, 2021 2,000 2,395,000
A+ South Carolina Public Service
Authority, "C", 7.1s, 2021 1,220 1,460,950
A+ South Carolina Public Service
Authority (Santee Cooper),
6.625s, 2031 4,000 4,705,000
AAA South Carolina Public Service
Authority, Electric Rev., 9.5s, 2022 425 474,937
A- Spartanburg County, SC, Hospital
Facilities Rev. (Mary Black Hospital),
8.25s, 2008 500 602,500
AAA York County, SC, School District No. 3,
7.5s, 2007 575 668,438
AAA York, SC, Water & Sewer Rev., 7.875s, 2013 620 700,600
------------
$ 32,836,087
- --------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 1.1%
AA South Carolina Housing Authority
(Fairway Apartments), 7.625s, 2033 $ 2,000 $ 2,140,000
- --------------------------------------------------------------------------------
Single Family Housing Revenue - 5.9%
AA- South Carolina Housing Authority,
9.375s, 2016 $ 5 $ 5,275
AA South Carolina Housing Authority,
8.6s, 2019 1,000 1,061,250
AA South Carolina Housing Finance
& Development Authority, 7.55s, 2011 1,750 1,822,187
AA South Carolina Housing Finance &
Development Authority, 7.75s, 2022 2,650 2,812,313
AA South Carolina Housing Finance &
Development Authority, 7.8s, 2022 1,000 1,056,250
AA South Carolina Housing Finance &
Development Authority, 7.9s, 2032 4,610 4,886,600
------------
$ 11,643,875
- --------------------------------------------------------------------------------
<PAGE> 205
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Insured Health Care Revenue - 9.6%
AAA Anderson County, SC, Hospital
Facilities Rev. (Anderson Area
Medical Center, Inc.), 5.1s, 2006 $ 2,745 $ 2,806,762
AAA Charleston County, SC, Hospital Rev.
(Medical Society Health Project),
5.5s, 2019 3,800 3,823,750
AAA Florence County, SC, Hospital Rev.
(McLeod Regional Medical Center),
5.25s, 2009 1,000 1,011,250
AAA Greenwood County, SC, Hospital Rev.
(Self Memorial Hospital), 5.875s, 2017 2,500 2,650,000
AAA Lexington County, SC, Health Services
District, 6s, 2021 3,500 3,648,750
AAA Pickens & Richland Counties, SC,
Hospital Rev. (Baptist Hospital),
5.75s, 2021 3,635 3,721,331
AAA Richland County, SC, Hospital
Facilities Rev. (Providence Hospital),
5.25s, 2010 1,200 1,195,500
------------
$ 18,857,343
- --------------------------------------------------------------------------------
Health Care Revenue - 8.7%
NR Charlestown County, SC, First
Mortgage Rev. (Driftwood Health
Care Center), 12.5s, 2014 $ 2,140 $ 2,287,125
NR Greenville County, SC, First Mortgage
Rev. (Chestnut Hill), 10.125s, 2016 1,975 2,110,781
AA- Greenville Hospital System, SC,
Hospital Facilities Rev., 5.5s, 2016 1,000 996,250
AA- Greenville Hospital System, SC,
Hospital Facilities Rev., 6s, 2020 4,400 4,741,000
NR Horry County, SC, Hospital Facilities
Rev. (Conway Hospital), 6.75s, 2012 4,500 4,786,875
NR South Carolina Jobs, Economic
Development Authority (Carolina
Hospital System Project), 7.55s, 2022 2,000 2,190,000
------------
$ 17,112,031
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 13.5%
A Colleton & Dorchester Counties, SC,
Pollution Control Rev., 6.6s, 2014 $ 3,000 $ 3,337,500
A Fairfield County, SC, Pollution
Control Rev. (South Carolina Electric
Co.), 6.5s, 2014 2,000 2,230,000
AAA Laurens, SC, Utility Systems Rev.,
7.625s, 2018 1,100 1,265,000
AAA Piedmont Municipal Power Agency, SC,
Electric Rev., 6.25s. 2018 2,000 2,137,500
AAA Piedmont Municipal Power Agency, SC,
Electric Rev., 6.25s, 2021 4,600 5,318,750
AAA Piedmont Municipal Power Agency, SC,
Electric Rev., 6.3s, 2022 2,270 2,454,438
AAA South Carolina Public Service
Authority, 8.516s, 2013 3,000 3,243,750
AAA South Carolina Public Service
Authority, 5.5s, 2021 2,000 2,025,000
AAA South Carolina Public Service
Authority Electric Rev., 7.75s, 2015 3,155 3,431,062
A+ South Carolina Public Service
Authority, Electric Rev., 7.875s, 2021 790 862,088
------------
$ 26,305,088
- --------------------------------------------------------------------------------
<PAGE> 206
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 17.3%
AAA Berkeley County, SC, Water & Sewer
Rev., 6s, 2010 $ 2,000 $ 2,095,000
AAA Berkeley County, SC, Water & Sewer
Rev., 5.55s, 2015 2,460 2,518,425
AAA Cayce, SC, Waterworks & Sewer Rev.,
5.25s, 2015 2,500 2,487,500
AA- Charleston County, SC, Waterworks &
Sewer Rev., 5s, 2002 1,000 956,500
AA- Charleston County, SC, Waterworks &
Sewer Rev., 6s, 2012 2,500 2,625,000
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2005 2,245 1,316,131
AA Columbia, SC, Waterworks & Sewer Rev.,
0s 2006 9,330 5,143,162
AA Columbia, SC, Waterworks & Sewer Rev.,
5.375s, 2012 1,000 1,022,500
AAA Grand Strand, SC, Water & Sewer Rev.,
6s, 2019 2,500 2,621,875
NR Laurens County, SC, Water & Sewer
Commission, Sewer System Rev.,
5.5s, 2014 1,080 1,092,150
AAA Rock Hill, SC, Utility Systems Rev.,
5.375s, 2014 2,400 2,409,000
AAA Rock Hill, SC, Utility Systems Rev.,
5s, 2020 1,285 1,246,450
A+ South Carolina Resources Authority
(Local Government Program),
7.25s, 2020 3,000 3,348,750
AAA St. Andrews, SC, Public Services
District, Sewer System Rev.,
7.75s, 2018 1,000 1,141,250
AAA Western Carolina Regional Sewer
Authority, 0s, 2007 4,400 2,277,000
AAA Winnesboro, SC, Combined Utilities
Rev., 6s, 2015 1,500 1,576,875
------------
$ 33,877,568
- --------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 0.9%
AAA Puerto Rico Highway & Transportation
Authority Rev., 6.625s, 2018 $ 1,500 $ 1,680,000
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate
Guarantee) - 11.1%
NR Aiken County, SC, Industrial Rev.
(Kimberly Clark Project), 8.92s, 2005 $ 300 $ 327,375
BBB+ Calhoun, SC, Solid Waste Disposal
Rev. (Eastman Kodak), 6.75s, 2017 1,000 1,192,500
A Charleston County, SC, Resource
Recovery Rev. (Foster Wheeler),
9.25s, 2010 1,750 2,054,062
BBB+ Chester County, SC, Industrial Rev.
(Springs Industries, Inc.),
7.35s, 2014 1,000 1,131,250
BBB+ Chester County, SC, Industrial
Rev. (Springs Industries, Inc.),
7.8s, 2014 1,025 1,174,906
AA- Darlington County, SC, Industrial
Development Rev. (Nucor Corp.),
5.75s, 2023 2,000 2,042,500
NR Fairfield County, SC, Industrial Rev.
(Rite Aid, Inc.), 7.9s, 2016 2,950 3,211,813
AA Florence County, SC, Pollution
Control Facility Rev. (E.l. du
Pont de Nemours & Co.), 6.35s, 2022 1,000 1,111,250
NR Greenville County, SC, Industrial
Rev. (Kroger Co.), 7.85s, 2015 500 570,625
NR Lexington County, SC, Industrial Rev.
(J.B. White & Co.), 8s, 2005 700 800,625
AA- Oconee County, SC, Pollution Control
Rev. (Duke Power Co.), 5.8s, 2014 1,825 1,891,156
A- Richland County, SC, Pollution
Control Rev. (Union Camp Corp.),
6.625s, 2022 1,750 1,940,313
<PAGE> 207
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate
Guarantee) - continued
A- Richland County, SC, Solid Waste
Facilities Rev. (Union Camp Corp.),
6.75s, 2022 $ 2,000 $ 2,210,000
AA- York County, SC, Industrial Rev.
(Hoechst Celanese), 5.7s, 2024 2,000 2,012,500
------------
$ 21,670,875
- --------------------------------------------------------------------------------
Universities--0.6%
AAA Clemson University, SC, University Rev.
(Student & Faculty Housing),
6.65s, 2012 $ 1,000 $ 1,106,250
- --------------------------------------------------------------------------------
Other - 1.1%
AAA Puerto Rico Telephone Authority Rev.,
7.91s, 2004 (Interest rate swap)* $ 2,000 $ 2,065,000
- --------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost $173,653,704) $191,262,038
- --------------------------------------------------------------------------------
Floating Rate Demand Notes - 0.3%
- --------------------------------------------------------------------------------
Harris County, TX, Industrial
Development Corp., Pollution
Control Rev. (Exxon Corp.),
due 3/01/24 $ 100 $ 100,000
Lincoln County, WY, Pollution Control
Rev. (Exxon Corp.), due 11/01/14 200 200,000
Sublett County, WY (Exxon Corp.),
due 11/01/14 200 200,000
Wake County, NC, Industrial Facilities &
Pollution Control Financing Authority
Rev. (Carolina Power & Light),
due 3/01/17 100 100,000
- --------------------------------------------------------------------------------
Total Floating Rate Demand Notes at Identified Cost $ 600,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost $174,253,704) $191,862,038
Other Assets, Less Liabilities- 1.9% 3,661,115
- --------------------------------------------------------------------------------
Net Assets - 100.0% $195,523,153
- --------------------------------------------------------------------------------
*Indexed security. See Note 7.
See notes to financial statements
<PAGE> 208
PORTFOLIO OF INVESTMENTS-January 31, 1994
MFS VIRGINIA MUNICIPAL BOND FUND
Municipal Bonds - 96.7%
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
General Obligation - 8.0%
AAA Arlington County VA, 6s, 2011 $1,500 $1,708,125
AAA Arlington County, VA, 6s, 2012 1,500 1,706,250
AA Chesapeake, VA, Public Improvement,
5.25s, 2008 3,300 3,419,625
AAA Fairfax County, VA, 4.8s, 2003 3,500 3,613,750
AAA Fairfax County, VA, 5.2s, 2012 3,150 3,236,625
AA- Hampton, VA, Public Improvement, 4.8s, 2006 3,470 3,496,025
AA- Hampton, VA, Public Improvement,
6.625s, 2010 1,500 1,719,375
NR Lebanon, VA, 7.6s, 2005 375 391,875
NR Lebanon, VA, 7.75s, 2010 310 324,338
AA- Portsmouth, VA, 6.375s, 2012 1,555 1,706,613
AA- Portsmouth, VA, 5.5s, 2013 2,000 2,075,000
NR Richmond, VA, 0s, 2006 1,000 556,250
AA Richmond, VA, 0s, 2006 2,500 1,390,625
AA Richmond, VA, 0s, 2007 5,280 2,745,600
NR Richmond, VA, 0s, 2008 2,000 982,500
AA Richmond, VA, 0s, 2008 5,270 2,588,887
AA Richmond, VA, 0s, 2009 5,175 2,348,156
A Suffolk, VA, 6.5s, 2006 1,250 1,367,188
AAA State of Virginia (Higher Educational
Institute), 0s, 1995 725 697,812
AAA State of Virginia (Higher Educational
Institute), 0s, 1996 1,000 926,250
AAA State of Virginia (Higher Educational
Institute), 0s, 1998 1,295 1,094,275
AAA State of Virginia (Higher Educational
Institute), 0s 1999 1,300 1,046,500
------------
$ 39,141,644
- --------------------------------------------------------------------------------
State and Local Appropriation - 4.4%
NR Chesterfieid County, VA, Industrial
Development Authority, Public Facilities
Lease Rev. (Correctional Enterprises),
7.5s, 2008 $1,720 $ 1,788,800
NR New Kent County, VA, Industrial
Development Authority, Public Facilities
Lease Rev. (New Kent County Courthouse),
7.5s, 2011 700 779,625
A Puerto Rico Public Buildings Authority,
7.97s, 2016 6,500 6,955,000
AAA Virginia Public Building Authority, 0s 2007 13,305 6,785,550
AAA Virginia Public Building Authority, 0s, 2008 10,650 5,098,688
------------
$ 21,407,663
- --------------------------------------------------------------------------------
Refunded and Special Obligation - 19.7%
NR Arlington County, VA, Industrial
Development Authority (Arlington
Hospital), 7.125s, 2021 $4,450 5,334,438
AAA Bedford, VA, Electric Systems Rev.,
8.875s, 2015 2,000 2,192,500
AAA Bedford, VA, Electric Systems Rev., 9s, 2025 1,000 1,097,500
A- Capital Region Airport Commission, VA,
10.5s, 2004 60 63,225
A- Capital Region Airport Commission, VA,
10.7s, 2014 1,000 1,051,250
<PAGE> 209
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Refunded and Special Obligation - continued
A Chesapeake, VA, Certificates of
Participation, 7.75s, 2006 1,250 1,396,875
NR Chesapeake, VA, Industrial Development
Authority Rev. (Sentara Life Care Corp.),
10s 2012 1,150 1,411,625
AA Chesapeake, VA, Public Improvement, 6.75s, 2008 2,500 2,871,875
AAA Chesterfield County, VA, Water & Sewer
Rev., 9.125s, 2010 3,250 3,644,063
AAA Commonwealth of Puerto Rico, 7.9s, 2004 1,660 1,884,100
AAA Fairfax County, VA, Water Authority Rev.,
7.25s, 2027 3,090 3,642,337
AAA Frederick-Winchester, VA, Sewer System
Rev., 9.375s, 2015 1,500 1,695,000
AAA Henrico County, VA, Water & Sewer Rev.,
7.875s,2013 3,500 3,906,875
NR James City County, VA, Industrial
Development Authority (Williamsbury
Landing), 11.75s, 2014 2,100 2,176,125
AAA Nelson County, VA, Service Authority,
Water & Sewer Rev., 7.875s, 2018 1,000 1,112,500
NR Newport News, VA, 6.5s, 2008 875 1,008,437
NR Newport News, VA, 6.5s, 2010 2,205 2,541,262
NR Newport News, VA, 6 5s, 2011 2,325 2,679,562
AA- Portsmouth, VA, 6.9s, 2019 1,500 1,755,000
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 4,150 5,716,625
AAA Puerto Rico Aqueduct & Sewer Authority,
10.25s, 2009 $ 400 $ 598,500
AAA Puerto Rico Electric Power Authority,
9.125s, 2015 1,500 1,674,375
AAA Puerto Rico Electric Power Authority,
9.375s, 2017 2,000 2,412,500
AAA Puerto Rico Highway & Transportation
Authority, Highway Rev., 6.5s, 2022 1,750 2,051,875
AAA Puerto Rico Industrial Medical &
Environmental Pollution Control
Facilities Finance Authority
Rev., 9.75s, 2025 1,345 1,508,081
AAA Puerto Rico Public Buildings Authority,
8.875s, 2012 3,500 3,863,125
AAA Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Memorial
Hospital), 7.25s, 2010 1,750 2,073,750
A+ Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Memorial
Hospital), 7.5s,2020 1,245 1,492,444
NR Salem, VA, 8.65s, 2003 525 575,531
AAA Southeastern Public Service Authority,
VA, Solid Waste System Rev., 9.25s, 2015 2,750 3,169,375
AAA Southeastern Public Service Authority,
VA, Solid Waste System Rev., 10.5s, 2015 5,600 6,286,000
AAA State of Virginia, Public School
Authority, 8.5s, 2009 500 576,875
AAA University of Virginia, Hospital Rev., 9s, 2013 4,165 4,565,881
AAA Virginia Beach, VA, Certificates of
Participation (Judicial Center Project),
7.25s, 2010 4,955 5,902,644
A+ Virginia Beach, VA, Water & Sewer Rev.,
6.625s, 2017 2,400 2,808,000
<PAGE> 210
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Refunded and Special Obligation - continued
NR Virginia College Building Authority
(Hampton University), 7.75s, 2014 750 889,688
NR Virginia College Building Authority
(Hampton University), 7.8s, 2014 4,040 4,257,150
NR Virginia Resources Authority, Water &
Sewer System Rev., 7.5s, 2020 1,180 1,389,450
AA Virginia Resources Authority, Water
System Rev., 7.875s, 2018 800 953,000
AAA Virginia Transportation Board, Contract
Rev. (Route 28), 7.7s, 2008 2,175 2,533,875
------------
$ 96,763,293
- --------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 1.3%
AAA Fairfax County, VA, Redevelopment &
Housing Authority (Mt. Vernon Apartments),
9.125s, 2020 $ 500 $ 521,875
NR Front Royal-Warren County, VA, Industrial
Development Authority (Heritage Hall),
9.45s, 2024 1,000 1,133,750
AAA Harrisonburg, VA, Redevelopment & Housing
Authority (Battery Heights), 7.375s, 2028 3,540 3,770,100
AAA Puerto Rico Housing Finance Corp., 7.8s, 2021 45 47,700
AA Virginia Housing Development Authority,
10.75s, 2006 700 714,875
------------
$ 6,188,300
- --------------------------------------------------------------------------------
Single Family Housing Revenue - 3.9%
A Virginia Housing Development Authority,
0s 2010 $1,115 $ 235,544
A+ Virginia Housing Development Authority,
6.95s, 2010 2,000 2,137,500
AA+ Virginia Housing Development Authority,
7.9s, 2017 5,000 5,356,250
NR Virginia Housing Development Authority
6.45s, 2021 4,250 4,409,375
A+ Virginia Housing Development Authority,
7.1s, 2022 2,000 2,132,500
AA+ Virginia Housing Development Authority,
7.8s, 2028 2,000 2,135,000
AA+ Virginia Housing Development Authority,
0s 2029 3,615 207,862
AA+ Virginia Housing Development Authority,
7.8s, 2038 2,500 2,653,125
------------
$ 19,267,156
- --------------------------------------------------------------------------------
Multi-Family Housing Revenue - 5.7%
NR Alexandria, VA, Redevelopment & Housing
Authority (Jefferson Village Apartments),
9s, 2018 $4,000 $ 4,275,000
NR Fairfax County, VA, Redevelopment &
Housing Authority (Little River Glen),
8.95s, 2020 3,910 4,193,475
NR Norfolk, VA, Redevelopment & Housing
Authority (Dockside Apartments),
7.37s, 2028 2,000 2,145,000
NR Virginia Beach, VA, Development Authority
(Lake Point Associates Project),
12.125s, 2015 6,300 7,189,875
AA Virginia Housing Development Authority,
5.875s, 2017 4,480 4,620,000
AA Virginia Housing Development Authority,
5.9s, 2017 5,445 5,635,575
------------
$ 28,058,925
- --------------------------------------------------------------------------------
<PAGE> 211
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Insured Health Care Revenue - 7.3 %
NR Albemarle County, VA, Industrial
Development Authority, First Mortgage Rev.,
8.9s, 2026 $2,150 $ 2,609,562
AAA Chesapeake, VA, Hospital Authority, First
Mortgage Rev. (Chesapeake General
Hospital), 5.3s, 2008 1,500 1,545,000
AAA Chesapeake, VA, Hospital Authority, First
Mortgage Rev. (Chesapeake General
Hospital), 5.25s, 2018 5,250 5,250,000
AA Culpepper, VA, Industrial Development
Authority (Medical Facilities of America),
10.375s, 2014 1,175 1,241,094
AAA Hanover County, VA, Industrial Development
Authority (Richmond Memorial Hospital
Medical Center), 6s, 2021 1,000 1,056,250
AAA Henrico County, VA, Industrial Development
Authority Rev. (Bon Secours), 9.293s, 2027 5,000 5,962,500
NR Nelson County, VA, Industrial Development
Authority (Medical Facilities of America),
10.375s, 2014 500 528,125
AAA Peninsula Ports Authority, VA, Hospital
Facilities Rev. (Wittaker Memorial Hospital),
8.7s, 2023 2,100 2,443,875
AA Richmond County, VA, Industrial
Development Authority (Medical Facilities
of America), 10.375s, 2014 1,200 1,270,500
AAA Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Roanoke
Memorial Hospital), 6.125s, 2017 6,000 6,712,500
AAA Roanoke, VA, Industrial Development
Authority, Hospital Rev. (Roanoke
Memorial Hospital), 5.25s, 2025 5,000 5,018,750
AAA Virginia Beach, VA, Development Authority,
Hospital Facilities Rev. (Virginia Beach
General Hospital), 5.125s, 2018 2,250 2,230,312
------------
$ 35,868,468
- --------------------------------------------------------------------------------
Health Care Revenue - 11.3%
NR Albemarle County, VA, Industrial
Development Authority (Martha Jefferson
Hospital), 5.875s, 2013 $2,000 $ 2,002,500
NR Albemarle County, VA, Industrial
Development Authority (Martha Jefferson
Hospital), 5.5s, 2020 1,500 1,494,375
NR Arlington County, VA, Industrial
Development Authority, Hospital Facilities
Rev. (Arlington Hospital), 5.3s, 2015 8,500 8,425,625
AA- Chesapeake, VA, Industrial Development
Authority (Sentara Life Care Corp.),
7.875s, 2008 1,000 1,155,000
AA- Chesapeake, VA, Industrial Development
Authority (Sentara Life Care Corp.),
8s, 2018 4,000 4,645,000
AA- Fairfax County, VA, Industrial Development
Authority Rev. (Health System Hospital),
5s, 2014 3,910 3,768,263
AA- Fairfax County, VA, Industrial Development
Authority Rev. (Health System Hospital),
5s, 2015 5,680 5,467,000
<PAGE> 212
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Health Care Revenue - continued
NR Fairfax, Fauquier & Loudoun Counties, VA,
Health Center Commission, Nursing Home
Rev., 9s, 2020 1,950 2,091,375
NR Fredericksburg, VA, Industrial Development
Authority (Mary Washington Hospital),
10.5s, 2014 650 680,875
A+ Henrico County, VA, Industrial Development
Authority (St. John's Hospital), 8.875s, 2015 990 1,022,175
NR Hopewell County, VA, Hospital Authority
(John Randolph Hospital), 8.85s, 2013 4,875 5,112,656
A+ Lynchburg, VA, Industrial Development
Authority (Centra Health, Inc.), 8.125s, 2016 1,400 1,596,000
NR Martinsville, VA, Industrial Development
Authority (Beverly Enterprises), 6.75s, 2004 1,230 1,265,363
AA- Norfolk, VA, Industrial Development
Authority (Sentara Life Corp.), "A",
7.875s, 2008 1,000 1,148,750
AA Norfolk, VA, Industrial Development
Authority (Sentara Life Corp.), "B",
7.875s, 2008 1,000 1,148,750
AA- Norfolk, VA, Industrial Development
Authority (Sentara Life Corp.), "A",
7.9s, 2018 2,000 2,312,500
AA Norfolk, VA, Industrial Development
Authority (Sentara Life Corp.), "B",
7.9s, 2018 2,000 2,312,500
A- Peninsula Ports Authority, VA, Hospital
Facilities Rev. (Mary Immaculate Hospital),
7.375s, 2017 3,000 3,202,500
NR Prince William County, VA, Industrial
Development Authority, Hospital Rev.
(Prince William Hospital), 5.25s, 2019 1,000 968,750
A Suffolk, VA, Industrial Development
Authority (Louise Obici Memorial Hospital),
7.875s, 2005 2,205 2,411,719
A+ Virginia Beach, VA, Hospital Facilities
Rev. (Virginia Beach General Hospital),
8.75s, 2017 2,875 3,356,562
------------
$ 55,588,238
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 3.8%
A+ Halifax County, VA, Industrial Rev.
Authority (Old Dominion Electric Cooperative
Project), 6s, 2022 $8,500 $ 8,882,500
AAA Southeastern Public Service Authority,
VA, Solid Waste System Rev., 5.15s, 2009 4,000 4,090,000
A- Southeastern Public Service Authority,
VA, Solid Waste System Rev., 6s, 2013 2,350 2,452,812
A- Southeastern Public Service Authority,
VA, Solid Waste System Rev., 6s, 2017 3,000 3,120,000
------------
$ 18,545,312
- --------------------------------------------------------------------------------
<PAGE> 213
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 13.2%
NR Carroll County, VA, Solid Waste Authority
Rev., 7.5s, 2006 $2,265 $ 2,576,438
A+ Chesapeake, VA, Water & Sewer System Rev.,
5.1s, 2014 2,000 1,955,000
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2004 5,025 3,027,562
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2005 4,815 2,732,512
AA Chesterfield County, VA, Water & Sewer
Rev., 0s 2006 4,320 2,311,200
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2007 6,120 3,090,600
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2008 6,135 2,929,462
AA Chesterfield County, VA, Water & Sewer
Rev., 0s, 2009 6,135 2,737,744
AA Chesterfield County, VA, Water & Sewer
Rev., 0s 2010 9,005 3,782,100
AAA Fairfax County, VA, Sewer Rev., 5.5s, 2013 5,000 5,131,250
AA- Fairfax County, VA, Water Authority Rev.,
6s, 2022 11,400 12,141,000
AAA Frederick-Winchester, VA, Service
Authority, Regional Sewer System Rev.,
5.75s, 2010 3,715 3,891,464
AAA Roanoke County, VA, Water System Rev.,
5.125s, 2013 2,500 2,493,750
AAA Upper Occoquan, VA, Regional Sewer Rev.,
5s, 2015 5,000 4,875,000
AAA Upper Occoquan, VA, Regional Sewer Rev.,
5.125s, 2017 4,520 4,452,200
AA Virginia Resources Authority, Sewer
Systems Rev., 9.3s, 2005 250 277,813
AA Virginia Resources Authority, Sewer
Systems Rev., 6s, 2022 2,250 2,368,125
AA Virginia Resources Authority, Water &
Sewer System Rev., 8.75s, 2003 500 553,125
AA Virginia Resources Authority, Water &
Sewer System Rev. (Campell Utilities
& Service Co.), 5s, 2013 500 490,625
AA Virginia Resources Authority, Water &
Sewer System Rev. (Campell Utilities
& Service Co.), 5.125s, 2019 3,250 3,217,500
------------
$ 65,034,470
- --------------------------------------------------------------------------------
Turnpike Revenue - 1.5%
AAA Chesapeake Bay, VA, Bridge & Tunnel
Authority, 0s, 2005 $4,535 $ 2,624,631
AA Virginia Transportation Board,
Transportation Contract Rev.
(Northern Virginia Transportation
District), 5.25s, 2019 4,860 4,835,700
------------
$ 7,460 331
- --------------------------------------------------------------------------------
<PAGE> 214
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Airport and Port Revenue - 6.5%
AAA Metropolitan Washington, D.C., Airport
Rev., 6.625s, 2012 $3,000 $ 3,337,500
AAA Metropolitan Washington, D.C., Airport
Rev., 7.6s, 2014 5,030 5,803,362
AAA Metropolitan Washington, D.C., Airport
Rev., 8.2s, 2018 3,500 4,147,500
AAA Metropolitan Washington, D.C., Airport
Rev., 6.625s, 2019 7,375 8,204,688
AAA Metropolitan Washington, D.C., Airport
Rev., 5.25s, 2022 2,500 2,481,250
AA- Peninsula Airport Commission, VA, 7.3s, 2021 2,400 2,790,000
A+ Virginia Port Authority, 8.2s, 2008 4,500 5,208,750
------------
$ 31,973,050
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 3.3%
A Coviington & Allegheny Counties, VA,
Pollution Control Rev. (Westvaco Corp.),
10.625s, 2014 $1,100 $ 1,181,125
A- Halifax, VA, Industrial Development
Authority (Tandy Corp.), 8.25s, 2008 3,500 4,003,125
A+ Henrico County, VA, Industrial Development
Authority (St. Mary's Hospital), 7.5s, 2007 905 1,052,063
NR Lynchburg, VA, Industrial Development
Authority(Kroger Co.), 7.9s, 2011 1,000 1,133,750
NR Norfolk, VA, Industrial Development
Authority (Sentara Life Care Corp.),
10s, 2012 4,400 5,401,000
A Prince William County, VA, Industrial
Development Authority (K-Mart Corp.),
6s, 2006 775 816,656
NR Virginia Beach, VA, Development Authority
(Beverly Enterprises), 10s, 2010 1,470 1,723,575
BBB-- West Point, VA, Industrial Development
Authority (Chesapeake Corp.), 10.125s, 2009 775 796,312
------------
$ 16,107,606
- --------------------------------------------------------------------------------
<PAGE> 215
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Universities--3.9%
A+ Albemarle County, VA, Industrial
Development Authority Health Services Rev.
(University of Virginia Health Services
Foundation), 6.5s, 2022 $1,000 $ 1,090,000
A- Hampton Roads, VA, Medical College General
Rev., 6.875s, 2016 1,500 1,683,750
AAA James Madison University, VA, Rev.,
5.25s, 2013 1,000 1,007,500
NR Loudoun County, VA, Industrial Development
Authority, University Facilities Rev.
(George Washington University), 6.25s, 2012 2,710 2,896,313
NR Rockingham County, VA, Industrial
Development Authority Rev. (Bridgewater
College), 5.95s, 2013 590 608,437
NR Rockingham County, VA, Industrial
Development Authority Rev. (Bridgewater
College), 6s, 2023 1,610 1,652,263
AA+ University of Virginia, University Rev.,
5.375s, 2014 3,690 3,763,800
AA+ University of Virginia, University Rev.,
5.2s, 2015 3,695 3,713,475
BBB- Virginia College Building Authority,
Educational Facilities Rev. (Marymount
University), 7s, 2022 2,500 2,728,125
------------
$ 19,143,663
- --------------------------------------------------------------------------------
Other- 2.9%
NR Danville, VA, Industrial Development
Authority, Industrial Development Rev.
(Piedmont Mall), 8s, 2013 $3,240 $ 3,268,350
NR Virginia Housing Development Authority,
0s, 2019 7,500 7,940,625
AAA Washington, D.C., Metropolitan Area
Transportation Authority, Gross Rev.,
5.125s, 2009 3,000 3,015,000
------------
$ 14,223,975
- --------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost $431,433,174) $474,772,094
- --------------------------------------------------------------------------------
Floating Rate Demand Notes--2.6%
- --------------------------------------------------------------------------------
California Pollution Control Financing
Authority, Pollution Control Rev.
(Shell Oil Co.), due 11/01/00 $ 600 $ 600,000
California Pollution Control Financing
Authority, Pollution Control Rev.
(Shell Oil Co.), due 10/01/10 500 500,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon
Corp.), due 3/01/24 700 700,000
Jackson County, MS, Pollution Control Rev.
(Chevron Corp.), due 6/01/23 200 200,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 1,600 1,600,000
Massachusetts State Health & Educational
Facilities Authority, due 7/01/05 100 100,000
Peninsula Ports Authority, VA (Shell Oil
Co.), due 12/01/05 9,300 9,300,000
- --------------------------------------------------------------------------------
Total Floating Rate Demand Notes at Identified Cost $ 13,000,000
- --------------------------------------------------------------------------------
Call Option Purchased--0.3%
- --------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------
Georgia Municipal Electric Authority/2003/102 $20 $ 650,000
State of New Jersey, "D"/2003/102 5 718,750
- --------------------------------------------------------------------------------
Total Call Option Purchased (Premium Paid $576,800) $ 1,368,750
- --------------------------------------------------------------------------------
Total Investments (Identified Cost $445,009,974) $489,140,844
Other Assets, Less Liabilities- 0.4% 1,902,358
- --------------------------------------------------------------------------------
Net Assets - 100.0% $491,043,202
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE> 216
PORTFOLIO OF INVESTMENTS - January 31, 1994
MFS WEST VIRGINIA MUNICIPAL BOND FUND
Municipal Bonds - 95.6%
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
General Obligation - 5.0%
AAA Cabell, WV, Board of Education, 6s, 2006 $ 500 $ 551,250
NR Charleston, WV, Public Improvement,
7.2s, 2008 1,240 1,526,750
NR Charleston, WV, Public Improvement,
7.2s, 2009 1,140 1,400,775
AAA Jefferson County, WV, Board of Education,
6.85s, 2009 1,680 2,013,900
AAA Monongalia County, WV, Board of Education,
7s, 2005 500 601,875
AAA Ohio County, WV, Board of Education,
5.25s, 2018 1,180 1,196,225
------------
$ 7,290,775
- --------------------------------------------------------------------------------
State and Local Appropriation - 7.4%
A Puerto Rico Public Buildings Authority,
7.97s, 2016 $ 2,000 $ 2,140,000
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 0s, 2007 3,150 1,590,750
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 0s, 2008 3,050 1,444,937
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 0s, 2009 2,500 1,100,000
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 7s, 2015 1,000 1,142,500
NR West Virginia School Building Authority,
6.75s, 2015 3,000 3,378,750
------------
$ 10,796,937
- --------------------------------------------------------------------------------
Refunded and Special Obligation - 16.1%
BBB+ Charleston, WV, Parking Rev., 8.5s, 2006 $ 1,000 $ 1,132,500
NR Clarksburg, WV, Water Rev., 10.875s, 2020 450 494,438
A Kanawha County, WV, Building Commission
(Charleston Medical Center), 10. 125s, 2008 510 549,525
AAA Kanawha County, WV, Building Commission
(St. Francis Hospital), 7.5s, 2007 275 339,969
AAA Monongalia County, WV, Hospital Rev.
(West Virginia University Hospitals, Inc.),
9.375s, 2018 2,245 2,472,306
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 1,500 2,066,250
AAA Puerto Rico Electric Power Authority,
10.25s, 2009 480 510,000
AAA Puerto Rico Industrial, Medical & Environmental
Pollution Control Facilities Finance
Authority Rev., 9.75s, 2025 350 392,438
AAA South Charleston, WV, Hospital Rev.
(Herbert J. Thomas Memorial Hospital),
8s, 2010 500 595,000
AAA West Virginia Hospital Finance Authority
(Monongalia General Hospital), 8.6s, 2017 1,000 1,156,250
AAA West Virginia Hospital Finance Authority
(West Virginia University Medical Corp.),
7.875s, 2018 1,000 1,142,500
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2005 2,250 1,293,750
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2006 2,500 1,359,375
<PAGE> 217
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Refunded and Special Obligation - continued
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2007 2,000 1,015,000
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2008 610 292,037
AAA West Virginia Resources Recovery Authority,
Solid Waste Disposal Rev., 8.25s, 2009 700 787,500
AAA West Virginia Water Development Authority,
7.1s, 2009 250 299,687
BBB+ West Virginia Water Development Authority,
9.375s, 2015 700 749,875
BBB+ West Virginia Water Development Authority,
7.4s, 2019 750 912,188
BBB+ West Virginia Water Development Authority,
9.5s, 2025 $ 350 $ 375,375
BBB+ West Virginia Water Development Authority,
8.625s, 2028 750 917,812
BBB+ West Virginia Water Development Authority,
8.125s, 2029 1,750 2,104,375
AAA West Virginia Water Development Authority,
8.125s, 2029 2,015 2,521,269
-----------
$23,479,419
- --------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 0.6%
AAA Huntington, WV, Housing Corp.,
Multi-Family Rev., 7.5s, 2024 $ 800 $ 860,000
Single Family Housing Revenue - 12.7%
AAA Berkeley, Brooke & Fayette Counties, WV,
9.1s, 2011 $ 130 $ 134,550
NR Berkeley County, WV, Residential
Mortgage Rev., 7.875s, 2012 450 466,312
NR Charles Town, WV, Residential Mortgage Rev.,
6.2s, 2011 1,395 1,457,775
AAA Grant, Hampshire, Hardy, Mineral & Pendleton
Counties, WV, 0s, 2017 6,555 704,663
BBB+ Kanawha, Mercer & Nicholas Counties, WV,
10.625s, 2008 10 10,412
BBB+ Kanawha, Mercer & Nicholas Counties, WV,
0s, 2015 15,000 1,781,250
NR Mason County, WV, Rev., 0s, 2014 1,700 367,625
A+ West Virginia Housing Development Fund,
7.95s, 2009 500 526,875
A+ West Virginia Housing Development Fund,
7.85s, 2014 1,000 1,045,000
A+ West Virginia Housing Development Fund,
0s, 2015 10,000 1,175,000
A+ West Virginia Housing Development Fund,
5.55s, 2017 2,000 2,012,500
AA+ West Virginia Housing Development Fund,
7.95s, 2017 3,500 3,670,625
A+ West Virginia Housing Development Fund,
7.2s, 2020 2,000 2,202,500
AA+ West Virginia Housing Development Fund,
5.45s, 2021 3,000 2,921,250
------------
$ 18,476,337
- --------------------------------------------------------------------------------
<PAGE> 218
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Insured Health Care Revenue - 4.1%
AAA Monongalia County, WV, Building Commission,
Hospital Rev.(Monongalia General Hospital),
6.625s, 2011 $ 1,000 $ 1,122,500
AAA West Virginia Hospital Authority
(West Virginia University Hospital Inc.),
5s, 2016 3,250 3,172,812
AAA West Virginia Hospital Finance Authority
(West Virginia University Medical Corp.),
7.875s, 2007 1,500 1,706,250
-----------
$ 6,001,562
- --------------------------------------------------------------------------------
Health Care Revenue - 7.7%
A- Berkeley, WV, Building Commission, Hospital
Rev.(City Hospital Project), 6.5s, 2022 $ 1,000 $ 1,076,250
NR Hampshire County, WV, First Mortgage Rev.
(Romney Health Care), 9.5s, 2022 1,280 1,337,600
NR Monongalia County, WV, Health Facilities Rev.
(Beverly Enterprises), l0s, 2007 955 1,110,188
NR Princeton, WV, Hospital Rev. (Princeton
Community Hospital), 6s, 2018 2,000 2,037,500
NR West Virginia Hospital Finance Authority
(Charleston Area Medical Center),
6.5s, 2023 2,000 2,165,000
NR West Virginia Hospital Finance Authority
(Teays Valley Haven Project), l0s, 2005 205 211,919
NR West Virginia Hospital Finance Authority
(Teays Valley Haven Project), l0s, 2015 3,025 3,214,062
------------
$ 11,152,519
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 1.7%
A- Puerto Rico Electric Power Authority,
8s, 2008 $ 1,000 $ 1,170,000
BBB+ Putnam County, WV, Pollution Control Rev.
(Appalachian Power Co.), 6.6s, 2019 1,200 1,312,500
------------
$ 2,482,500
- --------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 8.2%
A Beckley, WV, Industrial Development Rev.
(Beckley Water Co.), 7s, 2017 $ 2,000 $ 2,232,500
AAA Charleston, WV, Sewer Rev., 6.5s, 2017 2,260 2,511,425
AA Clarksburg, WV, Water Rev., 6.25s, 2019 1,000 1,051,250
AAA Huntington, WV, Sewer Rev., 5.25s, 2018 2,520 2,529,450
AAA Huntington, WV, Sewer Rev., 5.375s, 2023 1,000 1,010,000
AAA West Virginia Water Development Authority,
7.5s, 2009 1,100 1,285,625
BBB+ West Virginia Water Development Authority,
7.625s, 2009 500 561,875
BB- Wierton, WV, Sewer Rev., 7.75s, 2001 320 369,200
BB- Wierton, WV, Sewer Rev., 7.75s, 2002 345 401,925
------------
$ 11,953,250
- --------------------------------------------------------------------------------
<PAGE> 219
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Turnpike Revenue - 2.9%
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2005 $ 2,275 $ 1,310,969
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2006 1,885 1,020,256
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 8.944s, 2019 1,800 1,957,500
------------
$ 4 288 725
- --------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.5 %
AAA Puerto Rico Highway & Transportation
Authority Rev., 6.625s, 2018 $ 2,000 $ 2,240,000
- --------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) -18.8%
NR Jackson County, WV, Pollution Control Rev.
(Kaiser Aluminum & Chemical Corp.),
6.5s, 2008 $ 1,400 $ 1,281,000
NR Kanawha County, WV, Commercial Development
Rev. (Kroger Co.), 8s, 2011 1,000 1,141,250
A Kanawha County, WV, Commercial Development
Rev. (May Department Stores Co.), 6.5s, 2003 3,000 3,397,500
BBB Kanawha County, WV, Pollution Control
Rev. (Union Carbide Corp.), 8s, 2020 2,000 2,290,000
AAA Marshall County, WV, Pollution Control Rev.
(Ohio Power Co.), 6.85s, 2022 2,000 2,215,000
AAA Marshall County, WV, Pollution Control Rev.
(Ohio Power Co.), 6.85s, 2022 2,750 3,090,313
NR McDowell County, WV, Industrial Development
Rev. (War Telephone Co.), 13.5s, 2001 500 510,625
NR Monongalia County, WV, Commercial
Development Rev. (Kroger Co.), 7.7s, 2012 2,000 2,250,000
NR Ohio County, WV, Industrial Development Rev.
(Kroger Co.), 8.125s, 2011 2,000 2,280,000
NR Putnam County, WV, Industrial Development
Rev. (Rite Aid, Inc.), 10.375s, 2002 590 632,037
AAA Putnam, WV, Pollution Control Rev.
(Appalachian Power Co.), 5.45s, 2019 4,500 4,545,000
A Raleigh County, WV, Commercial Development
Rev. (K-Mart Corp.), 6.05s, 2006 670 704,338
NR South Charleston, WV, Pollution Control Rev.
(Union Carbide Corp.), 7.625s, 2005 2,500 2,993,750
------------
$ 27,330,813
- --------------------------------------------------------------------------------
Universities - 4.5%
AAA West Virginia University Rev.
(West Virginia University Dormitory
Project), 6s, 2012 $ 5,000 $ 5,406,250
AAA West Virginia University Rev.
(West Virginia University Dormitory
Project), 6.75s, 2017 1,000 1,127,500
------------
$ 6,533,750
- --------------------------------------------------------------------------------
<PAGE> 220
Municipal Bonds - continued
- --------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Other - 4.4%
BBB+ Charleston, WV, Parking Rev., 6s, 2013 $ 1,480 $ 1,511,450
A Harrison County, WV, Solid Waste Disposal
Rev.(West Pennsylvania Power Co.),
6.3s, 2023 2,500 2,668,750
NR West Virginia Hospital Finance Authority
(General Division Medical Office
Building), 7.25s, 2014 2,000 2,247,500
------------
$ 6,427,700
- --------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $125,988,784) $139,314,287
- --------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.8%
- --------------------------------------------------------------------------------
California Pollution Control Financing
Authority, Pollution Control Rev.
(Shell Oil Co.), due 10/01/07 $ 1,500 $ 1,500,000
California Pollution Control Financing
Authority, Pollution Control Rev.
(Shell Oil Co.), due 10/01/10 100 100,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev., due 3/10/24 300 300,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp. ), due 11/01/14 1,900 1,900,000
Uinta County, WY, Pollution Control Rev.
(Chevron USA, Inc.), due 12/01/22 300 300,000
------------
Total Floating Rate Demand Notes, at Identified Cost $ 4,100,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $130,088,784) $143,414,287
Other Assets, Less Liabilities - 1.6% 2,305,554
------------
Net Assets- 100.0% $145,719,841
See notes to financial statements
<PAGE> 221
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
Florida Georgia Maryland Massachusetts New York
January 31, 1994 Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments -
Identified cost $123,406,367 $ 94,418,021 $159,216,638 $270,153,611 $176,188,373
Unrealized appreciation 7,864,708 9,091,266 16,549,827 29,700,241 15,238,777
Total investments, at value $131,271,075 $103,509,287 $175,766,465 $299,853,852 $191,427,150
Cash 52,546 89,677 9,793 996,100 6,403
Receivable for investments sold 1,143,928 -- 986,260 3,508,720 1,171,571
Receivable for Fund shares sold 850,910 357,977 806,298 560,937 632,580
Interest receivable 1,759,305 1,228,114 1,871,149 4,146,552 3,044,045
Receivable for daily variation margin on open
futures contracts -- -- 11,250 21,094 --
Deferred organization expenses 6,413 -- -- -- --
Other assets 14,073 14,251 23,062 25,187 23,938
Total assets $135,098,250 $105,199,306 $179,474,277 $309,112,442 $196,305,687
Liabilities:
Distributions payable $ 372,009 $ 256,412 $ 354,042 $ 803,920 $ 363,652
Payable for investments purchased 2,982,802 4,360,601 -- 2,921,233 6,267,713
Payable for Fund shares reacquired 298,883 166,481 184,842 80,595 172,644
Payable to affiliates -
Shareholder servicing agent fee 337 197 1,479 3,257 1,564
Distribution fee 1,834 227 1,155 1,809 196
Accrued expenses and other liabilities 67,955 241,894 168,542 216,302 148,871
Total liabilities $ 3,723,820 $ 5,025,812 $ 710,060 $ 4,027,116 $ 6,954,640
Net assets $131,374,430 $100,173,494 $178,764,217 $305,085,326 $189,351,047
Net assets consist of:
Paid-in capital $122,953,421 $ 91,202,458 $163,142,639 $275,803,143 $173,707,563
Unrealized appreciation on investments 7,864,708 9,091,266 16,474,362 29,558,746 15,238,777
Accumulated undistributed
(distributions in excess of) net realized
gain on investments 649,190 79,578 (291,142) 758,676 819,430
Accumulated distributions in excess
of net investment income (92,889) (199,808) (561,642) (1,035,239) (414,723)
Total $131,374,430 $100,173,494 $178,764,217 $305,085,326 $189,351,047
Shares of beneficial interest outstanding Class A 11,672,078 8,355,697 14,677,951 25,615,328 16,266,787
Shares of beneficial interest outstanding Class B 681,964 510,309 452,788 356,767 425,783
Total shares of beneficial interest outstanding 12,354,042 8,866,006 15,130,739 25,972,095 16,692,570
Net assets Class A $124,130,840 $ 94,407,105 $173,419,169 $300,893,915 $184,523,013
Net assets Class B $ 7,243,590 $ 5,766,389 $ 5,345,048 $ 4,191,411 $ 4,828,034
Total net assets $131,374,430 $100,173,494 $178,764,217 $305,085,326 $189,351,047
Class A shares:
Net asset value and redemption price per share
(net assets / shares of beneficial interest
outstanding) $10.63 $11.30 $11.81 $11.75 $11.34
Offering price per share (100/95.25 of
net asset value per share) $11.16 $11.86 $12.40 $12.34 $11.91
Class B shares:
Net asset value and offering price per share
(net assets / shares of beneficia1 interest
outstanding) $10.62 $11.30 $11.80 $11.75 $11.34
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.
</TABLE>
See notes to financial statements
<PAGE> 222
FINANCIAL STATEMENTS-continued
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
North Carolina Pennsylvania South Carolina Virginia West Virginia
January 31, 1994 Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments--
Identified cost $475,044,706 $ 16,315,362 $174,253,704 $445,009,974 $130,088,784
Unrealized appreciation 44,018,872 718,194 17,608,334 44,130,870 13,325,503
Total Investments, at value $519,063,578 $ 17,033,556 $191,862,038 $489,140,844 $143,414,287
Cash 59,808 27,146 47,219 18,994 27,836
Receivable for investments sold 1,720,593 -- 2,134,658 720,998 2,002,800
Receivable for fund shares sold 2,743,881 150,311 822,756 1,841,135 799,640
Interest receivable 7,330,640 197,354 2,446,346 6,072,066 1,981,372
Receivable for daily variation
margin on open futures contracts -- 5,794 -- -- --
Deferred organization expenses -- 8,795 -- -- --
Other assets 26,441 -- 23,311 26,475 22,340
Total assets $530,944,941 $ 17,422,956 $197,336,328 $497,820,512 $148,248,275
Liabilities:
Distributions payable $ 941,032 $ 25,437 $ 398,645 $ 1,045,564 $ 308,957
Payable for investments purchased 15,996,472 -- 962,611 4,881,817 2,004,250
Payable for fund shares reacquired 589,101 -- 293,303 559,665 93,205
Payable to affiliates-
Shareholder servicing agent fee 4,062 -- 2,373 5,351 1,780
Distribution fee 3,116 138 1,359 3,044 1,331
Accrued expenses and other liabilities 290,137 9,480 154,884 281,869 118,911
Total liabilities $ 17,823,920 $ 35,055 $ 1,813,175 $ 6,777,310 $ 2,528,434
Net assets $513,121,021 $ 17,387,901 $195,523,153 $491,043,202 $145 719,841
Net assets consist of:
Paid-in capital $469,253,389 $ 16,656,921 $177,569,984 $447,261,177 $132,757,583
Unrealized appreciation on investments 44,018,872 711,886 17,608,334 44,130,870 13,325,503
Accumulated undistributed net realized
Gain on investments 1, 127,363 13,344 752,050 1,120,485 72,453
Accumulated undistributed (distributions
in excess of) net investment income (1,278,603) 5,750 (407,215) (1,469,330) (435,698)
Total $513,121,021 $ 17,387,901 $195,523,153 $491,043,202 $145,719,841
Shares of beneficial interest outstanding Class A 40,037,884 1,378,848 14,707,364 39,722,107 11,705,395
Shares of beneficial interest outstanding Class B 1,082,128 335,121 645,337 901,810 375,746
Shares of beneficial interest outstanding Class C 370,826 -- -- 69,051 --
Total shares of beneficial interest outstanding 41,490,838 1,713,969 15,352,701 40,692,968 12,081,141
Net assets Class A $495,158,297 $ 13,987,463 $187,306,568 $479,333,472 $141,190,243
Net assets Class B $ 13,379,102 $ 3,400,438 $ 8,216,585 $ 10,877,228 $ 4,529,598
Net assets Class C $ 4,583,622 $ -- $ -- $ 832,502 $ --
Total net assets $513,121,021 $ 17,387,901 $195,523,153 $491 043,202 $145,719,841
Class A shares:
Net asset value and redemption price per share
(net assets / shares of beneficial interest
outstanding) $12.37 $10.14 $12.74 $12.07 $12.06
Offering price per share (100/95.25 of
net asset value per share) $12.99 $10.65 $13.38 $12.67 $12.66
Class B shares:
Net asset value and offering price per share
(net assets / shares of beneficial
interest outstanding) $12.36 $10.15 $12.73 $12.06 $12.06
Class C shares:
Net asset value, offering and redemption price
per share (net assets / shares of
beneficial interest outstanding) $12.36 $ -- $ -- $12.06 $ --
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, Class B and Class C shares.
</TABLE>
See notes to financial statements
<PAGE> 223
Financial Statements-continued
Statements of Operations
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $ 5,933,825 $5,149,249 $10,961,071 $19,983,606 $10,219,376
Expenses--
Management fee $ 552,640 $ 449,179 $ 903,650 $ 1,591,974 $ 916,193
Trustees' compensation 13,688 13,467 14,016 14,269 13,465
Shareholder servicing agent fee (Class A) 148,754 120,863 246,218 435,306 249,913
Shareholder servicing agent fee (Class B) 3,323 2,662 2,480 1,995 2,205
Distribution and service fee (Class A) -- 285,726 574,461 1,015,715 582,221
Distribution and service fee (Class B) 15,105 12,102 11,271 9,068 10,025
Custodian fee 43,667 36,958 68,846 118,193 64,681
Printing 9,968 9,786 33,454 38,200 20,061
Postage 8,586 6,053 16,457 20,922 14,108
Auditing fees 56,280 71,287 90,937 90,937 69,787
Legal fees 6,292 3,960 11,149 12,557 12,786
Amortization of organization expenses 2,082 -- -- 1,502
Miscellaneous 90,408 63,866 94,382 116,343 100,539
Total expenses $ 950,793 $1,076,523 $ 2,067,321 $ 3,465,479 $ 2,057,486
Reduction of expenses by investment
adviser and distributor (444,758) (80,561) -- -- (506,315)
Net expenses $ 506,035 $ 995,962 $ 2,067,321 $ 3,465,479 $ 1,551,171
Net investment income $ 5,427,790 $4,153,287 $ 8,893,750 $16,518,127 $ 8,668,205
Realized and unrealized gain (loss) on investments
Realized gain (loss)
Investment transactions $ 1,805,604 $ 209,313 $ 752,402 $ 5,970,582 $ 3,282,230
Futures contracts (69,344) -- -- -- --
Net realized gain (loss) on investments $ 1,736,260 $ 209,313 $ 752,402 $ 5,970,582 $ 3,282,230
Change in unrealized appreciation (depreciation)--
Investments $ 6,043,652 $5,116,021 $ 6,336,329 $ 7,726,766 $ 7,577,071
Futures contracts -- -- (75,465) (141,495) --
Net unrealized gain (loss) on investments $ 6,043,652 $5,116,021 $ 6,260,864 $ 7,585,271 $ 7,577,071
Net realized and unrealized gain (loss) on investments $ 7,779,912 $5,325,334 $ 7,013,266 $13,555,853 $10,859,301
Increase (decrease) in net assets from operations $13,207,702 $9,478,621 $15,907,016 $30,073,980 $19,527,506
</TABLE>
See notes to financial statements
<PAGE> 224
Financial Statements-continued
Statements of Operations
<TABLE>
<CAPTION>
North Carolina Pennsylvania South Carolina Virginia West Virginia
Year Ended January 31 1994 Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $29,064,742 $ 541,177 $10,821,782 $29,294,533 $ 8,675,072
Expenses--
Management fee $ 2,501,986 $ 56,065 $ 947,476 $ 2,459,087 $ 728,874
Trustees' compensation 13,937 9,735 14,363 14,229 14,341
Shareholder servicing agent fee (Class A) 680,484 14,283 258,192 670,876 199,099
Shareholder servicing agent fee (Class B) 6,100 1,554 3,745 5,541 2,124
Shareholder servicing agent fee (Class C) 140 -- -- 24
Distribution and service fee (Class A) 1,600,277 -- 600,720 1,565,376 463,603
Distribution and service fee (Class B) 27,726 7,063 17,021 25,182 9,655
Distribution and service fee (Class C) 935 -- -- 162 --
Custodian fee 165,541 34,908 68,134 162,017 47,437
Printing 78,273 2,969 23,744 78,940 22,909
Postage 39,897 2,900 13,212 37,526 11,887
Auditing fees 91,437 27,056 74,287 91,437 54,287
Legal fees 44,399 10,085 5,487 7,946 8,793
Amortization of organization expenses -- 1,746 -- --
Miscellaneous 173,937 37,136 94,547 171,488 91,353
Total expenses $ 5,425,069 $ 205,500 $ 2,120,928 $ 5,289,831 $ 1,654,362
Reduction of expenses by investment adviser
and distributor -- (198,437) -- -- --
Net expenses $ 5,425,069 $ 7,063 $ 2,120,928 $ 5,289,831 $ 1,654,362
Net investment income $23,639,673 $ 534,114 $ 8,700,854 $24,004,702 $ 7,020,710
Realized and unrealized gain (loss) on investments:
Realized gain (loss)--
Investment transactions $ 1,621,795 $ 29,431 $ 762,732 $ 4,746,234 $ 1,599,326
Futures contracts -- (6,979) -- -- --
Net realized gain (loss) on investments $ 1,621,795 $ 22,452 $ 762,732 $ 4,746,234 $ 1,599,326
Change in unrealized appreciation (depreciation)--
Investments $19,979,696 $ 718,194 $ 9,029,209 $16,123,082 $ 6,029,100
Futures contracts -- (6,308) -- -- --
Net unrealized gain (loss) on investments $19,979,696 $ 711,886 $ 9,029,209 $16,123,082 $ 6,029,100
Net realized and
unrealized gain (loss) on investments $21,601,491 $ 734,338 $ 9,791,941 $20,869,316 $ 7,628,426
Increase (decrease) in net assets from operations $45,241,164 $1,268,452 $18,492,795 $44,874,018 $14,649,136
</TABLE>
See notes to financial statements
<PAGE> 225
FINANCIAL STATEMENTS-continued
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations
Net investment income $ 5,427,790 $ 4,153,287 $ 8,893,750 $ 16,518,127 $ 8,668,205
Net realized gain (loss) on investments 1,736,260 209,313 752,402 5,970,582 3,282,230
Net unrealized gain (loss) on investments 6,043,652 5,116,021 6,260,864 7,585,271 7,577,071
Increase (decrease) in net assets from operations $ 13,207,702 $ 9,478,621 $ 15,907,016 $ 30,073,980 $ 19,527,506
Distributions declared to shareholders
From net investment income (Class A) $ (5,381,618) $ (3,996,380) $ (8,501,900) $(15,813,609) $ (8,469,259)
From net investment income (Class B) (57,121) (46,306) (47,693) (41,940) (39,087)
From net realized gain on investments (Class A) (1,086,402) (64,945) (893,666) (4,944,048) (2,679,907)
From net realized gain on investments (Class B) (44,845) (2,565) (13,619) (43,883) (39,115)
In excess of net investment income (Class A) (89,928) (197,747) (559,628) (1,033,469) (411,930)
In excess of net investment income (Class B) (2,961) (2,061) (2,014) (1,770) (2,793)
In excess of net realized gain on investments
(Class A) -- -- (285,695) -- --
In excess of net realized gain on investments
(Class B) -- -- (5,447) -- --
Total distributions declared to shareholders $ (6,662,875) $ (4,310,004) $(10,309,662) $(21,878,719) $(11,642,091)
Fund share (principal) transactions
Net proceeds from sale of shares $ 78,036,466 $ 38,887,258 $ 38,166,091 $ 43,485,858 $ 68,527,297
Net asset value of shares issued to shareholders in
reinvestment of distributions 2,061,463 1,520,053 5,497,645 9,895,798 6,121,743
Cost of shares reacquired (29,597,409) (10,051,163) (16,291,085) (27,269,464) (28,931,917)
Increase (decrease) in net assets from Fund share
transactions $ 50,500,520 $ 30,356,148 $ 27,372,651 $ 26,112,192 $ 45,717,123
Total increase (decrease) in net assets $ 57,045,347 $ 35,524,765 $ 32,970,005 $ 34,307,453 $ 53,602,538
Net assets:
At beginning of period 74,329,083 64,648,729 145,794,212 270,777,873 135,748,509
At end of period $131,374,430 $100,173,494 $178,764,217 $305,085,326 $189,351,047
Accumulated distributions in excess of net
investment income included in net assets at end of
period $ (92,889) $ (199,808) $ (561,642) $ (1,035,239) $ (414,723)
</TABLE>
<PAGE> 226
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
North Carolina Pennsylvania South Carolina Virginia West Virginia
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations-
Net investment income $ 23,639,673 $ 534,114 $ 8,700,854 $ 24,004,702 $ 7,020,710
Net realized gain (loss) on investments 1,621,795 22,452 762,732 4,746,234 1,599,326
Net unrealized gain (loss) on investments 19,979,696 711,886 9,029,209 16,123,082 6,029,100
Increase (decrease) in net assets from
operations $ 45,241,164 $ 1,268,452 $ 18,492,795 $ 44,874,018 $ 14,649,136
Distributions declared to shareholders -
From net investment income (Class A) $(22,593,670) $ (499,013) $ (8,351,192) $(23,000,542) $ (6,693,640)
From net investment income (Class B) (111,740) (29,351) (65,754) (107,077) (40,005)
From net investment income (Class C) (2,176) - - (291) -
From net realized gain on investments
(Class A) (441,976) (7,638) (179,941) (7,602,939) (1,373,948)
From net realized gain on investments
(Class B) (6,972) (1,470) - (52,284) (26,180)
In excess of net investment income (Class A) (1,275,110) - (404,781) (1,466,322) (434,275)
In excess of net investment income (Class B) (3,178) _ (2,434) (2,976) (1,423)
In excess of net investment income (Class C) (315) - - (32) -
Total distributions declared to shareholders $(24,435,137) $ (537,472) $ (9,004,102) $(32,232,463) $ (8,569,471)
Fund share (principal) transactions -
Net proceeds from sale of shares $117,668,357 $17,437,556 $ 56,075,126 $ 93,022,362 $ 34,081,347
Net asset value of shares issued to
shareholders in reinvestment of
distributions 13,376,861 350,218 4,481,087 16,799,726 4,199,846
Cost of shares reacquired (37,081,742) (1,130,853) (19,060,786) (31,116,518) (13,930,081)
Increase (decrease) in net assets from Fund
share transactions $ 93,963,476 $16,656,921 $ 41,495,427 $ 78,705,570 $ 24,351,112
Total Increase (decrease) in net assets $114,769,503 $17,387,901 $ 50,984,120 $ 91,347,125 $ 30,430,777
Net assets:
At beginning of period 398,351,518 0 144,539,033 399,696,077 115,289,064
At end of period $513,121,021 $17,387,901 $195,523,153 $491,043,202 $145,719,841
Accumulated undistributed (distributions in
excess of) net investment income included in
net assets at end of period $ (1,278,603) $ 5,750 $ (407,215) $ (1,469,330) $ (435,698)
</TABLE>
See notes to financial statements
<PAGE> 227
FINANCIAL STATEMENTS-continued
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Florida Georgia Maryland Massachusetts New York
Year Ended January 31, 1993 Fund<F1> Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 2,260,646 $ 3,204,812 $ 8,051,058 $ 16,142,158 $ 6,527,771
Net realized gain (loss) on
investments 44,177 (60,945) 163,898 1,901,286 457,352
Net unrealized gain (loss) on
investments 1,821,056 1,933,514 2,458,347 6,541,474 5,167,615
Increase (decrease) in net assets
from operations $ 4,125,879 $ 5,077,381 $ 10,673,303 $ 24,584,918 $ 12,152,738
Distributions declared to shareholders -
From net investment income $(2,249,697) $(3,207,231) $ (8,030,037) $(16,246,165) $ (6,559,269)
From net realized gain on investments - (2,500) (170,191) - (330,380)
Total distributions declared to
shareholders $(2,249,697) $(3,209,731) $(8,200,228) $(16,246,165) $ (6,889,649)
Fund share (principal) transactions -
Net proceeds from sale of shares $76,513,427 $22,009,404 $ 29,492,487 $ 39,423,938 $ 60,117,686
Net asset value of shares issued to
shareholders in reinvestment of
distributions 730,250 1,131,590 4,254,107 6,725,151 3,565,206
Cost of shares reacquired (4,790,776) (8,228,764) (9,545,260) (23,020,765) (12,721,127)
Increase (decrease) in net assets
from Fund share transactions $72,452,901 $14,912,230 $ 24,201,334 $ 23,128,324 $ 50,961,765
Total increase (decrease) in net
assets $74,329,083 $16,779,880 $ 26,674,409 $ 31,467,077 $ 56,224,854
Net assets:
At beginning of period - 47,868,849 119,119,803 239,310,796 79,523,655
At end of period $74,329,083 $64,648,729 $145,794,212 $270,777,873 $135,748,509
Accumulated undistributed
(distributions in excess of) net
investment income included in net
assets at end of period $ 10,949 $ (110,601) $ (250,996) $ (698,173) $ (159,859)
<FN>
<F1> For the period from the commencement of investment operations, February 3, 1992 to January 31, 1993.
</FN>
</TABLE>
<PAGE> 228
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
North Carolina South Carolina Virginia West Virginia
Year Ended January 31, 1993 Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 20,424,385 $ 6,885,239 $ 21,631,404 $ 5,726,944
Net realized gain (loss) on investments 926,647 171,521 4,031,955 (126,746)
Net unrealized gain (loss) on investments 10,436,827 3,233,432 5,211,135 2,778,675
Increase (decrease) in net assets from $ 31,787,859 $ 10,290,192 $ 30,874,494 $ 8,378,873
operations
Distributions declared to shareholders -
From net investment income $(20,537,511) $ (6,908,631) $(21,761,143) $ (5,779,037)
From net realized gain on investments - (434,767) (108,664) (39,937)
Total distributions declared to shareholders $(20,537,511) $ (7,343,398) $(21,869,807) $ (5,818,974)
Fund share (principal) transactions -
Net proceeds from sale of shares $ 91,371,452 $ 45,760,145 $ 76,099,997 $ 34,400,201
Net asset value of shares issued to 10,903,417 3,803,258 10,753,209 2,828,957
shareholders in reinvestment of
distributions
Cost of shares reacquired (27,639,935) (9,405,204) (24,825,440) (4,939,747)
Increase (decrease) in net assets
from Fund share transactions $ 74,634,934 $ 40,158,199 $ 62,027,766 $ 32,289,411
Total increase (decrease) in net assets $ 85,885,282 $ 43,104,993 $ 71,032,453 $ 34,849,310
Net assets:
At beginning of period 312,466,236 101,434,040 328,663,624 80,439,754
At end of period $398,351,518 $144,539,033 $399,696,077 $115,289,064
Accumulated distributions in excess of net
investment income included in net assets at
end of period $ (890,351) $ (273,307) $ (847,090) $ (274,420)
See notes to financial statements
</TABLE>
<PAGE> 229
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
Florida Fund
Year Ended January 31, 1994 1993<F1> 1994
Class A Class B<F2>
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset va1ue - beginning of period $ 9.89 $ 9.53 $10.69
Income from investment operations-
Net investment income<F4> $ 0.57 $ 0.58 $ 0.18
Net realized and unrealized gain (loss) on investments 0.86 0.36 0.03
Total from investment operations $ 1.43 $ 0.94 $ 0.21
Less distributions declared to shareholders
From net investment income $(0.57) $(0.58) $(0.17)
From net realized gain on investments (0.11) -- (0.10)
In excess of net investment income (0.01) -- (0.01)
Total distributions declared to shareholders $(0.69) $(0.58) $(0.28)
Net asset value-end of period $10.63 $ 9.89 $10.62
Total return 14.71% 10.28%<F3> 4.87%<F3>
Ratios (to average net assets)/Supplemental data:<F4>
Expenses 0.49% 0.05%<F3> 1.64%<F3>
Net investment income 5.42% 6.27%<F3> 3.82%<F3>
Portfolio turnover 53% 54% 53%
Net assets end of period (000 omitted) $124,131 $74,329 $7,244
<FN>
<F1>For the period from the commencement of operations, February 3, 1992 to January 31, 1993.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized
<F4>The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
Net investment income per share $ 0.52 $ 0.51 $ 0.16
Ratios (to average net assets):
Expenses 0.93% 0.81%<F3> 2.09%<F3>
Net investment income 4.97% 5.51%<F3> 3.38%<F3>
</FN>
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Georgia Fund
Year Ended January 31, 1994 1993 1992 1991 1990 1989<F1> 1994
Class A Class B<F2>
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each period):
Net asset value - beginning of period $ 10.57 $10.22 $ 9.83 $ 9.73 $ 9.73 $ 9.53 $11.26
Income from investment operations-
Net investment income<F4> $ 0.57 $ 0.58 $ 0.61 $ 0.63 $ 0.66 $ 0.32 $ 0.19
Net realized and unrealized gain
(loss) on investments 0.75 0.38 0.46 0.12 0.02 0.14 0.05
Total from investment operations $ 1.32 $ 0.96 $ 1.07 $ 0.75 $ 0.68 $ 0.46 $ 0.24
Less distributions declared to shareholders
From net investment income $ (0.55) $(0.60) $ (0.66) $ (0.63) $(0.66) $(0.26) $(0.18)
From net realized gain on
investments (0.01) (0.01) (0.02) (0.02) (0.02) -- (0.01)
In excess of net investment income (0.03) -- -- -- -- -- (0.01)
Total distributions declared to
shareholders $ (0.59) $(0.61) $ (0.68) $ (0.65) $ (0.68) $(0.26) $(0.20)
Net asset va1ue - end of period $ 11.30 $10.57 $ 10.22 $ 9.83 $ 9.73 $ 9.73 $11.30
Total return 12.71% 9.56% 11.29% 8.06% 7.19% 7.57%<F3> 5.34%<F3>
Ratios (to average net assets)/Supplemental data:<F4>
Expenses 1.21% 1.08% 0.99% 0.74% 0.42% 0.40%<F3> 1.97%<F3>
Net investment income 5.10% 5.75% 6.08% 6.46% 6.72% 6.18%<F3> 3.83%<F3>
Portfolio turnover 14% 27% 36% 71% 99% --% 14%
Net assets end of period $94,407 $64,649 $47,869 $29,214 $12,628 $4,383 $5,766
(000 omitted)
<FN>
<F1>For the period from the commencement of operations, June 6, 1988 to January 31, 1989.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized .
<F4>The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
Net investment income per share $ 0.56 $ 0.57 $ 0.60 $ 0.59 $ 0.57 $ 0.29 $ 0.19
Ratios (to average net assets):
Expenses 1.31% 1.18% 1.09% 1.11% 1.31% 1.07%<F3> 1.97%<F3>
Net investment income 5.00% 5.65% 5.98% 6.09% 5.83% 5.51%<F3> 3.83%<F3>
</FN>
</TABLE>
See notes to financial statements
<PAGE> 230
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
Maryland Fund
Year Ended January 31 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985<F1> 1994
Class A Class B<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $11.40 $ 11.20 $10.97 $10.79 $10.76 $ 10.62 $11.20 $10.44 $ 9.89 $ 9.52 $11.88
Income from investment operations
Net investment income $ 0.62 $ 0.67 $ 0.70 $ 0.70 $ 0.69 $ 0.69 $ 0.68 $ 0.71 $ 0.81 $ 0.22 $ 0.22
Net realized and unrealized
gain (loss) on investments 0.53 0.24 0.31 0.19 0.04 0.14 (0.57) 0.78 0.62 0.29 (0.01)
Total from investment
operations $ 1.15 $ 0.91 $ 1.01 $ 0.89 $ 0.73 $ 0.83 $ 0.11 $ 1.49 $ 1.43 $ 0.51 $ 0.21
Less distributions declared to
shareholders-
From net investment income $(0.61) $ (0.69) $(0.76) $(0.70) $(0.69) $ (0.69) $(0.67) $(0.73) $(0.82) (0.14) $(0.21)
From net realized gain on
investments (0.07) (0.02) (0.02) (0.01) (0.01) -- (0.01) -- (0.06) -- (0.05)
In excess of net investment
income (0.04) -- -- -- -- -- -- -- -- -- (0.01)
In excess of net realized gain
on investments (0.02) -- -- -- -- -- -- -- -- -- (0.02)
From paid-in capital<F4> -- -- -- -- -- -- (0.01) -- -- -- --
Total distributions declared to
shareholders $ (0.74) $ (0.71) $ (0.78) $(0.71) $(0.70) $ (0.69) $(0.69) $(0.73) $(0.88) $(0.14) $(0.29)
Net asset value - end of
period $ 11.81 $ 11.40 $ 11.20 $10.97 $10.79 $ 10.76 $10.62 $11.20 $10.44 $9.89 $11.80
Total return 10.27% 8.34% 9.55% 8.51% 6.90% 8.15% 1.25% 14.86% 15.47% 21.42%<F3> 4.45%<F3>
Ratios (to average net
assets)/Supplemental data:
Expenses 1.25% 1.14% 1.16% 1.17% 1.18% 1.14% 1.10% 1.10% 0.98% 0.95%<F3> 1.81%<F3>
Net investment income 5.42% 6.13% 6.32% 6.45% 6.33% 6.52% 6.47% 6.60% 8.22% 9.15%<F3> 4.23%<F3>
Portfolio turnover 25% 5% 9% 41% 58% 34% 13% 11% 26% 40% 25%
Net assets at end of period $173,419 $145,794 $119,120 $101,742 $93,175 $84,380 $79,906 $81,712 $33,818 $9,055 $5,345
(000 omitted)
<FN>
<F1>For the period from the commencement of operations, October 31, 1984 to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>For the year ended January 31, 1986, the per share distribution from paid-in capital was $0.0005.
</FN>
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Massachusetts Fund
Year Ended January 31 1994 1993 1992 1991 1990 1989 1988 1987 1986<F1> 1994
Class A Class B<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each
period):
Net asset value - beginning
of period $11.41 $11.05 $10.68 $10.58 $10.65 $10.60 $11.25 $10.59 $ 9.52 $11.91
Income from investment
operations--
Net investment income $ 0.64 $0.68 $ 0.73 $ 0.71 $ 0.72 $ 0.72 $ 0.71 $ 0.74 $ 0.54 $ 0.23
Net realized and unrealized
gain (loss) on investments 0.58 0.39 0.43 0.11 (0.07) 0.05 (0.65) 0.68 0.99 0.04
Total from investment
operations $ 1.22 $1.07 $1.16 $ 0.82 $ 0.65 $ 0.77 $ 0.06 $ 1.42 $ 1.53 $ 0.27
Less distributions declared
to shareholders-
From net investment income $(0.64) $(0.71) $(0.78) $(0.72) $(0.72) $(0.72) $(0.71) $(0.75) $(0.46) $(0.22)
From net realized gain on
investments (0.20) -- -- -- -- -- -- (0.01) -- (0.20)
In excess of net investment
income (0.04) -- -- -- -- -- -- -- -- (0.01)
From paid-in capital -- -- (0.01) -- -- -- -- -- -- --
Total distributions declared
to shareholders $(0.88) $(0.71) $(0.79) $(0.72) $(0.72) $(0.72) $(0.71) $(0.76) $(0.46) $(0.43)
Net asset value - end of
period $11.75 $11.41 $11.05 $10.68 $10.58 $10.65 $10.60 $11.25 $10.59 $11.75
Total return 11.02% 10.03% 11.23% 8.12% 6.28% 7.65% 0.80% 14.10% 20.51%<F3> 5.89%<F3>
Ratios (to average net
assets)/Supplemental data:
Expenses 1.19% 1.08% 1.06% 1.07% 1.10% 1.07% 1.04% 0.87% 0.86%<F3> 1.81%<F3>
Net investment income 5.71% 6.33% 6.65% 6.74% 6.75% 6.90% 6.79% 6.83% 7.82%<F3> 4.62%<F3>
Portfolio turnover 30% 32% 51% 43% 52% 26% 27% 7% 27% 30%
Net assets at end of period
(000 omitted) $300,894 $270,778 $239,311 $213,679 $215,381 $212,763 $224,219 $242,119 $94,575 $4,191
<FN>
<F1>For the period from the commencement of operations, April 9, 1985 to January 31, 1986.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 231
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
New York Fund
Year Ended January 31, 1994 1993 1992 1991 1990 1989<F1> 1994
Class A Class B<F2>
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.78 $10.25 $ 9.90 $ 9.74 $ 9.79 $ 9.53 $11.46
Income from investment operations
Net investment income<F4> $ 0.59 $ 0.63 $ 0.65 $ 0.65 $ 0.68 $ 0.29 $ 0.18
Net realized and unrealized gain
(loss) on investments 0.74 0.58 0.44 0.16 0.01 0.21 0.04
Total from investment operations $ 1.33 $ 1.21 $ 1.09 $ 0.81 $ 0.69 $ 0.50 $ 0.22
Less distributions declared to shareholders
From net investment income $(0.57) $(0.65) $(0.69) $(0.65) $(0.67) $(0.24) $(0.18)
From net realized gain on investments (0.17) (0.03) (0.05) -- (0.06) -- (0.15)
In excess of net investment income (0.03) -- -- -- -- -- (0.01)
From paid-in capital -- -- -- -- (0.01) -- --
Total distributions declared to
shareholders $(0.77) $(0.68) $(0.74) $(0.65) $(0.74) $(0.24) $(0.34)
Net asset value - end of period $11.34 $10.78 $10.25 $ 9.90 $ 9.74 $ 9.79 $11.34
Total return 12.69% 12.23% 11.42% 8.74% 7.33% 8.16%<F3> 5.20%<F3>
Ratios (to average net assets)/Supplemental data:<F4>
Expenses 0.93% 0.53% 0.65% 0.54% 0.40% 0.40%<F3> 1.79%<F3>
Net investment income 5.21% 6.16% 6.44% 6.73% 6.88% 5.93%<F3> 3.90%<F3>
Portfolio turnover 51% 61% 80% 188% 236% 32% 51%
Net assets at end of period (000 omitted) $184,523 $135,749 $79,524 $37,385 $20,156 $6,412 $4,828
<FN>
<F1>For the period from the commencement of operations, June 6, 1988 to January 31, 1989.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have
been:
Net investment income per share $ 0.56 $ 0.57 $0.60 $0.61 $0.59 $0.26 $0.17
Ratios (to average net assets):
Expenses 1.23% 1.13% 1.16% 0.95% 1.32% 1.09%<F3> 2.00%<F3>
Net investment income 4.90% 5.56% 5.93% 6.33% 5.96% 5.24%<F3> 3.69%<F3>
</FN>
</TABLE>
See notes to financial statements
<PAGE> 232
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
North Carolina Fund
Year Ended January 31, 1994 1993 1992 1991 1990 1989 1988
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 $ 11.80 $11.45 $11.30 $11.18 $11.15 $11.13 $11.82
Income from investment operations--
Net investment income $ 0.64 $ 0.65 $ 0.70 $ 0.72 $0.73 $ 0.74 $ 0.73
Net realized and unrealized gain (loss) on investments 0.58 0.37 0.26 0.17 0.03 0.02 (0.69)
Total from investment operations $ 1.22 $ 1.02 $ 0.96 $ 0.89 $ 0.76 $ 0.76 $ 0.04
Less distributions declared to shareholders
From net investment income $ (0.61) $(0.67) $(0.76) $(0.72) $(0.73) $(0.74) $(0.73)
From net realized gain on investments (0.01) -- (0.01) (0.05) -- -- --
In excess of net investment income<F6> (0.03) -- -- -- -- -- --
From paid-in capital<F5> -- -- (0.04) -- -- -- --
Total distributions declared to shareholders $ (0.65) $(0.67) $(0.81) $(0.77) $(0.73) $(0.74) $(0.73)
Net asset value - end of period $ 12.37 $11.80 $11.45 $11.30 $11.18 $11.15 $11.13
Total return 10.59% 9.23% 8.82% 8.34% 6.97% 7.12% 0.65%
Ratios (to average net assets)/Supplemental data:
Expenses 1.19% 1.07% 1.09% 1.09% 1.12% 1.11% 1.08%
Net investment income 5.21% 5.80% 6.17% 6.47% 6.48% 6.70% 6.71%
Portfolio turnover 12% 2% 39% 44% 61% 25% 10%
Net assets at end of period(000 omitted) $495,158 $398,352 $312,466 $226,806 $175,101 $129,287 $110,462
<CAPTION>
Year Ended January 31, 1987 1986 1985<F1> 1994 1994
Class A Class B<F2> Class C<F3>
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.09 $10.01 $ 9.52 $12.36 $ 12.24
Income from investment operations--
Net investment income $ 0.75 $ 0.82 $ 0.21 $ 0.22 $ 0.02
Net realized and unrealized gain (loss) on investments 0.90 1.12 0.42 0.01 0.12
Total from investment operations $ 1.65 $ 1.94 $ 0.63 $ 0.23 $ 0.14
Less distributions declared to shareholders
From net investment income $(0.76) $(0.82) $(0.14) $(0.21) $ (0.02)
From net realized gain on investments (0.16) (0.04) -- (0.01)
In excess of net investment income<F6> -- -- -- (0.01)
From paid-in capital<F5> -- -- -- -- --
Total distributions declared to shareholders $(0.92) $(0.86) $(0.14) $(0.23) $ (0.02)
Net asset value - end of period $11.82 $11.09 $10.01 $12.36 $ 12.36
Total return 15.76% 20.63% 25.82%<F4> 4.58%<F4> 16.50%<F4>
Ratios (to average net assets)/Supplemental data:
Expenses 1.07% 0.90% 0.95%<F4> 1.84%<F4> 1.44%<F4>
Net investment income 6.63% 8.02% 8.71%<F4> 4.03%<F4> 2.33%<F4>
Portfolio turnover 10% 78% 39% 12% 12%
Net assets at end of period(000 omitted) $105,668 $53,561 $20,243 $13,379 $4,584
<FN>
<F1>For the period from the commencement of operations, October 31, 1984 to January 31, 1985.
<F2>For the period from commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>For the period from the commencement of offering of Class C shares, January 3, 1994 to January 31, 1994.
<F4>Annualized.
<F5>For the year ended January 31, 1991, the per share distribution from paid-in capital was $0.0005.
<F6>For the year ended January 31, 1994, the per share distribution for Class C shares in excess of net investment income was
$0.003.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 233
FINANCIAL STATEMENTS - continued
Financial Highlights
Pennsylvania Fund
Year Ended January 31, 1994 1994
Class A* Class B**
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.53 $10.06
Income from investment operations
Net investment income++ $ 0.50 $ 0.17
Net realized and unrealized gain
(loss) on investments 0.62 0.10
Total from investment operations $ 1.12 $ 0.27
Less distributions declared to shareholders
From net investment income $(0.50) $(0.17)
From net realized gain on investments (0.01) (0.01)
Total distributions declared to shareholders $(0.51) $(0.18)
Net asset value - end of period $10.14 $10.15)
Total return 12.12% 6.76%+
Total (to average net assets)/
Supplemental data:++
Expenses 0.00% 1.00%+
Net investment income 5.30% 4.22%+
Portfolio turnover 10% 10%
Net assets at end of period (000 omitted) $13,987 $3,401
* For the period from the commencement of operations, February 1, 1993 to
January 31, 1994.
** For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+ Annualized.
++ The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, the net investment income per share and the
ratios would have been:
Net investment income per share $ 0.32 $0.05
Ratios (to average net asses):
Expenses 1.94% 2.50%+
Net investment income 3.36% 1.29%+
<TABLE>
<CAPTION>
Financial Highlights
South Carolina Fund
Year Ended January 31, 1994 1993 1992 1991 1990 1989 1988
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 $ 12.02 $ 11.74 $ 11.45 $11.30 $11.24 $11.14 $11.54
Income from investment operations--
Net investment income $ 0.63 $ 0.67 $ 0.70 $ 0.71 $ 0.72 $ 0.76 $ 0.77
Net realized and unrealized
gain (loss) on investments 0.74 0.34 0.40 0.21 0.06 0.11 (0.36)
Total from investment operations $ 1.37 $ 1.01 $ 1.10 $ 0.92 $ 0.78 $ 0.87 $ 0.41
Less distributions declared to shareholders
From net investment income $ (0.61) $ (0.69) $ (0.76) $(0.71) $(0.72) $(0.77) $(0.77)
From net realized gain on investments (0.01) (0.04) (0.05) (0.06) -- -- --
In excess of net investment income (0.03) -- -- -- -- -- --
From paid-in capital++ -- -- -- -- -- -- (0.04)
Total distributions
declared to shareholders $ (0.65) $ (0.73) $ (0.81) $(0.77) $(0.72) $(0.77) $(0.81)
Net asset value - end of period $ 12.74 $ 12.02 $ 11.74 $11.45 $11.30 $11.24 $11.14
Total return 11.69% 8.89% 9.95% 8.46% 7.13% 8.18% 3.92%
Ratios (to average net assets)/Supplemental data:
Expenses 1.22% 1.12% 1.15% 1.18% 1.21% 0.97% 0.81%
Net investment income 5.06% 5.74% 6.07% 6.30% 6.35% 6.90% 7.07%
Portfolio turnover 10% 11% 22% 47% 54% 27% 12%
Net assets at end of period (000 omitted) $187,307 $144,539 $101,434 $75,922 $57,675 $45,391 $34,025
<CAPTION>
Year Ended January 31, 1987 1986 1985<F1> 1994
Class B<F2>
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.89 $ 9.95 $ 9.52 $12.67
Income from investment
operations--
Net investment income $0.77 $ 0.84 $ 0.22 $ 0.21
Net realized and unrealized gain
(loss) on investments 0.69 0.95 0.35 0.06
Total from investment operations $1.46 $1.79 $ 0.57 $ 0.27
Less distributions declared to shareholders
From net investment income $(0.78) $(0.84) $(0.14) $(0.20)
From net realized gain on investments (0.03) (0.01) -- --
In excess of net investment income -- -- -- (0.01)
From paid-in capital<F4> -- -- -- --
Total distributions declared to shareholders: $(0.81) $(0.85) $(0.14) $(0.21)
Net asset value - end of period $11.54 $10.89 $ 9.95 $12.73
Total return 14.05% 19.13% 23.47%<F3> 5.47%<F3>
Ratios (to average net assets)/Supplemental data:
Expenses 0.99% 1.01% 0.95%<F3> 1.90%<F3>
Net investment income 7.00% 8.26% 9.09%<F3> 3.86%<F3>
Portfolio turnover 13% 28% 49% 10%
Net assets at end of period (000 omitted) $27,978 $10,936 $3,052 $8,217
<FN>
<F1>For the period from the commencement of operations, October 31, 1984 to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>For the year ended January 31, 1986, the per share distribution from paid-in capital was $0.00042.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 234
FINANCIAL STATEMENTS -- continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
January 31, 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985<F1> 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class Class
B<F2> C<F3>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning
of period $11.72 $11.44 $11.16 $10.97 $10.91 $10.75 $11.38 $10.78 $10.01 $ 9.52 $12.14 $11.94
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment
income $ 0.65 $ 0.68 $ 0.71 $ 0.73 $ 0.73 $ 0.74 $ 0.72 $ 0.74 $ 0.81 $ 0.22 $ 0.22 $ 0.02
Net realized and
unrealized
gain (loss)
on investments 0.56 0.30 0.34 0.19 0.06 0.16 (0.57) 0.61 0.77 0.42 0.01 0.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations $ 1.21 $ 0.98 $ 1.05 $ 0.92 $ 0.79 $ 0.90 $ 0.15 $ 1.35 $ 1.58 $ 0.64 $ 0.23 $ 0.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders-
From net
investment
income $(0.62) $(0.70) $(0.77) $(0.73) $(0.73) $(0.74) $(0.71) $(0.75) $(0.80) $(0.15) $(0.21) $(0.02)
From net
realized gain on
investments<F6> (0.20) -- -- -- -- -- (0.05) -- (0.01) -- (0.09) --
In excess of net
investment
income<F7> (0.04) -- -- -- -- -- -- -- -- -- (0.01) --
From paid-in
capital<F5> -- -- -- -- -- -- (0.02) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions
declared to
shareholders $(0.86) $(0.70) $(0.77) $(0.73) $(0.73) $(0.74) $(0.78) $(0.75) $(0.81) $(0.15) $(0.31) $(0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $12.07 $11.72 $11.44 $11.16 $10.97 $10.91 $10.75 $11.38 $10.78 $10.01 $12.06 $12.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total return 10.67% 8.88% 9.76% 8.74% 7.46% 8.76% 1.61% 13.12% 16.82% 26.53%<F4> 4.93%<F4> 17.05%<F4>
Ratios (to average
net assets)/
Supplemental data:
Expenses 1.18% 1.08% 1.08% 1.11% 1.12% 1.09% 1.04% 1.02% 0.83% 0.95%<F4> 1.82%<F4> 1.18%<F4>
Net investment
income 5.37% 6.02% 6.32% 6.64% 6.67% 6.91% 6.75% 6.73% 8.89% 8.87%<F4> 4.25%<F4> 1.79%<F4>
Portfolio turnover 22% 20% 13% 38% 41% 38% 11% 20% 23% 13% 22% 22%
Net assets at end
of period
(000 omitted) $479,333 $399,696 $328,664 $275,202 $240,553 $207,680 $192,104 $181,937 $85,076 $32,638 $10,877 $833
<FN>
<F1>For the period from the commencement of operations, October 31, 1984 to January 3 1, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>For the period from the commencement of offering of Class C shares, January 3, 1994 to January 31, 1994.
<F4>Annualized .
<F5>For the years ended January 31, 1987 and 1986, the per share distribution from paid-in capital was $0.0005 and $0.00 15,
respectively.
<F6>For the year ended January 31, 1993, the per share distribution from net realized gain on investments was $0.00348.
<F7>For the year ended January 31, 1994, the per share distribution in excess of net investment income on Class C shares was
$0.002.
</FN>
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
West Virgina Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31, 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985<F1> 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class
B<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $11.50 $11.20 $10.93 $10.72 $10.68 $10.51 $11.30 $10.77 $ 9.83 $ 9.52 $12.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations -
Net investment income $ 0.64 $ 0.66 $ 0.70 $ 0.71 $ 0.71 $ 0.77 $ 0.77 $ 0.81 $ 0.84 $ 0.23 $ 0.22
Net realized and
unrealized gain
(loss) on investments 0.69 0.34 0.34 0.21 0.04 0.18 (0.72) 0.56 0.96 0.23 0.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.33 $ 1.00 $ 1.04 $ 0.92 $ 0.75 $ 0.95 $ 0.05 $ 1.37 $ 1.80 $ 0.46 $ 0.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
dec1ared to shareholders -
From net investment
income $(0.61) $(0.69) $(0 76) $(0.71) $(0.71) $(0.78) $(0.76) $(0.81) $(0.85) $(0.15) $(0.21)
From net realized gain
on investments (0.12) (0.01) (0.01) -- -- -- (0.02) (0.03) (0.01) -- (0.12)
In excess of net
investment income (0.04) -- -- -- -- -- -- -- -- -- (0.01)
From paid-in
capital<F4> -- -- -- -- -- -- (0.06) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareho1ders $(0.77) $(0.70) $(0.77) $(0.71) $(0.71) $(0.78) $(0.84) $(0.84) $(0.86) $(0.15) $(0.34)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value --
end of period $12.06 $11.50 $11.20 $10.93 $10.72 $10.68 $10.51 $11.30 $10.77 $ 9.83 $12.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total return 11.80% 9.12% 9.84% 8.91% 7.26% 9.43% 0.76% 13.42% 19.42% 18.96%<F3> 5.59%<F3>
Ratios (to average
net assets)/
Supplemental data:
Expenses 1.24% 1.15% 1.17% 1.21% 1.22% 0.86% 0.79% 0.87% 1.00% 0.95%<F3> 1.89%<F3>
Net investment
income 5.30% 5.97% 6.33% 6.59% 6.63% 7.01% 7.32% 7.42% 8.40% 9.71%<F3> 4.14%<F3>
Portfolio turnover 26% 19% 14% 37% 34% 9% 11% 9% 24% 14% 26%
Net assets at end
of period
(000 omitted) $141,190 $115,289 $80,440 $61,984 $52,398 $43,026 $36,276 $34,436 $17,733 $7,039 $4,530
<FN>
<F1>For the period from the commencement of investment operations, October 31, 1984 to January 31, 1985.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to January 31, 1994.
<F3>Annualized.
<F4>For the years ended January 31, 1987 and 1986, the per share distribution from paid-in capital was $0.0018 and
$0.0005, respectively.
</FN>
</TABLE>
See notes to financial statements
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
The Trust is organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as a non-diversified (except for
MFS Municipal Income Fund which is registered as a diversified investment
company), open-end, management investment company. Effective August 20, 1993,
the Trust changed its name from MFS Multi-State Municipal Bond Trust to MFS
Municipal Series Trust. The Trust presently consists of nineteen Funds, as
follows: MFS Municipal Income Fund, MFS Alabama Municipal Bond Fund, MFS
Arkansas Municipal Bond Fund, MFS California Municipal Bond Fund, MFS Florida
Municipal Bond Fund* (Florida Fund), MFS Georgia Municipal Bond Fund* (Georgia
Fund), MFS Louisiana Municipal Bond Fund, MFS Maryland Municipal Bond Fund*
(Maryland Fund), MFS Massachusetts Municipal Bond Fund* (Massachusetts Fund),
MFS Mississippi Municipal Bond Fund, MFS New York Municipal Bond Fund* (New York
Fund), MFS North Carolina Municipal Bond Fund* (North Carolina Fund), MFS
Pennsylvania Municipal Bond Fund* (Pennsylvania Fund), MFS South Carolina
Municipal Bond Fund* (South Carolina Fund), MFS Tennessee Municipal Bond Fund,
MFS Texas Municipal Bond Fund, MFS Virginia Municipal Bond Fund* (Virginia
Fund), MFS Washington Municipal Bond Fund, and MFS West Virginia Municipal Bond
Fund* (West Virginia Fund).
The Funds denoted with an asterisk above are included within these
financiall statements.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates value. Futures contracts,
options and options on futures contracts listed on commodities exchanges are
valued at closing settlement prices. Over-the-counter options are valued by
brokers through the use of a pricing model which takes into account closing bond
valuations, implied volatility and short-term repurchase rates. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - Each Fund may enter into repurchase agreements with
institutions that the Trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. Each Fund requires
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Fund to obtain those securities
in the event of a default under the repurchase agreement. Each Fund monitors, on
a daily basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Deferred Organization Expenses - Costs incurred by a Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period beginning on the date of inception of operations of the
Fund.
Written Options - Each Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Fund. Each Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option.
Futures Contracts - Each Fund may enter into financial futures contracts for the
delayed delivery of securities or contracts based on financial indices at a
fixed price on a future date. The Fund is required to deposit either in cash or
securities an amount equal to a certain percentage of the contract amount.
Subsequent payments are made or received by the Fund each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
financial statement purposes as unrealized gains or losses by the Fund. Each
Fund's investment in financial futures contracts is designed to hedge against
anticipated future changes in interest rates. Such transactions may also be
entered into for non-hedging purposes to the extent permitted by applicable law.
Should interest rates move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial 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 both financial statement
and tax reporting purposes as required by federal income tax regulations.
Tax Matters and Distributions - The Trust's policy is to comply with the
provisions of the Internal Revenue Code (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. Each 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 each Fund's tax return, and consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions paid by each Fund from net interest received on tax-exempt
municipal bonds are not includable by shareholders as gross income for federal
income tax purposes because each Fund intends to meet certain requirements of
the Code applicable to regulated investment companies which will enable each
Fund to pay exempt-interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986, may be considered
a tax preference item to shareholders. Distributions to shareholders are
recorded on the ex-dividend date.
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS - continued
Effective February 1, 1993, the Fund adopted Statement of Position (SOP) 93-2,
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
SOP 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 return of capital. The SOP
also requires that differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. The cumulative effect of adopting the SOP is as follows:
<TABLE>
<CAPTION>
North South West
Maryland Massachusetts Carolina Carolina Virginia Virginia
Cumulative Effect - Increase/(decrease) Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accumulated undistributed (distributions
in excess of) net investment income $(93,161) $ 35,595 $(41,736) $(10,601) $(49,702) $(12,645)
Accumulated net realized gain (loss) on
investments (3,845) (390,412) (991,895) 858 (20,918) (203,456)
Paid-in capital 97,006 354,817 1,033,631 9,743 70,620 216,101
</TABLE>
The temporary differences resulting in excess distributions from net investment
income or accumulated net realized gains, arose primarily from the differences
between book and tax accounting, due to timing of distributions, losses deferred
for tax purposes and pension expense accruals. Net investment income, net
realized gains, and net assets were not affected by this change.
Multiple Classes of Shares of Beneficial Interest - Each Fund offers both Class
A and Class B shares. Class B shares were first offered to the public on
September 7, 1993. Effective January 3, 1994, the North Carolina and Virginia
Funds began to offer Class C shares. The three classes of shares differ in their
respective sales charges, shareholder servicing agent fees, distribution fees,
and service fees. Shareholders of each class also bear certain expenses that
pertain only to that particular class. All shareholders bear the common expenses
of the Fund pro rata based on average daily net assets, without distinction
between share classes. Dividends are declared separately for each class. No
class has preferential dividend rights; differences in per share dividend rates
are generally due to differences in separate class expenses, including
shareholder servicing and distribution and service fees.
(3) Transactions with Affiliates
Investment Adviser - The Trust 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 and paid monthly at an annual rate of 0.55% of each
Fund's average daily net assets. The investment adviser voluntarily agreed to
reduce its fees with respect to the Florida Fund to 0.10% of average daily net
assets until October 1, 1993, to be increased 0.05% each quarter thereafter, not
to exceed 0.55% of the Fund's average daily net assets; with respect to the New
York Fund to 0.35% of average daily net assets until October 1, 1993, to be
increased 0.05% each quarter thereafter, not to exceed 0.55% of the Fund's
average daily net assets; and with respect to the Pennsylvania Fund to 0% of
average daily net assets. The investment adviser did not impose $444,758,
$340,615 and $56,065 of its fee in the case of the Florida, New York and
Pennsylvania Funds, respectively, which is reflected as a reduction of expenses
on the Statements of Operations.
Under an expense reimbursement agreement with MFS, MFS has agreed to pay all of
the operating expenses, exclusive of management and distribution fees, of the
Pennsylvania Fund until December 31, 2002 or the date upon which the expenses
attributable to the Fund are repaid. To accomplish the reimbursement, the Fund
will pay an expense reimbursement fee to MFS of 0.40% of average daily net
assets, with a limitation that immediately after any such payment that aggregate
expenses of the Fund, including the management fee but excluding any
Distribution Plan fees, would not exceed 0.95% of average daily net assets. MFS
voluntarily reduced, for an indefinite period, its expense reimbursement fee to
0% of average daily net assets.
The Trust pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Financial
Services, Inc. (FSI) and MFS Service Center, Inc. (MFSC). The Trust has an
unfunded defined benefit plan for all its independent Trustees. Included in
Trustees' compensation for the year ended January 31, 1994 is a net periodic
pension expense for each Fund, as follows:
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$3,953 $3,732 $4,281 $4,534 $3,730 $4,202 $ -- $4,628 $4,494 $4,606
</TABLE>
Distributor - FSI, a wholly owned subsidiary of MFS, as distributor, received
$219,779, $89,931, $161,689, $128,547, $170,823, $421,999, $39,557, $184,187,
$380,623 and $106,768 as its portion of the sales charge on sales of Class A
shares of the Florida, Georgia, Maryland, Massachusetts, New York, North
Carolina, Pennsylvania, South Carolina, Virginia and West Virginia Funds,
respectively.
The Trustees have adopted separate Distribution Plans for Class A and Class B
and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940
as follows:
The Class A Distribution Plan provides that each Fund will pay FSI up to 0.35%
of its average daily net assets attributable to Class A shares annually in order
that FSI may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with FSI of up to 0.25% of the Fund's
average daily net assets attributable to Class A shares which are attributable
to that securities dealer, a distribution fee to FSI of up to 0.10% of the
Fund's average daily net assets attributable to Class A shares, commissions to
dealers and payments to FSI wholesalers for sales at or above a certain dollar
<PAGE> 237
NOTES TO FINANCIAL STATEMENTS - continued
level, and other such distribution-related expenses that are approved by the
Fund. FSI is currently waiving 0.10% of the distribution fee which amounted to
$80,561 and $165,700, respectively, for the Georgia and New York Funds. In the
case of the Florida Fund, payments under the Distribution Plan will commence on
such date to be determined by the Trustees of the Trust. In the case of the
Pennsylvania Fund, payments under the Distribution Plan will commence on
February 1, 1994. Fees incurred under the distribution plan during the year
ended January 31, 1994 attributable to Class A shares were:
<TABLE>
<CAPTION>
North South West
Georgia Maryland Massachusetts New York Carolina Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FSI $ -- $ 164,132 $ 290,204 $ -- $ 453,656 $171,639 $ 447,250 $132,733
Dealers 205,165 410,329 725,511 416,521 1,146,621 429,081 1,118,126 330,870
-------- ---------- ---------- -------- ---------- -------- ---------- --------
$205,165 $ 574,461 $1,015,715 $416,521 $1,600,277 $600,720 $1,565,376 $463,603
======== ========== ========== ======== ========== ======== ========== ========
</TABLE>
The Class B and Class C Distribution Plans provide that the Fund will pay FSI a
monthly distribution fee, equal to 0.75% annually, and a quarterly service fee
of up to 0.25%, of the Fund's average daily net assets attributable to Class B
and Class C shares which FSI will pay to each securities dealer that enters into
a sales agreement with FSI. The service fee is intended to be additional
consideration for services rendered by the dealer with respect to Class B and
Class C shares. Fees incurred under the distribution plan during the year ended
January 31, 1994 were 1.00% of average daily net assets attributable to Class B
shares (on an annualized basis) and amounted to the following:
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FSI $11,329 $ 9,077 $ 8,453 $ 6,801 $ 7,519 $20,795 $ 5,297 $12,766 $18,886 $ 7,241
Dealers 3,776 3,025 2,818 2,267 2,506 6,931 1,766 4,255 6,296 2,414
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$15,105 $12,102 $11,271 $ 9,068 $10,025 $27,726 $ 7,063 $17,021 $25,182 $ 9,655
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Fees incurred under the Distribution Plan during the year ended January 31,
1994, were 1.00% of average daily net assets attributable to Class C shares (on
an annualized basis) for the North Carolina and Virginia Funds and amounted to
$935 and $162, respectively.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchase of $ 1 million or more, in the event of a share
redemption within 12 months following the share purchase. A contingent deferred
sales charge is imposed on shareholder redemptions of Class B shares in the
event of a share redemption within six years of purchase. FSI receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended January 31, 1994 on Class A and Class B shares were
approximately the following:
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
CDSC imposed Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $10,737 $ 366 $ 162 $ 9,456 $ 129 $ 989 $ - $39,579 $ 12 $ 77
Class B 939 393 2,407 753 - 2,001 $ - $ - 417 6,028
------- ------ ------- ------- ----- ------- ------- ------- ------- -------
$11,676 $ 759 $ 2,569 $10,209 $ 129 $ 2,990 $ - $39,579 $ 429 $ 6,105
======= ====== ======= ======= ===== ======= ======= ======= ======= =======
</TABLE>
There are no contingent deferred sales charges on Class C shares.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
fees for its services as shareholder servicing agent, as specified below. The
fee is calculated as a percentage of average daily net assets of each class of
shares at an effective annual rate of up to 0.15%, 0.22% and 0.15%, attributable
to Class A, Class B and Class C shares, respectively.
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $148,754 $120,863 $246,218 $435,306 $249,913 $680,484 $ 14,283 $258,192 $670,876 $199,099
Class B 3,323 2,662 2,480 1,995 2,205 6,100 1,554 3,745 5,541 2,124
Class C - - - - - - 140 - - 24 -
</TABLE>
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased options transactions and short-term obligations, were as follows ($000
omitted):
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $97,861 $40,435 $59,023 $115,154 $125,473 $152,699 $22,949 $58,337 $156,014 $54,526
Sales 52,293 11,243 40,864 96,645 80,845 52,227 7,674 16,333 98,046 33,015
</TABLE>
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Funds, as computed on a federal income tax basis, are as follows
($000 omitted):
<TABLE>
<CAPTION>
North South West
Florida Georgia Maryland Massachusetts New York Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate cost $123,406 $ 94,418 $159,217 $270,154 $176,188 $475,045 $16,315 $174,254 $445,010 $130,089
======== ======== ======== ======== ======== ======== ======= ======== ======== ========
Gross unrealized
appreciation $ 7,866 $ 9,091 $ 16,559 $ 29,708 $ 15,264 $ 44,343 $ 718 $ 17,611 $ 44,131 $ 13,364
Gross unrealized
depreciation (1) - (9) (8) (25) (324) - (3) - (39)
-------- -------- -------- -------- -------- -------- ------- -------- -------- --------
Net unrealized
appreciation $ 7,865 $ 9,091 $ 16,550 $ 29,700 $ 15,239 $ 44,019 $ 718 $ 17,608 $ 44,131 $ 13,325
======== ======== ======== ======== ======== ======== ======= ======== ======== ========
</TABLE>
<PAGE> 238
NOTES TO FINANCIAL STATEMENTS - continued
(5) Shares of Beneficial Interest
The 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 Florida Georgia Maryland Massachusetts New York
Fund Fund Fund Fund Fund
Year Ended January 31 1994 ----------------- ---------------- -------------- --------------- ---------------
(000 omitted) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 6,785 $70,646 3,020 $33,191 2,812 $32,808 3,359 $39,196 5,703 $63,751
Shares issued to shareholders in
reinvestment of distributions 193 2,008 136 1,496 466 5,451 848 9,846 543 6,069
Shares reacquired (2,819) (29,380) (914) (10,041) (1,388) (16,230) (2,321) (27,134) (2,573) (28,924)
------ ------- ----- ------- ------ ------- ------ ------- ------ -------
Net increase 4,159 $43,274 2,242 $24,646 1,890 $22,029 1,886 $21,908 3,673 $40,896
====== ======= ===== ======= ===== ======= ====== ======= ====== =======
Year Ended January 31 1993
(000 omitted)
Shares sold 7,929 $76,513 2,118 $22,009 2,621 $29,492 3,538 $39,424 5,708 $60,121
Shares issued to shareholders in
reinvestment of distributions 75 730 109 1,132 378 4,254 601 6,725 339 3,562
Shares reacquired (490) (4,791) (795) (8,229) (848) (9,545) (2,058) (23,021) (1,210) (12,721)
------ ------- ----- ------- ------ ------- ------ ------- ------ -------
Net increase 7,514<F2> $72,452<F2> 1,432 $14,912 2,151 $24,201 2,081 $23,128 4,837 $50,962
====== ======= ===== ======= ===== ======= ====== ======= ====== =======
North Carolina Pennsylvania South Carolina Virginia West Virginia
Fund Fund Fund Fund Fund
Year Ended January 31, 1994 ---------------- -------------- -------------- --------------- --------------
(000 omitted) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 8,229 $99,737 1,457 $14,093 3,853 $47,933 6,766 $80,897 2,488 $29,466
Shares issued to shareholders in
reinvestment of distributions 1,092 13,288 34 336 356 4,450 1,400 16,705 350 4,157
Shares reacquired (3,035) (36,932) (112) (1,101) (1,524) (19,046) (2,559) (30,600) (1,160) (13,791)
------ ------- ------ ------- ------ ------- ------ ------- ------- -------
Net increase 6,286 $76,093 1,379<F1> $13,328<F1> 2,685 $33,337 5,607 $67,002 1,678 $19,832
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
Year Ended January 31 1993
(000 omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 7,888 $91,371 N/A N/A 3,853 $45,760 5,534 $76,100 3,031 $34,400
Shares issued to shareholders in
reinvestment of distributions 947 10,903 N/A N/A 321 3,803 912 10,753 250 2,829
Shares reacquired (2,382) (27,640) N/A N/A (794) (9,405) (2,376) (24,825) (436) (4,940)
------ ------- ------ ------- ------ ------- ------ ------- ------- -------
Net increase 6,453 $74,634 N/A N/A 3,380 $40,158 4,070 $62,028 2,845 $32,289
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
<FN>
<F1>Year ended January 31, 1994 is from period from the commencement of investment operations on February 1, 1993.
<F2>Year ended January 31, 1993 is from period from the commencement of investment operations on February 3, 1992.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Class B Shares Fund Fund Fund Fund Fund
Year Ended January 31, 1994 ---------------- -------------- -------------- --------------- --------------
(000 omitted)<F1> Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 698 $ 7,390 509 $ 5,696 454 $ 5,358 364 $ 4,290 422 $ 4,776
Shares issued to shareholders in
reinvestment of distributions 5 53 2 24 4 46 4 50 5 52
Shares reacquired (21) (217) (1) (10) (5) (61) (12) (135) (1) (8)
------ ------- ------ ------- ------ ------- ------ ------- ------- -------
Net increase 682 $ 7,226 510 $ 5,710 453 $ 5,343 356 $ 4,205 426 $ 4,820
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
<CAPTION>
North Carolina Pennsylvania South Carolina Virginia West Virginia
Fund Fund Fund Fund Fund
Year Ended January 31, 1994 ---------------- -------------- -------------- --------------- --------------
(000 omitted) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,087 $13,377 337 $ 3,345 644 $ 8,142 936 $11,282 384 $ 4,615
Shares issued to shareholders in
reinvestment of distributions 7 87 1 14 2 31 8 95 4 43
Shares reacquired (12) (150) (3) (29) (1) (15) (42) (500) (12) (139)
------ ------- ------ ------- ------ ------- ------ ------- ------- -------
Net increase 1,082 $13,314 335 $ 3,330 645 $ 8,158 902 $10,877 376 $ 4,519
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
<FN>
<F1>For the period from the date of issue of Class B shares, September 7, 1993 to January 31, 1994.
</TABLE>
<PAGE> 239
<TABLE>
<CAPTION>
North Carolina Virginia
Class C Shares Fund Fund
Year Ended January 31, 1994 ---------------- -----------------
(000 omitted)<F1> Shares Amount Shares Amount
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 371 $ 4,555 70 $ 843
Shares issued to shareholders in
reinvestment of distributions 1 2 -- --
Shares reacquired (1) (1) (1) (16)
------ ------- ------ -------
Net increase 371 $ 4,556 69 $ 827
====== ======= ====== =======
<FN>
<F1>For the period from the date of issue of Class C shares, January 3, 1994 to January 31, 1994
</TABLE>
(6) Line of Credit
The Trust entered into an agreement which enables each of the Funds to
participate with other funds managed by MFS, or an affiliate of MFS, in an
unsecured line of credit with a bank which permits borrowings up to $300
million, collectively. Borrowings may be made to temporarily finance the
repurchase of Fund shares. Interest is charged to each Fund, based on its
borrowings, at a rate equal to the bank's base rate. In addition, a commitment
fee, based on the average daily unused portion of the line of credit, is
allocated among the participating Funds at the end of each quarter. The
commitment fee allocated to each of the Funds for the year ended January 31,
1994 ranged from $188 to $8,980.
<PAGE> 240
NOTES TO FINANCIAL STATEMENTS - continued
(7) Financial Instruments
The Funds may trade financial instruments with off-balance sheet risk in the
normal course of their investing activities and to assist in managing exposure
to market risks such as interest rates. These financial instruments include
written options and futures contracts. The notional or contractual amounts of
these instruments represent the amount of investment the Fund has in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered. A summary of open futures contracts under these financial
instruments at January 31, 1994 is as follows:
<TABLE>
<CAPTION>
Unrealized
Fund Expiration Contracts Position Depreciation
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maryland Fund March 1994 40 Short $ (75,465)
Massachusetts Fund March 1994 75 Short $(141,495)
Pennsylvania Fund March 1994 5 Short $ (6,308)
</TABLE>
At January 31, 1994, each Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
The Trust also invests in indexed securities whose value may be linked to
interest rates, commodities, indices or other financial indicators. Indexed
securities are fixed income securities whose proceeds at maturity (principal
indexed securities) or interest rates (coupon indexed securities) rise and fall
according to the change in one or more specified underlying instruments. Indexed
securities may be more volatile than the underlying instrument itself. A summary
of indexed securities held at January 31, 1994 is as follows:
<TABLE>
<CAPTION>
Principal Unrealized
Fund Description Index (000 omitted) Value Appreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New York Fund Puerto Rico Telephone Authority Corporate Swap $2,750 $2,839,375 $89,375
Rev., 7.91s, 2004 Rate Curve
Pennsylvania Fund Puerto Rico Telephone Corporate Swap $ 250 $ 258,125 $ 8,125
Rev., 7.91s, 2004 Rate Curve
South Carolina Fund Puerto Rico Telephone Corporate Swap $2,000 $2,065,000 $65,000
Rev., 7.91s, 2004 Rate Curve
</TABLE>
(8) Restricted Securities
The Funds may invest not more than 15% of their total assets in securities which
are subject to legal or contractual restrictions on resale. At January 31, 1994,
the Georgia Fund owned the following restricted security (constituting 3.60% of
net assets) which may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933. The Fund does not have the right
to demand that such security be registered. The value of this security is
determined by valuations supplied by a pricing service or broker.
<TABLE>
<CAPTION>
Date of Par Amount
Description Acquisition (000 omitted) Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia Municipal Electric Authority,
Power Rev., 8.0s, 2023 3/31/93 $3,450 $3,490,000 $3,605,250
</TABLE>
<PAGE> 241
Portfolio of Investments - March 31, 1994
MFS FLORIDA MUNICIPAL BOND FUND
Municipal Bonds - 94.1%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligation - 7.5%
AAA Dade County, FL, Seaport, 6.25s, 2021 $ 750 $ 750,938
AAA Dade County, FL, Seaport, 6.5s, 2026 2,500 2,537,500
AA Florida Board of Education, 9.125s, 2014 2,600 3,399,500
AA Florida Board of Education, 7.25s, 2023 490 535,325
AAA Florida Division of Bond Finance, Department of
General Services Rev. (Natural Resources
Preservation), 6.25s, 2013 1,000 1,003,750
AAA Orange Counry, FL, Tourist Development Tax
Rev., 7.25s, 2010 500 546,875
------------
$ 8,773,888
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 6.4%
AAA Broward County, FL, School District,
7.125s, 2008 $ 250 $ 278,125
AAA Dade County, FL, School District, 7.375s, 2008 1,000 1,128,750
AA Florida Board of Education, 9.125s, 2014 400 541,500
AA Florida Board of Education, 7.25s, 2023 510 576,300
AAA Florida Municipal Power Agency Rev. (Stanton
No. 2 Project), 6.5s, 2020 2,000 2,195,000
AAA Florida Turnpike Authority Rev., 7.125s, 2018 1,250 1,414,062
AAA Gainesville, FL, Utility Systems Rev.,
7.25s, 2013 500 558,125
A Puerto Rico Public Buildings Authority,
6.875s, 2021 740 831,575
-----------
$ 7,523,437
- --------------------------------------------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 0.1%
NR Dade County, FL, Housing Finance Authority,
7s, 2024 $ 75 $ 78,000
- --------------------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 0.9%
AAA Dade County, FL, Housing Finance Authority,
6.95s, 2012 $ 1,000 $ 1,042,500
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 1.2%
NR Florida Housing Finance Agency (Southlake
Apartments), 8.7s, 2021 $ 1,500 $ 1,449,375
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 13.5%
AAA Brevard County, FL, Health Facilities Authority
Rev. (Wuesthoff Memorial), 6.5s, 2007 $ 1,000 $ 1,043,750
AAA Charlotte County, FL, Health Facilities Authority
Rev. (Bon Secours), 9.14s, 2027 5,000 4,675,000
AAA Dade County, FL, Public Facilities Rev. (Jackson
Memorial), 4.875s, 2015 3,000 2,523,750
AAA Jacksonville, FL, Hospital Rev. (Baptist Medical),
7.3s, 2019 1,900 2,075,750
AAA Jacksonville, FL, Hospital Rev. (University
Medical Center, Inc.), 6.6s, 2013 500 520,625
AAA Jacksonville, FL, Hospital Rev. (University
Medical Centet, Inc.), 6.6s, 2021 3,000 3,123,750
AAA Marion County, FL, Hospital District Rev.
(Monroe Regional Medical Center), 6.25s, 2012 1,7S0 1,758,750
------------
$ 15,721,375
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 12.2%
NR Brevard County, FL, Health Facilities Authority
Rev. (Friendly Village), 9.25s, 2012 $ 375 $ 388,594
NR Brevard County, FL, Health Facilities Authority
Rev. (Wuesthoff Memorial), 7.2s, 2013 1,000 1,015,000
BBB + Escambia County, FL, Health Facilities Authority
Rev. (Baptist Hospital), 6s, 2014 2,500 2,225,000
BBB + Escambia County, FL, Health Facilities Authority
Rev. (Baptist Hospital & Baptist Manor),
6.75s, 2014 1,000 976,250
</TABLE>
<PAGE> 242
<TABLE>
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Health Care Revenue - continued
NR Jacksonville, FL, Health Facilities Authority,
Hospital Rev. (Daughters of Charity), 5s, 2015 $ 3,000 $ 2,475,000
NR Jacksonville, FL, Health Facilities Authority,
Industrial Development Rev. (Cypress Village),
7s, 2014 1,250 1,253,125
NR Jacksonville, FL, Health Facilities Authority,
Industrial Development Rev. (National
Benevolent Assn./Cypress), 6.4s, 2016 1,475 1,393,875
NR Orange County, FL, Industrial Development
Authority Rev. (Friendly Village), 9.25s, 2012 335 347,981
A - Palm Beach County, FL, Health Facilities
Authority Rev. (Good Samaritan Health System),
6.2s, 2011 1,000 955,000
NR Pensacola, FL, Health Facilities Authority, Health
Facilities Rev. (Daughters of Charity National
Health), 5.25s, 2011 3,000 2,640,000
NR St. Petersburg, FL, Health Facilities Authority
Rev. (Swanholm Nursing), 10s, 2022 490 530,425
------------
$ 14,200,250
- --------------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 15.9%
A + Citrus County, FL, Pollution Control Rev. (Florida
Power Corp.), 6.625s, 2027 $ 500 $ 508,125
AAA Escambia County, FL, Pollution Control Rev.
(Gulf Power Co.), 6.75s, 2022 500 527,500
AAA Escambia County, FL, Utilities District, Utility
Systems Rev., 6.25s, 2015 1,500 1,522,500
AAA Florida Municipal Power Agency Rev. (St. Lucie),
5.5s, 2012 750 692,813
AAA Fort Myers, FL, Utility Rev., 5s, 2019 2,000 1,677,500
AA - Hillsborough County, FL, Industrial Development
Authority, Pollution Control Rev. (Tampa
Electric Co.), 8s, 2022 1,000 1,148,750
AA Jacksonville, FL, Electric Authority Rev. (St.
Johns River Power), 6.5s, 2014 500 520,625
AAA Manatee County, FL, Public Utilities Rev.,
5s, 2013 2,000 1,735,000
AA - Orlando, FL, Utilities Commission, Water &
Electric Rev., 5s, 2012 1,500 1,312,500
AA - Orlando, FL, Utilities Commission, Water &
Electric Rev., 6.75s, 2017 250 264,687
AA - Orlando, FL, Utilities Commission, Water &
Electric Rev., 6s, 2020 500 478,125
AAA Palm Bay, FL, Utility Rev. (Palm Bay Utility
Corp.), 5.1s, 2011 1,250 1,115,625
AAA Palm Bay, FL, Utility Rev. (Palm Bay Utility
Corp.), 5s, 2015 1,000 858,750
A - Puerto Rico Electric Power Authority Rev.,
7s, 2011 240 253,500
A - Puerto Rico Electric Power Authority Rev.,
6.25s, 2017 2,000 1,970,000
AAA Reedy Creek, FL, Improvement District, Utilities
Rev., 5s, 2014 2,000 1,715,000
AAA Seacoast, FL, Utility Authority, Water & Sewer,
5.5s, 2017 2,400 2,214,000
-----------
$18,515,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 243
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds ~ continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Water and Sewer Utility Revenue - 11.8%
AAA Dade County, FL, Water & Sewer Sysrem Rev.,
5s, 2013 $ 4,580 $ 3,967,425
AAA Fort Pierce, FL, Utility Authority Rev.,
5.25s, 2016 2,500 2,209,375
A Jacksonville, FL, Water & Sewer Suburban
Utilities Rev., 6.75s, 2022 1,500 1,563,750
AA - Orlando, FL, Utilities Commission, Water &
Sewer Rev., 8.155s, 2013 2,200 2,013,000
BBB Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 1,000 1,100,000
AAA Seminole, FL, Water & Sewer Improvement Rev.,
6s, 2019 3,000 2,962,500
------------
$ 13,816,050
- --------------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 5.3%
A Commonwealth of Puerto Rico, Highway &
Transportation Authority, Highway Rev.,
5.5s, 2015 $ 2,000 $ 1,802,500
AAA Florida Turnpike Authority Rev., Department of
Transportation, "A", 5s, 2013 4,000 3,470,000
AAA Florida Turnpike Authority Rev., Department of
Transportation, 5.2s, 2022 1,000 865,000
------------
$ 6,137,500
- --------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 1.7%
AAA Dade County, FL, Aviation Facilities Rev.,
6.55s, 2013 $ 1,000 $ 1,013,750
AAA Port Everglades, FL, Port Improvement Rev.,
0s, 2005 2,000 1,022,500
------------
$ 2,036,250
- --------------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.4%
AAA Jacksonville, FL, Excise Tax Rev., 0s, 2010 $ l,000 $ 360,000
AAA Jacksonville, FL, Excise Tax Rev., 0s, 2011 1,000 335,000
AAA Puerto Rico Highway & Transportation Authority
Rev., 6.625s, 2018 500 518,750
AAA St. Lucie County, FL, Sales Tax Rev., 5s, 2013 1,800 1,577,250
------------
$ 2,791,000
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 5.0%
BBB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 6.8s, 2012 $1,000 $ 1,005,000
BBB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 6.95s, 2012 2,500 2,540,625
BBB Escambia County, FL, Pollution Control Rev.
(Champion International Corp.), 5.875s, 2022 2,530 2,239,050
------------
$ 5,784,675
- --------------------------------------------------------------------------------------------------------------------
Special Assessment District - 1.1%
NR Boca Raton, FL, Special Assessment (Visions 90),
5.875s, 2012 $ 1,325 $ 1,275,313
- --------------------------------------------------------------------------------------------------------------------
Other - 9.1%
A Florida Finance Department, General Services Rev.
(Department of Environment), 5s, 2012 $ 1,120 $ 959,000
AAA Hillsborough County, FL, Capital Improvement
Rev., 5.125s, 2013 3,000 2,587,500
A Hillsborough County, FL, Capital Improvement
Rev., 6.75s, 2022 2,000 2,057,500
BBB + Lake Country, FL, Resource Recovery, Industrial
Development Authority Rev., 5.85s, 2009 2,000 1,837,500
AAA Palm Beach County, FL, Criminal Justice Facilities
Rev., 5.375s, 2010 1,495 1,397,825
AAA Polk County, FL, Capital Improvement Rev.,
5s, 2011 2,000 1,760,000
------------
$ 10,599,325
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $113,931,515) $109,743,938
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 244
<TABLE>
Portfolio of Investments - continued
Floating Rate Demand Notes - 3.5%
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
California Health Facilities Financing (St. Joseph
Health Systems), due 7/01/13 $ 100 $ 100,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.),
due 3/01/24 1,000 1,000,000
Jackson County, MS, Port Facilities (Chevron
Corp.), due 6/01/23 500 500,000
Kemmerer, WY, Pollution Control Rev. (Exxon
Corp.), due 11/01/14 500 500,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 300 300,000
New York State Job Development Authority, due
3/01/05 25 25,000
Peninsula Ports Authority, VA (Shell Oil Co.), due
12/01/05 1,100 1,100,000
Perry County, MS, Pollution Control Rev. (Leaf
River Forest), due 3/01/02 300 300,000
Uinta County, WY, Pollution Control Rev.
(Chevron Corp.), due 12/01/22 200 200,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 4,025,000
- --------------------------------------------------------------------------------------------------------------------
Total lnvestments (ldentified Cost, $117,956,515) $113,768,938
Other Assets, Less Liabilities - 2.4% 2,804,841
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $116,573,779
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
Portfolio of Investments - March 31, 1994
MFS GEORGIA MUNICIPAL BOND FUND
Municipal Bonds - 96.0%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligation - 6.9%
AA Atlanta, GA, 4.7s, 2010 $ 1,555 $ 1,325,638
AA + DeKalb County, GA, 6s, 2012 1,500 1,488,750
AA Fulton County, GA, School District, 6.375s, 2010 1,000 1,022,500
AA + State of Georgia, 6.25s, 2011 2,000 2,047,500
NR Territory of Virgin Islands, 7.75s, 2006 460 509,450
-----------
$ 6,393,838
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 3.3%
AA Fulton County, GA, Building Authority Rev.
(Judicial Center Project), 0s, 2011 $ 3,000 $ 1,068,750
AA Fulton County, GA, Building Authority Rev.
(Judicial Center Project), 0s, 2012 6,015 1,999,987
-----------
$ 3,068,737
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 9.2%
AA + DeKalb County, GA, 7.5s, 2020 $ 780 $ 885,300
AAA Fulton County, GA, Building Authority Rev.
(Judicial Center Project), 8.2s, 2015 1,840 2,053,900
AAA Fulton County, GA, School District, 7.625s, 2017 500 558,125
A Fulton County, GA, Water and Sewer Rev.,
8.25s, 2014 500 570,000
NR Hogansville, GA, Combined Public Utility
Systems Rev., 9s, 2015 2,200 2,700,500
AAA Metropolitan Atlanta, GA, Rapid Transit
Authority, Sales Tax Rev., 8s, 2018 1,500 1,711,875
-----------
$ 8,479,700
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 245
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Federally Guaranteed Housing Revenue - 0.3%
AA + Georgia Residential Finance Authority Rev.,
8.25s 2019 $ 290 $ 307,400
- --------------------------------------------------------------------------------------------------------------------
Single-Family Housing Revenue - 3.2%
AAA DeKalb County, GA, Housing Authority,
7.75s, 2022 $ 495 $ 513,563
AA + Georgia Housing & Finance Authority Rev.,
6.5s, 2011 465 472,556
AA + Georgia Residential Finance Authority, Home
Ownership Mortgage, 8s, 2020 445 464,469
AA + Georgia Residential Finance Authority, Home
Ownership Mortgage, 7.25s, 2021 365 369,106
AA + Georgia Residential Finance Authority, Single
Family Insured Mortgage, 8.375s, 2019 400 426,000
NR Gwinnett County, GA, Housing Authority Rev.,
0s, 2016 5,440 639,200
AAA Puerto Rico Housing Finance Corp., Single Family
Mortgage, 7.8s, 2021 40 42,100
------------
$ 2,926,994
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 8.1%
A Cobb County, GA, Housing Authority Rev.
(Signature Place Project), 6.875s, 2017 $ 3,000 $ 3,015,000
AAA DeKalb County, GA, Housing Authority Rev.
(Avondale), 6.75s, 2021 1,000 1,010,000
NR Hinesville, GA, Leased Housing Corp. Rev.
(Baytree Apartments), 6.7s, 2017 900 922,500
AAA Roswell, GA, Housing Authority (Wood Creek
Apartments), 5.6s, 2014 1,000 927,500
AAA St. Mary's, GA, Housing Authority (Cumberland
Oaks Apartments), 7.375s, 2022 1,470 1,576,575
------------
$ 7,451,575
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 9.1%
AAA Chatham County, GA, Hospital Authority Rev.
(Memorial Medical Center), 6.85s, 2021 $ 500 $ 522,500
AAA Fulton County, GA, Hospital Authority Rev.
(Northside Hospital, Inc.), 5.125s, 2016 1,475 1,261,125
AAA Gwinnett County, GA, Hospital Authority Rev.
(Gwinnett Hospital System, Inc.), 5s, 2010 935 816,956
AAA Gwinnett County, GA, Hospital Authority Rev.
(Gwinnett Hospital System, Inc.), 5s, 2013 1,000 856,250
AAA Gwinnett County, GA, Hospital Authority Rev.
(Gwinnett Hospital System, Inc.), 5s, 2019 500 415,625
AAA Macon-Bibb County, GA, Hospital Authority
Rev. (Medical Center), 5s, 2014 2,500 2,140,625
AAA Marietta, GA, Development Authority Rev. (Life
College, Inc.), 7.2s, 2009 1,250 1,337,500
AAA Marietta, GA, Development Authority Rev. (Life
College, Inc.), 7.25s, 2019 1,000 1,072,500
------------
$ 8,423,081
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 5.5%
NR Fulton County, GA, Residential Care Facilities,
Elderly Authority Rev. (Lenbrook Square
Foundation), 9.75s, 2017 $1,080 $ 1,116,450
NR Richmond County, GA, Development Authority,
Nursing Home Rev. (Beverly Enterprises),
8.75s, 2011 1,190 1,303,050
NR Royston, GA, Hospital Authority Rev. (Cobb
Health), 7.375s, 2014 1,565 1,568,913
BBB + Savannah, GA, Hospital Authority Rev. (Candler
Hospital), 7s, 2023 1,095 1,051,200
------------
$ 5,039,613
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 246
<TABLE>
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electric and Gas Utility Revenue - 10.8%
AAA Georgia Municipal Electric Authority, Power Rev.,
0s, 2008 $ 2,500 $ 1,081,250
AAA Georgia Municipal Electric Authority, Power Rev.,
0s, 2009 1,500 611,250
AAA Georgia Municipal Electric Authority, Power Rev.,
8.1s, 2012 250 273,750
AAA Georgia Municipal Electric Authority, Power Rev.,
0s, 2013 1,675 515,063
AA - Georgia Municipal Electric Authority, Power Rev.,
8.08s, 2023+ 3,450 2,992,875
AA - Municipal Electric Authority, GA, Special
Obligation, 8.125s, 2017 1,500 1,674,375
AA - Municipal Electric Authority, GA, Special
Obligation, 6.5s, 2020 885 899,381
A - Puerto Rico Electric Power Authority Rev.,
6.25s, 2017 2,000 1,970,000
------------
$ 10,017,944
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 15.4%
AA - Atlanta, GA, Water & Sewer Rev., 5s, 2015 $ 1,000 $ 857,500
NR Barnesville, GA, Water & Sewer Rev., 6.9s, 2022 1,715 1,725,719
AAA Brunswick, GA, Water & Sewer Rev., 6.1s, 2014 1,000 977,500
AAA Cartersville, GA, Water & Sewer Rev., 7.2s, 2012 2,225 2,403,000
AAA Clayton County, GA, 5.25s, 2012 1,000 893,750
AAA Columbia County, GA, Water & Sewer Rev.,
6.9s, 2011 1,000 1,052,500
AA DeKalb County, GA, Water & Sewer Rev.,
5.125s, 2014 1,500 1,306,875
AAA Fulton County, GA, Water & Sewer Rev.,
6.375s, 2014 1,250 1,278,125
AAA Gainesville, GA, Water & Sewer Rev.,
5.25s, 2010 2,000 1,820,000
AA + Gwinnett County, GA, Water & Sewer Rev.,
0s, 2009 3,350 1,289,750
AA + Gwinnett County, GA, Water & Sewer Rev.,
0s, 2010 1,810 649,337
------------
$ 14,254,056
- --------------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 2.4%
A Commonwealth of Puerto Rico, Highway &
Transportation Authority, 5.5s, 2015 $ 2,490 $ 2,244,112
- --------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 4. 8%
AAA Atlanta, GA, Airport Facilities Rev., 0s, 2010 $ 3,500 $ 1,281,875
AAA Atlanta, GA, Airport Facilities Rev., 0s, 2010 6,000 2,197,500
A Atlanta, GA, Airport Facilities Rev., 6.25s, 2021 500 488,125
BB Clayton County, GA, Development Authority,
Special Facilities Rev. (Delta Airlines Project),
7.625s, 2020 500 506,250
------------
$ 4,473,750
- --------------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.0%
AAA Metropolitan Atlanta, GA, Rapid Transit
Authority, Sales Tax Rev., 6.25s, 2020 $ 900 $ 898,875
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenge (Corporate Guarantee) - 12.3%
NR Adel County, GA, Industrial Development
Authority, Pollution Control Rev. (Weyerhaeuser
Co.), 9s, 2006 $ 1,000 $ 1,006,250
BB Atlanta, GA, Special Purpose Facilities Rev. (Delta
Airlines Project), 7.9s, 2018 1,000 1,028,750
BBB+ Burke County, GA, Development Authority,
Pollution Control Rev. (Georgia Power Co./
Vogtle Project), 8.375s, 2017 1,000 1,101,250
A - Burke County, GA, Pollution Control Rev.
(Georgia Power Co./Vogtle Project),
9.375s, 2017 1,000 1,138,750
</TABLE>
5
<PAGE> 247
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Industrial Revenue (Corporate Guarantee) - continued
AA - Cartersville, GA, Development Authority Rev.,
Water & Wastewater Facilities (Anheuser-Busch
Cos., Inc.), 7.4s, 2010 $ 500 $ 563,125
B + Effingham County, GA, Development Authority,
Pollution Control Rev. (Fort Howard Corp.),
7.9s, 2005 1,750 1,846,250
NR Emanuel County, GA, Development Authority
(Figgie Properties Project), 7.95s, 2004 475 479,750
AA - Monroe County, GA, Development Authority,
Pollution Control Rev. (Oglethorpe Power
Corp.), 6.8s, 2012 1,000 1,055,000
AA - Savannah, GA, Economic Development Authority,
Industrial Development Rev. (Hershey Foods
Corp.), 6.6s, 2012 1,000 1,030,000
BBB Savannah, GA, Port Authority, Pollution Control
Rev. (Union Carbide Corp.), 7.55s, 2004 1,000 1,046,250
BBB Wayne County, GA, Solid Waste Rev. (ITT-
Rayonier, Inc.), 8s, 2015 1,000 1,100,000
------------
$ 11,395,375
- --------------------------------------------------------------------------------------------------------------------
Other - 3.7%
AA Downtown Savannah Authority, GA, Rev.
(Chatham County), 5s, 2011 $ 2,000 $ 1,785,000
AA - George L. Smith II/Georgia World Congress
Center Authority (Domed Stadium Project),
7.875s, 2020 1,475 1,622,500
------------
$ 3,407,500
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $88,042,061) $ 88,782,550
- --------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.8%
- --------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/11 $ 400 $ 400,000
East Baton Rouge Parish, LA, Pollution Control
Rev. (Exxon Corp.), due 11/01/19 200 200,000
Hospital Equipment Financing Authority, GA,
due 12/01/95 600 600,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 400 400,000
New York State Job Development Authority,
due 3/01/07 90 90,000
Peninsula Ports Authority, VA (Shell Oil Co.), due
12/01/05 300 300,000
Perry County, MS, Pollution Control Rev. (Leaf
River Forest), due 3/01/02 100 100,000
State of Georgia, Hospital Financing Authority
Rev., due 3/01/01 400 400,000
Valdez Alaska Marine Terminal Rev. (Exxon
Pipeline Co.), due 10/01/25 100 100,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 2,590,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $90,632,061) $ 91,372,550
Other Assets, Less Liabilities - 1.2% 1,135,895
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 92,508,445
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
+ SEC Rule 144A restriction.
See notes to financial statements
Portfolio of Investments - March 31, 1994
MFS MARYLAND MUNICIPAL BOND FUND
Municipal Bonds - 96.5%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligation - 15.0%
AA + Baltimore County, MD, 4.3s, 2003 $ 1,000 $ 917,500
AA + Baltimore County, MD, Metropolitan District,
4.3s, 2004 1,000 903,750
AAA Baltimore, MD, 7s, 2009 1,000 1,087,500
A Baltimore, MD, 7.15s, 2009 2,000 2,235,000
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2008 675 627,751
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2009 700 642,251
AAA Baltimore, MD, Consolidated Public
Improvement, 5.3s, 2010 815 741,650
AAA Baltimore, MD, Consolidated Public
Improvement, 5.375s, 2011 900 823,500
AAA Baltimore, MD, Consolidated Public
Improvement, 5.375s, 2013 770 704,550
AAA Cecil County, MD, 4.9s, 2005 825 764,156
AA + Howard County, MD, Metropolitan District,
0s, 2008 1,975 822,094
AAA Montgomery County, MD, Public Improvement,
0s, 2009 11,500 4,528,125
AA - Prince George's County, MD, 0s, 2007 5,110 2,248,400
AAA Prince George's County, MD, Public
Improvement, 5.5s, 2013 2,000 1,850,000
AAA State of Maryland, 9s, 1999 350 413,875
AAA State of Maryland, 4.2s, 2002 1,000 923,750
AA Washington Suburban Sanitation District, MD,
6.9s, 2013 1,045 1,123,375
AA Washington Suburban Sanitation District, MD,
6.1s, 2015 1,070 1,078,025
AA Washington Suburban Sanitation District, MD
(General Construction), 5.25s, 2015 3,035 2,697,356
------------
$ 25,132,606
- --------------------------------------------------------------------------------------------------------------------
State and Community Lease Revenue - 12.4%
NR Calvert County, MD, Community Lease Rev.,
7.2s, 2010 $ 750 $ 812,813
AA + Howard County, MD, Certificates of Participation,
8.15s, 2021 450 559,687
AA + Howard County, MD, Certificates of Participation,
"A", 8s, 2019 805 961,975
AA + Howard County, MD, Certificates of Participation,
"B", 8s, 2019 385 460,075
AA + Howard County, MD, Certificates of Participation,
"C", 8s, 2019 680 812,600
AA - Maryland Stadium Authority, Sports Facilities
Leasing Rev., 7.6s, 2019 2,580 2,818,650
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2005 2,495 1,294,281
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2006 2,490 1,204,538
AAA Prince George's County, MD, Certificates of
Participation, 0s, 2011 3,675 1,258,687
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2004 980 543,900
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2006 1,800 870,750
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2009 1,500 590,625
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2010 2,730 1,003,275
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2011 2,810 962,425
</TABLE>
6
<PAGE> 248
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
State and Community Lease Revenue - continued
AAA Prince George's County, MD, Industrial
Development Authority, 0s, 2012 $ 2,480 $ 799,800
AAA Prince George's County, MD, Industrial
Development Authority, 5.25s, 2019 3,500 3,036,250
A Puerto Rico Public Buildings Authority,
8.37s, 2016 3,000 2,812,500
------------
$ 20,802,831
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 17.4%
AAA Baltimore, MD, Water Utility Rev., 6.5s, 2020 $ 540 $ 581,175
AAA Cecil County, MD, 9.25s, 2003 230 252,138
AAA Commonwealth of Puerto Rico, Public
Improvement, 6.8s, 2021 1,500 1,678,125
AAA Government of Guam, Limited Obligation
Highway Rev., 9.25s, 2005 550 592,625
AAA Howard County, MD, Metropolitan District,
7.15s, 2020 500 558,125
AAA Maryland Board of Trustees, College & University
Rev., 7.625s, 2012 1,730 1,866,238
AAA Maryland Health & Higher Education Facilities
Authority Rev. (John Hopkins University),
9.25s, 2015 3,000 3,255,000
AAA Maryland Health & Higher Education Facilities
Authority Rev. (Sinai Hospital/Baltimore),
7s, 2019 2,000 2,235,000
AAA Maryland Health & Higher Education Facilities
Authority Rev. (University of Maryland Medical
System), 7s, 2017 1,840 2,067,700
AAA Maryland Health & Higher Education Facilities
Authority Rev. (University of Maryland Medical
System), 6.5s, 2021 1,000 1,080,000
AAA Maryland Transportation Authority, Transportation
Facilities Project Co., 9s, 2015 5,300 5,730,625
A + Montgomery County, MD, Rev. Authority, Lease
Rev. (Regional Indoor Swim Center Project),
7.6s, 2008 750 801,562
AAA Morgan State University, MD, Academic &
Auxiliary Facilities & Fees Rev., 0s, 2006 1,135 558,987
AAA Morgan State University, MD, Academic &
Auxiliary Facilities & Fees Rev., 0s, 2008 1,400 598,500
AAA Prince George's County, MD, 8.2s, 2000 220 237,600
AAA Prince George's County, MD, 8.2s, 2004 330 356,400
NR Prince George's County, MD, Hospital Rev.
(Dimensions Health Corp.), 7.25s, 2017 2,000 2,290,000
AAA Puerto Rico Aqueduct & Sewer Authority,
10.25s, 2009 500 697,500
AAA Puerto Rico Electric Power Authority,
9.125s, 2015 250 273,437
AAA Puerto Rico Industrial, Medical & Environmental
Pollution Control Facilities Finance Authority,
9.75s, 2025 450 493,313
AAA St. Mary's County, MD, 7.75s, 2016 2,050 2,265,250
AAA Washington Suburban Sanitation District, MD,
9.75s, 2008 250 262,500
AAA Washington Suburban Sanitation District, MD,
8.5s, 2010 500 539,375
------------
$ 29,271,175
- --------------------------------------------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 4.8%
AAA Anne Arundel County, MD, Mortgage Rev.
(Regency Club 11), 5.75s, 2021 $ 1,500 $ 1,376,250
BBB Baltimore, MD, City Housing Corp. Rev.,
7.75s, 2009 1,110 1,151,625
AAA Baltimore, MD, City Housing Corp. Rev.,
7.25s, 2023 3,285 3,436,931
</TABLE>
<PAGE> 249
<TABLE>
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federally Guaranteed Housing Revenue - continued
AAA Montgomery County, MD, Housing Opportunities
Commission, 8.125s, 2010 $ 500 $ 517,500
AAA Prince George's County, MD, Housing Authority
(Regent), 5.95s, 2019 1,200 1,107,000
AAA Prince George's County, MD, Housing Authority
(Stevenson Apartments), 6.35s, 2020 500 504,375
------------
$ 8,093,681
- --------------------------------------------------------------------------------------------------------------------
Single-Family Housing Revenue - 5.8%
NR Maryland Community Development
Administration, 7.75s, 2009 $ 1,500 $ 1,567,500
NR Maryland Community Development
Administration, 7.7s, 2015 685 732,094
AA Maryland Community Development
Administration, 8.25s, 2017 1,300 1,404,000
NR Maryland Community Development
Administration, 7.625s, 2020 2,500 2,609,375
NR Maryland Community Development
Administration, 8.25s, 2020 500 540,625
NR Maryland Community Development
Administration, 7.625s, 2029 1,000 1,052,500
NR Maryland Community Development
Administration, 7.85s, 2029 765 812,813
NR Maryland Community Development
Administration, 0s, 2032 11,605 623,769
NR Montgomery County, MD, Housing Opportunities
Commission, 7.5s, 2017 435 463,819
------------
$ 9,806,495
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.6%
NR Maryland Community Development
Administration, 7.375s, 2021 $ 425 $ 448,906
NR Maryland Community Development
Administration, 9.625s, 2026 140 145,075
NR Maryland Community Development
Administration, 8.4s, 2029 1,320 1,407,450
NR Maryland Community Development
Administration, 7.5s, 2031 65 68,087
NR Maryland Community Development
Administration, 7.8s, 2032 1,200 1,272,000
NR Montgomery County, MD, Housing Opportunities
Commission, 7.375s, 2032 1,045 1,082,881
------------
$ 4,424,399
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 2.9%
A Frederick County, MD, Rev. (Northhampton
Manor), 10.5s, 2024 $ 245 $ 252,350
AAA Maryland Health & Higher Education Facilities
Authority Rev. (Greater Baltimore Medical
Center), 5.375s, 2008 2,000 1,875,000
AAA Maryland Health & Higher Education Facilities
Authority Rev. (Mercy Medical Center),
5.5s, 2022 1,000 883,750
AAA Maryland Health & Higher Education Facilities
Authority Rev. (North Arundel Hospital),
6s, 2018 500 483,125
AAA Maryland Industrial Development Finance
Authority, Economic Development Rev. (Bon
Secours), 6.896s, 2022 1,500 1,383,750
------------
$ 4,877,975
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 250
Portfolio of Investments continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Health Care Revenue - 12.0%
NR Berlin, MD, Hospital Rev. (Atlantic General
Hospital), 8.375s, 2022 $ 1,400 $ 1,438,500
AA - Maryland Health & Higher Education Facilities
Authority Rev. (John Hopkins Hospital),
0s, 2010 4,535 1,649,606
AA - Maryland Health & Higher Education Facilities
Authority Rev. (John Hopkins Hospital),
0s, 2012 9,220 2,938,875
AA - Maryland Health & Higher Education Facilities
Authority Rev. (Kaiser Permanente Hospital),
9.125s, 2015 500 534,375
NR Maryland Health & Higher Education Facilities
Authority Rev. (Medlantic Hospital Care Corp.),
8.375s, 2014 3,800 4,009,000
A Maryland Health & Higher Education Facilities
Authority Rev. (Suburban Hospital),
5.125s, 2021 5,000 4,075,000
NR Prince George's County, MD, Hospital Rev.
(Dimensions Health Corp.), 5.3s, 2024 4,500 3,684,375
NR Prince George's County, MD, Hospital Rev.
(Southeast Healthcare System), 6.375s, 2023 1,900 1,752,750
------------
$ 20,082,481
- --------------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue- 1.3%
AA - Prince George's County, MD, Pollution Control
Rev. (Potomac Electric Project), 6.375s, 2023 $ 500 $ 499,375
A - Puerto Rico Electric Power Authority Rev.,
8s, 2008 500 560,000
A - Puerto Rico Electric Power Authority Rev.,
7s, 2011 1,000 1,056,250
------------
$ 2,115,625
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 2.0%
AAA Baltimore, MD, Wastewater Rev., 8.57s, 2020 $ 3,000 $ 2,655,000
AA Maryland Water Quality Finance Administration,
Revolving Loan Fund Rev., 0s, 2008 1,475 625,031
------------
$ 3,280,031
- --------------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 1.1%
AA Maryland Department Transport, County Transit
Rev., 4.8s, 2004 $ 2,000 $ 1,857,500
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 5.4%
A Allegheny County, MD, Pollution Control Rev.
(Westvaco Corp.), 10.5s, 2004 $ 250 $ 263,750
NR Baltimore, MD, Industrial Rev. Board
(Weyerhaeuser Co.), 9s, 2006 3,150 3,157,875
AA Baltimore, MD, Port Facilities Rev. (E.I. du Pont
de Nemours & Co.), 6.5s, 2011 1,500 1,556,250
NR Maryland Industrial Development Finance
Authority, Economic Development Rev.,
9.875s, 2005 185 195,638
AAA Northeast Maryland, Waste Disposal Authority
(Harford County Resource Recovery), 7.2s, 2005 1,000 1,100,000
A Northeast Maryland, Waste Disposal Authority
(Harford County Resource Recovery), 8.6s, 2008 1,000 1,051,250
NR Northeast Maryland, Waste Disposal Authority
(Montgomery County Resource Recovery),
Gs, 2006 1,000 980,000
NR Upper Potomac River Commission, MD, Pollution
Control Rev. (Westvaco Corp.), 10.5s, 2004 150 158,625
A Upper Potomac River Commission, MD, Pollution
Control Rev. (Westvaco Corp.), 9.125s, 2015 500 541,250
------------
$ 9,004,638
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 251
Portfolio of Investments - continued
<TABLE>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Universities - 1.6%
NR Maryland Health & Higher Education Facilities
Authority Rev. (Mt. St. Mary's College),
6.5s, 2009 $ 831 $ 706,267
AA + University of Maryland, Auxiliary Facilities &
Tuition Rev., 0s, 2004 1,000 545,000
AA + University of Maryland, Auxiliary Facilities &
Tuition Rev., 6s, 2009 1,500 1,518,750
-----------
$ 2,770,017
- --------------------------------------------------------------------------------------------------------------------
Special Assessment District - 3.1%
NR Northeast Maryland, Waste Disposal Authority
(Montgomery County Resource Recovery),
6.3s, 2016 $ 5,400 $ 5,130,000
- --------------------------------------------------------------------------------------------------------------------
Other - 9.1%
BBB Maryland Health & Higher Education Facilities
Authority Rev. (Kennedy Institute), 6.75s, 2022 $ 500 $ 501,250
BBB Maryland Industrial Development Finance
Authority (America Center for Physics),
6.625s, 2017 1,500 1,471,875
NR Maryland Industrial Development Finance
Authority (YMCA/Baltimore), 8s, 2012 2,825 2,856,781
NR Maryland Industrial Development Finance
Authority (YMCA/Baltimore), 8.25s, 2012 965 983,094
A Prince George's County, MD, 5.25s, 2013 4,500 3,988,125
AAA Puerto Rico Telephone Authority Rev.,
8.35s, 2004 1,000 936,250
AAA Washington, DC, Metropolitan Area Transit
Authority, Gross Rev., 5.125s, 2008 2,000 1,830,000
AAA Washington, DC, Metropolitan Area Transit
Authority, Gross Rev., 5.25s, 2014 3,000 2,677,500
------------
$ 15,244,875
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $l60,025,684) $161,894,329
- --------------------------------------------------------------------------------------------------------------------
.
Floating Rate Demand Notes - 2.0%
- --------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing (St. Joseph
Health Systems), due 7/01/13 $ 100 $ 100,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/00 400 400,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/06 100 100,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/07 100 100,000
East Baton Rouge Parish, LA, Pollution Control
Rev. (Exxon Corp.), due 11/01/19 100 100,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.),
due 3/01/24 100 100,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 12/01/16 800 800,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 6/01/23 100 100,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 900 900,000
Massachusetts Health & Educational Facilities
Authority Rev., due 7/01/05 200 200,000
Peninsula Ports Authority, VA (Shell Oil Co.),
due 12/01/05 100 100,000
</TABLE>
8
<PAGE> 252
Portfolio of Investments - continued
Floating Rate Demand Notes - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
St. Charles Parish, LA, Pollution Control Rev.
(Shell Oil Co.), due 10/01/21 $ 250 $ 250,000
St. Charles Parish, LA, Pollution Control Rev.
(Shell Oil Co.), due 10/01/22 100 100,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 3,350,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $163,375,684) $ 165,244,329
Other Assets, Less Liabilities - 1.5% 2,524,090
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 167,768,419
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
<PAGE> 253
Portfolio of Investments - March 31, 1994
MFS MASSACHUSETTS MUNICIPAL BOND FUND
Municipal Bonds - 98.4%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Student Loan Revenue - 0.1%
NR Massachusetts Education Loan Authority, 9s, 2001 $ 145 $ 150,981
- --------------------------------------------------------------------------------------------------------------------
General Obligation - 11.1%
AAA Boston, MA, 6.5s, 2012 $ 2,000 $ 2,062,500
A + Commonwealth of Massachusetts, 0s, 2004 10,000 5,425,000
A + Commonwealth of Massachusetts, 4.5s, 2004 2,000 1,802,500
AAA Commonwealth of Massachusetts, 7.5s, 2004 2,850 3,227,625
A + Commonwealth of Massachusetts, 0s, 2005 6,500 3,290,625
AAA Commonwealth of Massachusetts, 0s, 2006 4,000 1,940,000
A + Commonwealth of Massachusetts, 5s, 2006 2,500 2,281,250
AAA Commonwealth of Massachusetts, 7s, 2009 1,250 1,353,125
A + Commonwealth of Massachusetts, "A", 0s, 2005 2,000 1,032,500
AAA Gloucester, MA, 7s, 2009 225 239,906
AAA Gloucester, MA, 7s, 2010 215 229,244
AAA Haverhill, MA, 7s, 2012 1,250 1,342,188
AAA Holyoke, MA, 8s, 2001 1,700 1,929,500
AAA Holyoke, MA, 8.1s, 2005 500 591,250
NR Holyoke, MA, Electric Rev., 8s, 2001 855 899,888
AAA Lawrence, MA, 9.75s, 2002 600 758,250
AAA Lawrence, MA, 4.75s, 2014 1,000 838,750
NR Lowell, MA, 8.4s, 2009 1,000 1,136,250
NR Northbridge, MA, 7.6s, 2001 325 357,906
AAA Princeton, MA, 7.25s, 2009 490 535,938
------------
$ 31,274,195
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 5.4%
A + Mass. Bay Transportation Authority, 5.5s, 2012 $ 5,000 $ 4,568,750
A + Mass. Bay Transportation Authority, 6.2s, 2016 10,975 10,824,094
------------
$ 15,392,844
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 21.0%
AAA Boston, MA, 7.75s, 2008 $ 500 $ 566,250
A + Commonwealth of Massachusetts, 6.875s, 2010 11,000 12,278,750
AAA Government of Guam, Limited Obligation 650 700,375
Highway Rev., 9.25s, 2005
NR Holyoke, MA, 9.85s, 2008 425 488,219
NR Lowell, MA, 7.625s, 2010 4,875 5,648,906
AAA Mass. Bay Transportation Authority, 8.7s, 2005 435 467,625
AAA Mass. Bay Transportation Authority, 8.5s, 2014 3,000 3,521,250
AAA Mass. Bay Transportation Authority, 7.875s, 2021 1,500 1,755,000
AAA Mass. Federally Assisted Housing, 0s, 2023 4,285 712,381
A - Mass. Health & Education Facilities Authority (Addison
Gilbert Hospital), 9.25s, 2014 1,500 1,625,625
</TABLE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Refunded and Special Obligation - continued
AA Mass. Health & Education Facilities Authority
(Children's AA Hospital), 7.75s, 2018 $ 2,425 $ 2,734,187
AAA Mass. Health & Education Facilities Authority (Harvard
Community Health), 9.125s, 2017 4,250 4,600,625
AAA Mass. Health & Education Facilities Authority (Harvard
University), 8.5s, 2015 9,520 10,329,200
AAA Mass. Health & Education Facilities Authority (Harvard
University), 8.5s, 2016 2,500 2,712,500
NR Mass. Health & Education Facilities Authority (Saint
Elizabeth's Hospital), 7.75s, 2027 1,250 1,395,313
AAA Mass. Health & Education Facilities Authority (South
Shore Hospital), 8.125s, 2017 1,070 1,205,087
NR Mass. Health & Education Facilities Authority (Suffolk
University), 8s, 2010 1,750 2,036,563
NR Mass. Industrial Finance Agency
(Cape Cod Health System), 8.5s, 2020 500 603,125
BBB+ Mass. Municipal Wholesale Electric Co.,
13.625s, 2017 1,015 1,117,769
BBB+ Mass. Municipal Wholesale Electric Co.,
13s, 2018 1,880 2,042,150
AAA Mass. Municipal Wholesale Electric Co., "A",
13s, 2018 255 276,994
AAA Mass. Port Authority Rev., 12.75s, 2002 485 684,456
AAA Mass. Port Authority Rev., 13s, 2013 780 1,290,900
AAA Palmer, MA, 7.7s, 2010 500 580,000
------------
$ 59,373,250
- --------------------------------------------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 2.8%
AAA Mass. Housing Finance Agency, 9.125s, 2020 $ 490 $ 527,362
BBB+ Mass. Housing Finance Agency, 8.88s, 2021 1,995 2,084,775
AAA Mass. Housing Finance Agency, 6.9s, 2024 2,000 2,082,500
AAA Mass. Housing Finance Agency, 7.65s, 2028 2,000 2,067,500
AAA Somerville, MA, Housing Authority Rev.
(Clarendon Hill), 7.85s, 2010 1,000 1,087,500
------------
$ 7,849,637
- --------------------------------------------------------------------------------------------------------------------
Single-Family Housing Revenue - 4.4%
A + Mass. Housing Finance Agency, 6.3s, 2013 $ 2,000 $ 1,997,500
A + Mass. Housing Finance Agency, 9.5s, 2016 2,175 2,264,719
A + Mass. Housing Finance Agency, 8.1s, 2020 2,735 2,882,006
A + Mass. Housing Finance Agency, 8.1s,2021 2,000 2,115,000
A + Mass. Housing Finance Agency, 7.95s, 2023 1,000 1,046,250
A Mass. Housing Finance Agency, 7.5s, 2029 2,200 2,260,500
------------
$ 12,565,975
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.4%
BBB + Mass. Housing Finance Agency, 8.4s, 2021 $ 4,400 $ 4,548,500
BBB + Mass. Housing Finance Agency, 8.2s, 2027 2,200 2,334,750
------------
$ 6,883,250
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 7.0%
AAA Mass. Health & Education Facilities Authority
(Baystate Medical Center), 5s, 2012 $ 3,000 $ 2,628,750
AAA Mass. Health & Education Facilities Authority
(Beth Israel Hospital), 9s, 2025 4,000 3,850,000
AAA Mass. Health & Education Facilities Authority
(Lahey Clinic), 5.375s, 2023 3,000 2,568,750
AAA Mass. Health & Education Facilities Authority
(Mass. General Hospital), 5.25s, 2023 2,000 1,690,000
AAA Mass. Health & Education Facilities Authority
(Newton-Wellesley Hospital), 8s, 2018 3,290 3,639,563
A Mass. Health & Education Facilities Authority
(Youville Hospital), 9s, 2007 540 594,000
A Mass. Health & Education Facilities Authority
(Youville Hospital), 9.1s, 2015 455 490,831
</TABLE>
9
<PAGE> 254
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Insured Health Care Revenue - continued
NR Mass. Industrial Finance Agency
(Meadow Green Nursing Home), 9.6s, 2027 $ 1,485 $ 1,627,931
AAA Quincy, MA, Rev. (Quincy Hospital), 7.76s, 2011 3,000 2,576,250
------------
$ 19,666,075
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue -13.4%
NR Boston, MA, Industrial Development Finance Authority
(Stonehedge Convalescent Center), 10.75s, 2011 $ 855 $ 943,706
A Mass. Health & Education Facilities Authority
(Beth Israel Hospital), 7s, 2014 3,000 3,210,000
A + Mass. Health & Education Facilities Authority
(Brigham & Women's Hospital), 6.75s, 2024 1,000 1,040,000
NR Mass. Health & Education Facilities Authority
(Central New England Health), 6.125s, 2013 2,200 1,982,750
A - Mass. Health & Education Facilities Authority
(Charlton Memorial Hospital), 7.25s, 2013 1,700 1,785,000
BBB Mass. Health & Education Facilities Authority
(Emerson Hospital), 8s, 2018 1,865 2,018,862
NR Mass. Health & Education Facilities Authority
(Fairview Extended Care Facility), 10.25s, 2021 2,000 2,160,000
A - Mass. Health & Education Facilities Authority
(Jordan Hospital), 6.875s, 2015 1,000 991,250
A - Mass. Health & Education Facilities Authority
(Jordan Hospital), 6.875s, 2022 2,750 2,698,437
BBB Mass. Health & Education Facilities Authority
(Mass. Eye & Ear Infirmary), 7.375s, 2011 2,400 2,508,000
BBB Mass. Health & Education Facilities Authority
(Sisters of Providence Health System), 6.5s, 2008 1,000 977,500
NR Mass. Industrial Finance Agency
(Beverly Enterprises), 8.375s, 2009 2,000 2,140,000
NR Mass. Industrial Finance Agency
(Continental Healthcare), 11.875s, 2015 5,525 5,815,062
NR Mass. Industrial Finance Agency
(Evanswood Bethzatha Corp.), 9s, 2020 1,000 1,135,000
NR Mass. Industrial Finance Agency
(Martha's Vineyard Long-Term Care), 9.25s, 2022 3,000 3,030,000
NR Mass. Industrial Finance Agency
(Mass. Biomedical Research), 0s, 2004 5,000 2,625,000
NR Mass. Industrial Finance Agency
(Mass. Biomedical Research), 0s, 2010 5,300 1,815,250
NR Mass. Industrial Finance Agency
(Needham/Hamilton House), 11s 2010 900 922,500
------------
$ 37,798,317
- --------------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 5.4%
AAA Chicopee, MA, Electric System Rev.,
9.125s, 2005 $ 2,200 $ 2,315,500
AAA Mass. Municipal Wholesale Electric Co.,
5.1s, 2006 4,795 4,417,394
AAA Mass. Municipal Wholesale Electric Co., 5s, 2010 2,500 2,184,375
AAA Mass. Municipal Wholesale Electric Co.,
7.279s, 2016 4,000 3,320,000
AAA Mass. Municipal Wholesale Electric Co., 8s, 2018 3,500 2,957,500
------------
$ 15,194,769
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue -- 6.8%
A Boston, MA, Water & Sewer Commission, 5.25s, 2019 $ 4,750 $ 4,138,438
A + Mass. Water Pollution Abatement Trust
(MWRA Loan Program), 5.25s, 2014 3,700 3,353,125
A Mass. Water Resources Authority, 5.5s, 2015 4,000 3,540,000
A Mass. Water Resources Authority, 6.5s, 2019 8,000 8,060,000
------------
$ 19,091,563
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S>
Turnpike Revenue - 2.3%
NR Mass. Industrial Finance Agency, Tunnel Rev.
(Mass. Turnpike), 9s, 2020 $ 5,360 $ 5,467,200
AAA Mass. Turnpike Authority, Turnpike Rev.,
5.125s, 2023 1,340 1,127,275
------------
$ 6,594,475
- --------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 2.3%
AA - Mass. Port Authority Rev., 9.375s, 2015 $ 1,520 $ 1,639,700
AAA Mass. Port Authority Rev., 7.5s, 2020 4,500 4,910,625
------------
$ 6,550,325
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.8%
NR Clinton, MA, Industrial Rev. Board (Zayre Corp.),
8.5s, 2009 $ 820 $ 846,538
NR Mass. Industrial Finance Agency (Automatic Data
Processing, Inc.), 8.25s, 2019 900 930,375
NR Springfield, MA, Industrial Development Finance Agency
(Terminal Building), l0s, 2001 458 458,313
------------
$ 2,235,226
- --------------------------------------------------------------------------------------------------------------------
Universities -- 8.75%
A + Mass. Health & Education Facilities Authority
(Boston College), 5.25s, 2010 $ 1,625 $ 1,480,781
AAA Mass. Health & Education Facilities Authority
(Boston University), 10.511s, 2031 5,000 5,362,500
AA - Mass. Health & Education Facilities Authority
(Smith College), 5.75s, 2024 2,000 1,847,500
AAA Mass. Health & Education Facilities Authority
(Suffolk University), 6.35s, 2022 1,000 986,250
AAA Mass. Health & Education Facilities Authority
(Tufts University), 9.75s, 2018 3,000 2,782,500
AA + Mass. Health & Education Facilities Authority
(Wellesley College), 5.375s, 2019 3,000 2,666,250
AAA Mass. Health & Education Facilities Authority
(Wentworth Technology Institute), 5.5s, 2023 1,500 1,290,000
AAA Mass. Industrial Finance Agency (Brandeis University),
0s, 2004 1,000 541,250
AAA Mass. Industrial Finance Agency (Brandeis University),
0s, 2005 1,000 503,750
AAA Mass. Industrial Finance Agency (Brandeis University),
0s, 2009 1,000 380,000
AAA Mass. Industrial Finance Agency (Brandeis University),
0s, 2010 1,000 357,500
AAA Mass. Industrial Finance Agency (Brandeis University),
0s, 2011 500 167,500
NR Mass. Industrial Finance Agency (Curry College),
8s, 2014 2,000 1,930,000
NR Mass. Industrial Finance Agency (Emerson College),
8.9s, 2018 1,000 1,138,750
AA Mass. Industrial Finance Agency (Phillips Academy),
5.375s, 2023 3,735 3,291,469
------------
$ 24,726,000
- --------------------------------------------------------------------------------------------------------------------
Other - 4.5%
NR Martha's Vineyard, MA, Land Bank, 8.125s, 2011 $ 4,200 $ 4,252,500
NR Mass. Health & Education Facilities Authority
(Learning Center for Deaf Children), 9.25s, 2014 2,250 2,328,750
BBB Mass. Industrial Finance Agency (Dexter School),
7.5s, 2011 1,720 1,844,700
BBB Mass. Industrial Finance Agency (Dexter School),
7.5s, 2021 2,900 3,110,250
NR Nantucket Island, MA, Land Bank, 7.75s, 2020 1,200 1,315,500
------------
$ 12,851,700
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost $270,966,516) $278,198,582
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 255
Portfolio of Investments - continued
Floating Rate Demand Notes - 1.3%
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
East Baton Rouge Parish, LA, Pollution Control Rev.
(Exxon Corp.), due 11/01/19 $ 1,600 $ 1,600,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 6/01/23 1,300 1,300,000
Peninsula Ports Authority, VA (Shell Oil Co.),
due 12/01/05 200 200,000
Perry County, MS, Pollution Control Rev.
(Leaf RiverForest), due 3/01/02 500 500,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $3,600,000
- --------------------------------------------------------------------------------------------------------------------
Call Option Purchased - 0.1%
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------------------------------------------
Georgia Municipal Electric Authority/2003/102 (Premium Paid, $131,400) $ 10 $ 337,500
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $274,697,916) $282,136,082
Other Assets, Less Liabilities - 0.2% 605,032
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 282,741,114
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
Portfolio of Investments - March 31, 1994
MFS NEW YORK MUNICIPAL BOND FUND
Municipal Bonds - 95.4%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligation - 10.7%
AAA Nassau County, NY, 5.3s, 2007 $ 1,000 $ 951,250
A - New York, NY, 8s, 2015 500 566,875
A - New York, NY, 8.25s, 2016 160 185,600
A - New York, NY, 7.5s, 2018 4,000 4,435,000
A - New York, NY, 8s, 2018 6,000 6,802,500
NR Oswego County, NY, G.7s, 2009 1,000 1,056,250
AAA Port Byron, NY, Central School District,
7.4s, 2012 500 572,500
AAA Port Byron, NY, Central School District,
7.4s, 2013 500 575,000
AAA Port Byron, NY, Central School District,
7.4s, 2014 500 576,875
AAA Port Byron, NY, Central School District,
7.4s, 2015 500 575,625
NR Territory of Virgin Islands, 7.75s, 2006 460 509,450
AAA Washingtonville, NY, Central School District,
7.35s, 2008 550 618,750
AAA Washingtonville, NY, Central School District,
7.35s, 2009 550 616,000
------------
$ 18,041,675
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 26.2%
BBB Metropolitan Transportation Authority, NY,
Services Contract, 0s, 2008 $ 4,700 $ 1,844,750
BBB Metropolitan Transportation Authority, NY,
Services Contract, 7.375s, 2008 4,335 4,638,450
BBB Metropolitan Transportation Authority, NY,
Services Contract, 0s, 2009 1,000 370,000
BBB Metropolitan Transportation Authority, NY,
Services Contract, 5.75s, 2013 3,500 3,211,250
BBB Metropolitan Transportation Authority, NY,
Services Contract, 5.75s, 2013 500 458,750
</TABLE>
<PAGE> 256
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
State and Local Appropriation - continued
AAA Metropolitan Transportation Authoriry, NY,
Transportation Facilities Rev., 0s, 2012 $ 2,105 $ 681,494
BBB New York Dormitory Authority (City University),
8.125s, 2008 1,500 1,715,625
BBB New York Dormitory Authority (City University),
5.75s 2013 5,315 4,856,581
BBB New York Dormitory Authority (City University),
5.75s, 2013 200 182,750
AAA New York Dormitory Authority (College &
University), 0s, 2006 1,700 824,500
AAA New York Dormitory Authority (State University),
5.875s, 2011 1,000 965,000
BBB + New York Dormitory Authority (State University),
5.5s, 2013 2,500 2,231,250
A New York Local Government Assistance Corp.,
5.5s, 2017 6,000 5,385,000
AAA New York Medical Care Facilities Finance Agency
(Long-Term Care Facility), 6.8s, 2014 1,000 1,053,750
BBB New York Medical Care Facilities Finance Agency
(Wyckoff Heights), 7.35s, 2011 1,385 1,490,606
BBB + New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev., 6s, 2003 1,500 1,503,750
BBB + New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
8.875s, 2007 290 324,800
BBB + New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
7.875s, 2008 265 298,456
BBB New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
5.5s, 2009 1,500 1,357,500
BBB + New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
7.4s, 2018 1,805 1,940,375
BBB + New York Medical Care Facilities Finance Agency,
Mental Healrh Services Facilities Rev.,
7.875s, 2020 430 477,838
BBB + New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
7.3s, 2021 250 272,812
AAA New York, NY, City Educational Construction
Fund Rev., 5.625s, 2013 2,000 1,862,500
BBB New York Urban Development Capital Corp.
(Correctional Facilities), 5.45s, 2007 500 464,375
AAA New York Urban Development Capital Corp.
(Correctional Facilities), 5.375s, 2012 1,985 1,798,906
BBB New York Urban Development Corp., State
Facilities Rev., 7.5s, 2020 1,000 1,085,000
A Puerto Rico Public Buildings Authority,
8.37s, 2016 2,000 1,875,000
NR Troy, NY, Certificates of Participation,
Recreational Facilities Rev., 9.75s, 2010 955 1,024,238
------------
$ 44,195,306
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ll
<PAGE> 257
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Refunded and Special Obligation - 14.8%
A - New York City Municipal Water & Sewer Finance
Authority, 7.375s, 2013 $ 2,000 $ 2,285,000
A New York Local Government Assistance Corp.,
7s, 2016 6,500 7,288,125
A New York Local Government Assistance Corp.,
7.25s, 2018 2,500 2,840,625
AA New York Medical Care Facilities Finance Agency,
8.3s, 2022 515 589,031
AA New York Medical Care Facilities Finance Agency
(Presbyterian Hospital), 7.7s, 2009 750 865,312
AAA New York Medical Care Facilities Finance Agency
(St. Luke's Hospital), 7.45s, 2029 2,600 2,951,000
AAA New York Medical Care Facilities Finance Agency
(St. Luke's Hospital), 7.45s, 2029 2,000 2,270,000
AAA New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
8.875s, 2007 260 299,975
AAA New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
7.875s, 2008 225 262,406
AAA New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
7.875s, 2020 560 653,100
AAA New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Rev.,
7.3s, 2021 750 857,812
A - New York, NY, 8.25s, 2016 1,840 2,212,600
BBB New York Urban Development Corp.,
Correctional Facilities Rev., 8.125s, 2014 200 227,000
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 250 319,688
AAA Triborough Bridge & Tunnel Authority, NY,
7.375s, 2016 1,000 1,125,000
------------
$ 25,046,674
- --------------------------------------------------------------------------------------------------------------------
Single-Family Housing Revenue - 3.1%
AA New York City Housing Development Corp.
(South Bronx Cooperatives), 8.1s, 2023 $ 585 $ 612,056
NR New York Mortgage Agency Rev., 7.375s, 2011 1,295 1,400,219
NR New York Mortgage Agency Rev., 8.05s, 2011 875 936,250
NR New York Mortgage Agency Rev., 8.05s, 2021 330 363,413
A + New York Mortgage Agency Rev., 8.05s, 2022 775 849,594
NR New York Mortgage Agency Rev., 7.75s, 2023 1,000 1,096,250
------------
$ 5,257,782
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 7.6%
AAA New York Dormitory Authority (St. Vincent's
Hospital), 7.375s, 2011 $2,500 $ 2,687,500
AAA New York Dormitory Authority (St. Vincent's
Hospital), 7.4s, 2030 2,400 2,577,000
AAA New York Medical Care Facilities Finance Agency
(Buffalo General Hospital), 7.7s, 2022 500 546,875
AA New York Medical Care Facilities Finance Agency
(Long Island Hospital), 8.1s, 2022 1,500 1,644,375
AA New York Medical Care Facilities Finance Agency
(Montefiore Medical), 7.25s, 2009 3,210 3,430,687
AA New York Medical Care Facilities Finance Agency
(Montefiore Medical), 7.25s, 2024 1,750 1,870,312
------------
$ 12,756,749
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 1.3%
NR Albany, NY, Industrial Development Authority,
Civic Facilities Rev. (Albany Medical Center),
8.25s, 2004 $ 2,250 $ 2,213,438
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 258
Portfolio of Investments - continued
<TABLE>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Electric and Gas Utility Revenue - 6.1%
AA - New York Energy Research & Development
Authority, Electric Facilities Rev. (Consolidated
Edison Co.), 7.75s, 2024 $ 3,500 $ 3,784,375
AA New York State Power Authority, 5s, 2014 4,000 3,430,000
AA New York State Power Authority, 8s, 2017 380 421,325
NR Virgin Islands Water & Power Authority, Electric
Systems Rev., 7.4s, 2011 2,450 2,676,625
-------------
$ 10,312,325
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 11.4%
AAA New York City Municipal Water & Sewer Finance
Authority, 5.5s, 2011 $ 1,945 $ 1,801,55G
AAA New York City Municipal Water & Sewer Finance
Authority, 5.875s, 2012 1,000 972,500
A - New York City Municipal Water & Sewer Finance
Authority, 7s, 2015 1,500 1,586,250
A - New York City Municipal Water & Sewer Finance
Authority, 7.6s, 2020 470 511,713
AAA New York City Municipal Water & Sewer Finance
Authority, 5.5s, 2023 2,000 1,775,000
A New York Environmental Facilities Corp.,
Pollution Control Rev., G.875s, 2010 2,000 2,172,500
AA New York Environmental Facilities Corp.,
Pollution Control Rev., 5.75s, 2012 2,000 1,934,200
A New York Environmental Facilities Corp.,
Pollution Control Rev., 7.5s, 2012 3,050 3,431,250
NR New York Environmental Facilities Corp., Water
Facilities Rev. (American Water Co.),
8.85s, 2015 2,500 2,784,375
BBB Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 2,000 2,200,000
------------
$ 19,169,344
- --------------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 3.9%
AAA New York City Transit Authority Transit Facilities
Rev. (Livingston Plaza Project), 5.4s, 2018 $ 4,000 $ 3,600,000
AAA Niagara Falls, NY, Bridge Commission,
5.25s, 2015 2,000 1,772,500
A + Triborough Bridge & Tunnel Authority, NY,
5.5s, 2017 1,415 1,271,731
------------
$ 6,644,231
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 2.0%
A + Allegany, NY, Industrial Development Authority,
Solid Waste Rev. (Atlantic Richfield Co.),
6.625s, 2016 $ l,000 $ 1,036,250
NR Fulton County, NY, Industrial Development
Agency (Crossroads Incubator), 8.75s, 2009 1,195 1,274,169
NR Monroe County, NY, Industrial Development
Agency (Weyerhaeuser Co.), 9s, 2006 1,000 1,002,500
------------
$ 3,312,919
- --------------------------------------------------------------------------------------------------------------------
Universities - 2.9%
AA + New York Dormitory Authority (Columbia
University), 4.75s, 2014 $ 2,500 $ 2,096,875
AA New York Dormitory Authority (Cornell
University), 7.375s, 2020 1,500 1,666,875
AA - New York Dormitory Authority (Menorah
Campus), 7.4s, 2031 1,100 1,216,875
------------
$ 4,980,625
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 259
Portfolio of Investments - continued
Municipal Bonds - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Other - 5.4%
AA Battery Park City Authority, NY, Rev.,
5.5s, 2010 $ 2,000 1,836,820
NR Dutchess, NY, Industrial Development Agency,
Civic Facilities Rev. (New York Assn. for
Retarded Children), 8.625s, 2016 1,160 1,223,800
AAA New York Energy Research & Development
Authority, Gas Facilities Rev., 8.533s, 2026 3,000 2,703,750
AAA Puerto Rico Telephone Authority Rev.,
8.35s, 2004 (interest rate swap)* 2,750 2,574,688
BBB Virgin Islands Public Finance Authority, Highway
Rev., 7.7s, 2004 800 859,000
------------
$ 9,198,058
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (ldentified Cost, $158,694,689) $161,129,126
- --------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.2%
- --------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/06 $ 400 $ 400,000
New York State Job Development Authority,
due 3/01/07 95 95 000
Peninsula Ports Authority, VA (Shell Oil Co.),
due 12/01/05 3,200 3,200,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 3,695,000
- --------------------------------------------------------------------------------------------------------------------
Call Options Purchased - 0.4%
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------------------------------------------
Georgia Municipal Electric Authority/2003/102 $ 5 $ 168,750
North Carolina Eastern Municipal Power Agency/
2003/1025 181,250
State of New Jersey "D"/2003/102 2 275,000
- --------------------------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $555,000) $ 625,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $162,944,689) $165,449,126
Other Assets, Less Liabilities - 2.0% 3,437,629
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $168,886,755
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Indexed security. See Note 7.
See notes to financial statements
<PAGE> 260
Portfolio of Investments - March 31, 1994
MFS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Municipal Bonds - 95.9%
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligation - 4.8%
AAA Brunswick County, NC, 4.5s, 2004 $ 3,285 $ 3,038,625
AAA Dare County, NC, 4.75s, 2003 1,445 1,369,138
AAA Dare County, NC, 4.8s, 2004 1,250 1,175,000
AAA Durham County, NC, 5.75s, 2009 1,010 992,325
AAA Fayetteville, NC, 4.75s, 2003 2,795 2,648,262
AAA Forsyth County, NC, 6.2s, 2004 1,010 1,056,712
AAA Greensboro, NC, 6.3s, 2010 1,000 1,031,250
AAA Greensboro, NC, 6.3s, 2011 4,165 4,295,156
BBB+ Hertford County, NC, 9.5s, 2000 100 108,375
BBB+ Hertford County, NC, 9.5s, 2001 100 108,500
BBB+ Hertford County, NC, 9.5s, 2002 100 108,375
AA - Pitt County, NC, 6.1s, 2008 1,500 1,535,625
AAA Rutherford County, NC, 5s, 2007 1,945 1,799,125
AAA State of North Carolina, 6.548s, 2010 5,000 4,143,750
------------
$ 23,410,218
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation -- 9. 6%
AAA Charlotte, NC, Certificates of Participation
(Convention Facilities Project), 0s, 2004 $ 3,435 $ 1,842,019
AAA Charlotte, NC, Certificates of Participation
(Convention Facilities Project), 0s, 2005 4,810 2,405,000
AAA Charlotte, NC, Certificates of Participation
(Convention Facilities Project), 0s, 2006 1,075 501,219
AAA Charlotte, NC, Certificates of Participation
(Convention Facilities Project), 0s, 2008 3,000 1,203,750
AAA Charlotte, NC, Certificates of Participation
(Convention Facilities Project), 5.25s, 2013 2,750 2,426,875
AAA Dare County, NC, 6.6s, 2006 2,100 2,189,250
AAA Duplin County, NC, Certificates of Participation
(Law Enforcement & Public Schools Project),
5.25s, 2014 1,750 1,524,687
AA Durham, NC, Certificates of Participation,
6.375s, 2012 3,970 4,004,738
AA Durham, NC, Certificates of Participation
(New Durham Corp.), 6.875s, 2009 1,750 1,839,688
AA Greensboro, NC, Certificates of Participation
(Coliseum Arena Project), 6.25s, 2011 2,180 2,185,450
AAA Mooresville, NC, Graded School District,
Certificates of Participations 6.3s, 2009 3,000 3,026,250
AAA Mooresville, NC, Graded School District,
Certificates of Participation, 6.35s, 2014 1,000 1,008,750
BBB Puerto Rico Housing, Bank & Finance Agency,
4.875s, 2001 6,900 6,529,125
A Puerto Rico Public Buildings Authority,
8.37s, 2016 6,500 6,093,750
AAA Scotland County, NC, Certificates of Participation
(Jail/Courthouse Project), 6.75s, 2011 1,000 1,048,750
AAA Thomasville, NC, Certificates of Participation
(City Hall), 6s, 2017 4,000 3,875,000
AAA Union County, NC, Certificates of Participation,
6.375s, 2012 1,000 1,012,500
AAA Wayne County, NC, Certificates of Participation,
4.9s, 2007 1,605 1,444,500
AAA Wayne County, NC, Certificates of Participation,
5.1s, 2010 1,500 1,331,250
AA + Winston-Salem, NC, Certificates of Participation
(Housing & Dining System), 5s, 2011 1,000 882,500
------------
$ 46,375,051
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 15.1%
AAA Charlotte, NC, Certificates of Participation,
6.75s, 2021 $ 4,250 $ 4,733,437
AAA Charlotte-Mecklenberg, NC, Hospital Authority,
Health Care Systems Rev., 7.7s, 2008 750 850,312
AAA Charlotte-Mecklenberg, NC, Hospital Authority,
Health Care Systems Rev., 8.25s, 2013 2,995 3,328,194
AAA Charlotte-Mecklenberg, NC, Hospital Authority,
Health Care Systems Rev., 7.875s, 2015 3,820 4,297,500
AAA Charlotte-Mecklenberg, NC, Hospital Authority,
Health Care Systems Rev., 7.8s, 2018 3,780 4,299,750
AAA Charlotte-Mecklenberg, NC, Hospital Authority,
Health Care Systems Rev., 8s, 2018 500 573,125
AAA Craven, NC, Regional Medical Authority,
7.2s, 2019 1,500 1,698,750
AAA Dare County, NC, School Bonds, 6.9s, 2008 800 887,000
AAA Dare County, NC, School Bonds, 6.9s, 2009 800 887,000
AAA Dare County, NC, School Bonds, 6.9s, 2010 500 554,375
AAA Mecklenburg County, NC, 6.2s, 2007 1,000 1,075,000
AAA Mecklenburg County, NC, 6.25s, 2011 2,275 2,448,469
AAA North Carolina Eastern Municipal Power Agency,
13s, 1998 3,000 3,843,750
</TABLE>
13
<PAGE> 261
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Refunded and Special Obligation - continued
A - North Carolina Eastern Municipal Power Agency,
7.5s, 2010 $ 2,595 $ 3,036,150
AAA North Carolina Eastern Municipal Power Agency,
7.75s, 2012 2,900 3,298,750
A - North Carolina Eastern Municipal Power Agency,
5s, 2017 1,915 1,675,625
A - North Carolina Eastern Municipal Power Agency,
8s, 2021 1,885 2,134,763
A - North Carolina Eastern Municipal Power Agency,
8s, 2021 235 266,137
A - North Carolina Eastern Municipal Power Agency,
7.25s, 2023 3,500 3,906,875
AAA North Carolina Medical Care Commission,
Hospital Rev. (Carolina Medicorp), 7.875s, 2015 1,000 1,115,000
AAA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Health Services),
7.3s, 2015 1,000 1,137,500
AAA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Health Services),
7.375s, 2020 12,315 14,054,494
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 0s, 2005 2,000 1,092,500
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 7.625s, 2014 820 918,400
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 7.875s, 2019 6,785 7,650,087
NR Pender County, NC, Certificates of Participation
(Pender County Prison), 7.6s, 2004 1,900 2,035,375
NR Pender County, NC, Certificates of Participation
(Pender County Prison), 7.7s, 2011 1,000 1,161,250
------------
$ 72,959,568
- --------------------------------------------------------------------------------------------------------------------
Single-Family Housing Revenue - 5.7%
A+ North Carolina Housing Finance Agency,
10.375s, 2007 $ 3,105 $ 107,494
A+ North Carolina Housing Finance Agency,
0s, 2015 3,055 366,600
A+ North Carolina Housing Finance Agency,
6.7s, 2018 3,350 3,404,438
A+ North Carolina Housing Finance Agency,
8.125s, 2019 2,935 3,059,738
A+ North Carolina Housing Finance Agency,
7.05s, 2020 2,430 2,493,787
A+ North Carolina Housing Finance Agency,
7.7s, 2021 2,785 2,885,956
A+ North Carolina Housing Finance Agency,
7.8s, 2021 3,420 3,565,350
A+ North Carolina Housing Finance Agency,
7.85s, 2028 6,900 7,167,375
A+ North Carolina Housing Finance Agency,
7.6s, 2032 3,410 3,563,450
AAA Puerto Rico Housing Finance Corp., 6.85s, 2024 1,000 1,032,500
------------
$ 27,646,688
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 3.7%
A Asheville, NC, Housing Authority (Asheville
Terrace Apartments), 7.1s, 2011 $ 5,000 $ 5,243,750
NR Charlotte, NC, Housing Authority (Merrywood
Senior Adult Project), 9.75s, 2019 6,710 6,441,600
NR New Bern, NC, Housing Authority, First
Mortgage Rev., 7.875s, 2004 200 204,500
NR New Bern, NC, Housing Authority, First
Mortgage Rev., 7.875s, 2010 700 715,750
AA North Carolina Housing Finance Agency,
6.9s, 2024 5,000 5,137,500
------------
$ 17,743,100
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 5.9%
AAA Cumberland County, NC, Hospital Facilities Rev.
(Cumberland County Hospital), 0s, 2009 $ 1,800 $ 686,250
AAA Cumberland County, NC, Hospital Facilities Rev.
(Cumberland County Hospital), 6s, 2021 5,000 4,800,000
AAA North Carolina Medical Care Commission,
Hospital Rev. (St. Joseph's Hospital Project).
5.1s, 2014 6,550 5,657,563
AAA North Carolina Medical Care Commission,
Hospital Rev. (Wayne Memorial Hospital),
6s, 2021 6,550 6,263,437
AAA North Carolina Medical Care Commission,
Hospital Rev. (Wesley Long Community
Hospital), 5.25s, 2013 5,000 4,418,750
AAA Pitt County, NC, Hospital Rev. (Pitt Memorial
Hospital), 6.75s, 2014 2,800 2,947,000
AAA Wake County, NC, Hospital Rev., 4.5s, 2003 2,000 1,847,500
AAA Wake County, NC, Hospital Rev., 4.7s, 2005 1,000 913,750
AAA Wake County, NC, Hospital Rev., 4.8s, 2006 1,000 910,000
------------
$ 28,444,250
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 13.6%
AA - North Carolina Medical Care Commission,
Hospital Rev. (Baptist Hospital), 6s, 2022 $ 2,750 $ 2,664,062
AA North Carolina Medical Care Commission,
Hospital Rev. (Carolina Medical Project),
6s, 2021 21,600 20,790,000
AA North Carolina Medical Care Commission,
Hospital Rev. (Carolina Medicorp), 5.5s, 2015 2,935 2,652,506
A North Carolina Medical Care Commission,
Hospital Rev. (Gaston Health Care Project),
0s, 2007 500 215,000
A North Carolina Medical Care Commission,
Hospital Rev. (Gaston Health Care Project),
7.25s, 2019 1,400 1,478,750
NR North Carolina Medical Care Commission,
Hospital Rev. (Halifax Memorial Hospital),
6.75s, 2014 2,765 2,803,020
NR North Carolina Medical Care Commission,
Hospital Rev. (Halifax Memorial Hospital),
6.75s, 2024 4,500 4,545,000
NR North Carolina Medical Care Commission,
Hospital Rev. (Memorial Mission Hospital),
9.1s, 2008 1,750 1,887,812
A - North Carolina Medical Care Commission,
Hospital Rev. (Mercy Hospital), 6.5s, 2015 2,650 2,570,500
A North Carolina Medical Care Commission,
Hospital Rev. (Moore Memorial Hospital),
9.1s, 1999 800 861,000
A+ North Carolina Medical Care Commission,
Hospital Rev. (Moore Regional Hospital),
5.2s, 2013 5,000 4,287,500
A+ North Carolina Medical Care Commission,
Hospital Rev. (Moore Regional Hospital),
5s, 2018 4,000 3,240,000
AA North Carolina Medical Care Commission,
Hospital Rev. (Presbyterian Hospital),
5.5s, 2014 7,700 6,939,625
NR North Carolina Medical Care Commission,
Hospital Rev. (Valdese General Hospital),
8.75s, 2016 5,750 6,037,500
BBB Northern Hospital District, Surry County, NC,
Health Care Facilities Rev., 7.875s, 2021 4,530 4,790,475
------------
$ 65,762,750
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 262
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Electric and Gas Utility Revenue - 14.4%
AAA Fayetteville, NC, Public Works Commission Rev.,
4.8s, 2007 $ 3,600 $ 3,204,000
A New Hanover County, NC, Industrial Facilities
Rev. (Carolina Power & Light Co.), 6.9s, 2009 1,000 1,056,250
A - North Carolina Eastern Municipal Power Agency,
7s, 2007 5,000 5,312,500
A - North Carolina Eastern Municipal Power Agency,
7.25s, 2007 5,000 5,418,750
A - North Carolina Eastern Municipal Power Agency,
7s, 2008 5,000 5,306,250
A - North Carolina Eastern Municipal Power Agency,
7.5s, 2010 2,405 2,648,506
A - North Carolina Eastern Municipal Power Agency,
6.5s, 2012 1,500 1,481,250
A - North Carolina Eastern Municipal Power Agency,
6s, 2013 5,000 4,618,750
AAA North Carolina Eastern Municipal Power Agency,
5.5s, 2017 9,000 7,987,500
A - North Carolina Eastern Municipal Power Agency,
6.5s, 2017 3,500 3,451,875
AAA North Carolina Eastern Municipal Power Agency,
6.25s, 2023 7,060 6,936,450
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 5.25s, 2006 2,000 1,912,500
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 0s, 2008 8,000 3,370,000
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 0s, 2008 2,150 927,188
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 0s, 2009 10,000 3,825,000
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 8s, 2012 3,000 2,651,250
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 7.625s, 2014 180 195,300
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 5.75s, 2015 2,000 1,872,500
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 5.75s, 2020 1,500 1,385,625
AAA North Carolina Municipal Power Agency, No. 1
Catawba Electric Rev., 8.23s, 2020 7,000 6,098,750
------------
$ 69,660,194
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 3.7%
AAA Fayetteville, NC, Public Works Rev., 7s, 2011 $ 2,000 $ 2,227,500
AAA Kanapolis, NC, Certificates of Participation,
Water Facilities Rev., 7.375s, 2010 5,000 5,406,250
AA Orange County, NC, Water & Sewer Authority
Rev., 5.2s, 2016 3,000 2,681,250
BBB Puerto Rico Aqueduct & Sewer Authority,
7.875s, 2017 3,000 3,300,000
AA + Winston-Salem, NC, Water & Sewer Systems
Rev., 6.25s, 2012 4,000 4,010,000
------------
$ 17,625,000
- --------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 2.0%
AAA Piedmont Triad Airport, NC, Airport Authority
Rev., 5.125s, 2012 $ 4,835 $ 4,291,062
AAA Piedmont Triad Airport, NC, Airport Authority
Rev., 5s, 2016 2,645 2,261,475
BB + Raleigh-Durham, NC, Airport Authority
(American Airlines), 9.625s, 2015 3,000 3,176,250
------------
$ 9,728,787
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 8.7%
NR Alamance County, NC, Industrial Facilities &
Pollution Control Finance Authority (A.O. Smith
Corp.), 7.375s, 2009 $ 1,000 $ 1,000,000
NR Chatham County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 9s, 2006 1,260 1,263,150
A Craven County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 6.35s, 2010 5,000 5,068,750
NR Gaston County, NC, Industrial Facilities &
Pollution Control Finance Authority (Combustion
Engineering, Inc.), 8.85s, 2015 1,000 1,170,000
BBB Halifax County, NC, Industrial Facilities &
Pollution Control Finance Authority (Champion
International Corp.), 8.15s, 2019 1,500 1,612,500
BBB Haywood County, NC, Industrial Facilities &
Pollution Control Finance Authority (Champion
International Corp.), 8.1s, 2009 2,500 2,696,875
BBB Haywood County, NC, Industrial Facilities &
Pollution Control Finance Authority (Champion
International Corp.), 5.5s, 2018 3,000 2,576,250
NR Henderson County, NC, Industrial Facilities &
Pollution Control Finance Authority (Figgie
International Real Estate Project), 8s, 2009 1,500 1,546,875
A Martin County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 6.375s, 2010 5,500 5,513,750
A Martin County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 7.25s, 2014 7,000 7,612,500
A Martin County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 5.65s, 2023 5,000 4,425,000
AA + Mecklenburg County, NC, Industrial Facilities &
Pollution Control Finance Authority (Precision
Steel), 7.75s, 2014 2,600 2,834,000
NR Surry County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Weyerhaeuser Co.), 9.25s, 2002 1,500 1,843,125
NR Vance County, NC, Industrial Facilities &
Pollution Control Finance Authority (Keunemetal
Co.), 8.05s, 1995 1,667 1,668,751
NR Wake County, NC, Industrial Facilities &
Pollution Control Finance Authority
(Mallinckrodt), 6.75s, 2012 1,100 1,127,500
------------
$ 41,959,026
- --------------------------------------------------------------------------------------------------------------------
Universities - 6.8%
AA - North Carolina Education Facilities Finance
Agency (Davidson College), 6s, 2012 $ 2,000 $ 1,935,000
AA North Carolina Education Facilities Finance
Agency (Duke University), 6.75s, 2021 18,500 19,540,625
AA University of North Carolina (Chapel Hill),
4.9s, 2003 2,980 2,849,625
AA University of North Carolina (Chapel Hill),
0s, 2012 9,105 2,845,313
AA University of North Carolina (Chapel Hill),
0s, 2013 4,285 1,253,362
AA - University of North Carolina, Hospital Rev.
(Chapel Hill), 6s, 2024 4,500 4,263,750
------------
$ 32,687,675
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 263
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Other - 1.9%
NR Chapel Hill, NC, Parking Facilities Rev.
(Rosemary Street Project), 8.125s, 2013 $ 1,745 $ 1,854,063
NR Chapel Hill, NC, Parking Facilities Rev.
(Rosemary Street Project), 8.25s, 2023 3,305 3,515,694
NR Iredell, NC, Solid Waste Systems Rev.,
6.25s, 2012 1,250 1,237,500
AAA Puerto Rico Telephone Authority Rev.,
8.35s, 2004 (interest rate swap)* 2,750 2,574,688
------------
$ 9,181,945
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $458,921,521) $463,184,252
- --------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.1%
- --------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/06 $ 200 $ 200,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.),
due 3/01/24 500 500,000
Hillsborough County, FL, Industrial Development
Authority, Pollution Control Rev. (Tampa
Electric Co.), due 5/15/18 600 600,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 12/01/16 100 100,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 12/01/23 400 400,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp. ), due 11/01/14 600 600,000
Peninsula Ports Authority, VA (Shell Oil Co.),
due 12/01/05 1,200 1,200,000
Perry County, MS, Pollution Control Rev. (Leaf
River Forest), due 3/01/02 500 500,000
Sublette County, WY (Exxon Corp.),
due 11/01/14 700 700,000
Valdez, AK, Marine Terminal Rev. (Pipeline Co.),
due 10/01/25 4,000 4,000,000
Wake County, NC, Industrial Facilities &
Pollution Control Rev. (Carolina Power & Light),
due 3/01/17 1,100 1,100,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 9,900,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $468,821,521) $473,084,252
Other Assets, Less Liabilities - 2.0% 9,764,683
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $482,848,935
- --------------------------------------------------------------------------------------------------------------------
# Indexed security. See Note 7.
See notes to financial statements
Portfolio of Investments - March 31, 1994
MFS PENNSYLVANIA MUNICIPAL BOND FUND
Municipal Bonds - 93.7%
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
General Obligation - 15.6%
A Commonwealth of Puerto Rico, 6s, 2014 $ 350 $ 333,813
AAA Erie County, PA, 5.5s, 2016 250 226,875
AAA Lehigh County, PA, 5.125s, 2011 500 448,750
AAA Northeastern York County, PA, School District,
0s, 2012 415 132,800
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
General Obligation - continued
AAA Oley Valley, PA, School District, 0s, 2011 $ 910 $ 305,988
AAA Philadelphia, PA, School District, 5.45s, 2004 250 243,437
A Southeastern Area, PA, Special Schools Authority
Rev., 0s, 2007 360 146,700
AA - State of Pennsylvania, 5s, 2010 250 222,812
AA - State of Pennsylvania, 5.375s, 2010 500 464,375
AAA Washington County, PA, School District,
0s, 2010 250 90,000
AAA York County, PA, School District, 5.7s, 2013 250 235,625
------------
$ 2,851,175
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 6.4%
AAA Philadelphia, PA, Municipal Authority Rev.,
5.625s, 2014 $ 800 $ 736,000
AAA State of Pennsylvania, Certificates of Participation,
5.25s, 2010 250 223,750
AAA State of Pennsylvania, Certificates of Participation,
5s, 2015 250 211,250
------------
$ 1,171,000
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 5.7%
AAA Bethlehem, PA, Water Authority, 6.1s, 2018 $ 500 $ 493,125
AAA Puerto Rico Highway & Transportation Authority,
Highway Rev., 6.5s, 2022 250 275,000
A Puerto Rico Public Buildings Authority,
6.875s, 2021 250 280,937
------------
$ 1,049,062
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.6%
NR Montgomery, PA, Redevelopment Authority (KBF
Associates), 6.5s, 2025 $ 250 $ 236,875
AAA Pennsylvania Housing Finance Agency, 5.8s, 2022 250 232,187
------------
$ 469,062
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 10.1%
AAA Allegheny County, PA, Hospital Development
Authority Rev. (Presbyterian Health Center),
6s, 2012 $ 500 $ 480,625
AAA Allegheny County, PA, Hospital Development
Authority Rev. (Presbyterian Health Center),
6s, 2023 $ 375 $ 355,313
AAA Butler County, PA, Hospital Authority, Hospital
Rev. (Butler Memorial Hospital), 5.25s, 2016 400 346,500
AAA Doylestown, PA, Hospital Authority, Hospital
Rev., 5s, 2014 500 423,750
AAA Washington County, PA, Hospital Authority Rev.
(Shadyside Hospital), 6s, 2018 250 235,312
------------
$ 1,841,500
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 9.0%
NR Philadelphia, PA, Hospitals & Higher Education
Facilities Authority, Hospital Rev. (Agnes
Medical Center), 7.25s, 2031 $ 500 $ 536,250
AA Philadelphia, PA, Hospitals & Higher Education
Facilities Authority, Hospital Rev. (Children's
Hospital), 5.375s, 2014 500 438,750
BBB+ Philadelphia, PA, Hospitals & Higher Education
Facilities Authority, Hospital Rev. (Temple
University Hospital), 6.625s, 2023 250 237,500
NR Pottsville, PA, Hospital Authority (Daughters of
Charity), 5s, 2012 250 211,563
AAA Washington County, PA, Hospital Authority Rev.
(Washington Hospital Project), 5.625s, 2023 250 224,687
------------
$ 1,648,750
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 264
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Electric and Gas Utility Revenue - 7.8%
BBB Philadelphia, PA, Gas Works Rev., 5.25s, 2015 $ 250 $ 211,562
BBB Philadelphia, PA, Gas Works Rev., 6.375s, 2026 500 483,125
AAA Philadelphia, PA, Water & Wastewater Rev.,
5s, 2019 585 487,744
NR Schuylkill County, PA, Industrial Development
Authority, Resource Recovery Rev., 6.5s, 2010 250 235,938
------------
$ 1,418,369
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 3.7%
AAA Southwest Delaware County, PA, Municipal
Authority, Sewer Rev., 5.85s, 2022 $ 250 $ 240,938
AAA Wilkinsburg, PA, Water Authority, Water Rev.,
5s, 2012 500 435,625
------------
$ 676,563
- --------------------------------------------------------------------------------------------------------------------
Turnpike - 1.2%
AAA Pennsylvania Turnpike Commission, Turnpike
Rev., 5.5s, 2017 $ 250 $ 223,750
- --------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 8.4%
AAA Allegheny County, PA, Airport Rev. (Greater
Pittsburgh International Airport), 7.75s, 2019 $ 1,000 $ 1,075,000
AAA Lehigh-Northampton, PA, Airport Rev.
(Allentown-Bethlehem International), 5.4s, 2012 500 453,750
------------
$ 1,528,750
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 1.2%
NR Hampden, PA, Industrial Development Authority,
5.75s, 2008 $ 250 $ 230,313
- --------------------------------------------------------------------------------------------------------------------
Universities - 11.3%
AAA Allegheny County, PA, Higher Education
Building Authority Rev. (Community College),
5s, 2010 $ 500 $ 437,500
AAA Delaware County, PA, Authority, College Rev.
(Haverford College), 5.5s, 2023 250 223,438
AAA Lycoming County, PA, Authority, College Rev.
(Pennsylvania College of Technology), 0s, 2009 1,575 590,625
AAA Northampton County, PA, Higher Education
Authority Rev. (LaFayette College), 5s, 2015 690 590,812
AA - Pennsylvania State University, 5.1s, 2018 250 216,562
------------
$ 2,058,937
- --------------------------------------------------------------------------------------------------------------------
Other - 10.7%
AAA Pittsburgh, PA, Public Parking Authority,
Parking Rev., 5.875s, 2012 $ 500 $ 476,250
AAA Puerto Rico Telephone Authority Rev.,
8.35s, 2004 (interest rate swap)* 250 234,063
AAA Reading, PA, Parking Authority, 0s, 2007 1,160 510,400
A State of Pennsylvania Finance Authority Rev.
(Municipal Capital Improvement Program),
6.6s, 2009 500 495,625
AAA State of Pennsylvania Higher Education Facilities
Authority, 5.7s, 2015 250 231,875
------------
$ 1,948,213
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $18,302,987) $ 17,115,444
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Floating Rate Demand Notes - 7.1%
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
Allegheny County, Hospital Development
Authority Rev. (Presbyterian University
Hospital), due 3/01120 $ 700 $ 700,000
California Health Facilities Financing (St. Joseph
Health Systems), due 7/01/13 100 100,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 11/01/00 100 100,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.),
due 3/01/24 300 300,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 100 100,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 1,300,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $19,602,987) $ 18,415,444
Other Assets, Less Liabilities - (0.8)% (149,956)
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 18,265,488
- --------------------------------------------------------------------------------------------------------------------
* Indexed security. See Note 7.
Portfolio of Investments - March 31, 1994
MFS SOUTH CAROLINA MUNICIPAL BOND FUND
Municipal Bonds - 95.7%
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
General Obligation - 5.0%
AAA Berkeley County, SC, Water & Sewer Rev.,
6s, 2010 $ 1,870 $ 1,809,225
AAA Horry County, SC, School District, 4.8s, 2004 2,215 2,076,563
A+ South Carolina Public Service Authority, Electric
System Expansion Rev., 7.875s, 2021 650 692,250
A Williamsburg County, SC, School District,
7.8s, 2003 200 210,750
A Williamsburg County, SC, School District,
7.9s, 2005 250 263,437
A Williamsburg County, SC, School District,
7.9s, 2006 275 289,437
A Williamsburg County, SC, School District,
7.9s, 2007 300 315,750
A York County, SC, 5s, 2011 3,940 3,432,725
------------
$ 9,090,137
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 6.6%
AAA Charleston County, SC, Certificates of
Participation (Charleston Public Facilities Corp.),
7.1s, 2011 $ 2,000 $ 2,162,500
AAA Lexington County, SC, School District No. 1,
Certificates of Participation (Gilbert Middle
School), 6.65s, 2012 1,000 1,031,250
AAA Lexington County, SC, School District No. 1,
Certificates of Participation (White Knoll Middle
School), 7.65s, 2009 1,400 1,527,750
BBB + Myrtle Beach, SC, Public Finance Corp.,
Certificates of Participation (Convention Center),
6.875s, 2017 2,500 2,475,000
AA - North Charleston, SC, 5.875s, 2010 780 759,525
AAA North Charleston, SC, Certificates of Participation
(Coliseum), 6s, 2016 1,355 1,285,556
A Puerto Rico Public Buildings Authority Rev.,
5.75s, 2010 1,000 937,500
</TABLE>
17
<PAGE> 265
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
State and Local Appropriation - continued
NR Williamsburg County, SC, School District Public
Facilities Corp., Certificates of Participation,
7.5s, 2006 $ 175 $ 162,312
NR Williamsburg County, SC, School District Public
Facilities Corp., Certificates of Participation,
7.5s, 2007 190 175,750
NR Williamsburg County, SC, School District Public
Facilities Corp., Certificates of Participation,
7.5s, 2008 205 189,113
NR Williamsburg County, SC, School District Public
Facilities Corp., Certificates of Participation,
7.5s, 2009 220 202,125
NR Williamsburg County, SC, School District Public
Facilities Corp., Certificates of Participation,
7.5s, 2012 270 246,375
NR Williamsburg County, SC, School District Public
Facilities Corp., Certificates of Participation,
7.5s, 2014 315 286,256
NR Williamsburg County, SC, School District Public
Facilities Corp., Certificates of Participation,
7.5s, 2018 635 573,088
------------
$ 12,014,100
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 18.1%
NR Anderson County, SC, 7.75s, 2008 $ 500 $ 558,125
AAA Berkeley County, SC, Water & Sewer Rev.,
6s, 2010 130 138,287
AA Charleston County, SC, 6.5s, 2011 1,315 1,433,350
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2004 1,500 866,250
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2006 2,045 1,030,169
AAA Commonwealth of Puerto Rico, Public
Improvement, 6.8s, 2021 425 475,469
AAA Grand Strand, SC, Water & Sewer Rev.,
7.75s, 2019 750 842,812
AAA Greenville Hospital System, SC, Hospital Facilities
Rev., "A", 7.8s, 2015 2,950 3,333,500
AAA Greenville Hospital System, SC, Hospital Facilities
Rev., "B", 7.8s, 2015 1,500 1,695,000
AAA Greenwood County, SC, Hospital Rev. (Self
Memorial Hospital), 8.25s, 2007 500 568,125
AAA Greenwood County, SC, Hospital Rev. (Self
Memorial Hospital), 8.375s, 2017 1,000 1,141,250
AAA Laurens, SC, Utility Systems Rev.,
7.625s, 2018 1,100 I,212,750
AAA Myrtle Beach, SC, Water & Sewer Rev., 6s, 2015 1,780 1,864,550
AAA Myrtle Beach, SC, Water & Sewer Rev., 6s, 2020 1,750 1,833,125
AAA North Charleston, SC, 7.5s, 2006 485 545,625
AAA North Charleston, SC, Sewer Rev., 7.75s, 2018 1,250 1,417,187
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 750 959,063
AA Richland County, SC, 6.25s, 2010 1,260 1,351,350
AAA Richland County, SC, Certificates of Participation,
0s, 2005 1,160 626,400
AAA Richland County, SC, Certificates of Participation,
0s, 2006 1,160 585,800
AAA Richland County, SC, Certificates of Participation.
0s, 2007 1,160 549,550
A+ South Carolina Public Service Authority, "B",
7.1s, 2021 2,000 2,255,000
A+ South Carolina Public Service Authority, "C",
7.1s, 2021 1,220 1,375,550
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - continued
A+ South Carolina Public Service Authority, E1ectric
Rev., 7.875s, 2021 $ 140 $ 151,375
A+ South Carolina Public Service Authority (Santee
Cooper), 6.625s, 2031 4,000 4,400,000
A - Spartanburg County, SC, Hospital Facilities Rev.
(Mary Black Hospital), 8.25s, 2008 500 576,875
AAA York County, SC, School District No. 3,
7.5s, 2007 575 644,719
AAA York County, SC, Water & Sewer Rev.,
7.875s, 2013 620 683,550
------------
$ 33,114,806
- --------------------------------------------------------------------------------------------------------------------
Single-Family Housing Revenue - 6.3%
AA - South Carolina Housing Authority, 9.375s, 2016 $ 5 $ 5,250
AA South Carolina Housing Authority, 8.6s, 2019 1,000 1,055,000
AA South Carolina Housing Finance & Development
Authority, 7.55s, 2011 1,750 1,806,875
AA South Carolina Housing Finance & Development
Authority, 7.75s, 2022 2,650 2,785,813
AA South Carolina Housing Finance & Development
Authority, 7.8s, 2022 1,000 1,048,750
AA South Carolina Housing Finance & Development
Authority, 7.9s, 2032 4,610 4,840,500
------------
$ 11,542,188
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 1.1%
AA South Carolina Housing Finance & Development
Authority (Fairway Apartments), 7.625s, 2033 $ 1,995 $ 2,112,206
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 9.2%
AAA Anderson County, SC, Hospital Facilities Rev.
(Anderson Area Medical Center, Inc.),
5.1s, 2006 $ 2,745 $ 2,556,281
AAA Charleston County, SC, Hospital Rev. (Medical
Society Health Project), 5.5s, 2019 3,800 3,353,500
AAA Florence County, SC, Hospital Rev. (McLeod
Regional Medical Center), 5.25s, 2009 1,000 907,500
AAA Greenwood County, SC, Hospital Rev. (Self
Memorial Hospital), 5.875s, 2017 2,500 2,384,375
AAA Lexington County, SC, Health Services District,
6s, 2021 3,500 3,311,875
AAA Pickens & Richland Counties, SC, Hospital Rev.
(Baptist Hospital), 5.75s, 2021 3,635 3,326,025
AAA Richland County, SC, Hospital Facilities Rev
Providence Hospital), 5.25s, 2010 1,200 1,065,000
------------
$ 16,904,556
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 8.6%
NR Charlestown County, SC, First Mortgage Rev.
(Driftwood Health Care Center), 12.5s, 2014 $ 2,140 $ 2,260,375
NR Greenville County, SC, First Mortgage Rev.
(Chestnut Hill), 10.125s, 2016 1,975 2,078,688
AA - Greenville Hospital System, SC, Hospital Facilities
Rev., 5.5s, 2016 1,000 883,750
AA - Greenville Hospital System, SC, Hospital Facilities
Rev., 6s, 2020 4,400 4,141,500
NR Horry County, SC, Hospital Facilities Rev.
(Conway Hospital), 6.75s, 2012 4,500 4,376,250
NR South Carolina Jobs, Economic Development
Authority (Carolina Hospital System Project),
7.55s, 2022 2,000 2,027,500
------------
$ 15,768,063
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 266
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Electric and Gas Utility Revenge - 11.1%
A Colleton & Dorchester Counties, SC, Pollution
Control Rev., 6.6s, 2014 $ 3,000 $ 3,022,500
A Fairfield County, SC, Pollution Control Rev.
(South Carolina Electric Co.), 6.5s, 2014 2,000 2,015,000
AAA Piedmont Municipal Power Agency, SC, Electric
Rev., 6.25s, 2018 2,000 1,965,000
AAA Piedmont Municipal Power Agency, SC, Electric
Rev., 6.25s, 2021 4,600 4,577,000
AAA Piedmont Municipal Power Agency, SC, Electric
Rev., 6.3s, 2022 2,270 2,230,275
AAA Piedmont Municipal Power Agency, SC, Electric
Rev., 5.375s, 2025 500 435,000
AAA South Carolina Public Service Authority,
8.516s, 2013 3,000 2,760,000
AAA South Carolina Public Service Authority, Electric
Rev., 7.75s, 2015 3,155 3,352,187
------------
$ 20,356,962
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenge - 16.1%
AAA Berkeley County, SC, Water & Sewer Rev.,
5.55s, 2015 $2,460 $ 2,250,900
AAA Cayce, SC, Waterworks & Sewer Rev.,
5.25s, 2015 2,500 2,178,125
AA - Charleston County, SC, Waterworks & Sewer
Rev., 5s, 2002 1,650 1,355,062
AA - Charleston County, SC, Waterworks & Sewer
Rev., 6s, 2012 2,500 2,431,250
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2005 2,245 1,181,431
AA Columbia, SC, Waterworks & Sewer Rev.,
0s, 2006 9,330 4,571,700
AA Columbia, SC, Waterworks & Sewer Rev.,
5.375s, 2012 1,000 913,750
AAA Grand Strand, SC, Water & Sewer Rev., 6s, 2019 1,500 1,430,625
NR Laurens County, SC, Water & Sewer Commission,
Sewer System Revue., 5.5s, 2014 1,080 967,950
AAA Rock Hill, SC, Utility Systems Rev.,
5.375s, 2014 2,400 2,130,000
AAA Rock Hill, SC, Utility Systems Rev., 5s, 2020 1,285 1,076,188
A+ South Carolina Resources Authority (Local
Government Program), 7.25s, 2020 3,000 3,165,000
AAA St. Andrews, SC, Public Services District, Sewer
System Rev., 7.75s, 2018 1,000 1,093,750
AAA Union, SC, Combined Public Utility System Rev.,
5s, 2021 1,650 1,363,313
AAA Western Carolina Regional Sewer Authority,
0s, 2007 4,400 2,018,500
AAA Winnesboro, SC, Combined Utilities Rev.,
6s, 2015 1,500 1,428,750
------------
$ 29,556,294
- --------------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 0.8%
AAA Puerto Rico Highway & Transportation Authority
Rev., 6.625s, 2018 $ 1,500 $ 1,556,250
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 11.3%
NR Aiken County, SC, Industrial Rev. Kimberly
Clark Project), 8.92s, 2005 $ 300 $ 321,000
BBB + Calhoun, SC, Solid Waste Disposal Rev. (Eastman
Kodak), 6.75s, 2017 1,000 1,036,250
A Charleston County, SC, Resource Recovery Rev.
(Foster Wheeler), 9.25s, 2010 1,750 1,975,313
BBB + Chester County, SC, Industrial Rev. (Springs
Industries, Inc.), 7.35s, 2014 1,000 1,060,000
BBB + Chester County, SC, Industrial Rev. (Springs
Industries, Inc.), 7.8s, 2014 1,025 1,108,281
AA - Darlington County, SC, Industrial Development
Rev. (Nucor Corp.), 5.75s, 2023 2,000 1,795,000
NR Fairfield County, SC, Industrial Rev. (Rite Aid,
Inc.), 7.9s, 2016 2,950 3,123,312
AA Florence County, SC, Pollution Control Facility
Rev. (E.I. duPont de Nemours & Co.),
6.35s, 2022 1,000 1,020,000
NR Greenville County, SC, Industrial Rev. (Kroger
Co.), 7.85s, 2015 500 534,375
NR Lexington County, SC, Industrial Rev.
J.B. White & Co.), 8s, 2005 700 748,125
AA - Oconee County, SC, Pollution Control Rev. (Duke
Power co. ), 5.8s, 2014 1,825 1,694,969
A - Richland County, SC, Pollution Control Rev.
(Union Camp Corp.), 6.625s, 2022 1,750 1,793,750
A - Richland County, SC, Solid Waste Facilities Rev.
(Union Camp Corp.), 6.75s, 2022 2,000 2,050,000
AA - York County, SC, Industrial Rev. (Hoechst
Celanese), 5.7s, 2024 2,725 2,401,407
------------
$ 20,661,782
- --------------------------------------------------------------------------------------------------------------------
Universities--0.5%
AAA Clemson University, SC, University Rev. (Student
and Faculty Housing), 6.65s, 2012 $ 1,000 $ 1,035,000
- --------------------------------------------------------------------------------------------------------------------
Other- 1.0%
AAA Puerto Rico Telephone Authority Rev.,
7.91s, 2004 (interest rate swap)* $ 2,000 $ 1,872,500
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $173,017,358) $175,584,844
- --------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 2.1%
- --------------------------------------------------------------------------------------------------------------------
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.).
due 3/01/24 $ 300 $ 300,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 12/01/16 200 200,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 300 300,000
Peninsula Ports Authority, VA (Shell Oil Co.), due
12/01/05 800 800,000
Uinta County, WY, Pollution Control Rev.
(Chevron Corp. ), due 8/15/20 2,100 2,100,000
Wake County, NC, Industrial Facilities &
Pollution Control Rev. (Carolina Power & Light),
due 3/01/17 100 100,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at identified Cost $ 3,800,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $176,817,358) $179,384,844
Other Assets, Less Liabilities - 2.2% 4,016,564
- --------------------------------------------------------------------------------------------------------------------
Net Assets- 100.0% $183,401,408
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Indexed security. See Note 7.
See notes to financial statements
19
<PAGE> 267
Portfolio of Investments - March 31, 1994
MFS Virginia Municipal Bond Fund
Municipal Bonds - 93.9%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligation - 7.7%
AAA Arlington County, VA, 6s, 2011 $ 1,500 $ 1,511,250
AAA Arlington County, VA, 6s, 2012 1,500 1,503,750
AA Chesapeake, VA, Public Improvement,
5.25s, 2008 3,300 3,060,750
AAA Fairfax County, VA, 4.8s, 2003 3,500 3,325,000
AAA Fairfax County, VA, 5.2s, 2012 3,150 2,866,500
AA- Hampton, VA, Public Improvement, 4.8s, 2006 3,410 3,127,338
AA- Hampton, VA, Public Improvement.
6.625s, 2010 1,500 1,635,000
NR Lebanon, VA, 7.6s, 2005 375 385,781
NR Lebanon, VA, 7.75s, 2010 310 320,850
AA- Portsmouth, VA, 6.375s, 2012 1,555 1,578,325
AA- Portsmouth, VA, 5.5s, 2013 2,000 1,825,000
NR Richmond, VA, 0s, 2006 1,000 492,500
AA Richmond, VA, 0s, 2006 2,500 1,231,250
AA Richmond, VA, 0s, 2007 5,280 2,402,400
NR Richmond, VA, 0s, 2008 2,000 850,000
AA Richmond, VA, 0s, 2008 5,270 2,239,750
AA Richmond, VA, 0s, 2009 5,175 2,037,656
AAA State of Virginia (Higher Educational Institute),
0s, 1995 725 693,281
AAA State of Virginia (Higher Educational Institute),
0s, 1996 1,000 911,250
AAA State of Virginia (Higher Educational Institute),
0s, 1998 1,295 1,052,188
AAA State of Virginia (Higher Educational Institute),
0s, 1999 1,300 997,750
A Suffolk, VA, 6.5s, 2006 1,250 1,303,125
------------
$ 35,350,694
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 4.1%
NR Chesterfield County, VA, Industrial Development
Authority, Public Facilities Lease Rev.
(Correctional Enterprises), 7.5s, 2008 $ 1,720 $ 1,722,150
NR New Kent County, VA, Industrial Development
Authority, Public Facilities Lease Rev. (New
Kent County Courthouse), 7.5s, 2011 700 730,625
A Puerto Rico Public Buildings Authority,
7.97s, 2016 6,500 6,093,750
AAA Virginia Public Building Authority, 0s, 2007 13,305 5,987,250
AAA Virginia Public Building Authority, 0s, 2008 10,650 4,459,685
------------
$ 18,993,462
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 20.9%
NR Arlington County, VA, Industrial Development
Authority (Arlington Hospital), 7.125s, 2021 $ 4,450 $ 5,045,188
AAA Bedford, VA, Electric Systems Rev., 8.875s, 2015 2,000 2,152,500
AAA Bedford, VA, Electric Systems Rev., 9s, 2025 1,000 1,077,500
A- Capital Region Airport Commission, VA,
10.5s, 2004 60 62,475
A- Capital Region Airport Commission, VA,
10.7s, 2014 1,000 1,040,000
NR Carroll County, VA, Solid Waste Authority Rev.,
7.5s, 2006 2,265 2,406,562
A Chesapeake, VA, Certificates of Participation,
7.75s, 2006 1,250 1,365,625
NR Chesapeake, VA, Industrial Development
Authority Rev. (Sentara Life Care Corp.),
10s, 2012 1,150 1,358,438
AA Chesapeake, VA, Public Improvement,
6.75s, 2008 2,500 2,743,750
AAA Chesterfield County, VA, Water & Sewer Rev.,
9.125s, 2010 3,250 3,566,875
AAA Commonwealth of Puerto Rico,
7.9s, 2004 1,660 1,840,525
AAA Fairfax County, VA, Water Authority Rev.,
7.25s, 2027 3,090 3,472,388
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Refunded and Special Obligation - continued
AAA Frederick-Winchester, VA, Sewer System Rev.,
9.375s, 2015 $ 1,500 $ 1,661,250
AAA Henrico County, VA, Water & Sewer Rev.,
7.875s, 2013 3,500 3,819,375
AAA Nelson County, VA, Service Authority, Water &
Sewer Rev., 7.875s, 2018 1,000 1,087,500
NR Newport News, VA, 6.5s, 2008 875 958,125
NR Newport News, VA, 6.5s, 2010 2,205 2,414,475
NR Newport News, VA, 6.5s, 2011 2,325 2,545,875
AA Norfolk, VA, Industrial Development Authority
Rev. (Sentara Hospital), 7.875s, 2008 1,000 1,106,250
AA Norfolk, VA, Industrial Development Authority
Rev. (Sentara Hospital), 7.9s, 2018 2,000 2,287,500
NR Norfolk, VA, Industrial Development Authority
Rev. (Sentara Life Care Corp.), 10s, 2012 4,400 5,197,500
AA- Portsmouth, VA, 6.9s, 2019 1,500 1,665,000
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 4,150 5,306,813
AAA Puerto Rico Aqueduct & Sewer Authority,
10.25s, 2009 400 558,000
AAA Puerto Rico Electric Power Authority,
9.125s, 2015 1,500 1,640,625
AAA Puerto Rico Highway & Transportation Authority,
Highway Rev., 6.5s, 2022 1,750 1,925,000
AAA Puerto Rico Industrial, Medical & Environmental
Pollution Control Facilities Finance Authority
Rev., 9.75s, 2025 1,345 1,474,456
AAA Puerto Rico Public Buildings Authority,
8.875s, 2012 3,500 3,784,375
AAA Roanoke, VA, Industrial Development Authority,
Hospital Rev. (Memorial Hospital), 7.25s, 2010 1,750 1,979,688
A+ Roanoke, VA, Industrial Development Authority,
Hospital Rev. (Memorial Hospital), 7.5s, 2020 1,245 1,423,969
NR Salem, VA, 8.65s, 2003 525 565,031
AAA Southeastern Public Service Authority, VA, Solid
Waste System Rev., 9.25s, 2015 2,750 3,097,187
AAA Southeastern Public Service Authority, VA, Solid
Waste System Rev., 10.5s, 2015 5,600 6,153,000
AAA State of Virginia, Public School Authority,
8.5s, 2009 500 561,875
AAA University of Virginia, Hospital Rev., 9s, 2013 4,165 4,487,787
AAA Virginia Beach, VA, Certificates of Participation
(Judicial Center Project), 7.25s, 2010 4,955 5,617,731
A+ Virginia Beach, VA, Water & Sewer Rev.,
6.625s, 2017 2,400 2,634,000
NR Virginia College Building Authority (Hampton
University), 7.75s, 2014 750 853,125
NR Virginia Resources Authority, Water & Sewer
System Rev., 7.5s, 2020 1,180 1,331,925
AA Virginia Resources Authority, Water System Rev.,
7.875s, 2018 800 911,000
AAA Virginia Transportation Board, Contract Rev.
(Route 28), 7.7s, 2008 2,175 2,449,593
-----------
$95,629,856
- --------------------------------------------------------------------------------------------------------------------
Single-Family Housing Revenue - 2.9%
AAA Puerto Rico Housing Finance Corp., 7.8s, 2021 $ 45 $ 47,363
A Virginia Housing Development Authority,
0s, 2010 560 120,400
A + Virginia Housing Development Authority,
6.95s, 2010 2,000 2,052,500
NR Virginia Housing Development Authority,
6.45s, 2021 4,250 4,175,625
A + Virginia Housing Development Authority,
7.1s, 2022 2,000 2,035,000
</TABLE>
20
<PAGE> 268
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Single-Family Housing Revenue - continued
AA + Virginia Housing Development Authority,
7.8s, 2028 $ 2,000 $ 2,115,000
AA + Virginia Housing Development Authority,
0s, 2029 3,615 212,381
AA + Virginia Housing Development Authority,
7.8s, 2038 2,500 2,628,125
-----------
$13,386,394
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 7. 1%
NR Alexandria, VA, Redevelopment & Housing
Authority Jefferson Village Apartments),
9s, 2018 $ 4,000 $ 4,135,000
NR Fairfax County, VA, Redevelopment & Housing
Authority (Little River Glen), 8.95s, 2020 3,910 4,041,963
AAA Fairfax County, VA, Redevelopment & Housing
Authority (Mt. Vernon Apartments),
9.125s, 2020 500 518,125
NR Front Royal & Warren County, VA, Industrial
Development Authority Rev. (Heritage Hall),
9.45s, 2024 1,000 1,110,000
AAA Harrisonburg, VA, Redevelopment & Housing
Authority, 7.375s, 2028 3,540 3,734,000
NR Norfolk, VA, Redevelopment & Housing
Authority (Dockside Apartments), 7.37s, 2028 2,000 2,125,000
NR Virginia Beach, VA, Development Authority (Lake
Point Associates Project), 12.125s, 2015 6,300 6,827,625
AA + Virginia Housing Development Authority.
10.75s, 2006 700 714,000
AA Virginia Housing Development Authority,
5.875s, 2017 4,480 4,250,400
AA Virginia Housing Development Authority,
5.9s, 2017 5,445 5,179,556
------------
$ 32,636,369
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 6.8%
NR Albemarle County, VA, Industrial Development
Authority, First Mortgage Rev., 8.9s, 2026 $ 2,150 $ 2,582,687
AAA Chesapeake, VA, Hospital Authority, First
Mortgage Rev. (Chesapeake General Hospital),
5.3s, 2008 1,500 1,393,125
AAA Chesapeake, VA, Hospital Authority, First
Mortgage Rev. (Chesapeake General Hospital),
5.25s, 2018 5,250 4,547,813
AA Culpepper, VA, Industrial Development Authority
(Medical Facilities of America) 10.375s, 2014 1,175 1,224,937
AAA Hanover County, VA, Industrial Development
Authority (Richmond Memorial Hospital Medical
Center), 6s, 2021 1,000 955,000
AAA Henrico County, VA, Industrial Development
Authority Rev. (Bon Secours), 9.293s, 2027 5,000 4,612,500
NR Nelson County, VA, Industrial Development
Authority (Medical Facilities of America),
10.375s, 2014 500 521,250
AAA Peninsula Ports Authority, VA, Hospital Facilities
Rev. (Whittaker Memorial Hospital), 8.7s, 2023 2,100 2,265,375
AA Richmond County, VA, Industrial Development
Authority (Medical Facilities of America),
10.375s, 2014 1,200 1,252,500
AAA Roanoke, VA, Industrial Development Authority,
Hospital Rev. (Roanoke Memorial Hospital),
6.125s, 2017 6,000 5,850,000
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Insured Health Care Revenue - continued
AAA Roanoke, VA, Industrial Development Authority,
Hospital Rev. (Roanoke Memorial Hospital),
5.25s, 2025 $ 5,000 $ 4,225,000
AAA Virginia Beach, VA, Development Authority,
Hospital Facilities Rev. (Virginia Beach General
Hospital), 5.125s, 2018 2,250 1,951,875
------------
$ 31,382,062
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 11.4%
NR Albemarle County, VA, Industrial Development
Authority (Martha Jefferson Hospital),
5.875s, 2013 $ 2,000 $ 1,765,000
NR Albemarle County, VA, Industrial Development
Authority (Martha Jefferson Hospital),
5.5s, 2020 1,500 1,299,375
NR Arlington County, VA, Industrial Development
Authority, Hospital Facilities Rev. (Arlington
Hospital), 5.3s, 2015 8,500 7,405,625
AA - Chesapeake, VA, Industrial Development
Authority (Sentara Life Care Corp.),
7.875s, 2008 1,000 1,113,750
AA - Chesapeake, VA, Industrial Development
Authority (Sentara Life Care Corp.), 8s, 2018 4,000 4,440,000
AA - Fairfax County, VA, Industrial Development
Authority Rev. (Health System Hospital),
5s, 2014 3,910 3,279,513
AA - Fairfax County, VA, Industrial Development
Authority Rev. (Health System Hospital),
5s, 2015 5,680 4,749,900
NR Fairfax, Fauquier & Loudoun Counties, VA,
Health Center Commission, Nursing Home
Rev., 9s, 2020 1,950 2,040,187
NR Fredericksburg, VA, Industrial Development
Authority (Mary Washington Hospital),
10.5s, 2014 650 671,937
A + Henrico County, VA, Industrial Development
Authority (St. John's Hospital), 8.875s, 2015 990 973,913
NR Hopewell County, VA, Hospital Authority (John
Randolph Hospital), 8.85s, 2013 4,875 5,015,156
A+ Lynchburg, VA, Industrial Development
Authority (Centra Health, Inc.), 8.125s, 2016 1,400 1,529,500
NR Martinsville, VA, Industrial Development
Authority (Beverly Enterprises), 6.75s, 2004 1,230 1,233,075
AA Norfolk, VA, Industrial Development Authority
(Sentara Hospital), "A", 5s, 2020 5,000 4,087,500
AA - Norfolk, VA, Industrial Development Authority
(Sentara Life Corp.), "A", 7.875s, 2008 1,000 1,106,250
AA - Norfolk, VA, Industrial Development Authority
(Sentara Life Corp.), "A", 7.9s, 2018 2,000 2,212,500
A - Peninsula Ports Authority, VA, Hospital Facilities
Rev. (Mary Immaculate Hospital), 7.375s, 2017 3,000 3,105,000
NR Prince William County, VA, Industrial
Development Authority, Hospital Rev. (Prince
William Hospital), 5.25s, 2019 1,000 827,500
A Suffolk, VA, Industrial Development Authority
(Louise Obici Memorial Hospital), 7.875s, 2005 2,205 2,329,031
A + Virginia Beach, VA, Hospital Facilities Rev.
(Virginia Beach General Hospital), 8.75s, 2017 2,875 3,234,375
------------
$ 52,419,087
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 269
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Electric and Gas Utility Revenue - 3.2%
A + Halifax County, VA, Industrial Rev. Authority
(Old Dominion Electric Cooperative project),
6s, 2022 $ 8,500 $ 8,043,125
AAA Southeastern Public Service Authority, VA, Solid
Waste System Rev., 5.15s, 2009 4,000 3,655,000
A - Southeastern Public Service Authority, VA, Solid
Waste System Rev., 6s, 2017 3,000 2,790,000
------------
$ 14,488,125
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 12.4%
A + Chesapeake, VA, Water & Sewer System Rev.,
5.1s, 2014 $ 2,000 $ 1,735,000
AA Chesterfield County, VA, Water & Sewer Rev.,
0s, 2004 5,025 2,744,906
AA Chesterfield County, VA, Water & Sewer Rev.,
0s, 2005 4,815 2,455,650
AA Chesterfield County, VA, Water & Sewer Rev.,
0s, 2006 4,000 1,900,000
AA Chesterfield County, VA, Water & Sewer Rev.,
0s, 2007 6,000 2,670,000
AA Chesterfield County, VA, Water & Sewer Rev.,
0s, 2008 6,135 2,553,694
AA Chesterfield County, VA, Water & Sewer Rev.,
0s, 2009 6,135 2,377,312
AA Chesterfield County, VA, Water & Sewer Rev.,
0s, 2010 9,005 3,253,056
AAA Fairfax County, VA, Sewer Rev., 5.5s, 2013 5,000 4,587,500
AA - Fairfax County, VA, Water Authority Rev.,
5s, 2016 5,000 4,218,750
AA - Fairfax County, VA, Water Authority Rev.,
6s,2022 11,400 10,844,250
AAA Frederick-Winchester, VA, Service Authority,
Regional Sewer System
Rev., 5.75s, 2010 3,715 3,529,250
AAA Roanoke County, VA, Water System Rev.,
5.125s, 2013 2,500 2,187,500
AAA Upper Occoquan, VA, Regional Sewer Rev.,
5s, 2015 9,000 7,695,000
AA Virginia Resources Authority, Sewer Systems Rev.,
9.3s, 2005 250 271,563
AA Virginia Resources Authority, Water & Sewer
System Rev., 8.75s, 2003 500 540,625
AA Virginia Resources Authority, Water & Sewer
System Rev. (Campbell Utilities & Service Co.),
5s, 2013 500 430,625
AA Virginia Resources Authority Water & Sewer
System Rev. (Campbell Utilities & Service Co.),
5.125s, 2019 3,250 2,774,688
------------
$ 56,769,369
- --------------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 1.4%
AAA Chesapeake Bay, VA, Bridge & Tunnel Authority,
0s, 2005 $ 4,535 $ 2,363,869
AA Virginia Transportation Board, Transportation
contract Rev.(Northern Virginia Transportation
District), 5.25s, 2019 4,860 4,203,900
------------
$ 6,567,769
- --------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 6.5%
AAA Metropolitan Washington, D.C., Airport Rev.,
6.625s, 2012 $ 3,000 $ 3,075,000
AAA Metropolitan Washington, D.C., Airport Rev.,
7.6s, 2014 5,030 5,470,125
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue-continued
AAA Metropolitan Washington, D.C., Airport Rev.,
8.2s, 2018 $ 3,500 $ 3,946,250
AAA Metropolitan Washington, D.C., Airport Rev.,
6.625s, 2019 7,375 7,559,375
AAA Metropolitan Washington, D.C., Airport Rev.,
5.25s, 2022 2,500 2,146,875
AA - Peninsula Airport Commission, VA, 7.3s, 2021 2,400 2,616,000
A + Virginia Port Authority, 8.2s, 2008 4,500 5,006,250
------------
$ 29,819,875
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 2.5%
A Covington & Alleghany Counties, VA, Pollution
Control Rev. (Westvaco Corp.), 10.625s, 2014 $ 1,100 $ 1,163,250
A - Halifax, VA, industrial Development Authority
(Tandy Corp.), 8.25s, 2008 3,500 3,832,500
A + Henrico County, VA, Industrial Development
Authority (St. Mary's Hospital), 7.5s, 2007 905 1,006,813
NR Lynchburg, VA, Industrial Development
Authority (Kroger Co.), 7.9s, 2011 1,000 1,063,750
A Prince William County, VA, Industrial
Development Authority (K-Mart Corp.),
6s, 2006 775 747,875
NR Virginia Beach, VA, Development Authority
(Beverly Enterprises), 10s, 2010 1,435 1,639,488
BBB West Point, VA, Industrial Development
Authority (Chesapeake Corp.), 6.25s, 2019 2,000 1,925,000
------------
$ 11,378,676
- --------------------------------------------------------------------------------------------------------------------
Universities - 3.8%
A + Albemarle County, VA, Industrial Development
Authority Health Services Rev. (University of
Virginia Health Services Foundation), 6.5s, 2022 $ 1,000 $ 998,750
A - Hampton Roads, VA, Medical College General
Rev., 6.875s, 2016 1,500 1,569,375
AAA James Madison University, VA, Rev., 5.25s, 2013 1,000 891,250
NR Loudoun County, VA, Industrial Development
Authority, University Facilities Rev. (George
Washington University), 6.25s, 2012 2,710 2,669,350
NR Rockingham County, VA, Industrial Development
Authority Rev. (Bridgewater College),
5.95s, 2013 590 550,175
NR Rockingham County, VA, Industrial Development
Authority Rev. (Bridgewater College),
6s, 2023 1,610 1,473,150
AA + University of Virginia, University Rev.,
5.375s, 2014 3,690 3,371,737
AA + University of Virginia, University Rev.,
5.2s, 2015 3,695 3,293,169
BBB-- Virginia College Building Authority, Educational
Facilities Rev. (Marymount University), 7s, 2022 2,500 2,518,750
------------
$ 17,335,706
- --------------------------------------------------------------------------------------------------------------------
Other - 3.2%
NR Danville, VA, Industrial Development Authority,
Industrial Development Rev. (Piedmont Mall),
8s, 2013 $ 3,240 $ 3,110,400
NR Virginia Housing Development Authority,
0s, 2019 7,500 6,684,375
AA Virginia Public School Authority, 5.25s, 2008 2,500 2,325,000
AAA Washington, D.C., Metropolitan Area
Transportation Authority Gross Rev.,
5.125s, 2009 3,000 2,733,750
------------
$ 14,853,525
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $426,365,722) $431,010,969
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 270
Portfolio of Investments - continued
Floating Rate Demand Notes - 1.2%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
California Health Facilities Financing (St. Joseph
Health Systems), due 7/01/13 $ 200 $ 200,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 11/01/00 300 300,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/06 400 400,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/08 100 100,000
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/11 300 300,000
East Baton Rouge Parish, LA, Pollution Control
Rev. (Exxon Corp.), due 11/01/19 100 100,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.),
due 3/01/24 400 400,000
Hillsborough County, FL, Industrial Development
Authority, Pollution Control Rev. (Tampa
Electric Co.), due 5/15/18 1,400 1,400,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 12/01/16 300 300,000
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 6/01/23 500 500,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 600 600,000
Massachusetts State Health & Educational
Facilities Authority Rev., due 7/01/05 100 100,000
New York State Job Development Authority,
due 3/01/07 90 90,000
State of Georgia, Hospital Financing Authority
Rev. due 3/01/01 500 500,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes, at Identified Cost $ 5,290,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Call Options Purchased - 0.3%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Georgia Municipal Electric Authority/2003/102 $ 20 $ 675,000
State of New Jersey, "D"/2003/102 5 687,500
- --------------------------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $576,800) $ 1,362,500
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $432,232,522) $ 37,663,469
Other Assets, Less Liabilities - 4.6% 21,013,728
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $458,677,197
- --------------------------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
Portfolio of Investments - March 31, 1994
MFS West Virginia Municipal Bond Fund
Municipal Bonds - 96.9%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Obligation - 4.8%
AAA Cabell, WV, Board of Education, 6s, 2006 $ 500 $ 500,625
NR Charleston, WV, Public Improvement,
7.2s, 2008 1,240 1,368,650
NR Charleston, WV, Public Improvement,
7.2s, 2009 1,140 1,255,425
AAA Jefferson County, WV, Board of Education,
6.85s, 2009 1,680 1,816,500
AAA Monongalia County, WV, Board of Education,
7s, 2005 500 551,250
AAA Ohio County, WV, Board of Education,
5.25s, 2018 1,180 1,044,300
-----------
$ 6,536,750
- --------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 7.1%
A Puerto Rico Public Buildings Authority,
8.37s, 2016 $ 2,000 $ 1,875,000
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 0s, 2007 3,150 1,401,750
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 0s, 2008 3,050 1,258,125
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 0s, 2009 2,500 956,250
AAA West Virginia Building Commission, Lease Rev.
(West Virginia Regional Jail), 7s, 2015 1,000 1,068,750
NR West Virginia School Building Authority,
6.75s, 2015 3,000 3,157,500
-----------
$ 9,717,375
- --------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligation - 16.4%
BBB + Charleston, WV, Parking Rev., 8.5s, 2006 $ 1,000 $ 1,105,000
NR Clarksburg, WV, Water Rev., 10.875s, 2020 450 484,313
A Kanawha County, WV, Building Commission
(Charleston Medical Center), 10.125s, 2008 510 538,687
AAA Kanawha County, WV, Building Commission (St.
Francis Hospital), 7.5s, 2007 275 317,281
AAA Monongalia County, WV, Hospital Rev. (West
Virginia University Hospitals, Inc.),
9.375s, 2018 2,245 2,427,406
AAA Puerto Rico Aqueduct & Sewer Authority,
9s, 2009 1,500 1,918,125
AAA Puerto Rico Electric Power Authority,
10.25s, 2009 480 502,200
AAA Puerto Rico Industrial, Medical & Environmental
Pollution Control Facilities Finance Authority
Rev., 9.75s, 2025 350 383,688
AAA South Charleston, WV, Hospital Rev. (Herbert J.
Thomas Memorial Hospital), 8s, 2010 500 571,875
AAA West Virginia Hospital Finance Authority
(Monongalia General
Hospital), 8.6s, 2017 1,000 1,122,500
AAA West Virginia Hospital Finance Authority (West
Virginia University Medical Corp.),
7.875s, 2018 1,000 1,095,000
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2005 2,250 1,181,250
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2006 2,500 1,225,000
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2007 2,000 912,500
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2008 610 260,775
AAA West Virginia Resources Recovery Authority,
Solid Waste Disposal Rev., 8.25s, 2009 700 770,000
</TABLE>
23
<PAGE> 271
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Refunded and Special Obligation - continued
AAA West Virginia Water Development Authority,
7 Is, 2009 $ 250 $ 278,125
BBB + West Virginia Water Development Authority,
9.375s, 2015 700 736,750
BBB + West Virginia Water Development Authority,
7.4s, 2019 750 859,687
BBB + West Virginia Water Development Authority,
9.5s, 2025 350 368,812
BBB + West Virginia Water Development Authority,
8.625s, 2028 750 876,563
BBB + West Virginia Water Development Authority,
8.125s, 2029 1,750 2,010,313
AAA West Virginia Water Development Authority,
8.125s, 2029 2,015 2,319,769
------------
$ 22,265,619
- --------------------------------------------------------------------------------------------------------------------
Federally Guaranteed Housing Revenue - 0.6%
AAA Huntington, WV, Housing Corp., Multi-Family
Rev., 7.5s, 2024 $ 800 $ 845,000
- --------------------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 12.8%
AAA Berkeley, Brooke & Fayette Counties, WV,
9.1s, 2011 $ 130 $ 132,925
NR Berkeley County, WV, Residential Mortgage Rev.,
7.875s,2012 450 461,812
NR Charles Town, WV, Residential Mortgage Rev.,
6.2s, 2011 1,165 1,153,350
AAA Grant, Hampshire, Hardy, Mineral & Pendleton
Counties, WV, 0s, 2017 4,230 460,012
BBB + Kanawha, Mercer & Nicholas Counties, WV,
10.625s, 2008 10 10,300
BBB + Kanawha, Mercer & Nicholas Counties, WV,
0s, 2015 15,000 1,818,750
NR Mason County, WV, Rev., 0s, 2014 1,700 371,875
A + West Virginia Housing Development Fund,
7.95s, 2009 500 522,500
A + West Virginia Housing Development Fund,
7.85s, 2014 1,000 1,037,500
A + West Virginia Housing Development Fund,
0s, 2015 10,000 1,200,000
A + West Virginia Housing Development Fund,
5.55s, 2017 2,000 1,847,500
AA + West Virginia Housing Development Fund,
7.95s, 2017 3,500 3,635,625
A + West Virginia Housing Development Fund,
7.2s, 2020 2,000 2,087,500
AA + West Virginia Housing Development Fund,
5.45s, 2021 3,000 2,655,000
------------
$ 17,394,649
- --------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.4%
NR Webster County, WV, Housing Development
Corp. (Circlebrook), 6.35s, 2008 $ 555 $ 543,900
- --------------------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 4.0%
AAA Monongalia County, WV, Building Commission,
Hospital Rev. (Monongalia General Hospital),
6.625s, 2011 $ 1,000 $ 1,042,500
AAA West Virginia Hospital Authority (West Virginia
University Hospital, Inc.), 5s, 2016 3,250 2,782,813
AAA West Virginia Hospital Finance Authority (West
Virginia University Medical Corp.),
7.875s, 2007 1,500 1,640,625
------------
$ 5,465,938
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 7.0%
NR Hampshire County, WV, First Mortgage Rev.
(Romney Health Care), 9.5s, 2022 $ 1,280 $ 1,300,800
NR Monongalia County, WV, Health Facilities Rev.
(Beverly Enterprises), 10s, 2007 955 1,082,731
NR Princeton, WV, Hospital Rev. (Princeton
Community Hospital), 6s, 2018 2,000 1,797,500
NR West Virginia Hospital Finance Authority
(Charleston Area Medical Center), 6.5s, 2023 2,000 1,995,000
NR West Virginia Hospital Finance Authority (Teays
Valley Haven Project), 10s, 2005 205 204,231
NR West Virginia Hospital Finance Authority (Teays
Valley Haven Project), 10s, 2015 3,025 3,100,625
-----------
$ 9,480,887
- --------------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 1.7%
A - Puerto Rico Electric Power Authority, 8s, 2008 $ 1,000 $ 1,120,000
BBB + Putnam County, WV, Pollution Control Rev.
(Appalachian Power Co.), 6.6s, 2019 1,200 1,209,000
-----------
$ 2,329,000
- --------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 7.3%
A Beckley, WV, Industrial Development Rev.
(Beckley Water Co.), 7s, 2017 $ 2,000 $ 2,067,500
AAA Charleston, WV, Sewer Rev., 6.5s, 2017 2,260 2,308,025
AA Clarksburg, WV, Water Rev., 6.25s, 2019 1,000 953,750
AAA Huntington, WV, Sewer Rev., 5.25s, 2018 2,520 2,214,450
AAA West Virginia Water Development Authority,
7.5s, 2009 1,100 1,211,375
BBB + West Virginia Water Development Authority,
7.625s, 2009 500 531,875
BB - Wierton, WV, Sewer Rev., 7.75s, 2001 320 346,400
BB - Wierton, WV, Sewer Rev., 7.75s, 2002 345 374,756
-----------
$10,008,131
- --------------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 2.7%
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2005 $ 2,275 $ 1,177,313
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 0s, 2006 1,885 909,512
AAA West Virginia Parkways, Economic Development
& Tourism Authority, 8.792s, 2019 1,800 1,624,500
-----------
$ 3,711,325
- --------------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.5%
AAA Puerto Rico Highway & Transportation Authority
Rev., 6.625s, 2018 $ 2,000 $ 2,075,000
- --------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 21.9%
NR Jackson County, WV, Pollution Control Rev.
(Kaiser Aluminium & Chemical Corp.),
6.5s, 2008 $ 1,380 $ 1,288,575
NR Kanawha County, WV, Commercial Development
Rev. (Kroger Co.), 8s, 2011 1,000 1,072,500
A Kanawha County, WV, Commercial Development
Rev. (May Department Stores Co.), 6.5s, 2003 3,000 3,153,750
BBB Kanawha County, WV, Pollution Control Rev.
/Union Carbide Corp.), 8s, 2020 2,000 2,165,000
AAA Marshall County, WV, Pollution Control Rev.
(Ohio Power Co.), 6.85s, 2022 2,000 2,052,500
AAA Marshall County, WV, Pollution Control Rev.
(Ohio Power Co.), 6.85s, 2022 2,750 2,846,250
NR McDowell County, WV, Industrial Development
Rev. (War Telephone Co.), 13.5s, 2001 500 508,125
NR Monongalia County, WV, Commercial
Development Rev. (Kroger Co.), 7.7s, 2012 2,000 2,097,500
</TABLE>
24
<PAGE> 272
Portfolio of Investments - continued
Municipal Bonds - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
S&P Bond
Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Industrial Revenue (Corporate Guarantee) - continued
NR Ohio County, WV, Industrial Development Rev.
(Kroger Co ), 8.125s, 2011 $ 2,000 $ 2,142,500
NR Putnam County, WV, Industrial Development
Rev. (Rite Aid, Inc.), 10.375s, 2002 590 623,188
AAA Putnam, WV, Pollution Control Rev. (Appalachian
Power Co.), 5.45s, 2019 9,500 8,431,250
A Raleigh County, WV, Commercial Development
Rev. (K-Mart Corp.), 6.05s, 2006 670 644,038
NR South Charleston, WV, Pollution Control Rev.
(Union Carbide Corp.), 7.625s, 2005 2,500 2,753,125
------------
$ 29,778,301
- --------------------------------------------------------------------------------------------------------------------
Universities - 4.4%
AAA West Virginia University Rev. (West Virginia
University Dormitory Project), 6s, 2012 $ 5,000 $ 4,887,500
AAA West Virginia University Rev. (West Virginia
University Dormitory Project), 6.75s, 2017 1,000 1,042,500
------------
$ 5,930,000
- --------------------------------------------------------------------------------------------------------------------
Other - 4.3%
BBB + Charleston, WV, Parking Rev., 6s, 2013 $ 1,480 $ 1,363,450
A Harrison County, WV, Solid Waste Disposal Rev.
(West Pennsylvania Power Co.), 6.3s, 2023 2,500 2,396,875
NR West Virginia Hospital Finance Authority
(General Division Medical Office Building),
7.25s, 2014 2,000 2,082,500
$ 5,842,825
- --------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost $129,279,514) $131,924,700
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio of Investments - continued
Floating Rate Demand Notes - 0.5%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
California Pollution Control Financing Authority,
Pollution Control Rev. (Shell Oil Co.),
due 10/01/08 $ 100 $ 100,000
Harris County, TX, Industrial Development
Corp., Pollution Control Rev. (Exxon Corp.),
due 3/01/24 100 100,000
Jackson County, MS, Pollution Control Rev
(Chevron USA, Inc.), due 6/01/16 200 200,000
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 11/01/14 300 300,000
- --------------------------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes at Identified Cost $ 700,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost $129,979,514) $132,624,700
Other Assets, Less Liabilities - 2.6% 3,557,712
- --------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $136,182,412
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
25
<PAGE> 273
Financial Statements
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
March 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments -
Identified cost $117,956,515 $ 90,632,061 $163,375,684 $274,697,916 $162,944,689
Unrealized appreciation (depreciation) (4,187,577) 740,489 1,868,645 7,438,166 2,504,437
------------ ------------ ------------ ------------ ------------
Total investments, at value $113,768,938 $ 91,372,550 $165,244,329 $282,136,082 $165,449,126
Cash 298,281 260,109 457,444 882,425 488,004
Receivable for investments sold 2,997,873 55,927 - 2,126,365 6,803,771
Receivable for Fund shares sold 224,903 355,061 254,201 146,662 336,480
Interest receivable 2,293,482 1,501,946 2,721,020 5,158,606 2,772,072
Deferred organization expenses 6,075 - - - 1,080
Other assets 8,656 8,508 14,981 15,196 14,486
------------ ------------ ------------ ------------ ------------
Total assets $119,598,208 $ 93,554,101 $168,691,975 $290,465,336 $175,865,019
------------ ------------ ------------ ------------ ------------
Liabilities:
Distributions payable $ 361,674 $ 255,869 $ 350,546 $ 819,014 $ 350,600
Payable for investments purchased 1,840,767 - - 2,849,332 5,745,881
Payable for Fund shares reacquired 741,619 674,907 360,304 3,746,594 694,484
Payable to affiliates -
Management fee 647 2,924 2,550 4,348 2,247
Shareholder servicing agent fee 501 397 708 1,195 1,127
Distribution fee 165 138 579 880 123
Accrued expenses and other liabilities 79,056 111,421 208,869 302,859 183,802
------------ ------------ ------------ ------------ ------------
Total liabilities $ 3,024,429 $ 1,045,656 $ 923,556 $ 7,724,222 $ 6,978,264
------------ ------------ ------------ ------------ ------------
Net assets: $116,573,779 $ 92,508,445 $167,768,419 $282,741,114 $168,886,755
============ ============ ============ ============ ============
Net assets consist of:
Paid-in capital $120,077,947 $ 91,689,607 $166,362,241 $275,588,052 $167,137,175
Unrealized appreciation (depreciation)
on investments (3,825,567) 990,776 2,198,271 7,771,114 2,943,836
Accumulated net realized gain (loss)
on investments 462,210 48,548 (178,165) 446,704 (723,817)
Accumulated distributions in excess
of net investment income (140,811) (220,486) (613,928) (1,064,756) (470,439)
------------ ------------ ------------ ------------ ------------
Total $116,573,779 $ 92,508,445 $167,768,419 $282,741,114 $168,886,755
============ ============ ============ ============ ============
Shares of beneficial interest outstanding:
Class A 11,248,884 8,272,446 14,812,950 25,478,256 15,493,625
Class B 829,366 638,664 595,446 457,935 596,977
------------ ------------ ------------ ------------ ------------
Total shares of beneficial
interest outstanding 12,078,250 8,911,110 15,408,396 25,936,191 16,090,602
============ ============ ============ ============ ============
Net assets:
Class A $108,578,725 $ 85,877,568 $161,290,233 $277,748,097 $162,621,313
Class B 7,995,054 6,630,877 6,478,186 4,993,017 6,265,442
============ ============ ============ ============ ============
Total net assets $116,573,779 $ 92,508,445 $167,768,419 $282,741,114 $168,886,755
============ ============ ============ ============ ============
Class A shares:
Net asset value and redemption price per share
(net assets/shares of beneficial
interest outstanding) $ 9.65 $10.38 $10.89 $10.90 $10.50
====== ====== ====== ====== ======
Offering price per share (100/95.25 of net
asset value per share) $10.13 $10.90 $11.43 $11.44 $11.02
====== ====== ====== ====== ======
Class B shares:
Net asset valve, offering price and
redemption price per share
(net assets/shares of beneficial
interest outstanding) $ 9.64 $10.38 $10.88 $10.90 $10.50
====== ====== ====== ====== ======
</TABLE>
On sales of $ 100,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
26
<PAGE> 274
Financial Statements - continued
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
March 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments -
Identified cost $468,821,521 $19,602,987 $176,817,358 $432,232,522 $129,979,514
Unrealized appreciation (depreciation) 4,262,731 (1,187,543) 2,567,486 5,430,947 2,645,186
------------ ----------- ------------ ------------ ------------
Total investments, at value $473,084,252 $18,415,444 $179,384,844 $437,663,469 $132,624,700
Cash 1,363,584 135,810 543,605 1,370,638 481,139
Receivable for investments sold 581,400 -- 5,000 12,447,082 891,531
Receivable for Fund shares sold 981,630 285,624 1,053,738 781,078 637,868
Interest receivable 9,254,203 264,285 3,169,324 8,374,939 2,758,655
Receivable for daily variation margin
on open futures contracts -- -- -- -- 98,438
Deferred organization expenses -- 6,756 -- -- --
Other assets 18,359 883 15,228 18,392 14,258
------------ ----------- ------------ ------------ ------------
Total assets $485,283,428 $19,108,802 $184,171,739 $460,655,598 $137,506,589
------------ ----------- ------------ ------------ ------------
Liabilities:
Distributions payable $ 924,752 $ 29,115 $386,393 $1,050,328 $ 306,077
Payable for investments purchased -- 804,333 -- -- --
Payable for Fund shares reacquired 1,091,772 2,700 182,315 511,848 852,226
Payable to affiliates -
Management fee 7,344 -- 2,798 6,970 2,042
Shareholder servicing agent fee 2,033 -- 1,520 1,926 1,149
Distribution fee 1,600 88 680 1,502 836
Accrued expenses and other liabilities 406,992 7,078 196,625 405,827 161,847
------------ ----------- ------------ ------------ ------------
Total liabilities $ 2,434,493 $ 843,314 $ 770,331 $ 1,978,401 $ 1,324,177
------------ ----------- ------------ ------------ ------------
Net assets: $482,848,935 $18,265,488 $183,401,408 $458,677,197 $136,182,412
============ =========== ============ ============ ============
Net assets consist of:
Paid-in capital $476,308,932 $19,370,742 $180,135,379 $452,576,237 $133,808,878
Unrealized appreciation (depreciation)
on investments 5,209,074 (1,125,860) 2,756,415 5,763,985 2,845,009
Accumulated net realized gain (loss)
on investments 2,643,250 18,123 942,714 1,784,084 (25,254)
Accumulated undistributed (distributions
in excess of) net investment income (1,312,321) 2,483 (433,100) (1,447,109) (446,221)
------------ ----------- ------------ ------------ ------------
Total $482,848,935 $ 18,265,488 $183,401,408 $458,677,197 $136,182,412
============ =========== ============ ============ ============
Shares of beneficial interest outstanding:
Class A 40,111,681 1,525,723 14,706,406 39,790,836 11,677,844
Class B 1,382,988 470,236 855,947 1,196,916 487,578
Class C 580,785 -- -- 157,973 --
------------ ----------- ------------ ------------ ------------
Total shares of beneficial
interest outstanding 42,075,454 1,995,959 15,562,353 41,145,725 12,165,422
============ =========== ============ ============ ============
Net assets:
Class A $460,321,218 $ 13,961,433 $173,315,969 $443,580,422 $130,726,065
Class B 15,866,452 4,304,055 10,085,439 13,336,980 5,456,347
Class C 6,661,265 -- -- 1,759,795 --
============ =========== ============ ============ ============
Total net assets $482,848,935 $18,265,488 $183,401,408 $458,677,197 $136,182,412
============ =========== ============ ============ ============
Class A shares:
Net asset value and redemption price per share
(net assets/shares of beneficial
interest outstanding) $11.48 $ 9.15 $11.79 $11.15 $11.19
====== ====== ====== ====== ======
Offering price per share (l00/95.25 of net
asset value per share) $12.05 $ 9.61 $12.38 $11.71 $11.75
====== ====== ====== ====== ======
Class B shares:
Net asset value, offering price and
redemption price per share
(net assets/shares of beneficial interest
outstanding) $11.47 $ 9.15 $11.78 $11.14 $11.19
====== ====== ====== ====== ======
Class C shares:
Net asset value, offering price and
redemption price per share
(net assets/shares of beneficial interest
outstanding) $11.47 $ -- $ -- $11.14 $ --
====== ====== ====== ====== ======
</TABLE>
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
27
<PAGE> 275
Financial Statements - continued
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Two Months Ended March 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $ 1,211,990 $ 991,935 $ 1,830,487 $ 3,348,382 $ 1,820,462
------------ ----------- ------------ ------------ ------------
Expenses -
Management fee $ 115,310 $ 90,581 $ 163,573 $ 277,734 $ 168,692
Trustees' compensation 1,953 2,363 2,685 2,418 2,312
Shareholder servicing agent fees (Class A) 29,575 22,989 41,658 72,357 43,216
Shareholder servicing agent fees (Class B) 2,762 2,258 2,191 1,684 1,976
Distribution and service fees (Class A) -- 52,203 98,363 170,148 100,870
Distribution and service fees (Class B) 12,548 10,254 9,956 7,655 8,984
Custodian fee 28,284 8,140 14,070 21,069 16,702
Printing 6,068 -- 2,633 2,884
Postage 3,761 961 3,119 4,674 1,932
Auditing fees 25,957 10,957 4,582 5,400 14,457
Legal fees -- 3,310 403 2,383 1,004
Amortization of organization expenses 338 -- -- -- 289
Miscellaneous 16,488 6,776 17,790 19,215 13,509
------------ ----------- ------------ ------------ ------------
Total expenses $ 243,044 $ 210,792 $ 361,023 $ 587,621 $ 373,943
Reduction of expenses by investment
adviser and distributor (72,967) (14,915) -- -- (59,106)
------------ ----------- ------------ ------------ ------------
Net expenses $ 170,077 $ 195,877 $ 361,023 $ 587,621 $ 314,837
------------ ----------- ------------ ------------ ------------
Net investment income $ 1,041,913 $ 796,058 $ 1,469,464 $ 2,760,761 $ 1,505,625
------------ ----------- ------------ ------------ ------------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) -
Investment transactions $ (530,124) $ (31,030) $ 17,031 $ (474,138) $ (1,543,247)
Futures contracts 343,144 -- 95,946 162,166 --
------------ ----------- ------------ ------------ ------------
Net rea1ized gain (loss) on investments $ (186,980) $ (31,030) $ 112,977 $ (311,972) $ (1,543,247)
------------ ----------- ------------ ------------ ------------
Change in unrealized appreciation
(depreciation) -
Investments $(12,052,285) $(8,350,777) $(14,681,182) $(22,262,075) $(12,734,340)
Futures contracts 362,010 250,287 405,091 474,443 439,399
------------ ----------- ------------ ------------ ------------
Net unrealized gain (loss) on investments $(11,690,275) $(8,100,490) $(14,276,091) $(21,787,632) $(12,294,941)
------------ ----------- ------------ ------------ ------------
Net realized and unrealized gain (loss)
on investments $(11,877,255) $(8,131,520) $(14,163,114) $(22,099,604) $(13,838,188)
------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets
from operations $(10,835,342) $(7,335,462) $(12,693,650) $(19,338,843) $(12,332,563)
============ =========== ============ ============ ============
</TABLE>
See notes to financial statements
28
<PAGE> 276
Financial Statements - continued
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
Two Months Ended March 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $ 5,183,372 $ 157,968 $ 1,976,157 $ 5,113,489 $ 1,563,342
------------ ----------- ------------ ------------ ------------
Expenses -
Management fee $ 468,812 $ 16,281 $ 177,741 $ 447,605 $ 133,458
Trustees' compensation 2,366 1,686 2,412 2,412 2,412
Shareholder servicing agent fees (Class A) 118,834 3,485 44,649 114,644 33,941
Shareholder servicing agent fees (Class B) 5,274 1,401 3,260 4,496 1,874
Shareholder servicing agent fees (Class C) 1,414 -- -- 354 --
Distribution and service fees (Class A) 276,929 - 104,180 270,779 79,194
Distribution and service fees (Class B) 23,979 6,302 14,819 20,459 8,520
Distribution and service fees (Class C) 9,433 -- -- 2,341
Custodian fee 28,645 6,068 21,872 32,821 11,753
Printing -- 545 -- -- --
Postage 6,849 779 2,377 8,277 2,145
Auditing fees 3,582 18,207 12,957 5,957 30,775
Legal fees 1,890 12 804 1,681
Miscellaneous 31,961 5,533 11,621 23,731 7,788
------------ ----------- ------------ ------------ ------------
Total expenses $ 979,968 $ 60,299 $ 396,692 $ 935,557 $ 311,860
Reduction of expenses by investment adviser -- (53,997) -- -- --
------------ ----------- ------------ ------------ ------------
Net expenses $ 979,968 $ 6,302 $ 396,692 $ 935,557 $ 311,860
------------ ----------- ------------ ------------ ------------
Net investment income $ 4,203,404 $ 151,666 $ 1,579,465 $ 4,177,932 $ 1,251,482
------------ ----------- ------------ ------------ ------------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) -
Investment transactions $ 1,515,887 $ 10,520 $ 190,664 $ 663,599 $ (97,708)
Futures contracts -- (5,741) -- -- --
------------ ----------- ------------ ------------ ------------
Net realized gain (loss) on investments $ 1,515,887 $ 4,779 $ 190,664 $ 663,599 $ (97,708)
------------ ----------- ------------ ------------ ------------
Change in unrealized appreciation
(depreciation) -
Investments $(39,756,141) $(1,905,737) $(15,040,848) $(38,699,923) $(10,680,317)
Futures contracts 946,343 67,991 188,929 333,038 199,823
------------ ----------- ------------ ------------ ------------
Net unrealized gain (loss)
on investments $(38,809,798) $(1,837,746) $(14,851,919) $(38,366,885) $(10,480,494)
------------ ----------- ------------ ------------ ------------
Net realized and unrealized gain
(loss) on investments $(37,293,911) $(1,832,967) $(14,661,255) $(37,703,286) $(10,578,202)
------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets
from operations $(33,090,507) $(1,681,301) $(13,081,790) $(33,525,354) $ (9,326,720)
============ =========== ============ ============ ============
</TABLE>
See notes to financial statements
29
<PAGE> 277
Financial Statements - continued
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $ 5,933,825 $5,149,249 $10,961,071 $19,983,606 $10,219,376
----------- ---------- ----------- ----------- -----------
Expenses -
Management fee $ 552,640 $ 449,179 $ 903,650 $ 1,591,974 $ 916,193
Trustees' compensation 13,688 13,467 14,016 14,269 13,465
Shareholder servicing agent fees (Class A) 148,754 120,863 246,218 435,306 249,913
Shareholder servicing agent fees (Class B) 3,323 2,662 2,480 1,995 2,205
Distribution and service fees (Class A) -- 285,726 574,461 1,015,715 582,221
Distribution and service fees (Class B) 15,105 12,102 11,271 9,068 10,025
Custodian fee 43,667 36,958 68,846 118,193 64,681
Printing 9,968 9,786 33,454 38,200 20,061
Postage 8,586 6,053 16,457 20,922 14,108
Auditing fees 56,280 71,287 90,937 90,937 69,787
Legal fees 6,292 3,960 11,149 12,557 12,786
Amortization of organization expenses 2,082 614 -- -- 1,502
Miscellaneous 90,408 63,866 94,382 116,343 100,539
----------- ---------- ----------- ----------- -----------
Total expenses $ 950,793 $1,076,523 $ 2,067,321 $ 3,465,479 $ 2,057,486
Reduction of expenses by investment
adviser and distributor (444,758) (80,561) -- -- (506,315)
----------- ---------- ----------- ----------- -----------
Net expenses $ 506,035 $ 995,962 $ 2,067,321 $ 3,465,479 $ 1,551,171
----------- ---------- ----------- ----------- -----------
Net investment income $ 5,427,790 $4,153,287 $ 8,893,750 $16,518,127 $ 8,668,205
----------- ---------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) -
Investment transactions $ 1,805,604 $ 209,313 $ 752,402 $ 5,970,582 $ 3,282,230
Futures contracts (69,344) -- -- -- --
----------- ---------- ----------- ----------- -----------
Net rea1ized gain on investments $ 1,736,260 $ 209,313 $752,402 $ 5,970,582 $ 3,282,230
----------- ---------- ----------- ----------- -----------
Change in unrealized appreciation
(depreciation) -
Investments $ 6,043,652 $5,116,021 $ 6,336,329 $ 7,726,766 $ 7,577,071
Futures contracts -- -- (75,465) (141,495) --
----------- ---------- ----------- ----------- -----------
Net unrealized gain on investments $ 6,043,652 $5,116,021 $ 6,260,864 S 7,585,271 $ 7,577,071
----------- ---------- ----------- ----------- -----------
Net realized and unrealized gain
on investments $ 7,779,912 $5,325,334 $ 7,013,266 $13,555,853 $10,859,301
----------- ---------- ----------- ----------- -----------
Increase in net assets from
operations $13,207,702 $9,478,621 $15,907,016 $30,073,980 $19,527,506
=========== ========== =========== =========== ===========
</TABLE>
See notes to financial statements
30
<PAGE> 278
Financial Statements - continued
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Interest $29,064,742 $ 541,177 $10,821,782 $29,294,533 $ 8,675,072
----------- ---------- ----------- ----------- -----------
Expenses -
Management fee $ 2,501,986 $ 56,065 $ 947,476 $ 2,459,087 $ 728,874
Trustees compensation 13,937 9,735 14,363 14,229 14,341
Shareholder servicing agent fees (Class A) 680,484 14,283 258,192 670,876 199,099
Shareholder servicing agent fees (Class B) 6,100 1,554 3,745 5,541 2,124
Shareholder servicing agent fees (Class C) 140 -- -- 24 --
Distribution and service fees (Class A) 1,600,277 _ 600,720 1,565,376 463,603
Distribution and service fees (Class B) 27,726 7,063 17,021 25,182 9,655
Distribution and service fees (Class C) 935 -- -- 162 --
Custodian fee 165,541 34,908 68,134 162,017 47,437
Printing 78,273 2,969 23,744 78,940 22,909
Postage 39,897 2,900 13,212 37,526 11,887
Auditing fees 91,437 27,056 74,287 91,437 54,287
Legal fees 44,399 10,085 5,487 7,946 8,793
Amortization of organization expenses -- 1,746 -- -- --
Miscellaneous 173,937 37,136 94,547 171,488 91,353
----------- ---------- ----------- ----------- -----------
Total expenses $ 5,425,069 $ 205,500 $ 2,120,928 $ 5,289,831 $ 1,654,362
Reduction of expenses by investment
adviser and distributor -- (198,437) -- -- --
----------- ---------- ----------- ----------- -----------
Net expenses $ 5,425,069 $ 7,063 $ 2,120,928 $ 5,289,831 $ 1,654,362
----------- ---------- ----------- ----------- -----------
Net investment income $23,639,673 $ 534,114 $ 8,700,854 $24,004,702 $ 7,020,710
----------- ---------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss)
Investment transactions $ 1,621,795 $ 29,431 $ 762,732 $ 4,746,234 $ 1,599,326
Futures contracts -- (6,979) -- --
----------- ---------- ----------- ----------- -----------
Net realized gain on investments $ 1,621,795 $ 22,452 $ 762,732 $ 4,746,234 $ 1,599,326
----------- ---------- ----------- ----------- -----------
Change in unrealized appreciation
(depreciation) -
Investments $19,979,696 $ 718,194 $ 9,029,209 $16,123,082 $ 6,029,100
Futures contracts -- (6,308) -- -- --
----------- ---------- ----------- ----------- -----------
Net unrealized gain on investments $19,979,696 $ 711,886 $ 9,029,209 $16,123,082 $ 6,029,100
----------- ---------- ----------- ----------- -----------
Net realized and unrealized gain
on investments $21,601,491 $ 734,338 $ 9,791,941 $20,869,316 $ 7,628,426
----------- ---------- ----------- ----------- -----------
Increase in net assets from
operations $45,241,164 $1,268,452 $18,492,795 $44,874,018 $14,649,136
=========== ========== =========== =========== ===========
</TABLE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Two Months Ended March 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,041,913 $ 796,058 $ 1,469,464 $ 2,760,761 $ 1,505,625
Net realized gain (loss) on invesments (186,980) (31,030) 112,977 (311,972) (1,543,247)
Net unrealized gain (loss) on investments (11,690,275) (8,100,490) (14,276,091) (21,787,632) (12,294,941)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets
from operations $(10,835,342) $ (7,335,462) $(12,693,650) $(19,338,843) $(12,332,563)
------------ ------------ ------------ ------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (900,283) $ (555,677) $ (866,989) $ (1,689,972) $ (1,055,956)
From net investment income (Class B) (48,741) (40,573) (40,833) (35,550) (34,946)
In excess of net investment income (Class A) (134,544) (217,092) (610,058) (1,062,519) (465,777)
In excess of net investment income (Class B) (6,267) (3,394) (3,870) (2,237) (4,662)
------------ ------------ ------------ ------------ ------------
Total distributions declared to
shareholders $ (1,089,835) $ (816,736) $ (1,521,750) $ (2,790,278) $ (1,561,341)
------------ ------------ ------------ ------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 7,972,609 $ 4,392,117 $ 6,146,983 $ 8,531,385 $ 7,401,369
Net asset value of shares issued to
shareholders in reinvestment
of distributions 361,332 300,728 818,641 1,183,011 842,694
Cost of shares reacquired (11,209,415) (4,205,696) (3,746,022) (9,929,487) (14,814,451
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets
from Fund share transactions $ (2,875,474) $ 487,149 $ 3,219,602 $ (215,091) $ (6,570,388)
------------ ------------ ------------ ------------ ------------
Total increase (decrease) in net assets $(14,800,651) $ (7,665,049) $(10,995,798) $(22,344,212) $(20,464,292
Net assets:
At beginning of period 131,374,430 100,173,494 178,764,217 305,085,326 189,351,047
------------ ------------ ------------ ------------ ------------
At end of period $116,573,779 $ 92,508,445 $167,768,419 $282,741,114 $168,886,755
============ ============ ============ ============ ============
Accumulated distributions in excess
of net investment income included
in net assets at end of period $ (140,811) $ (220,486) $ (613,928) $ (1,064,756) $ (470,439)
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements
31
<PAGE> 279
Financial Statements - continued
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
Two Months Ended March 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,203,404 $ 151,666 $ 1,579,465 $ 4,177,932 $ 1,251,482
Net realized gain (loss) on investments 1,515,887 4,779 190,664 663,599 (97,707)
Net unrealized gain (loss) on investments (38,809,798) (1,837,746) (14,851,919) (38,366,885) (10,480,494)
------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets
from operations $(33,090,507) $(1,681,301) $(13,081,790) $(33,525,354) $ (9,326,719)
------------ ----------- ------------ ------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (2,784,004) $ (126,697) $ (1,111,228) $ (2,609,189) $ (778,446)
From net investment income (Class B) (100,080) (27,938) (61,022) (89,058) (37,338)
From net investment income (Class C) (40,717) -- -- (10,232) --
In excess of net investment income (Class A) (1,306,778) -- (429,273) (1,444,664) (444,312)
In excess of net investment income (Class B) (4,647) (298) (3,827) (2,568) (1,909)
In excess of net investment income (Class C) (896) -- -- -- --
------------ ----------- ------------ ------------ ------------
Total distributions declared to
shareholders $ (4,237,122) $ (154,933) $ (1,605,350) $ (4,155,711) $ (1,262,005)
------------ ----------- ------------ ------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 15,287,053 $ 3,134,962 $ 6,352,754 $ 12,645,887 $ 4,173,157
Net asset value of shares issued to
shareholders in reinvestment
of distributions 2,359,236 98,162 824,924 2,052,195 638,534
Cost of shares reacquired (10,590,746) (519,303) (4,612,283) (9,383,022) (3,760,396)
------------ ----------- ------------ ------------ ------------
Increase in net assets from Fund
share transactions $ 7,055,543 $ 2,713,821 $ 2,565,395 $ 5,315,060 $ 1,051,295
------------ ----------- ------------ ------------ ------------
Total increase (decrease) in net assets $(30,272,086) $ 877,587 $(12,121,745) $(32,366,005) $ (9,537,429)
Net assets:
At beginning of period 513,121,021 17,387,901 195,523,153 491,043,202 145,719,841
------------ ----------- ------------ ------------ ------------
At end of period $482,848,935 $18,265,488 $183,401,408 $458,677,197 $136,182,412
============ =========== ============ ============ ============
Accumulated undistributed distributions in
excess of net investment income included
in net assets at end of period $ (1,312,321) $ 2,483 $ (433,100) $ (1,447,109) $ (446,221)
============ =========== ============ ============ ============
</TABLE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Year Ended January 31 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 5,427,790 $ 4,153,287 $ 8,893,750 $ 16,518,127 $ 8,668,205
Net realized gain (loss) on investments 1,736,260 209,313 752,402 5,970,582 3,282,230
Net unrealized gain (loss) on investments 6,043,652 5,116,021 6,260,864 7,585,271 7,577,071
------------ ------------ ------------ ------------ ------------
Increase in net assets from operations $ 13,207,702 $ 9,478,621 $ 15,907,016 $ 30,073,980 $ 19,527,506
------------ ------------ ------------ ------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (5,381,618) $ (3,996,380) $ (8,501,900) $(15,813,609) $ (8,469,259)
From net investment income (Class B) (57,121) (46,306) (47,693) (41,940) (39,087)
From net realized gain on
investments (Class A) (1,086,402) (64,945) (893,666) (4,944,048) (2,679,907)
From net realized gain on
investments (Class B) (44,845) (2,565) (13,619) (43,883) (39,115)
In excess of net investment
income (Class A) (89,928) (197,747) (559,628) (1,033,469) (411,930)
In excess of net investment
income (Class B) (2,961) (2,061) (2,014) (1,770) (2,793)
In excess of net realized gain
on investments (Class A) -- -- (285,695) -- --
In excess of net realized gain
on investments (Class B) -- -- (5,447) -- --
------------ ------------ ------------ ------------ ------------
Total distributions declared to
shareholders $ (6,662,875) $ (4,310,004) $(10,309,662) $(21,878,719) $(11,642,091)
------------ ------------ ------------ ------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 78,036,466 $ 38,887,258 $ 38,166,091 $ 43,485,858 $ 68,527,297
Net asset va1ue of shares issued to
shareholders in reinvestment
of distributions 2,061,463 1,520,053 5,497,645 9,895,798 6,121,743
Cost of shares reacquired (29,597,409) (10,051,163) (16,291,085) (27,269,464) (28,931,917)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets from
Fund share transactions $ 50,500,520 S 30,356,148 $ 27,372,651 $ 26,112,192 $ 45,717,123
------------ ------------ ------------ ------------ ------------
Total increase (decrease) in net assets $ 57,045,347 $ 35,524,765 $ 32,970,005 $ 34,307,453 $ 53,602,538
Net assets:
At beginning of period 74,329,083 64,648,729 145,794,212 270,777,873 135,748,509
------------ ------------ ------------ ------------ ------------
At end of period $131,374,430 $100,173,494 $178,764,217 $305,085,326 $189,351,047
============ ============ ============ ============ ============
Accumulated distributions in excess of net
investment income included in net assets
at end of period $ (92,889) $ (199,808) $ (561,642) $ (1,035,239) $ (414,723)
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements
32
<PAGE> 280
Financial Statements - continued
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
North Carolina Pennsylvania South Carolina Virginia West Virginia
Year Ended January 31, 1994 Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 23,639,673 $ 534,114 $ 8,700,854 $ 24,004,702 $ 7,020,710
Net realized gain (loss) on investments 1,621,795 22,452 762,732 4,746,234 1,599,326
Net unrealized gain (loss) on investments 19,979,696 711,886 9,029,209 16,123,082 6,029,100
------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets
from operations $ 45,241,164 $ 1,268,452 $ 18,492,795 $ 44,874,018 $ 14,649,136
------------ ----------- ------------ ------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(22,593,670) $ (499,013) $ (8,351,192) $(23,000,542) $ (6,693,640)
From net investment income (Class B) (111,740) (29,351) (65,754) (107,077) (40,005)
From net investment income (Class C) (2,176) -- -- (291) --
From net realized gain on
investments (Class A) (441,976) (7,638) (179,941) (7,602,939) (1,373,948)
From net realized gain on
investments (Class B) (6,972) (1,470) -- (52,284) (26,180)
In excess of net investment
income (Class A) (1,275,110) -- (404,781) (1,466,322) (434,275)
In excess of net investment
income (Class B) (3,178) -- (2,434) (2,976) (1,423)
In excess of net investment
income (Class C) (315) -- -- (32) --
------------ ----------- ------------ ------------ ------------
Total distributions declared
to shareholders $(24,435,137) $ (537,472) $ (9,004,102) $(32,232,463) $ (8,569,471)
------------ ----------- ------------ ------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $117,668,357 $17,437,556 $ 56,075,126 $ 93,022,362 $ 34,081,347
Net asset va1ue of shares issued to
shareholders in reinvestment of
distributions 13,376,861 350,218 4,481,087 16,799,726 4,199,846
Cost of shares reacquired (37,081,742) (1,130,853) (19,060,786) (31,116,518) (13,930,081)
------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets
from Fund share transactions $ 93,963,476 $16,656,921 $ 41,495,427 $ 78,705,570 $ 24,351,112
------------ ----------- ------------ ------------ ------------
Total increase (decrease) in net assets $114,769,503 $17,387,901 $ 50,984,120 $ 91,347,125 $ 30,430,777
Net assets:
At beginning of period 398,351,518 -- 144,539,033 399,696,077 115,289,064
------------ ----------- ------------ ------------ ------------
At end of period $513,121,021 $17,387,901 $195,523,153 $491,043,202 $145,719,841
============ =========== ============ ============ ============
Accumulated undistributed (distributions in
excess of) net investment income included
in net assets at end of period $ (1,278,603) $ 5,750 $ (407,215) $ (1,469,330) $ (435,698)
============ =========== ============ ============ ============
</TABLE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Georgia Maryland Massachusetts New York
Year Ended January 31, 1993 Fund* Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 2,260,646 $ 3,204,812 $ 8,051,058 $ 16,142,158 $ 6,527,771
Net realized gain (loss) on investments 44,177 (60,945) 163,898 1,901,286 457,352
Net unrealized gain (loss) on investments 1,821,056 1,933,514 2,458,347 6,541,474 5,167,615
----------- ------------ ------------ ------------ ------------
Increase (decrease) in net assets
from operations $ 4,125,879 $ 5,077,381 $ 10,673,303 $ 24,584,918 $ 12,152,738
----------- ------------ ------------ ------------ ------------
Distributions declared to shareholders -
From net investment income $(2,249,697) $(3,207,231) $ (8,030,037) $(16,246,165) $ (6,559,269)
From net realized gain on investments -- (2,500) (170,191) -- (330,380)
----------- ------------ ------------ ------------ ------------
Total distributions declared to
shareholders $(2,249,697) $(3,209,731) $ (8,200,228) $(16,246,165) $ (6,889,649)
----------- ------------ ------------ ------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $76,513,427 $22,009,404 $ 29,492,487 $ 39,423,938 $ 60,117,686
Net asset value of shares issued to
shareholders in reinvestment
of distributions 730,250 1,131,590 4,254,107 6,725,151 3,565,206
Cost of shares reacquired (4,790,776) (8,228,764) (9,545,260) (23,020,765) (12,721,127)
----------- ------------ ------------ ------------ ------------
1ncrease (decrease) in net assets from Fund
share transactions $72,452,901 $ 14,912,230 $ 24,201,334 $ 23,128,324 $ 50,961,765
----------- ------------ ------------ ------------ ------------
Total increase (decrease) in net assets $74,329,083 $(16,246,165) $ 26,674,409 $ 31,467,077 $ 56,224,854
Net assets:
At beginning of period -- 47,868,849 119,119,803 239,310,796 79,523,655
----------- ------------ ------------ ------------ ------------
At end of period $74,329,083 $64,648,729 $145,794,212 $270,777,873 $135,748,509
=========== ============ ============ ============ ============
Accumulated undistributed (distributions
in excess of) net investment income
included in net assets at end of period $ 10,949 $ (110,601) $ (250,996) $ (698,173) $ (159,859)
=========== ============ ============ ============ ============
</TABLE>
* For the period from the commencement of investment operations, February 3,
1992 to January 31, 1993.
See notes to financial statements
33
<PAGE> 281
Financial Statements - continued
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
North Carolina South Carolina Virginia West Virginia
Year Ended January 31, 1993 Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 20,424,385 $ 6,885,239 $ 21,631,404 $ 5,726,944
Net realized gain (loss) on investments 926,647 171,521 4,031,955 (126,746)
Net unrealized gain (loss) on investments 10,436,827 3,233,432 5,211,135 2,778,675
------------ ------------ ------------ ------------
Increase (decrease) in net assets
from operations $ 31,787,859 $ 10,290,192 $ 30,874,494 $ 8,378,873
------------ ------------ ------------ ------------
Distributions declared to shareholders -
From net investment income $(20,537,511) $ (6,908,631) $(21,761,143) $ (5,779,037)
From net realized gain on investments -- (434,767) (108,664) (39,937)
------------ ------------ ------------ ------------
Total distributions declared
to shareholders $(20,537,511) $ (7,343,398) $(21,869,807) $ (5,818,974)
------------ ------------ ------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 91,371,452 $ 45,760,145 $ 76,099,997 $ 34,400,201
Net asset value of shares issued
to shareholders in reinvestment
of distributions 10,903,417 3,803,258 10,753,209 2,828,957
Cost of shares reacquired (27,639,935) (9,405,204) (24,825,440) (4,939,747)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from
Fund share transactions $ 74,634,934 $ 40,158,199 $ 62,027,766 $ 32,289,411
------------ ------------ ------------ ------------
Total increase (decrease) in net assets $ 85,885,282 $ 43,104,993 $ 71,032,453 $ 34,849,310
Net assets:
At beginning of period 312,466,236 101,434,040 328,663,624 80,439,754
------------ ------------ ------------ ------------
At end of period $398,351,518 $144,539,033 $399,696,077 $115,289,064
============ ============ ============ ============
Accumulated distributions in excess of net
investment income included in net assets
at end of period $ (890,351) $ (273,307) $ (847,090) $ (274,420)
============ ============ ============ ============
</TABLE>
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Florida Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31, March 31, January 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1994ss 1994 1993* 1994ss. 1994**
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.63 $ 9.89 $ 9.53 $ 10.62 $ 10.69
------- ------- ------- ------- -------
Income from investment operations## -
Net investment income+++ $ 0.09 $ 0.57 $ 0.58 $ 0.07 $ 0.18
Net realized and unrealized gain (loss) on investments (0.98) 0.86 0.36 (0.98) 0.03
------- ------- ------- ------- -------
Total from investment operations $ (0.89) $ 1.43 $ 0.94 $ (0.91) $ 0.21
Less distributions declared to shareholders
From net investment income $ (0.08) $ (0.57) $ (0.58) $ (0.06) S(0.17)
From net realized gain on investments -- (0.11) -- -- (0.10)
In excess of net investment income (0.01) (0.01) -- (0.01) (0.01)
------- ------- ------- ------- -------
Total distributions declared to shareholders $ (0.09) $ (0.69) $ (0.58) $ (0.07) $ (0.28)
------- ------- ------- ------- -------
Net asset value - end of period $ 9.65 $ 10.63 $ 9.89 $ 9.64 $ 10.62
======= ======= ======= ======= =======
Total return# (8.39)%++ 14.71% 10.28%+ (8.55)%++ 4.87%+
Ratios (to average net assets)/Supplemental data:+++
Expenses 0.77%+ 0.49% 0.05%+ 1.82%+ 1.64%+
Net investment income 5.15%+ 5.42% 6.27%+ 4.08%+ 3.82%+
Portfolio turnover 19% 53% 54% 19% 53%
Net assets at end of period (000 omitted) $108,579 $124,131 $74,329 $7,995 $7,244
</TABLE>
*For the period from the commencement of investment operations, February 3,
1992 to January 31, 1993.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, the net investment income per share
and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income per share $ 0.08 $ 0.52 $ 0.51 $ 0.06 $ 0.16
Ratios (to average net assets):
Expenses 1.12%+ 0.93% 0.81%+ 2.17%+ 2.09%+
Net investment income 4.80%+ 4.97% 5.51%+ 3.72%+ 3.38%+
</TABLE>
#Total returns do not include the applicable sales charge. if the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994.
See notes to financial statements
34
<PAGE> 282
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Georgia Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1994(S) 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.30 $10.57 $10.22 $ 9.83 $ 9.73
------ ------ ------ ------ ------
Income from investment operations## -
Net investment income+++ $ 0.09 $ 0.57 $0.58 $0.61 $0.63
Net realized and unrealized gain (loss) on
investments (0.92) 0.75 0.38 0.46 0.12
------ ------ ------ ------ ------
Total from investment operations $(0.83) $1.32 $0.96 $1.07 $0.75
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.06) $ (0.55) $ (0.60) $ (0.66) $ (0.63)
From net realized gain on investments -- (0.01) (0.01) (0.02) (0.02)
In excess of net investment income (0.03) (0.03) -- -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.09) $(0.59) $(0.61) $(0.68) $(0.65)
------ ------ ------ ------ ------
Net asset value - end of period $10.38 $11.30 $10.57 $10.22 $ 9.83
====== ====== ====== ====== ======
Total return# (7.34)%++ 12.71% 9.56% 11.29% 8.06%
Ratios (to average net assets)/Supplemental data:+++
Expenses 1.18%+ 1.21% 1.08% 0.99% 0.74%
Net investment income 5.05%+ 5.10% 5.75% 6.08% 6.46%
Portfolio turnover 5% 14% 27% 36% 71%
Net assets at end of period (000 omitted) $85,878 $94,407 $64,649 $47,869 $29.214
</TABLE>
*For the period from the commencement of investment operations, June 6,1988 to
January 31, 1989.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized
+++The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, the net investment income per share
and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income per share $ 0.09 $ 0.56 $ 0.57 $ 0.60 $ 0.59
Ratios (to average net assets):
Expenses 1.28%+ 1.31% 1.18% 1.09% 1.11%
Net investment income 4.95%+ 5.00% 5.65% 5.98% 6.09%
</TABLE>
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994.
See notes to financial statements
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Georgia Fund - continued
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31, March 31, January 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1990 1989* 1994ss. 1994**
- -----------------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.73 $9.53 $11.30 $11.26
------ ----- ------ ------
Income from investment operations## -
Net investment income+++ $ 0.66 $0.32 $0.07 $0.19
Net realized and unrealized gain (loss) on
investments 0.02 0.14 (0.91) 0.05
------ ----- ------ ------
Total from investment operations $ 0.68 $0.46 $(0.84) $ 0.24
------ ----- ------ ------
Less distributions declared to shareholders -
From net investment income $ (0.66) $ (0.26) $ (0.07) $ (0.18)
From net realized gain on investments (0.02) -- -- (0.01)
In excess of net investment income -- -- (0.01) (0.01)
------ ----- ------ ------
Total distributions declared to shareholders $(0.68) $(0.26) $(0.08) $(0.20)
------ ----- ------ ------
Net asset value - end of period $ 9.73 $ 9.73 $10.38 $11.30
====== ====== ====== ======
Total return# 7.19% 7.57%+ (7 47)%++ 5.34%+
Ratios (to average net assets)/Supplemental data:+++
Expenses 0.42% 0.40%+ 1.99%+ 1.97%+
Net investment income 6.72% 6.18%+ 4.17%+ 3.83%+
Portfolio turnover 99% -- 5% 14%
Net assets at end of period (000 omitted) $12,628 $4,383 $6,631 $5,766
</TABLE>
*For the period from the commencement of investment operations, June 6, 1988
to January 3 1, 1989.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, the net investment income per share
and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income per share $0.57 $ 0.29 $-- $ 0.19
Ratios (to average net assets):
Expenses 1.31% 1.07%+ -- 1.97%+
Net investment income 5.83% 5.51%+ -- 3.83%+
</TABLE>
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994.
See notes to financial statements
35
<PAGE> 283
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------------------------------
Maryland Fund
- --------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- --------------------------------------------------------------------------------------------------------------
1994(S) 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $ 11.81 $ 11.40 $ 11.20 $ 10.97 $ 10.79
------- ------- ------- ------- -------
Income from investment operations## -
Net investment income $ 0.10 $ 0.62 $ 0.67 $ 0.70 $ 0.70
Net realized and unrealized gain (loss)
on investments (0.92) 0.53 0.24 0.31 0.19
------- ------- ------- ------- -------
Total from investment operations $ (0.82) $ 1.15 $ 0.91 $ 1.01 $ 0.89
------- ------- ------- ------- -------
Less distributions declared
to shareholders -
From net investment income $ (0.06) $ (0.61) $ (0.69) $ (0.76) $ (0.70)
From net realized gain
on investments -- (0.07) (0.02) (0.02) (0.01)
In excess of net investment income (0.04) (0.04) -- -- --
In excess of net realized gain on investments -- (0.02) -- -- --
From paid-in capital+++ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions declared to
shareholders $ (0.10) $ (0.74) $ (0.71) $ (0.78) $ (0.71)
------- ------- ------- ------- -------
Net asset value - end of period $ 10.89 $ 11.81 $ 11.40 $ 11.20 $ 10.97
======= ======= ======= ======= =======
Total return# (6.96)%++ 10.27% 8.34% 9.55% 8.51%
Ratios (to average net assets)/Supplemental data:
Expenses 1.23%+ 1.25% 1.14% 1.16% 1.17%
Net investment income 4.97%+ 5.42% 6.13% 6.32% 6.45%
Portfolio turnover 1% 25% 5% 9% 41%
Net assets at end of period (000 omitted) $161,290 $173,419 $145,794 $119,120 $101,742
*For the period from the commencement of investment operations, October 31, 1984
to January 31, 1985.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++For the year ended January 31, 1986, the per share distribution from paid-in
capital was $0.0005
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------------------------------
Maryland Fund - continued
- --------------------------------------------------------------------------------------------------------------
Year Ended January 31,
- --------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $ 10.76 $ 10.62 $ 11.20 $ 10.44 $ 9.89
------- ------- ------- ------- -------
Income from investment operations## -
Net investment income $ 0.69 $ 0.69 $ 0.68 $ 0.71 $ 0.81
Net realized and unrealized gain (loss)
on investments 0.04 0.14 (0.57) 0.78 0.62
------- ------- ------- ------- -------
Total from investment operations $ 0.73 S 0.83 $ 0.11 $ 1.49 $ 1.43
------- ------- ------- ------- -------
Less distributions declared
to shareholders -
From net investment income $ (0.69) $ (0.69) $ (0.67) $ (0.73) $ (0.82)
From net realized gain
on investments (0.01) -- (0.01) -- (0.06)
In excess of net investment income -- -- -- -- --
In excess of net realized gain on investments -- -- -- -- --
From paid-in capital+++ -- -- (0.01) -- --
------- ------- ------- ------- -------
Total distributions declared to
shareholders $ (0.70) $ (0.69) $ (0.69) $ (0.73) $ (0.88)
------- ------- ------- ------- -------
Net asset value - end of period $ 10.79 $ 10.76 $ 10.62 $ 11.20 $ 10.44
======= ======= ======= ======= =======
Total return# 6.90% 8.15% 1.25% 14.86% 15.47%
Ratios (to average net assets)/Supplemental data:
Expenses 1.18% 1.14% 1.10% 1.10% 0.98%
Net investment income 6.33% 6.52% 6.47% 6.60% 8.22%
Portfolio turnover 58% 34% 13% 11% 26%
Net assets at end of period (000 omitted) $93,175 $84,380 $79,906 $81,712 $33,818
*For the period from the commencement of investment operations, October 31, 1984
to January 31, 1985.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++For the year ended January 31, 1986, the per share distribution from paid-in
capital was $0.0005
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------
Maryland Fund - continued
- --------------------------------------------------------------------------------------
Year Ended January 31, March 31, January 31,
- --------------------------------------------------------------------------------------
1985* 1994(S) 1994**
- --------------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $ 9.52 $ 11.80 $ 11.88
------- ------- -------
Income from investment operations## -
Net investment income $ 0.22 $ 0.08 $ 0.22
Net realized and unrealized gain (loss)
on investments 0.29 (0.91) (0.01)
------- ------- -------
Total from investment operations $ 0.51 $ (0.83) $ 0.21
------- ------- -------
Less distributions declared
to shareholders -
From net investment income $ (0.14) $ (0.08) $ (0.21)
From net realized gain
on investments -- -- (0.05)
In excess of net
investment income -- (0.01) (0.01)
In excess of net realized gain on investments -- -- (0.02)
From paid-in
capital+++
------- ------- -------
Total distributions declared to
shareholders $ (0.14) $ (0.09) $ (0.29)
------- ------- -------
Net asset value - end of period $ 9.89 $ 10.88 $ 11.80
======= ======= =======
Total return# 21.42%+ (7.08)%++ 4.45%+
Ratios (to average net assets)/Supplemental data:
Expenses 0.95%+ 1.95%+ 1.81%+
Net investment income 9.15%+ 4.19%+ 4.23%+
Portfolio turnover 40% 1% 25%
Net assets at end of period (000 omitted) $9,055 $6,478 $5,345
*For the period from the commencement of investment operations, October 31, 1984
to January 31, 1985.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++For the year ended January 31, 1986, the per share distribution from paid-in
capital was $0.0005
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994
</TABLE>
See notes to financial statements
36
<PAGE> 284
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------
Massachusetts Fund
- --------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- --------------------------------------------------------------------------------------------------------------------
1994(S) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------
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 $11.75 $11.41 $11.05 $10.68 $10.58 $10.65
------ ------ ------ ------ ------ ------
Income from investment
operations## -
Net investment income $ 0.11 $0.64 $ 0.68 $ 0.73 $0.71 $ 0.72
Net realized and unrealized gain
(loss) on investments (0.85) 0.58 0.39 0.43 0.11 (0.07)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.74) $1.22 $1.07 $1.16 $0.82 $ 0.65
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.07) $(0.64) $(0.71) $(0.78) $(0.72) $(0.72)
From net realized gain on
investments -- (0.20) -- -- -- --
In excess of net investment
income (0.04) (0.04) -- -- -- --
From paid-in capital -- -- -- (0.01) -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.11) $(0.88) $(0.71) $(0.79) $(0.72) $(0.72)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.90 $11.75 $11.41 $11.05 $10.58 $10.58
====== ====== ====== ====== ====== ======
Total return # (6.34)%++ 11.02% 10.03% 11.23% 8.12% 6.28%
Ratios (to average net assets)/Supplemental data:
Expenses 1 19%+ 1 19% 1.08% 1.06% 1.07% 1.10%
Net investment income 5.64%+ 5.71% 6.33% 6.65% 6.74% 6.75%
Portfolio turnover 4% 30% 32% 51% 43% 52%
Net assets at end of period (000 omitted) $277,748 $300,894 $270,778 $239,311 $213,679 $215,381
</TABLE>
*For the period from the commencement of investment operations, April 9, 1985 to
January 31, 1986.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++Includes distributions in excess of net investment income of $0.0055 per
share.
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994
See notes to financial statements
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------------
Massachusetts Fund - continued
- ----------------------------------------------------------------------------------------------------------------
Year Ended Jaunuary 31, March 31, January 31,
- ----------------------------------------------------------------------------------------------------------------
1989 1988 1987 1986* 1994(S) 1994**
- ----------------------------------------------------------------------------------------------------------------
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 $10.60 $11.25 $10.59 $9.52 $11.75 $11.91
------ ------ ------ ----- ------ ------
Income from investment
operations## -
Net investment income $ 0.72 $ 0.71 $ 0.74 $0.54 $ 0.09 $ 0.23
Net realized and unrealized gain
(loss) on investments 0.05 (0.65) 0.68 0.99 (0.85) 0.04
------ ------ ------ ----- ------ ------
Total from investment
operations $0.77 $ 0.06 $1.42 $1.53 $(0.76) $ 0.27
------ ------ ------ ----- ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.72) $(0.71) $(0.75) $(0.46) $(0.09)+++ $(0.22)
From net realized gain on
investments -- -- (0.01) -- -- (0.20)
In excess of net investment
income -- -- -- -- -- (0.01)
From paid-in capital -- -- -- -- -- --
------ ------ ------ ----- ------ ------
Total distributions declared
to shareholders $(0.72) $(0.71) $(0.76) $(0.46) $(0.09) $(0.43)
------ ------ ------ ----- ------ ------
Net asset value - end of period $10.65 $10.60 $11.25 $10.59 $10.90 $11.75
====== ====== ====== ====== ====== ======
Total return # 7.65% 0.80% 14.10% 20.51%+ (6.46)%++ 5.89%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.07% 1.04% 0.87% 0.86%+ 1.91%+ 1.81%+
Net investment income 6.90% 6.79% 6.83% 7.82%+ 4.89%+ 4.62%+
Portfolio turnover 26% 27% 7% 27% 4% 30%
Net assets at end of period (000 omitted) $212,763 $224,219 $242,119 $94,575 $4,993 $4,191
</TABLE>
*For the period from the commencement of investment operations, April 9, 1985 to
January 31, 1986.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++Includes distributions in excess of net investment income of $0.0055 per
share.
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994
See notes to financial statements
37
<PAGE> 285
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------------------
New York Fund
- ----------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- ----------------------------------------------------------------------------------------------------------------------
1994(S) 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each
period):
Net asset va1ue - beginning of period $11.34 $10.78 $10.25 $ 9.90 $ 9.74
------ ------ ------ ------ -------
Income from investment operations##
Net investment income+++ $ 0.09 $ 0.59 $0.63 $ 0.65 $ 0.65
Net realized and unrealized gain (loss) on
investments (0.84) 0.74 0.58 0.44 0.16
------ ------ ------ ------ -------
Total from Investment operations $(0.75) $ 1.33 $ 1.21 $ 1.09 $ 0.81
------ ------ ------ ------ -------
Less distributions declared to shareholders -
From net investment income $(0.06) $(0.57) $(0.65) $(0.69) $(0.65)
From net realized gain on investments -- (0. 17) (0.03) (0.05) --
In excess of net investment income (0.03) (0.03) -- -- --
From paid-in capital -- -- -- -- --
------ ------ ------ ------ -------
Total distributions declared to shareholders $(0.09) $(0.77) $(0.68) $(0.74) $(0.65)
------ ------ ------ ------ -------
Net asset value - end of period $10.50 $11.34 $10.78 $10.25 $ 9.90
====== ====== ====== ====== ======
Total return# (6.58)%++ 12.69% 12.23% 11.42% 8.74%
Ratios (to average net assets)/Supplemental data:+++
Expenses 1.03%+ 0.93% 0.53% 0.65% 0.54%
Net investment income 5.09%+ 5.21% 6.16% 6.44% 6.73%
Portfolio turnover 15% 51% 61% 80% 188%
Net assets at end of period (000 omitted) $162,621 $184,523 $135,749 $79,524 $37,385
</TABLE>
*For the period from the commencement of investment operations, June 6, 1988 to
January 31, 1989.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
+Annualized.
++Not annualized.
+++The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If these
fees had been incurred by the Fund, the net investment income per share and the
ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income per share $0.07 $ 0.56 $ 0.57 $ 0.60 S 0.61
Ratios (to average net assets):
Expenses 1.23%+ 1.23% 1.13% 1.16% 0.95%
Net investment income 4.88%+ 4.90% 5.56% 5.93% 6.33%
</TABLE>
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994.
See notes to financial statements
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------
New York Fund - continued
- -----------------------------------------------------------------------------------------------------------------
Year Ended January 31, March 31, January 31,
- -----------------------------------------------------------------------------------------------------------------
1990 1989* 1994(S) 1994**
- -----------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each
period):
Net asset va1ue - beginning of period $ 9.79 $ 9.53 $11.34 $11.46
------ ------ ------ ------
Income from investment operations##
Net investment income+++ $ 0.68 $ 0.29 $ 0.07 $ 0.18
Net realized and unrealized gain (loss) on
investments 0.01 0.21 (0.83) 0.04
------ ------ ------ ------
Total from Investment operations $ 0.69 $ 0.50 $(0.76) $ 0.22
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.67) $(0.24) $(0.07) $(0.18)
From net realized gain on investments (0.06) -- -- (0.15)
In excess of net investment income -- -- (0.01) (0.01)
From paid-in capital (0.01) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.74) $(0.24) $(0.08) $(0.34)
------ ------ ------ ------
Net asset value - end of period $ 9.74 $ 9.79 $10.50 $11.34
====== ====== ====== ======
Total return# 7.33% 8.16%+ (6.71)%++ 5.20%+
Ratios (to average net assets)/Supplemental data:+++
Expenses 0.40% 0.40%+ 1.87%+ 1.79%+
Net investment income 6.88% 5.93%+ 4.21%+ 3.90%+
Portfolio turnover 236% 32% 15% 51%
Net assets at end of period (000 omitted) $20,156 $6,412 $6,265 $4,828
</TABLE>
*For the period from the commencement of investment operations, June 6, 1988 to
January 31, 1989.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 3 1, 1994.
+Annualized.
++Not annualized.
+++The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If these
fees had been incurred by the Fund, the net investment income per share and the
ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income per share $ 0.59 $0.26 $ 0.07 $ 0.17
Ratios (to average net assets):
Expenses 1.32% 1.09%+ 1.97%+ 2.00%+
Net investment income 5.96% 5.24%+ 4.11%+ 3.69%+
</TABLE>
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994.
See notes to financial statements
38
<PAGE> 286
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------
North Carolina Fund
- ----------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- ----------------------------------------------------------------------------------------------------------
1994(S) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $12.37 $11.80 $11.45 $11.30
------ ------ ------ ------
Income from investment operations## -
Net investment income $ 0.10 $ 0.64 $ 0.65 $ 0.70
Net realized and unrealized gain (loss) on investments (0.89) 0.58 0.37 0.26
------ ------ ------ ------
Total from investment operations $(0.79) $ 1.22 $ 1.02 $ 0.96
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.07) $(0.61) $(0.67) $(0.76)
From net realized gain on investments -- (0.01) -- (0.01)
In excess of net investment income (0.03) (0.03) -- --
From paid-in capital+++
------ ------ ------ ------
Total distributions declared to shareholders $(0.10) $(0.65) $(0.67) $(0.81)
------ ------ ------ ------
Net asset value - end of period $11.48 $12.37 $11.80 $11.45
====== ====== ====== ======
Total return# (6.39)%++ 10.59% 9.23% 8.82%
Ratios (to average net assets)lSupplemenental data:
Expenses 1.16%+ 1.19% 1.07% 1.09%
Net investment income 4.96%+ 5.21% 5.80% 6.17%
Portfolio turnover 2% 12% 2% 39%
Net assets at end of period (000 omitted) $460,321 $495,158 $398,352 $312,466
*For the period from the commencement of investment operations, October 31, 1984
to January 31, 1985.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
***For the period from the commencement of offering of Class C shares, January
3, 1994 to January 31, 1994.
+Annualized.
++Not annualized.
+++For the year ended January 31, 1991, the per share distribution from paid-in
capital was $0.0005.
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------
North Carolina Fund - continued
- ----------------------------------------------------------------------------------------------------------
Year Ended January 31,
- ----------------------------------------------------------------------------------------------------------
1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $11.18 $11.15 $11.13 $11.82
------ ------ ------ ------
Income from investment operations## -
Net investment income $0.72 $0.73 $0.74 $ 0.73
Net realized and unrealized gain (loss) on investments 0.17 0.03 0.02 (0.69)
------ ------ ------ ------
Total from investment operations $0.89 $0.76 $0.76 $ 0.04
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.72) $(0.73) $(0.74) $(0.73)
From net realized gain on investments (0.05) -- -- --
In excess of net investment income -- -- -- --
From paid-in capital+++
------ ------ ------ ------
Total distributions declared to shareholders $(0.77) $(0.73) $(0.74) $(0.73)
------ ------ ------ ------
Net asset value - end of period $11.30 $11.18 $11.15 $11.13
====== ====== ====== ======
Total return# 8.34% 6.97% 7.12% 0.65%
Ratios (to average net assets)lSupplemenental data:
Expenses 1.09% 1.12% 1.11% 1.08%
Net investment income 6.47% 6.48% 6.70% 6.71%
Portfolio turnover 44% 61% 25% 10%
Net assets at end of period (000 omitted) $226,806 $175,101 $129,287 $110,462
*For the period from the commencement of investment operations, October 31, 1984
to January 31, 1985.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 31, 1994.
***For the period from the commencement of offering of Class C shares, January
3, 1994 to January 31, 1994.
+Annualized.
++Not annualized
+++For the year ended January 31, 1991, the per share distribution from paid-in
capital was $0.0005.
#Total returns do not include the applicable sales charge. If the sales charge
had been included, the results would have been lower.
##Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S)For the two months ended March 31, 1994.
</TABLE>
Financial Statements - continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina Fund - continued
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1987 1986 1985* 1994(S) 1994**
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 11.09 $ 10.01 $ 9.52 $ 12.36 $ 12.36
------- ------- ------- ------- -------
Income from investment operations## -
Net investment income $ 0.75 $ 0.82 $ 0.21 $ 0.08 $ 0.22
Net realized and unrealized gain (loss) on investments 0.90 1.12 0.42 (0.89) 0.01
------- ------- ------- ------- -------
Total from investment operations $ 1.65 $ 1.94 $ 0.63 $(0 81) $ 0.23
------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income|| $ (0.76) $ (0.82) $ (0.14) $ (0.08) $ (0.21)
From net realized gain on investments (0.16) (0.04) -- -- (0.01)
In excess of net investment income -- -- -- -- (0.01)
Total distributions declared to shareholders $ (0.92) $ (0.86) $ (0.14) $ (0.08) $ (0.23)
------- ------- ------- ------- -------
Net asset value - end of period $ 11.82 $ 11.09 $ 10.01 $ 11.47 $ 12.36
------- ------- ------- ------- -------
Total return# 15.76% 20.63% 25.82%+ (6.51)%++ 4.58%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.07% 0.90% 0.95%+ 1.88%+ 1.84%+
Net investment income 6.63% 8.02% 8.71%+ 4.18%+ 4.03%+
Portfolio turnover 10% 78% 39% 2% 12%
Net assets at end of period (000 omitted) $105,668 $53,561 $20,243 $15,866 $13,379
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina Fund - continued
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994(S) 1994***
- ------------------------------------------------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 12.36 $ 12.24
------- -------
Income from investment operations## -
Net investment income $ 0.10 $ 0.02
Net realized and unrealized gain (loss) on investments (0.90) 0.12
------- -------
Total from investment operations $ (0.80) $ 0.14
------- -------
Less distributions declared to shareholders -
From net investment income|| $(0.09) $ (0.02)
From net realized gain on investments -- --
In excess of net investment income -- --
------- -------
Total distributions declared to shareholders $ (0.09) $ (0.02)
------- -------
Net asset value - end of period $ 11.47 $ 12.36
======= =======
Total return# (6.50)%++ 16.50%++
Ratios (to average net assets)/Supplemental data:
Expenses 1.82%+ 1.44%+
Net investment income 4.25%+ 2.33%+
Portfolio turnover 2% 12%
Net assets at end of period (000 omitted) $6,661 $4.584
</TABLE>
* For the period from the commencement of investment operations, October 31,
1984 to January 31, 1985.
** For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
*** For the period from the commencement of offering of Class C shares, January
3, 1994 to January 31, 1994.
+ Annualized.
++ Not annualized.
+++ For the year ended January 31, 1991, the per share distribution from
paid-in capital was $0.0005.
# Total returns do not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
## Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
|| Includes distributions in excess of net investment income of $0.004 and
$0.002, respectively, for Class B and Class C shares for the two months
ended March 31, 1994 and $0.0003 per share for Class C shares for the year
ended January 31, 1994.
(S) For the two months ended March 31, 1994.
See notes to financial statements
39
<PAGE> 287
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31, March 31, January 3
- ------------------------------------------------------------------------------------------------------------------------------------
1994(S) 1994* 1994(S) 1994**
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.14 $ 9.53 $10.15 $10.06
------ ------- ------ ------
Income from investment operations## -
Net investment income+++ $ 0.09 $ 0.50 $ 0.06 $ 0.17
Net realized and unrealized gain (loss) on investments (0.99) 0.62 (0.99) 0.10
------ ------- ------ ------
Total from investment operations $(0.90) $ 1.12 $(0,93) $ 0.27
------ ------- ------ ------
Less distributions declared to shareholders -
From net investment income $(0.09) $ (0.50) $(0.07)*** $(0.17)
From net realized gain on investments -- (0.01) -- (0.01)
------ ------- ------ ------
Total distributions declared to shareholders $(0.09) $ (0.51) $(0.07) $(0.18)
------ ------- ------ ------
Net asset value - end of period $ 9.15 $ 10.14 $ 9.15 $10.15
====== ======= ====== ======
Total return# (8.91)%++ 12.12% (9.16)%++ 6.76%+
Ratios (to average net assets)/Supplemental data:+++
Expenses 0.00%+ 0.00% 1.00%+ 1.00%+
Net investment income 5.43%+ 5.30% 4.37%+ 4.22%+
Portfolio turnover 1% 10% 1% 10%
Net assets at end of period (000 omitted) $13,961 $13,987 $4,304 $ 3,401
</TABLE>
* For the period from the commencement of investment operations, February 1,
1993 to January 31, 1994.
** For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 3 1, 1994.
*** Includes distributions in excess of net investment income of less than
$0.001 per share.
+ Annualized.
++ Not annualized.
+++ The investment adviser did not impose all or a portion of its advisory,
distribution or expense reimbursement fees for the periods indicated. If
these fees had been incurred by the Fund, and if the expense reimbursement
agreement had not been in effect, the net investment income per share and
the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income per share $ 0.06 $ 0.32 $ 0.04 $0.05
Ratios (to average net assets):
Expenses 1.84%+ 1.94% 2.91%+ 2.50%+
Net investment income 3.60%+ 3.36% 2.47%+ 1.29%+
</TABLE>
# Total returns do not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
## Per share data for the two months ended March 3 1, 1994 is based on average
shares outstanding.
(S) For the two months ended March 31, 1994
See notes to financial statements
40
<PAGE> 288
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994(S) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $12.74 $12.02 $11.74 $11.45 $11.30 $11.24 $11.14 $11.54 $10.89 $ 9.95 $ 9.52
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations## -
Net investment income $ 0.08 $ 0.63 $ 0.67 $ 0.70 $ 0.71 $ 0.72 $ 0.76 $ 0.77 $ 0.77 $ 0.84 $ 0.22
Net realized and unrealized
gain (loss) on investments (0.92) 0.74 0.34 0.40 0.21 0.06 0.11 (0.36) 0.69 0.95 0.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $(0.84) $ 1.37 $ 1.01 $ 1.10 $ 0.92 $ 0.78 $ 0.87 $ 0.41 $ 1.46 $ 1.79 $ 0.57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.08) $(0.61) $(0.69) $(0.76) $(0.71) $(0.72) $(0.77) $(0.77) $(0.78) $(0.84) $(0.14)
From net realized gain on
investments -- (0.01) (0.04) (0.05) (0.06) -- -- -- (0.03) (0.01) --
In excess of net investment
income (0.03) (0.03) -- -- -- -- -- -- -- -- --
From paid-in capital+++ -- -- -- -- -- -- -- -- (0.04) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.11) $(0.65) $(0.73) $(0.81) $(0.77) $(0.72) $(0.77) $(0.81) $(0.81) $(0.85) $(0.14)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $11.79 $12.74 $12.02 $11.74 $11.45 $11.30 $11.24 $11.14 $11.54 $10.89 $ 9.95
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return# (6.65)%++ 11.69% 8.89% 9.95% 8.46% 7.13% 8.18% 3.92% 14.05% 19.13% 23.47%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.23%+ 1.22% 1.12% 1.15% 1.18% 1.21% 0.97% 0.81% 0.99% 1.01% 0.95%+
Net investment income 5.09%+ 5.06% 5.74% 6.07% 6.30% 6.35% 6.90% 7.07% 7.00% 8.26% 9.09%+
Portfolio turnover 4% 10% 11% 22% 47% 54% 27% 12% 13% 28% 49%
Net assets at end of period
(000 omitted) $173,316 $187,307 $144,539 $101,434 $75,922 $57,675 $45,391 $34,025 $27,978 $10,936 $3,052
Financial Highlights
- --------------------------------------------------------------------------------
South Carolina Fund
- --------------------------------------------------------------------------------
Year Ended March 31, January 31,
- --------------------------------------------------------------------------------
1994(S) 1994**
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 12.73 $ 12.67
------- -------
Income from investment
operations## -
Net investment income $ 0.08 $ 0.21
Net realized and unrealized
gain (loss) on investments (0.94) 0.06
------- -------
Total from investment
operations $ (0.86) $ 0.27
------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.08) $ (0.20)
From net realized gain on
investments -- --
In excess of net investment
income (0.01) (0.01)
From paid-in capital+++ -- --
------- -------
Total distributions
declared to shareholders $ (0.09) $ (0.21)
------- -------
Net asset value-end of period $ 11.78 $ 12.73
------- -------
Total return# (6.77)%++ 5.47%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.96%+ 1.90%+
Net investment income 4.29%+ 3.86%+
Portfolio turnover 4% 10%
Net assets at end of period
(000 omitted) $10,085 $8,217
</TABLE>
* For the period from the commencement of investment operations, October 31,
1984 to January 31, 1985.
** For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994
+ Annualized.
++ Not annualized.
+++ For the year ended January 31, 1986, the per share distribution from
paid-in capital was $0.00042.
# Total returns do not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
## Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S) For the two months ended March 3 1, 1994.
See notes to financial statements
41
<PAGE> 289
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994(S) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 12.07 $ 11.72 $ 11.44 $ 11.16 $ 10.97 $ 10.91
------- ------- ------- ------- ------- -------
Income from investment operations## -
Net investment income $ 0.10 $ 0.65 $ 0.68 $ 0.71 $ 0.73 $ 0.73
Net realized and unrealized
gain (loss) on investments (0.92) 0.56 0.30 0.34 0.19 0.06
------- ------- ------- ------- ------- -------
Total from investment operations $ (0.82) $ 1.21 $ 0.98 $ 1.05 $ 0.92 $ 0.79
------- ------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.06) $ (0.62) $ (0.70) $ (0.77) $ (0.73) $ (0.73)
From net realized gain on investments+++ -- (0.20) -- -- -- --
In excess of net investment income (0.04) (0.04) -- -- -- --
From paid-in capital -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions declared to shareholders $ (0.10) $ (0.86) $ (0.70) $ (0.77) $ (0.73) $ (0.73)
------- ------- ------- ------- ------- -------
Net asset value - end of period $ 11.15 $ 12.07 $ 11.72 $ 11.44 $ 11.16 $ 10.97
======= ======= ======= ======= ======= =======
Total return # (6.80)%++ 10.67% 8.88% 9.76% 8.74% 7.46%
Ratios (to average net assets)/Supplemental data:
Expenses 1.17%+ 1.18% 1.08% 1.08% 1.11% 1.12%
Net investment income 5.33%+ 5.37% 6.02% 6.32% 6.64% 6.67%
Portfolio turnover 5% 22% 20% 13% 38% 41%
Net assets at end of period (000 omitted) $443,580 $479,333 $399,696 $328,664 $275,202 $240,553
Financial Highlights
- ---------------------------------------------------------------------------------
Virginia Fund - continued
- ---------------------------------------------------------------------------------
Year Ended January 31,
- ---------------------------------------------------------------------------------
1989 1988
- ---------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.75 $ 11.38
------- -------
Income from investment operations## -
Net investment income $ 0.74 $ 0.72
Net realized and unrealized
gain (loss) on investments 0.16 (0.57)
------- -------
Total from investment operations $ 0.90 $ 0.15
------- -------
Less distributions declared to shareholders -
From net investment income $ (0.74) $ (0 71)
From net realized gain on investments+++ -- (0.05)
In excess of net investment income -- --
From paid-in capital -- (0.02)
Total distributions declared to shareholders $ (0.74) $ (0.78)
------- -------
Net asset value - end of period $ 10.91 $ 10.75
======= =======
Total return # 8.76% 1.61%
Ratios (to average net assets)/Supplemental data:
Expenses 1.09% 1.04%
Net investment income 6.91% 6.75%
Portfolio turnover 38% 11%
Net assets at end of period (000 omitted) $207,680 $192,104
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Fund - continued
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1987 1986 1985* 1994(S) 1994**
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.78 $ 10.01 $ 9.52 $ 12.06 $ 12.14
------- ------- ------- ------- -------
Income from investment operations## -
Net investment income $ 0.74 $ 0.81 $ 0.22 $ 0.09 $ 0.22
Net realized and unrealized gain (loss) on investments 0.61 0.77 0.42 (0.92) 0.01
------- ------- ------- ------- -------
Total from investment operations $ 1.35 $ 1.58 $ 0.64 $ (0.83) $ 0.23
------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.75) $ (0.80) $ (0.15) $ (0.09) $ (0.21)
From net realized gain on investments -- (0.01) -- -- (0.09)
In excess of net investment income -- -- -- -- (0.01)
From paid-in capital+++ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions declared to shareholders $ (0.75) $ (0.81) $ (0.15) $ (0.09) $ (0.31)
------- ------- ------- ------- -------
Net asset value - end of period $ 11.38 $ 10.78 $ 10.01 $11 14 $ 12.06
======= ======= ======= ======= =======
Total return# 13.12% 16.82% 26.53%+ (6.92)%++ 4.93%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.02% 0.83% 0.95%+ 1.88%+ 1.82%+
Net investment income 6.73% 8.89% 8.87%+ 4.52%+ 4.25%+
Portfolio turnover 20% 23% 13% 5% 22%
Net assets at end of period (000 omitted) $181,937 $85,706 $32,638 $13,337 $10,877
Financial Highlights
- -------------------------------------------------------------------------------------------------------
Virginia Fund - continued
- -------------------------------------------------------------------------------------------------------
Year Ended March 31, January 31,
- -------------------------------------------------------------------------------------------------------
1994(S) 1994***
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 12.06 $ 11.94
------- -------
Income from investment operations## -
Net investment income $ 0.08 $ 0.02
Net realized and unrealized gain (loss) on investments (0.91) 0.12
------- -------
Total from investment operations $ (0.83) $ 0.14
------- -------
Less distributions declared to shareholders -
From net investment income $ (0.09) $ (0.02)||
From net realized gain on investments -- --
In excess of net investment income -- --
From paid-in capital+++ -- --
------- -------
Total distributions declared to shareholders $ (0.09) $ (0.02)
------- -------
Net asset value - end of period $ 11.14 $ 12.06
======= =======
Total return# (6.91)%++ 17.05%+
Ratios (to average net assets)/Supplemental data
Expenses 1.82%+ 1.18%+
Net investment income 4.48%+ 1.79%+
Portfolio turnover 5% 22%
Net assets at end of period (000 omitted) $1,760 $833
</TABLE>
* For the period from the commencement of investment operations, October 31,
1984 to January 31, 1985.
** For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
*** For the period from the commencement of offering of Class C shares, January
3, 1994 to January 31, 1994.
+ Annualized.
++ Not annualized.
+++ For the years ended January 31, 1987 and 1986, the per share distribution
from paid-in capital was $0.0005 and $0.0015, respectively
++++ For the year ended January 31, 1993, the per share distribution from net
realized gain on investments was $0.00348.
|| Includes a distribution in excess of net investment income of $0.002 on
Class B and Class C shares for the periods indicated.
# Total returns do not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
## Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S) For the two months ended March 31, 1994.
See notes to financial statements
42
<PAGE> 290
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
West Virginia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 1994(S) 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $12.06 $11.50 $11.20 $10.93 $10.72 $10.68 $10.51 $11.30 $10.77
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations## -
Net investment income $ 0.01 $ 0.64 $ 0.66 $ 0.70 $ 0.71 $ 0.71 $ 0.77 $ 0.77 $ 0.81
Net realized and unrealized gain
(loss) on investments (0.78) 0.69 0.34 0.34 0.21 0.04 0.18 (0.72) 0.56
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations $(0.77) $1.33 $ 1.00 $1.04 $0.92 $0.75 $ 0.95 $ 0.05 $1.37
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.06) $(0.61) $(0.69) $(0.76) $(0.71) $(0.71) $(0.78) $(0.76) $(0.81)
From net realized gain on
investments -- (0.12) (0.01) (0.01) -- -- -- (0.02) (0.03)
In excess of net investment
income (0.04) (0.04) -- -- -- -- -- -- --
From paid-in capital+++ -- -- -- -- -- -- -- (0.06) --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.10) $(0.77) $(0.70) $(0.77) $(0.71) $(0.71) $(0.78) $(0.84) $(0.84)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $11.19 $12.06 $11.50 $11.20 $10.93 $10.72 $10.68 $10.51 $11.30
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return# (6.37)%++ 11.80% 9.12% 9.84% 8.91% 7.26% 9.43% 0.76% 13.42%
Ratios (to average net assets)/Supplemental data:
Expenses 1.30%+ 1.24% 1.15% 1.17% 1.21% 1.22% 0.86% 0.79% 0.87%
Net investment income 5.36%+ 5.30% 5.97% 6.33% 6.59% 6.63% 7.01% 7.32% 7.42%
Portfolio turnover 2% 26% 19% 14% 37% 34% 9% 11% 9%
Net assets at end of period
(000 omitted) $130,726 $141,190 $115,289 $80,440 $61,984 $52,398 $43,026 $36,276 $34,436
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
West Virginia Fund - continued
- ------------------------------------------------------------------------------------------------------------------------------------
January 31, March 31, January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 1986 1985* 1994(S) 1994**
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 9.83 $ 9.52 $ 12.06 $ 12.13
------- ------- ------- -------
Income from investment
operations## -
Net investment income $ 0.84 $ 0.23 $ 0.01 $ 0.22
Net realized and unrealized gain
(loss) on investments 0.96 0.23 (0.87) 0.05
------- ------- ------- -------
Total from investment
operations $ 1.80 $ 0.46 $ (0.86) $ 0.27
------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.85) $ (0.15) $(0.01)|| $ (0.21)
From net realized gain on
investments (0.01) -- -- (0.12)
In excess of net investment
income -- -- -- (0.01)
From paid-in capital+++ -- -- -- --
------- ------- ------- -------
Total distributions declared to
shareholders $ (0.86) $ (0.15) $ (0.01) $ (0.34)
------- ------- ------- -------
Net asset value - end of period $ 10.77 $ 9.83 $ 11.19 $ 12.06
======= ======= ======= =======
Total return# 19.42% 18.96%+ (6.48)%++ 5.59%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.00% 0.95%+ 2.02%+ 1.89%+
Net investment income 8.40% 9.71%+ 4.56%+ 4.14%+
Portfolio turnover 24% 14% 2% 26%
Net assets at end of period
(000 omitted) $17,733 $7,039 $5,456 $4,530
</TABLE>
* For the period from the commencement of investment operations, October 31,
1984 to January 31, 1985.
** For the period from the commencement of offering of Class B shares,
September 7, 1993 to January 31, 1994.
+ Annualized.
++ Not annualized.
+++ For the years ended January 3 1, 1987 and 1986, the pet share distribution
from paid-in capital was $0.0018 and $0.0005, respectively.
# Total returns do nor include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
## Per share data for the two months ended March 31, 1994 is based on average
shares outstanding.
(S) For the two months ended March 3 1, 1994.
See notes to financial statements
43
<PAGE> 291
Notes to Financial Statements
(1) Business and Organization
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. The Trust presently consists of nineteen Funds, as follows:
MFS Municipal Income Fund, MFS Alabama Municipal Bond Fund, MFS Arkansas
Municipal Bond Fund, MFS California Municipal Bond Fund, MFS Florida Municipal
Bond Fund* (Florida Fund), MFS Georgia Municipal Bond Fund* (Georgia Fund), MFS
Louisiana Municipal Bond Fund, MFS Maryland Municipal Bond Fund* (Maryland
Fund), MFS Massachusetts Municipal Bond Fund* (Massachusetts Fund), MFS
Mississippi Municipal Bond Fund, MFS New York Municipal Bond Funds (New York
Fund), MFS North Carolina Municipal Bond Fund* (North Carolina Fund), MFS
Pennsylvania Municipal Bond Fund* (Pennsylvania Fund), MFS South Carolina
Municipal Bond Fund* (South Carolina Fund), MFS Tennessee Municipal Bond Fund,
MFS Texas Municipal Bond Fund, MFS Virginia Municipal Bond Fund* (Virginia
Fund), MFS Washington Municipal Bond Fund, and MFS West Virginia Municipal Bond
Fund* (West Virginia Fund). Each Fund, except MFS Municipal Income Fund, is
non-diversified.
The Funds denoted with an asterisk above are included within these financial
statements.
During 1994, the Funds changed their year end from January 31 to March 31, and
the financial statements are thus being presented for the two-month period ended
March 31, 1994.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates value. Futures contracts,
options and options on futures contracts listed on commodities exchanges are
valued at closing settlement prices. Over-the-counter options are valued by
brokers through the use of a pricing model which takes into account closing bond
valuations, implied volatility and short-term repurchase rates. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - Each Fund may enter into repurchase agreements with
institutions that the Trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. Each Fund requires
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Fund to obtain those securities
in the event of a default under the repurchase agreement. Each Fund monitors, on
a daily basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Deferred Organization Expenses - Costs incurred by a Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period beginning on the date of commencement of operations of
the Fund.
Written Options - Each Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Fund. Each Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option.
Futures Contracts - Each Fund may enter into financial futures contracts for the
delayed delivery of securities or contracts based on financial indices at a
fixed price on a future date. Each Fund is required to deposit either in cash or
securities an amount equal to a certain percentage of the contract amount.
Subsequent payments are made or received by the Fund each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
financial statement purposes as unrealized gains or losses by the Fund. Each
Fund's investment in financial futures contracts is designed to hedge against
anticipated future changes in interest rates. Such transactions may also be
entered into for non-hedging purposes to the extent permitted by applicable law.
Should interest rates move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial 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,
market discount and original issue discount are amortized or accreted for both
financial statement and tax reporting purposes as required by federal income tax
regulations.
Tax Matters and Distributions - The Trust'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. Each 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 each Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions paid by each Fund from net interest received on tax-exempt
municipal bonds are not includable by shareholders as gross income for federal
income tax purposes because each Fund intends to meet certain requirements of
the Code applicable to regulated investment companies which will enable each
Fund to pay exempt-interest dividends. The portion of such interest, if any,
44
<PAGE> 292
Notes to Financial Statements - continued
earned on private activity bonds issued after August 7, 1986, may be considered
a tax preference item to shareholders. Distributions to shareholders are
recorded on the ex-dividend date.
Each Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
The temporary differences resulting in excess distributions from net investment
income or accumulated net realized gains, arose primarily from the differences
between book and tax accounting due to timing of distributions, losses deferred
for tax purposes and pension expense accruals. Net investment income, net
realized gains and net assets were not affected by this change.
Multiple Classes of Shares of Beneficial Interest - Each Fund offers both Class
A and Class B shares. Class B shares were first offered to the public on
September 7, 1993. Effective January 3, 1994, the North Carolina and Virginia
Funds began to offer Class C shares. The three classes of shares differ in their
respective sales charges, shareholder servicing agent fees, distribution fees,
and service fees. Shareholders of each class also bear certain expenses that
pertain only to that particular class. All shareholders bear the common expenses
of the Fund pro rata based on average daily net assets, without distinction
between share classes. Dividends are declared separately for each class. No
class has preferential dividend rights; differences in per share dividend rates
are generally due to differences in separate class expenses, including
shareholder servicing and distribution and service fees.
(3) Transactions with Affiliates
Investment Adviser - The Trust 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 and paid monthly at an annual rate of 0.55% of each
Fund's average daily net assets. The investment adviser voluntarily agreed to
reduce its fees with respect to the Florida Fund to 0.10% of average daily net
assets until October 1, 1993, to be increased 0.05% each quarter thereafter, not
to exceed 0.55%; with respect to the New York Fund to 0.35% of average daily net
assets until October 1, 1993, to be increased 0.05% each quarter thereafter, not
to exceed 0.55% of the Fund's average daily net assets; and with respect to the
Pennsylvania Fund to 0% of average daily net assets. For the two months ended
March 31, 1994, the investment adviser did not impose $72,967, $30,263 and
$16,281 of its fee in the case of the Florida, New York and Pennsylvania Funds,
respectively, which is reflected as a reduction of expenses on the Statements of
Operations. For the year ended January 31, 1994, the investment adviser did not
impose $444,758, $340,615 and $56,065 of its fee in the case of the Florida, New
York and Pennsylvania Funds, respectively, which is reflected as a reduction of
expenses on the Statement of Operations for the year ended January 31, 1994.
Under an expense reimbursement agreement with MFS, MFS has agreed to pay all of
the operating expenses, exclusive of management and distribution fees, of the
Pennsylvania Fund until December 31, 2002 or the date upon which the expenses
attributable to the Fund are repaid. To accomplish the reimbursement, the Fund
will pay an expense reimbursement fee to MFS of 0.40% of average daily net
assets, with a limitation that immediately after any such payment that aggregate
expenses of the Fund, including the management fee but excluding any
Distribution Plan fees, would not exceed 0.95% of average daily net assets. MFS
voluntarily reduced, for an indefinite period, its expense reimbursement fee to
0% of average daily net assets.
The Trust pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain of the officers
and Trustees of the Trust are officers or directors of MFS, MFS Financial
Services, Inc. (FSI) and MFS Service Center, Inc. (MFSC). The Trust has an
unfunded defined benefit plan for all its independent Trustees. Included in
Trustees' compensation for the periods presented is a net periodic pension
expense for each Fund, as follows:
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Two Months Ended March 31, 1994 $ 267 $ 676 $ 999 $ 732 $ 625
Year Ended January 31, 1994 3,953 3,732 4,281 4,534 3,730
</TABLE>
<TABLE>
<CAPTION>
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Two Months Ended March 31, 1994 $ 680 $ -- $ 726 $ 727 $ 726
Year Ended January 31, 1994 4,202 -- 4,628 4,494 4,606
</TABLE>
Distributor - FSI, a wholly owned subsidiary of MFS, as distributor, received
$16,273, $5,841, $27,087, $14,908, $9,743, $40,207, $4,503, $15,264, $42,219 and
$19,219 as its portion of the sales charge on sales of Class A shares of the
Florida, Georgia, Maryland, Massachusetts, New York, North Carolina,
Pennsylvania, South Carolina, Virginia and West Virginia Funds, respectively for
the two months ended March 31, 1994.
The Trustees have adopted separate distribution plans for Class A, Class B and
Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Class A Distribution Plan provides that each Fund will pay FSI up to 0.35%
of its average daily net assets attributable to Class A shares annually in order
that FSI may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with FSI of up to 0.25% of the Fund's
average daily net assets attributable to Class A shares which are attributable
to that securities dealer, a distribution fee to FSI of up to 0.10% of the
Fund's average daily net assets attributable to Class A shares, commissions to
dealers and payments to FSI wholesalers for sales at or above a certain dollar
level, and other such distribution-related expenses that are approved by the
Fund. FSI is currently waiving 0.10% of the distribution fee which amounted to
$14,915 and $28,843, respectively, for the Georgia and New York Funds for the
two months ended March 31, 1994. For the year ended January 31, 1994, FSI waived
the 0.10% distribution fee which amounted to $80,561 and $165,700, respectively,
for the Georgia and New York Funds. In the case of the Florida Fund, payments
under the distribution plan will commence on such a date to be determined by the
45
<PAGE> 293
Notes to Financial Statements - continued
Trustees of the Trust. In the case of the Pennsylvania Fund, payments under the
distribution plan will commence when the net assets of the Fund first equal or
exceed $50,000,000. Fees incurred under the distribution plan during the two
months ended March 31, 1994 attributable to Class A shares were:
Georgia Maryland Massachusetts New York
Fees paid to Fund Fund Fund Fund
- -----------------------------------------------------------------------------
FSI $ -- $ 27,772 $ 48,239 $ --
Dealers 37,288 70,591 121,909 72,027
---------- -------- --------- --------
$ 37,288 $ 98,363 $ 170,148 $ 72,027
========== ======== ========= ========
North South West
Carolina Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund
- -----------------------------------------------------------------------------
FSI $ 79,222 $ 29,766 $ 76,431 $ 22,627
Dealers 197,707 74,414 194,348 56,567
---------- -------- --------- --------
$ 276,929 $104,180 $ 270,779 $ 79,194
========== ======== ========= ========
Fees incurred under the distribution plan during the year ended January 31, 1994
attributable to Class A shares were:
Georgia Maryland Massachusetts New York
Fees paid to Fund Fund Fund Fund
- ------------------------------------------------------------------------------
FSI $ -- $ 164,132 $ 290,204 $ --
Dealers 205,165 410,329 725,511 416,521
---------- -------- --------- --------
$ 205,165 $ 574,461 $1,015,715 $ 416,521
========== ========= ========== =========
North South West
Carolina Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund
- -----------------------------------------------------------------------------
FSI $ 453,656 $171,639 $ 447,250 $132,733
Dealers 1,146,621 429,081 1,118,126 330,870
---------- -------- --------- --------
$1,600,277 $600,720 $1,565,376 $463,603
========== ======== ========== ========
The Class B and Class C Distribution Plans provide that the Funds will pay FSI a
monthly distribution fee, equal to 0.75% annually, and a quarterly service fee
of up to 0.25% annually, of the Fund's average daily net assets attributable to
Class B and Class C shares. FSI generally pays the service fees and the Class C
distribution fee to securities dealers that enter into a sales agreement with
FSI. The service fee is intended to be additional consideration for services
rendered by the dealer with respect to Class B or Class C shares.
Fees incurred under the distribution plan during the two months ended March 31,
1994 were 1.00% of average daily net assets attributable to Class B shares (on
an annualized basis) and amounted to the following:
Florida Georgia Maryland Massachusetts New York
Fees paid to Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
FSI $ 9,412 $ 7,698 $7,468 $5,741 $6,738
Dealers 3,136 2,556 2,488 1,914 2,246
------- ------- ------ ------ ------
$12,548 $10,254 $9,956 $7,655 $8,984
======= ======= ====== ====== ======
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
FSI $17,983 $ 4,726 $11,114 $15,330 $6,390
Dealers 5,996 1,576 3,705 5,129 2,130
------- ------- ------- ------- ------
$23,979 $ 6,302 $14,819 $20,459 $8,520
======= ======= ======= ======= ======
Fees incurred under the distribution plan during the year ended January 31,
1994, were 1.00% of average daily net assets attributable to Class B shares (on
an annualized basis) and amounted to the following:
Florida Georgia Maryland Massachusetts New York
Fees paid to Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
FSI $11,329 $ 9,077 $ 8,453 $6,801 $ 7,519
Dealers 3,776 3,025 2,818 2,267 2,506
------- ------- ------- ------ -------
$15,105 $12,102 $11,271 $9,068 $10,025
======= ======= ======= ====== =======
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
FSI $20,795 $5,297 $12,766 $18,886 $7,241
Dealers 6,931 1,766 4,255 6,296 2,414
------- ------ ------- ------- ------
$27,726 $7,063 $17,021 $25,182 $9,655
======= ====== ======= ======= ======
Fees incurred under the distribution plan for the two months ended March 31,
1994, were 1.00% of average daily net assets attributable to Class C shares (on
an annualized basis) for the North Carolina and Virginia Funds and amounted to
$9,433 and $2,341, respectively, all of which was paid to dealers.
Fees incurred under the distribution plan during the year ended January 31,
1994, were 1.00% of average daily net assets attributable to Class C shares (on
an annualized basis) for the North Carolina and Virginia Funds and amounted to
$935 and $ 162, respectively, all of which was paid to dealers.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchase of $ 1 million or more, in the event of a share
redemption within 12 months following the share purchase. A contingent deferred
sales charge is imposed on shareholder redemptions of Class B shares in the
event of a share redemption within six years of purchase. FSI receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the two months ended March 31, 1994 on Class A and Class B shares
amounted to the following:
Florida Georgia Maryland Massachusetts New York
CDSC imposed Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Class A $ 9,651 $ 11 $ -- $ -- $ 8
Class B 1,154 1,044 2,127 -- 864
------- ------- ------- ----- -------
$10,805 $ 1,055 $ 2,127 $ -- $ 872
======= ======= ======= ===== =======
North South West
Carolina Pennsylvania Carolina Virginia Virginia
CDSC imposed Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Class A $ -- $ -- $ 7,349 $ 11 $ --
Class B 1,075 367 996 492 5,141
------- ----- ------- ----- -------
$ 1,075 $ 367 $ 8,345 $ 503 $ 5,141
======= ===== ======= ===== =======
46
<PAGE> 294
Notes to Financial Statements - continued
Contingent deferred sales charges imposed during the year ended January 31, 1994
on Class A and Class B shares amounted to the following:
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
CDSC imposed Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A $10,737 $366 $ 162 $ 9,456 $129
Class B 939 393 2,407 753 --
------- ---- ------- ------- ----
$11,676 $759 $ 2,569 $10,209 $129
======= ==== ======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
North South West
Carolina Pennsylvania Carolina Virginia Virginia
CDSC imposed Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A $ 989 $ -- $39,579 $ 12 $ 77
Class B 2,001 -- -- 417 6,028
------- ---- ------- ---- -------
$ 2,990 $ -- $39,579 $429 $ 6,105
======= ==== ======= ==== =======
</TABLE>
There are no contingent deferred sales charges on Class C shares.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
fees for its services as shareholder servicing agent for the two months ended
March 31, 1994, as specified below. The fee is calculated as a percentage of
average daily net assets of each class of shares at an effective annual rate of
up to 0.15%, 0.22% and 0.15% attributable to Class A, Class B and Class C
shares, respectively.
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Fees paid to Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A $29,575 $22,989 $41,658 $72,357 $43,216
Class B 2,762 2,258 2,191 1,684 1,976
Class C -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A $118,834 $ 3,485 $44,649 $114,644 $33,941
Class B 5,274 1,401 3,260 4,496 1,874
Class C 1 414 -- -- 354 --
</TABLE>
MFSC earned fees for its services as shareholder servicing agent for the year
ended January 31, 1994, as specified below.
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Fees paid to Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A $148,754 $120,863 $246,218 $435,306 $249,913
Class B 3,323 2,662 2,480 1,995 2,205
Class C -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fees paid to Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A $680,484 $14,283 $258,192 $670,876 $199,099
Class B 6,100 1,554 3,745 5,541 2,124
Class C 140 -- -- 24 --
</TABLE>
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased options transactions and short-term obligations, were as follows (000
omitted):
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $22,312 $ 4,625 $ 4,303 $13,144 $26,146
Sales 26,964 6,404 1,429 11,883 36,969
</TABLE>
<TABLE>
<CAPTION>
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $10,781 $ 2,312 $ 6,968 $17,880 $ 5,595
Sales 21,661 252 7,900 24,023 2,360
</TABLE>
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Funds, as computed on a federal income tax basis, are as follows
(000 omitted):
<TABLE>
<CAPTION>
Florida Georgia Maryland Massachusetts New York
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate cost $117,957 $ 90,632 $163,376 $274,698 $162,945
======== ======== ======== ======== ========
Gross unrealized appreciation $ 1,442 $ 3,621 $ 7,228 $ 14,705 $ 6,772
Gross unrealized depreciation (5,630) (2,881) (5,360) (7,267) (4,268)
-------- -------- -------- -------- --------
Net unrealized appreciation
(depreciation) $ (4,188) $ 740 $ 1,868 $ 7,438 $ 2,504
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
North South West
Carolina Pennsylvania Carolina Virginia Virginia
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate cost S468,821 $ 19,603 $176,817 $432,232 S129,980
======= ======== ======== ======== =======
Gross unrealized appreciation $ 17,603 $ 30 $ 6,912 $ 19,295 $ 5,976
Gross unrealized depreciation (13,340) (1,218) (4,345) (13,864) (3,331)
-------- -------- ------- -------- --------
Net unrealized appreciation
(depreciation) $ 4,263 $ (1,188) $ 2,567 $ 5,431 $ 2,645
======== ======== ======= ======== ========
</TABLE>
At March 31, 1994, the Maryland and New York Funds, for federal income tax
purposes, had capital loss carryforwards of $2,044 and $1,103,848, respectively,
which may be applied against any net taxable realized gains of each succeeding
year until the earlier of their utilization or expiration on March 31, 2002.
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Florida Fund Georgia Fund Maryland Fund
- -------------- ------------ ------------ -------------
Two Months Ended March 31, 1994
(000 omitted) Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 631 $ 6,400 267 $ 2,924 373 $ 4,289
Shares issued to shareholders
in reinvestment of distributions 33 332 26 278 71 791
Shares reacquired (1,087) (11,122) (376) (4,116) (309) (3,496)
----- -------- --- ------- --- -------
Net increase (decrease) (423) $ (4,390) (83) $ (914) 135 $ 1,584
===== ======== === ======= === =======
</TABLE>
<TABLE>
<CAPTION>
Class A Shares Massachusetts Fund New York Fund
- -------------- ------------------ -------------
Two Months Ended March 31, 1994
(000 omitted) Shares Amount Shares Amount
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 645 $ 7,388 508 $ 5,533
Shares issued to shareholders
in reinvestment of distributions 104 1, 163 76 818
Shares reacquired (886) (9,925) (1,357) (14,790)
---- ------- ---- --------
Net increase (decrease) (137) $(1,374) (773) $ (8,439)
==== ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
Class A Shares Florida Fund Georgia Fund Maryland Fund
- -------------- ------------ ------------ -------------
Year Ended January 31, 1994
(000 omitted) Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Share sold 6,785 $ 70,646 3,020 $33.191 2,812 $ 32,808
Shares issued to shareholders
in reinvestment of distributions 193 2,008 136 1,496 466 5,451
Shares reacquired (2,819) (29,380) (914) (10,041) (1,388) (16,230)
----- -------- ----- ------- ----- --------
Net increase 4,159 $ 43,274 2,242 $24,646 1,890 $ 22,029
===== ======== ===== ======= ===== ========
</TABLE>
<TABLE>
<CAPTION>
Class A Shares Massachusetts Fund New York Fund
- -------------- ------------------ -------------
Year Ended January 31, 1994
(000 omitted) Shares Amount Shares Amount
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share sold 3,359 $ 39,196 5,703 $ 63,751
Shares issued to shareholders
in reinvestment of distributions 848 9,846 543 6,069
Shares reacquired (2,321) (27,134) (2,573) (28,924)
----- -------- ----- --------
Net increase 1,886 $ 21,908 3,673 $ 40,896
===== ======== ===== ========
</TABLE>
47
<PAGE> 295
Notes to Financial Statements - continued
<TABLE>
<CAPTION>
Florida Fund Georgia Fund Maryland Fund
------------------- ------------------- --------------------
Year Ended January 31, 1993 (000 omitted) Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 7,929 $76,513 2,118 $22,009 2,621 $29,492
Shares issued to shareholders
in reinvestment of distributions 75 730 109 1,132 378 4,254
Shares reacquired (490) (4,791) (795) (8,229) (848) (9,545)
----- ------- ----- ------- ----- -------
Net increase 7,514+ $72,452+ 1,432 $14,912 2,151 $24,201
===== ======= ===== ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Fund New York Fund
------------------- -------------------
Year Ended January 31, 1993 (000 omitted) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,538 $39,424 5,708 $60,121
Shares issued to shareholders
in reinvestment of distributions 601 6,725 339 3,562
Shares reacquired (2,058) (23,021) (1,210) (12,721)
----- ------- ----- -------
Net increase 2,081 $23,128 4,837 $50,962
===== ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
North Carolina Fund Pennsylvania Fund South Carolina Fund
------------------- ------------------- --------------------
Two Months Ended March 31, 1994
(000 omitted) Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 714 $ 8,584 189 $1,823 307 $ 3,770
Shares issued to shareholders
in reinvestment of distributions 193 2,271 9 85 65 790
Shares reacquired (833) (9,920) (51) (503) (373) (4,586)
--- ------- --- ------ --- -------
Net increase (decrease) 74 $ 935 147 $1,405 (1) $ (26)
=== ======= === ====== === =======
</TABLE>
<TABLE>
<CAPTION>
Virginia Fund West Virginia Fund
------------------- -------------------
Two Months Ended March 31, 1994
(000 omitted) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 660 $ 7,747 226 $ 2,649
Shares issued to shareholders
in reinvestment of distributions 176 2,003 54 616
Shares reacquired (767) (8,945) (308) (3,531)
--- ------- --- -------
Net increase (decrease) 69 $ 805 (28) $ (266)
=== ======= === =======
</TABLE>
<TABLE>
<CAPTION>
North Carolina Fund Pennsylvania Fund South Carolina Fund
------------------- ------------------- --------------------
Year Ended January 31, 1994
(000 omitted) Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 8,229 $ 99,737 1,457 $14,093 3,853 $ 47,933
Shares issued to shareholders
in reinvestment of distributions 1,092 13,288 34 336 356 4,450
Shares reacquired (3,035) (36,932) (112) (1,101) (1,524) (19,046)
----- -------- ----- ------- ----- --------
Net increase 6,286 $ 76,093 1,379* $13,328* 2,685 $ 33,337
===== ======== ===== ======= ===== ========
</TABLE>
<TABLE>
<CAPTION>
Virginia Fund West Virginia Fund
------------------- -------------------
Year Ended January 31, 1994
(000 omitted) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,766 $ 80,897 2,488 $ 29,466
Shares issued to shareholders
in reinvestment of distributions 1,400 16,705 350 4,157
Shares reacquired (2,559) (30,600) (1,160) (13,791)
----- -------- ----- --------
Net increase 5,607 $ 67,002 1,678 $ 19,832
===== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
North Carolina Fund Pennsylvania Fund South Carolina Fund
------------------- ------------------- --------------------
Year Ended January 31, 1993
(000 omitted) Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 7,888 $ 91,371 -- $ -- 3,853 $45,760
Shares issued to shareholders
in reinvestment of distributions 947 10,903 -- -- 321 3,803
Shares reacquired (2,382) (27,640) -- -- (794) (9,405)
----- -------- ----- ------- ----- -------
Net increase 6,453 $ 74,634 -- $ -- 3,380 $40,158
===== ======== ===== ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
Virginia Fund West Virginia Fund
------------------- -------------------
Year Ended January 31, 1993
(000 omitted) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,534 $ 76,100 3,031 $34,400
Shares issued to shareholders
in reinvestment of distributions 912 10,753 250 2,829
Shares reacquired (2,376) (24,825) (436) (4,940)
----- -------- ----- -------
Net increase 4,070 $ 62,028 2,845 $32,289
===== ======== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Florida Fund Georgia Fund Maryland Fund
------------------- ------------------- --------------------
Two Months Ended March 31 1994
(000 omitted) Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 153 $ 1,572 135 $ 1,468 162 $ 1,858
Shares issued to shareholders
in reinvestment of distributions 3 29 2 23 3 28
Shares reacquired (9) (87) (9) (90) (22) (250)
--- ------- --- ------- --- -------
Net increase 147 $ 1,514 128 $ 1,401 143 $ 1,636
=== ======= === ======= === =======
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Massachusetts Fund New York Fund
------------------- -------------------
Two Months Ended March 31 1994
(000 omitted) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 100 $ 1,143 171 $ 1,869
Shares issued to shareholders
in reinvestment of distributions 2 20 2 24
Shares reacquired (1) (4) (2) (24)
--- ------- --- -------
Net increase 101 $ 1,159 171 $ 1,869
=== ======= === =======
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Florida Fund Georgia Fund Maryland Fund
------------------- ------------------- --------------------
Year Ended January 31, 1994
(000 omitted)** Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 698 $ 7,390 509 $ 5,696 454 $ 5,358
Shares issued to shareholders
in reinvestment of distributions 5 53 2 24 4 46
Shares reacquired (21) (217) (1) (10) (5) (61)
--- ------- --- ------- --- -------
Net increase 682 $ 7,226 510 $ 5,710 453 $ 5,343
=== ======= === ======= === =======
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Massachusetts Fund New York Fund
------------------- -------------------
Year Ended January 31, 1994
(000 omitted)** Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 364 $ 4,290 422 $ 4,776
Shares issued to shareholders
in reinvestment of distributions 4 50 5 52
Shares reacquired (12) (135) (1) (8)
--- ------- --- -------
Net increase 356 $ 4,205 426 $ 4,820
=== ======= === =======
</TABLE>
<TABLE>
<CAPTION>
North Carolina Fund Pennsylvania Fund South Carolina Fund
------------------- ------------------- --------------------
Two Months Ended March 31 1994
(000 omitted) Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 297 $ 3,550 135 $1,312 210 $2,583
Shares issued to shareholders
in reinvestment of distributions 6 75 1 13 3 35
Shares reacquired (2) (28) (2) (16) (2) (27)
--- ------ --- ------ --- -------
Net increase 301 $3,597 134 $1,309 211 $ 2,591
=== ====== === ====== === =======
</TABLE>
<TABLE>
<CAPTION>
Virginia Fund West Virginia Fund
------------------- -------------------
Two Months Ended March 31 1994
(000 omitted) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 313 $3,668 130 $1,524
Shares issued to shareholders
in reinvestment of distributions 4 43 2 23
Shares reacquired (22) (249) (20) (229)
--- ------ --- ------
Net increase 295 $3,462 112 $1,318
=== ====== === ======
</TABLE>
<TABLE>
<CAPTION>
North Carolina Fund Pennsylvania Fund South Carolina Fund
------------------- ------------------- --------------------
Year Ended January 31, 1994
(000 omitted)** Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,087 $13,377 337 $ 3,345 644 $ 8,142
Shares issued to shareholders
in reinvestment of distributions 7 87 1 14 2 31
Shares reacquired (12) (150) (3) (29) (1) (15)
----- ------- --- ------ --- -----
Net increase 1,082 $13,314 335 $3,330 645 S8,158
===== ======= === ====== === =====
</TABLE>
<TABLE>
<CAPTION>
Virginia Fund West Virginia Fund
------------------- -------------------
Year Ended January 31, 1994
(000 omitted)** Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 936 $11,282 384 $ 4,615
Shares issued to shareholders
in reinvestment of distributions 8 95 4 43
Shares reacquired (42) (500) (12) (139)
--- ------- --- ------
Net increase 902 $10,877 376 $4,519
=== ======= === ======
</TABLE>
48
<PAGE> 296
Notes to Financial Statements - continued
<TABLE>
<CAPTION>
Class C Shares North Carolina Fund Virginia Fund
------------------- -------------------
Two Months Ended March 31, 1994
(000 omitted) Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 262 $3,153 104 $1,231
Shares issued to shareholders
in reinvestment of distributions 1 13 1 6
Shares reacquired (53) (642) (16) (189)
--- ------ -- ------
Net increase 210 $2,524 89 $1,048
=== ====== == ======
</TABLE>
<TABLE>
<CAPTION>
North Carolina Fund Virginia Fund
------------------- -------------------
Year Ended January 3 1994
(000 omitted)*** Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 371 $4,555 70 $ 843
Shares issued to shareholders
in reinvestment of distributions 1 2 -- --
Shares reacquired (1) (1) (1) (16)
--- ------ -- -----
Net increase 371 $4,556 69 $ 827
=== ====== == =====
</TABLE>
+Year ended January 3 1, 1993 is from the period from the commencement of
investment operations on February 3, 1992.
*Year ended January 3 1, 1994 is from the period from the commencement of
investment operations on February 1, 1993.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to January 3 1, 1994.
***For the period from the date of issue of Class C shares, January 3, 1993 to
January 3 1, 1994.
(6) Line of Credit
The Trust entered into an agreement which enables each of the Funds to
participate with other funds managed by MFS, or an affiliate of MFS, in an
unsecured line of credit with a bank which permits borrowings up to $300
million, collectively. Borrowings may be made to temporarily finance the
repurchase of Fund shares. Interest is charged to each Fund, based on its
borrowings, at a rate equal to the bank's base rate. In addition, a commitment
fee, based on the average daily unused portion of the line of credit, is
allocated among the participating Funds at the end of each quarter. The
commitment fee allocated to each of the Funds for the two months ended March 31,
1994 ranged from $200 to $1,200. The commitment fee allocated to each of the
Funds for the year ended January 31, 1994 ranged from $1,805 to $2,807.
(7) Financial Instruments
The Funds may trade financial instruments with off-balance sheet risk in the
normal course of their investing activities and to assist in managing exposure
to market risks such as interest rates. These financial instruments include
written options and futures contracts. The notional or contractual amounts of
these instruments represent the amounts of investment the Fund has in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered. A summary of open futures contracts under these financial
instruments at March 31, 1994 is as follows:
<TABLE>
<CAPTION>
Unrealized
Fund Description Expiration Contracts Position Appreciation
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Florida Fund U.S. Treasury Notes June 1994 150 Short $362,010
Municipal Index June 1994 60 Short -
--------
$362,010
--------
Georgia Fund U.S. Treasury Notes June 1994 110 Short $250,287
Municipal Index June 1994 30 Short -
--------
$250,287
--------
Maryland Fund U.S. Treasury Notes June 1994 140 Short $329,626
Massachusetts Fund U.S. Treasury Notes June 1994 250 Short $332,948
New York Fund U.S. Treasury Notes June 1994 200 Short $439,399
North Carolina Fund U.S. Treasury Notes June 1994 450 Short $946,342
Pennsylvania Fund U.S. Treasury Notes June 1994 30 Short $ 61,683
South Carolina Fund U.S. Treasury Notes June 1994 95 Short $188,929
Virginia Fund U.S. Treasury Notes June 1994 350 Short $333,038
West Virginia Fund U.S. Treasury Notes June 1994 200 Short $199,823
</TABLE>
49
<PAGE> 297
Notes to Financial Statements - continued
At March 31, 1994, each Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
The Trust also invests in indexed securities whose value may be linked to
interest rates, commodities, indices or other financial indicators. Indexed
securities are fixed-income securities whose proceeds at maturity
(principal-indexed securities) or interest rates (coupon-indexed securities)
rise and fall according to the change in one or more specified underlying
instruments. Indexed securities may be more volatile than the underlying
instrument itself. A summary of indexed securities held at March 31, 1994 is as
follows:
<TABLE>
<CAPTION>
Principal
(000 Unrealized
Fund Description Index omitted) Value Depreciation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maryland Fund Puerto Rico Telephone Authority Rev., 8.35s, 2004 Corp. Swap Rate Curve $1,000 $ 936,250 $ 63,750
Puerto Rico Public Buildings Authority, 8.37s, 2016 PSA Municipal Swap 3,000 2,812,500 187,500
--------
$251,250
--------
Massachusetts Fund Mass. Health & Education Facilities Authority PSA Municipal Swap 3,000 2,782,500 $217,500
(Tufts University), 9.75s, 2018
New York Fund Puerto Rico Telephone Authority Rev., 8.35s, 2004 Corp. Swap Rate Curve 2,750 2,574,688 $175,312
Puerto Rico Public Buildings Authority, 8.37s, 2016 PSA Municipal Swap 2,000 1,875,000 125,000
--------
$300,312
--------
North Carolina Fund Puerto Rico Telephone Authority Rev., 8.35s, 2004 Corp. Swap Rate Curve 2,750 2,574,688 $175,312
Puerto Rico Public Buildings Authority, 8.37s, 2016 PSA Municipal Swap 6,500 6,093,750 406,250
--------
$581,562
--------
Pennsylvania Fund Puerto Rico Telephone Authority Rev., 8.35s, 2004 Corp. Swap Rate Curve 250 234,063 $ 15,937
South Carolina Fund Puerto Rico Telephone Authority Rev., 8.35s, 2004 Corp. Swap Rate Curve 2,000 1,872,500 $127,500
Virginia Fund Puerto Rico Public Buildings Authority, 8.37s, 2016 PSA Municipal Swap 8,500 7,968,750 $531,250
West Virginia Fund Puerto Rico Public Buildings Authority, 8.37s, 2016 PSA Municipal Swap 2,000 1,875,000 $125,000
</TABLE>
(8) Restricted Securities
The Funds may invest not more than 15% of their total assets in securities which
are subject to legal or contractual restrictions on resale. At March 31, 1994,
the Georgia Fund owned the following restricted security (constituting 3.16% of
net assets) which may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933. The Fund does not have the right
to demand that such security be registered. The value of this security is
determined by valuations supplied by a pricing service.
<TABLE>
<CAPTION>
Date of Par Amount
Description Acquisition (000 omitted) Cost Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia Municipal Electric Authority, Power Rev., 8.08s, 2023 3/31/93 $3,450 $3,490,000 $2,922,875
</TABLE>
50
<PAGE> 298
Independent Auditors' Report
To the Trustees and Shareholders of MFS Municipal Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Maryland Municipal Bond Fund, MFS Massachusetts
Municipal Bond Fund, MFS New York Municipal Bond Fund, MFS North Carolina
Municipal Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS South Carolina
Municipal Bond Fund, MFS Virginia Municipal Bond Fund and MFS West Virginia
Municipal Bond Fund (portfolios of MFS Municipal Series Trust) as of March 31,
1994, the related statements of operations for the two months then ended and the
year ended January 31, 1994, the statements of changes in net assets for the two
months ended March 31, 1994 and the years ended January 31, 1994 and 1993, and
the financial highlights for the two months ended March 31, 1994 and each of the
years in the ten-year period ended January 31, 1994. 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 the securities owned at
March 31, 1994 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
aforementioned portfolios of MFS Municipal Series Trust at March 31, 1994, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
May 5, 1994
--------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE> 299
SUPPLEMENT TO PROSPECTUS THE DATE OF THIS SUPPLEMENT
DATED APRIL 18, 1994 IS JULY 29, 1994
THE ADVANTAGE MUNICIPAL BOND FUND
THE NATIONAL PORTFOLIO
THE NEW YORK PORTFOLIO
THE PENNSYLVANIA PORTFOLIO
100 Federal Street
Boston, Massachusetts 02110
(617) 348-3100
The following supplements the discussion under "SHAREHOLDER SERVICES -
Exchange Privilege" appearing on page 14 of the Prospectus:
Shareholders may also exchange shares of a Portfolio for shares
of any other fund in the Advantage Family of Funds then offering shares
for sale in the shareholder's state of residence, subject to the
minimum investment requirements of the Fund into which the exchange is
being made. At July 29, 1994, the other members of the Advantage Family
of Funds included the following funds:
The Advantage Government Securities Fund
The Advantage High Yield Bond Fund
The Advantage Income Fund
The Advantage Growth Fund
The Advantage Special Fund
The Advantage Strategic Income Fund
Prospectuses for these funds are available upon request and without
charge by calling or writing the Advantage Family of Funds or by
contacting an Advest account executive. Those Prospectuses contain
further information, including information on fees and expenses. Please
read them carefully before investing.
<PAGE> 300
PROSPECTUS APRIL 18, 1994
THE ADVANTAGE MUNICIPAL BOND FUND
100 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110 (617) 348-3100
THE NATIONAL PORTFOLIO
THE NEW YORK PORTFOLIO
THE PENNSYLVANIA PORTFOLIO
The Advantage Municipal Bond Fund (the "Fund") consists of three separate
series portfolios (the "Portfolios") each of which issues shares evidencing
interests in the respective Portfolio. The Portfolios are the National, New
York and Pennsylvania Portfolios. Each Portfolio seeks a high level of
current income exempt from federal income taxes. In addition, each of the New
York and Pennsylvania Portfolios seeks such current income which is also
exempt from its respective state and, if applicable, local income taxes.
Each Portfolio invests primarily in high and upper medium grade quality
municipal bonds, municipal notes and tax-exempt commercial paper.
Investors may purchase shares of any Portfolio at net asset value. There is
no sales load on purchases of shares of any of the Portfolios at the time of
purchase but a contingent deferred sales load may be imposed on redemptions.
Each of the Portfolios also may use its assets to finance activities
primarily intended to result in sales of its shares.
Shares of the New York Portfolio are intended for purchase only by residents
of New York or Florida and shares of the Pennsylvania Portfolio are intended
for purchase only by residents of Pennsylvania or Florida.
This Prospectus is intended to set forth concisely the information about the
Fund that a prospective investor should know before investing. Investors are
encouraged to read this Prospectus and retain it for future reference.
Additional information about the Fund is contained in a Statement of
Additional Information which has been filed with the Securities and Exchange
Commission. It is available upon request and without charge by calling or
writing the Fund or by contacting an Advest account executive. The Statement
of Additional Information bears the same date as this Prospectus and is
incorporated by reference in this Prospectus.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 301
INTRODUCTION
The Advantage Municipal Bond Fund is an open-end diversified management
investment company currently consisting of three separate series portfolios
which issue shares evidencing interests in the respective Portfolios: the
National, New York and Pennsylvania Portfolios.
The Fund, like most other mutual funds, employs various organizations to
perform necessary functions for its Portfolios and to provide services to
their shareholders. These organizations are selected by the Trustees of the
Fund, who supervise the Fund's business affairs and investments and review
on a regular basis the quality of the services performed for and the amount
of the fees paid by the Portfolios. The Fund employs Boston Security
Counsellors, Inc. ("BSC") to manage the Portfolios on a daily basis, Advest
to distribute their shares, Advest Transfer Services, Inc. ("ATS") to act as
their transfer and dividend disbursing agent, and State Street Bank and Trust
Company to act as their custodian. Information concerning these organizations
and the services they perform is contained elsewhere in this Prospectus as
well as in the Statement of Additional Information.
SUMMARY OF EXPENSES
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR ALL PORTFOLIOS
Sales Load Imposed on Purchases........................................................ 0%
Sales Load Imposed on Reinvested Dividends............................................. 0%
Maximum Deferred Sales Load (as percentage of original
purchase price or redemption proceeds, as applicable)................................ 4%(1)
Redemption Fees........................................................................ 0%
Exchange Fees.......................................................................... $0
ANNUAL FUND OPERATING EXPENSES FOR ALL PORTFOLIOS (as percentage of average net assets)
Management Fees........................................................................ .45%(2)
12b-1 Fees............................................................................. .50%(3)
Other Expenses (after Waivers and Reimbursements)...................................... .05%(2)
----
Total Fund Operating Expenses.......................................................... 1.00%(2)
====
</TABLE>
(1) Contingent deferred sales load on redemptions declines 1% annually from
a maximum of 4% to 0% after four years.
(2) Each Portfolio's fees and expenses will be voluntarily waived or reimbursed
by BSC and its affiliates to the extent necessary to keep Total Fund
Operating Expenses no greater than 0.70% through July 1, 1994 and no
greater than 1.00% from July 2, 1994 through April 30, 1995. Other Expenses
and Total Fund Operating Expenses in this table and in the example which
follows reflect waiver and reimbursement at the 1.00% level. If these
voluntary expense limitations were not in effect, Other Expenses and Total
Fund Operating Expenses would be 0.57% and 1.52% for the National Portfolio,
0.68% and 1.63% for the New York Portfolio and 0.70% and 1.65% for the
Pennsylvania Portfolio. These expenses are estimates for the initial period
of the Fund's operation. Actual expenses, in the absence of expense
limitations could be significantly higher or lower than these estimates,
depending on actual Portfolio asset levels and other factors.
(3) This consists of a 0.10% service fee and a 0.40% distribution fee charged
under each Portfolio's plan adopted under Rule 12b-1. Subject to NASD
rules, Trustees may increase these fees to up to a total of 1.00% annually
without further shareholder approval.
EXAMPLE FOR ALL PORTFOLIOS ONE YEAR THREE YEAR
-------- ----------
You would pay the following expenses on a $1,000
investment, assuming 5% annual return and
redemption of all shares held at the end of
each period: $50 $52
You would pay the following expenses on the
same investment, assuming no redemption: $10 $32
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The foregoing example is intended to assist investors in understanding the
various costs and expenses that they will bear directly or indirectly when
investing in a Portfolio. Long-term shareholders of a Portfolio may pay more
sales charges than the economic equivalent of the maximum front-end sales
charges permitted by the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. See "Purchase of Shares," "Redemption of Shares,"
"Shareholder Services," "Investment Adviser," and "Distributor and Rule
12b-1 Plans." The example is included to provide a means for comparison of
expense levels of mutual funds with different fee structures over varying
investment periods. To facilitate this comparison, all mutual funds are
required for this purpose to assume a 5% annual return. This assumption is
unrelated to any Portfolio's past performance and is not a projection of
future performance. Also, the example is required to assume the level of
Total Fund Operating Expenses (1.00% of average net assets annually) shown
in the table above. The example should not be considered a representation of
past or future expenses of any Portfolio.
FINANCIAL HIGHLIGHTS
The financial highlights set forth below present certain information and
ratios as well as performance information about the Portfolios. Additional
information about the Portfolios' performance is contained in the Fund's
Annual Report to Shareholders for the period ended December 31, 1993 which
may be obtained without charge from the Fund. The information below has been
examined by Price Waterhouse, independent accountants, whose unqualified
report thereon is included in the Annual Report and is incorporated by
reference into the Statement of Additional Information. The following
information should be read in conjunction with the other financial
statements and notes thereto included in the Annual Report.
<TABLE>
<CAPTION>
PERIOD FROM JULY 1, 1993(1)
THROUGH DECEMBER 31, 1993
-----------------------------------
NATIONAL NEW YORK PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period....... $10.00 $10.00 $10.00
------ ------ ------
Income from Investment Operations
Net investment income.................. 0.24 0.24 0.24
Net realized and unrealized gains...... 0.23 0.20 0.26
------ ------ ------
Total from investment operations....... 0.47 0.44 0.50
------ ------ ------
Less Distributions
Dividends from net investment income... (0.24) (0.24) (0.24)
Distributions from net realized gains.. -- -- --
Other(2)............................... (0.01) (0.01) (0.01)
------ ------ ------
Total distributions.................... (0.25) (0.25) (0.25)
------ ------ ------
Net asset value, end of period............. $10.22 $10.19 $10.25
====== ====== ======
Total return(3)............................ 4.83% 4.43% 5.00%
</TABLE>
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<TABLE>
<CAPTION>
PERIOD FROM JULY 1, 1993(1)
THROUGH DECEMBER 31, 1993
----------------------------------------
NATIONAL NEW YORK PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------
<S> <C> <C> <C>
Ratios/Supplemental Data
Net assets, end of period (thousands)................. $25,151 $11,835 $10,897
Ratio of operating expenses to average net assets..... 0.71%(4)(5) 0.36%(4)(5) 0.38%(4)(5)
Ratio of net investment income to average net assets.. 4.71%(4) 4.70%(4) 4.61%(4)
Portfolio turnover rate............................... 15.12%(4) 0.00% 0.00%
</TABLE>
- --------------
(1) Commencement of operations.
(2) Other dividends represent distributions in excess of investment income
due to differences in book and tax income.
(3) Total return does not reflect the Fund's contingent deferred sales load
maximum 4%. This charge goes into effect only if shares of the Fund are
redeemed within 4 years of purchase. Total returns for 1993 represent
actual, not annualized percentages.
(4) Annualized.
(5) Had BSC not elected to waive its investment advisory fee and to reimburse
expenses, the ratio of expenses to average net assets on an annualized
basis would have been as follows: National Portfolio - 1.73%; New York
Portfolio - 1.87%; Pennsylvania Portfolio - 1.94%.
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio is designed to meet different investment needs, although
diversification is an important consideration in selecting the investments
for each. The differences in policies among the three Portfolios may affect
the investment return of each Portfolio and the degree of market and
financial risk to which each Portfolio is subject. The investment objective
of each Portfolio, and all investment policies other than those identified
as "fundamental," may be changed by the Fund's Trustees without shareholder
approval. There can, of course, be no guarantee that the investment
objectives of any of the Portfolios will be achieved, due to the uncertainty
inherent in all investments. Shareholders of a Portfolio will be notified
in writing at least thirty days in advance of a change in the investment
objective of that Portfolio. If there is a change in investment objective,
shareholders should consider whether the Portfolio remains an appropriate
investment in light of their then current financial position and needs.
The investment objective of each Portfolio is to earn a high level of
current income exempt from federal (and in the case of the New York and
Pennsylvania Portfolios, those states' state, and where applicable, local)
income taxes by investing in a diversified group of municipal obligations.
Under normal market conditions, each Portfolio will have at least 80% of its
net assets invested in obligations, including bonds, notes and commercial
paper, issued by or on behalf of appropriate states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies, authorities and instrumentalities, the
interest on which is, in the opinion of counsel to the issuer of such
obligations, exempt from federal income taxes, other than the federal
alternative minimum tax ("Municipal Obligations"). This
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policy is a fundamental policy of each Portfolio which may not be changed for
any Portfolio unless authorized by a vote of that Portfolio's shareholders.
As a non-fundamental policy of each Portfolio, which can be changed by the
Trustees without shareholder vote, under normal circumstances at least 65%
of the total assets of each Portfolio will be invested in Municipal
Obligations which are bonds. Also, under normal circumstances at least 65%
of the total assets of the New York and Pennsylvania Portfolios will be
invested in municipal bonds issued by the particular state, its political
subdivisions, agencies, authorities and instrumentalities.
Municipal notes and tax-exempt commercial paper are generally used to
provide for short-term capital needs and generally have maturities of one
year or less. Municipal bonds have extended maturities. Municipal
Obligations are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which Municipal Obligations may be issued include the funding of outstanding
obligations, obtaining funds for general operating expenses and the
obtaining of funds to lend to other public institutions and facilities.
Under normal circumstances, the portfolio turnover rate of each Portfolio is
expected to be less than 100%. A Portfolio's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the
value of the portfolio securities owned by the Portfolio during the
particular fiscal year.
THE NATIONAL PORTFOLIO
The National Portfolio invests, under ordinary circumstances, substantially
all of its assets in Municipal Obligations the interest on which is, in the
opinion of counsel to the issuers of the obligations, exempt from federal
income tax (other than the possible incidence of any alternative minimum
taxes). These securities include debt obligations of the various states and
their political subdivisions, agencies, authorities and instrumentalities,
the District of Columbia, Puerto Rico, the Virgin Islands and other United
States territories. The National Portfolio will not invest more than 25% of
its total assets in Municipal Obligations whose issuers are located in any
one state.
THE NEW YORK PORTFOLIO
The New York Portfolio invests, under ordinary circumstances, substantially
all of its assets in Municipal Obligations the interest on which is, in the
opinion of counsel to the issuers of these obligations, exempt from federal,
New York State and New York City income taxes (other than the possible
incidence of any alternative minimum taxes). These securities include debt
obligations of New York and its political subdivisions, agencies,
authorities and instrumentalities, as well as debt obligations of other
qualifying issuers such as Puerto Rico and the Virgin Islands. For a further
discussion of New York tax treatment and the factors affecting investment in
New York Municipal Obligations, see Appendix B.
THE PENNSYLVANIA PORTFOLIO
The Pennsylvania Portfolio invests, under ordinary circumstances,
substantially all of its assets in Municipal Obligations the interest on
which is, in the opinion of counsel to the issuers of these obligations,
exempt from federal, Pennsylvania state income taxes and, where applicable,
local income taxes (other than the possible incidence of any alternative
minimum taxes). The Fund expects that, under ordinary circumstances,
substantially all of its assets will be
5
<PAGE> 305
invested in such Municipal Obligations. The securities include debt
obligations of the Commonwealth of Pennsylvania and its political
subdivisions, agencies, authorities and instrumentalities and debt
obligations of other qualifying issuers such as Puerto Rico and the Virgin
Islands. For a further discussion of Pennsylvania tax treatment and the
factors affecting investment in Pennsylvania Municipal Obligations, see
Appendix C.
RISK FACTORS
The investments of each Portfolio may involve certain risks. These risks are
more fully described in the sections that follow. Each Portfolio may invest
in lower rated securities which have speculative characteristics. See "Types
of Municipal Obligations" below. The Pennsylvania and New York Portfolios
concentrate their investments in securities of their respective states which
increase exposure to adverse economic or political developments affecting
those states. Since such developments affect revenues, they may result in
the state being unable to meet its expenses and the rating of its securities
being downgraded. In addition, each Portfolio may use options and futures,
which involve certain special risks. See "Other Investment Policies and
Techniques."
TYPES OF MUNICIPAL OBLIGATIONS
Each Portfolio anticipates that its assets will be invested (as appropriate
to each Portfolio) primarily in (1) Municipal Obligations (other than
tax-exempt commercial paper) which are rated at the time of purchase within
the four highest rating categories (i.e. investment grade) assigned by
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa; VMIG 1, VMIG
2, VMIG 3, VMIG 4 in the case of long-term bonds; MIG 1, MIG 2, MIG 3, or
MIG 4 in the case of notes) or Standard & Poor's Corporation ("S&P") (AAA,
AA, A or BBB) or which are guaranteed, backed or secured at the time of
purchase by the U.S. Government or any of its agencies or instrumentalities
("U.S. Government Securities") or (2) tax-exempt commercial paper which is
rated at the time of purchase within the two highest rating categories
assigned by Moody's (Prime-1 or Prime-2) or S&P (A-1 or A-2). Each Portfolio
may also invest in unrated securities where, in the opinion of the
investment adviser, the unrated securities are of comparable quality to the
rated securities discussed above. See Appendix A for a description of these
rating categories. Each Portfolio may also invest in certain lower-quality
securities. See "High Yield, High Risk Securities," below.
Municipal Obligations are issued for a wide variety of both governmental and
private undertakings. In general, there are three categories of Municipal
Obligations the interest on which is exempt from federal income taxes
applicable to individuals: (i) certain "public purpose" obligations
(whenever issued), which include obligations issued directly by state and
local governments or their agencies to fulfill essential governmental
functions; (ii) certain "private activity" obligations issued before August
8, 1986; and (iii) certain "private activity" obligations issued after
August 7, 1986 which include "qualified Section 501(c)(3) bonds" or
refundings of certain "private activity" obligations issued before August 8,
1986. A fourth category of Municipal Obligations, consisting of certain
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<PAGE> 306
"private activity" obligations issued after August 7, 1986, is exempt from
the regular federal income tax applicable to individuals and corporations,
but the interest earned on such obligations is treated as a tax preference
item which could subject the recipient to the federal alternative minimum
tax. In addition, for corporations, alternative minimum taxable income is
increased by 75% of the amount by which an alternative measure of income
that includes interest on all tax-exempt securities exceeds the amount of
alternative minimum taxable income before considering such adjustment. It
is a fundamental policy of each Portfolio that, under ordinary circumstances,
at least 80% of the Portfolio's net assets will be invested in municipal
obligations. For purposes of this policy, all obligations included in the
foregoing four categories will be deemed tax-exempt "Municipal Obligations."
ILLIQUID SECURITIES. Each Portfolio may invest up to 15% of its net assets
in illiquid securities which include Municipal Obligations issued in private
placements in connection with which the Portfolio represents that it is
purchasing for investment purposes only, repurchase agreements maturing in
more than seven days and other securities subject to legal or contractual
restrictions on resale. Municipal Obligations acquired in private placements
generally may be resold only in a privately negotiated transaction to one or
more other institutional investors. Securities so restricted often have a
market value lower than the market price of unrestricted securities of the
same issuer. Investments in restricted securities are not readily marketable
without some time delay. This could result in a Portfolio being unable to
realize a favorable price upon disposition of such securities, and in some
cases might make disposition of such securities at the time desired by the
Portfolio impossible. The 15% limitation applies at the time the purchase
commitment is made.
MUNICIPAL LEASE OBLIGATIONS. Each Portfolio may purchase municipal lease
obligations rated (at the time of investment) within the four highest rating
categories or which are unrated but considered by the investment adviser to
be of comparable quality. Municipal lease obligations are issued to acquire
land and a wide variety of equipment and facilities, such as fire and
sanitation vehicles, telecommunications equipment and other capital assets.
These obligations typically are not fully backed by the municipality's
credit and taxing power, and their interest may become taxable if the lease
is assigned. If funds are not appropriated by an issuer for a following
year's lease payments, a lease may terminate with the possibility of default
on the lease obligation and significant loss to a Portfolio. BSC, under
guidelines established by the Fund's Board of Trustees, will be responsible
for determining the credit quality of unrated municipal lease obligations on
an ongoing basis, including an assessment of the likelihood that the lease
will be cancelled. Municipal lease obligations (and participations
representing proportionate interests therein) of state and local governments
are often considered illiquid, in which case their purchase, together with
other illiquid assets, would be limited to 15% of a Portfolio's net assets.
The Fund's investment adviser, under the direction of the Board of Trustees,
will determine the liquidity of municipal lease obligations based upon
whether the lease can be terminated by the lessee, the lessee's general
credit strength, the potential recovery from a sale of the leased
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<PAGE> 307
property upon termination of the lease, the likelihood that the lessee will
continue to appropriate funding for the leased property, any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease, and whether the security can be disposed of
within seven days in the ordinary course of business at approximately the
amount at which the Portfolio has valued the security for purposes of
calculating the Portfolio's net asset value.
HIGH YIELD, HIGH RISK SECURITIES. Each Portfolio may also invest up to 10% of
its assets in Municipal Obligations which are rated (at the time of investment)
B by Moody's or S&P or which are unrated but considered by the investment
adviser to be of comparable quality. These lower-rated (and comparable unrated)
Municipal Obligations are subject to greater credit, liquidity and market risks
than securities in higher rating categories. See Appendix A for a description
of these rating categories.
As securities ratings become lower, their speculative characteristics increase.
Municipal Obligations that are downgraded in quality subsequent to their
purchase by a Portfolio may continue to be held by the Portfolio and will be
sold only if the investment adviser believes it to be advantageous to do so.
The ratings assigned by credit agencies to securities is only one factor
considered by the investment adviser in determining the advisability of
investing in a security. The investment adviser will also perform its own credit
analysis because credit agencies may fail to reflect events subsequent to the
issue of such securities on a timely basis and because credit agencies do not
evaluate market value risk. With lower-quality securities, the achievement of a
Portfolio's investment objective may be more dependent on the investment
adviser's credit analysis than is the case for higher-quality securities.
Both higher- and lower-quality bond prices fluctuate in response to interest
rate changes. Lower-quality bonds also fluctuate with changes in the perceived
quality of the credit of the issuers. In addition, there generally are
fewer investors in lower-quality securities, resulting in reduced market
liquidity. Accordingly, lower-quality securities tend to be more price volatile
than higher-quality securities and yields will fluctuate more over time. The
illiquidity of the market may adversely affect the market price of and the
ability to value certain lower-quality securities at various times. Also, an
economic downturn could have a more adverse effect on the value of such
securities and the ability of issuers to repay principal and interest than is
the case with higher-quality securities.
Each Portfolio may invest in lower-rated securities structured as zero-coupon
or pay-in-kind securities. The prices of these securities are affected to a
greater extent by interest rate changes and tend to be more volatile than
securities that pay interest periodically and in cash. In addition, a Portfolio
accrues income for these securities before the receipt of cash payments. To
maintain its tax qualification, each Portfolio is required to make
distributions to shareholders even with respect to securities on which the
interest is not payable currently in cash. A Portfolio that invests in
zero-coupon or pay-in-kind securities may have to sell securities under
disadvantageous circumstances or borrow cash to satisfy distribution
requirements.
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<PAGE> 308
Shareholders should carefully consider the relative risks associated with
investing in securities that carry lower ratings. The investment adviser
believes the risks associated with lower-rated securities can be reduced by
the use of such strategies as diversification and by professional management,
economic analysis and credit research.
See the Statement of Additional Information for a more detailed description of
the risks of investing in non-rated or lower-rated Municipal Obligations.
OTHER FACTORS AFFECTING MUNICIPAL OBLIGATIONS. Economic, business or political
developments may also affect Municipal Obligations. For example, the value of
obligations issued by state or local housing finance authorities may be
adversely affected by cash flow risks resulting from possible excess or
deficiency of actual mortgage prepayments as compared to the assumed levels of
such prepayments, and obligations of municipal utilities systems may be
adversely affected by changes in technology or in environmental and safety
regulations and the availability and cost of adequate energy supplies. As the
similarity in issuers increases, the potential for fluctuation in the net
asset value of each Portfolio's shares also increases.
The net asset value of each Portfolio will fluctuate in response to
fluctuations in prevailing interest rates. When interest rates decline, the
value of fixed-income securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of a Portfolio's holdings of
such securities can be expected to decline.
It is expected that the Portfolios may contain substantial amounts of
long-term Municipal Obligations with maturities of ten years or more because
such long-term obligations generally produce higher income than shorter-term
obligations. However, such long-term obligations are more susceptible to
fluctuations in their market price resulting from changes in interest rates than
are shorter-term obligations. The average maturity of each Portfolio will vary
from time to time depending on anticipated market conditions.
Municipal Obligations are subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors, and the power
or ability of any issuer of any obligation to pay principal or interest when
due may be adversely affected by litigation, applicable laws or other
conditions.
OTHER INVESTMENT POLICIES AND TECHNIQUES
In addition to investing in securities directly, a Portfolio may employ other
investment techniques which, together with their related risks, are summarized
below. These investment techniques and related risks are described further in
the Statement of Additional Information.
TEMPORARY INVESTMENTS. Each Portfolio from time to time may make temporary
investments in short-term U.S. Government Securities and other money market
instruments. Interest income from such temporary investments may be taxable to
shareholders as ordinary income. See "Dividends and Distributions; Taxes."
The Portfolios may also enter repurchase agreements with respect to Municipal
Obligations or any of the foregoing temporary investments. Under such
agreements, a Portfolio would purchase a security and concurrently obtain a
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commitment from the seller to repurchase the security at an agreed upon price
and at or within an agreed upon time.
OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio may buy put and call options,
write covered call options and write covered put options on debt securities.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities. The writer of an option agrees to
buy or sell a security at a fixed price and could forgo a profit or incur a loss
from a change in the market price of the security. The buyer of an option pays a
premium whether or not the option is exercised and benefits only from a change
in price. If a liquid secondary market does not exist at a particular time, it
might not be possible to close an option position when it is desirable to do so.
Bond options in the over-the-counter market will be purchased only when the
investment adviser believes a liquid secondary market exists for the options
and only from dealers and institutions believed to present a minimal credit
risk. While some options are exercisable at any time up to a certain date,
other options are exercisable only on a specific date. In either case, or if a
liquid secondary market does not exist for a particular option, a Portfolio
could be required to buy or sell securities at disadvantageous prices, and
thereby incur losses.
Each Portfolio may enter into interest rate futures contracts, buy put
and call options on such futures contracts and write covered put and call
options on such futures contracts. Futures contracts and related options may
help a Portfolio gain exposure to or protect itself from changes in the market.
Risks of entering into futures contracts and related options include the
possibility that there may be an illiquid market in such instruments and that
changes in the value of the contract or option may not correlate with changes in
the value of the underlying securities. The Portfolios do not intend to enter
into futures contracts or related options if immediately thereafter more than 5
percent of a Portfolio's net assets will be committed to initial margin deposits
and premiums paid on open options or if more than 30 percent of total assets
would be set aside as an offset to the futures and related options.
Any income from transactions in options or futures contracts will be taxable
when distributed to Fund shareholders.
REPURCHASE AGREEMENTS. A Portfolio may invest in repurchase agreements either
for temporary defensive purposes due to adverse market conditions or to
generate income from its cash balances. Repurchase agreements maturing more than
seven days in the future are considered illiquid, and a Portfolio will invest no
more than 15% of its net assets in such repurchase agreements or other illiquid
investments at any time. Repurchase agreements acquired by a Portfolio will
always be fully collateralized by money market instruments (generally securities
issued by the U.S. Government, bankers' acceptances, or certificates of deposit)
as to principal and interest and will be entered into only with commercial
banks, brokers and dealers considered by the Fund's investment adviser to be
creditworthy under guidelines adopted by the Trustees of the Fund. The use of
repurchase agreements involves certain risks such as default by, or insolvency
of, the other party to the repurchase agreement. A Portfolio's right to
liquidate its collateral in the
10
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event of a default could involve certain costs, losses or delays and, to the
extent that proceeds from any sale upon default of the obligation to
repurchase are less than the repurchase price, the Portfolio could suffer a
loss. Any income from repurchase agreements will be taxable when distributed
to Fund shareholders.
INVESTMENT IN MONEY MARKET INVESTMENT COMPANIES. As an alternative to using
repurchase agreements, each Portfolio may from time-to-time invest up to 5% of
its assets in money market investment companies sponsored by a third party for
short-term liquidity purposes. Such investments are subject to a
non-fundamental investment limitation described in the Statement of Additional
Information.
LENDING PORTFOLIO SECURITIES. In order to obtain a return on its investments,
a Portfolio may lend portfolio securities to brokers, dealers and other
financial institutions in amounts up to one-third of the value of its total
assets. Loans of portfolio securities will always be fully collateralized
and will be made only to borrowers considered by the Fund's investment adviser
to be creditworthy under guidelines adopted by the Trustees of the Fund. Lending
portfolio securities involves risk of delay in the recovery of the loaned
securities and, in some cases, loss of rights in the collateral should the
borrower fail financially. Income from securities loans will be taxable when
distributed to Fund shareholders.
FORWARD COMMITMENTS. A Portfolio may make contracts to purchase securities for
a fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account at its custodian bank, cash or high-grade debt obligations
in an amount sufficient to meet the purchase price, or if it enters into
offsetting contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of a
Portfolio's other assets. Where such purchases are made through dealers, the
Portfolio relies on the dealer to consummate the sale. The dealer's failure to
do so may result in the loss to the Portfolio of an advantageous yield or price.
FLOATING OR VARIABLE RATE INSTRUMENTS. A Portfolio may invest in floating or
variable rate instruments, which provide for interest rate adjustments at
specified intervals. Rate adjustments on such securities are usually set at
the issuer's discretion, in which case a Portfolio would normally have the
right to resell the security to the issuer or its agent. Alternatively,
rate revisions may be determined in accordance with a prescribed formula or
other contractual procedure. A Portfolio may also acquire put options in
combination with the purchase of underlying securities or may separately acquire
put options that relate to the securities held by it in the Fund's Portfolios.
Such put options would give the Portfolio the right to require the issuer or
some other person to purchase the underlying security at an agreed upon price.
DEFENSIVE STRATEGIES. When adverse market conditions warrant a temporary
defensive strategy, a Portfolio may invest in U.S. Government Securities and
corporate or bank money market instruments. Money market instruments include
high-grade commercial paper (promissory notes issued by corporations to finance
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<PAGE> 311
their short-term credit needs), negotiable certificates of deposit, non-
negotiable fixed-time deposits with maturities of less than seven days,
bankers' acceptances and repurchase agreements. Investments in commercial paper
will be rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P or F-1 or F-2
by Fitch Investors Service, Inc. Investment in bank instruments will be in
instruments which are issued by U.S. banks having assets at the time of
investment of $1 billion or more and which generally mature in one year or
less from the date of acquisition. Income from the investments described in
this paragraph will be taxable when distributed to Fund shareholders.
PURCHASE OF SHARES
Shares of the Portfolios may be purchased through the Distributor or through
certain other investment dealers. Shares of a Portfolio are sold at the
Portfolio's net asset value per share next computed after the purchase order
is received by the Fund. The minimum initial investment in each Portfolio is
$1,000 and additional investments may be made in amounts of at least $500,
except that participants in certain systematic investment plans may make
initial purchases and subsequent periodic investments of as little as $25 per
month.
The net asset value per share of each Portfolio is computed each day on which
the New York Stock Exchange is open as of the close of regular trading on the
exchange (currently 4:00 p.m., New York time). The net asset value per share
is arrived at by determining the value of all of the assets of the Portfolio,
subtracting all liabilities and dividing the result by the total number of
shares of that Portfolio outstanding. Short-term obligations with maturities
of 60 days or less are valued by the Portfolios at original cost plus either
accrued interest or amortized discount. All other investments are valued at
market value or, where market quotations are not readily available, at fair
value as determined by or under the direction of the Trustees of the Fund.
Additional information concerning the Portfolios' valuation policies is
contained in the Statement of Additional Information.
Orders for the purchase of shares of a Portfolio received by dealers by the
close of regular trading on the New York Stock Exchange on any business day
and transmitted to Advest by the close of its business day (normally 4:00 p.m.,
New York time) will be effected at the net asset value per share determined as
of the close of regular trading on the New York Stock Exchange on that day.
Otherwise, orders will be effected at the net asset value per share determined
on the next business day. It is the responsibility of dealers and not of the
Fund to transmit orders so that they will be received by Advest before the close
of its business day.
Each Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the best
interest of the Portfolio and (iii) to modify or eliminate the minimum for
initial investment in shares of the Portfolio.
CONTINGENT DEFERRED SALES LOAD. There is no sales load on the purchase of
shares of the Portfolios at the time of purchase. However, when shares are
redeemed within four years after their purchase, a contingent deferred sales
load will be imposed at rates declining from a maximum of 4% of the lesser of
the net asset value or total cost of shares redeemed within a
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year of purchase to 1% of such amount for shares redeemed after three years.
No contingent deferred sales load will be imposed on shares redeemed four or
more years after they are purchased, on shares acquired through reinvestment of
dividends and distributions, or on amounts derived from increases in a
Portfolio's net asset value per share. In determining whether a contingent
deferred sales load will be payable and, if so, the percentage charge
applicable, shares acquired through reinvestment and then shares held the
longest will be considered the first to be redeemed, thus resulting in the
lowest possible sales charge. The contingent deferred sales load may be waived
in connection with certain redemptions of shares of the Portfolios. See
"Redemption of Shares" and "Shareholder Services."
If imposed, the contingent deferred sales load will be deducted from the
redemption proceeds otherwise payable to the shareholder. Pursuant to the
distribution agreement between the Fund and Advest, the contingent deferred
sales load will be paid to Advest. Advest also receives payments from each of
the Portfolios pursuant to the Portfolios' Rule 12b-1 plans. See "Distributor
and Rule 12b-1 Plans."
REDEMPTION OF SHARES
Shares of the Portfolios may be redeemed for cash at any time upon written
order to the Fund, c/o Advest Transfer Services, Inc., 280 Trumbull Street,
Hartford, Connecticut 06103. The redemption price will be the Portfolio's net
asset value per share next determined after receipt of a redemption request
meeting the requirements described below. A contingent deferred sales load may
be imposed at the time of redemption. See "Purchase of Shares Contingent
Deferred Sales Load."
A redemption request must (i) state the number of shares or the dollar amount
to be redeemed, (ii) identify the shareholder's account number, and (iii)
be signed by each registered owner exactly as the shares are registered. If the
shares to be redeemed were issued in certificate form, the certificates must be
endorsed for transfer (or be accompanied by an endorsed stock power) and must be
submitted with the redemption request. Signatures on certificates, stock powers
and all written orders or authorizations must be guaranteed by a securities firm
having membership on a recognized national securities exchange, a U.S.
commercial or savings bank, a savings and loan association, a credit union, a
clearing agency, a securities exchange or securities association. Additional
supporting documents may be required in connection with redemptions made by
corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be received until all required documents are
received in proper form.
Proceeds of redemptions will be paid within seven days of receipt of a
redemption request in proper form. At various times a Portfolio may be requested
to redeem shares for which it has not yet received good payment and in such
instances may delay payment of the redemption proceeds up to 15 days to allow
for collection. This delay may be avoided by purchasing shares with a Federal
Reserve wire, cashier's check or certified check.
In addition to direct redemption by a Portfolio upon written order,
shareholders also may re-
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deem their shares through Advest. Advest, acting as agent for the Fund,
stands ready to repurchase Portfolio shares at the net asset value per share
next determined after Advest receives the order. Advest will pay the proceeds,
less any applicable contingent deferred sales load, within seven days
thereafter, assuming it has received proper documentation. No additional fee
is charged for this service.
The proceeds paid upon redemption or repurchase may be more or less than
the cost of the shares depending upon the market value of a Portfolio's
securities holdings at the time of redemption or repurchase. Investors who
purchase or redeem shares of a Portfolio through brokers other than Advest may
be subject to fees imposed by those entities.
Due to the relatively high cost of maintaining small accounts, the Portfolios
reserve the right to redeem, at net asset value, the shares of any shareholder
whose account has a value of less than $1,000 (unless the value has fallen
below $1,000 solely as a result of a decline in net asset value). Before doing
so, the shareholder will be given notice that the value of the shares in the
account is less than the minimum amount and will be allowed 30 days to make an
additional investment in an amount which will increase the value of the
account to at least $1,000. The contingent deferred sales load will be waived
in connection with these redemptions.
SHAREHOLDER SERVICES
The Fund provides the shareholder services summarized below. Applications and
additional information about these services may be obtained by contacting an
Advest investment broker.
EXCHANGE PRIVILEGE. Shareholders may exchange shares of a Portfolio for
shares of any other Portfolio in the Fund then offering shares for sale in the
shareholder's state of residence, subject to the minimum investment
requirements of the Portfolio into which the exchange is being made. Exchanges
may be made only between accounts with identical registrations and will be
made on the basis of the relative net asset value per share next determined
after the request for exchange is received in proper form. If the shares being
exchanged are subject to the contingent deferred sales load, the load will be
waived at the time of exchange, but will continue to apply to the shares
acquired in the exchange. An exchange constitutes a sale for federal income
tax purposes. The Fund will give each shareholder 60 days' notice in the event
of a modification or termination of this exchange privilege.
ADVANTAGE INSURED ACCOUNT. Fund shareholders may invest proceeds of Fund
share redemptions in the Advantage Insured Account (the "AIA"). The AIA is a
money market deposit account maintained for the benefit of shareholders of the
Portfolios at Advest Bank, a Connecticut savings bank which is affiliated with
Advest. The AIA is not a Money Market Mutual Fund. Shareholders who do not hold
shares in certificate form may deposit redemption proceeds into the AIA, and the
applicable contingent deferred sales load will not be imposed. Advest Bank is an
FDIC-insured institution, and deposits in the AIA, together with any other
monies a shareholder has on deposit at Advest Bank, will be insured by the FDIC
up to $100,000. Advest Bank will pay interest on the AIA balance at the same
rate that it pays to its other money market account depositors.
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There is a minimum initial deposit requirement of $1,000. AIA depositors
may withdraw money from the AIA and invest in shares of any of the portfolios of
the Advantage family of mutual funds then offering shares for sale in the
depositor's state of residence. Alternatively, an AIA depositor may receive cash
upon withdrawal, in which case any sales load due will be deducted from the
amounts withdrawn. Whether the sales load is deferred and carried over to the
shares acquired or charged against the cash withdrawn, the holding period for
computation of the sales load will be computed from the purchase date of the
shares of the Portfolio which were originally redeemed to make the deposit. For
federal income tax purposes, redemption of shares of a Portfolio in connection
with a deposit into the AIA constitutes a sale. Only the cash on deposit in the
AIA is FDIC-insured.
REPURCHASE PRIVILEGE. A shareholder who has redeemed shares of a Portfolio may,
within 45 days after the date of redemption, reinvest all or any part of the
redemption proceeds in shares of that Portfolio and request from the Fund (at
the address set forth on the cover page of this Prospectus) a credit against
any amount of any contingent deferred sales load deducted with respect to the
redemption. For purposes of any future contingent deferred sales load, the
date of purchase of the shares acquired upon reinvestment will apply. The
repurchase privilege may be utilized only once by any shareholder with respect
to each Portfolio.
DIVIDEND REINVESTMENT PLAN. Dividends and distributions with respect to a
Portfolio will be automatically reinvested in additional shares of the
Portfolio, unless a shareholder elects to receive them in cash.
SECURITIES SWAP PROGRAM. Investors may exchange readily marketable securities
for shares of a Portfolio, provided that the Portfolio's investment adviser
determines their acquisition by the Portfolio would be consistent with the
Portfolio's investment objective. Securities acquired by a Portfolio will be
valued at their market value as of the time of acquisition according to the
Fund's valuation procedures. All transactions will be subject to the limitation
on initial and subsequent investments. An exchange of securities for Portfolio
shares constitutes a sale for federal income tax purposes.
SHAREBUILDER(SM) ACCOUNT. Shareholders may invest predetermined amounts in the
Portfolios through an arrangement with a bank or through an Advest brokerage
account under the ShareBuilder Account program. ShareBuilder Account
investments require a minimum aggregate investment in the Portfolios of $50 each
month.
DIVIDENDS AND DISTRIBUTIONS; TAXES
Each Portfolio will distribute to shareholders substantially all of its net
investment income and any net capital gains. Dividends from net investment
income will be declared daily and paid monthly; net short-term capital gains and
net long-term capital gains, if any, will be distributed at least annually.
In order to maintain a more stable monthly distribution, each Portfolio may at
times pay out more or less than the entire amount of its net investment income
and short-term capital gains earned in any particular period. As a result, the
distributions paid by a Portfolio for
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any particular period may be more or less than the amount of net investment
income and short-term capital gains actually earned by the Portfolio during
such period. There can be no assurance that any amounts retained by the
Portfolio will be available for future distribution.
"Exempt-interest dividends" (as defined in the Internal Revenue Code) paid to
shareholders of a Portfolio from the tax-exempt interest earned from Municipal
Obligations is not includable in the shareholders' gross income for federal
income tax purposes, although the receipt of such dividends may affect
the taxability of social security and railroad retirement benefits. Shareholders
will be subject to federal income taxes on other dividends and distributions
paid by a Portfolio. Except for exempt-interest dividends, distributions of net
investment income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income, whether received in cash or additional shares.
Distributions of net investment income received by a Portfolio from certain
temporary investments (such as certificates of deposit, commercial paper and
U.S. Government Securities) will be taxable to shareholders as ordinary income.
Distributions of long-term capital gains, if any, will be taxable to
shareholders as long-term capital gains, whether received in cash or shares of a
Portfolio and without regard to how long a shareholder has held shares of the
Portfolio. Dividends and distributions also may be subject to state and local
taxes. The Fund will notify shareholders each year of the amount of
exempt-interest dividends and other distributions paid, including the amount of
any distribution of long-term capital gains, and the Fund will notify its
shareholders each year of the percentage of each Portfolio's dividends
attributable to interest treated as a tax preference item for purposes of the
alternative minimum tax and the percentage of each Portfolio's dividend
attributable to obligations of each state.
STATE INCOME TAXES. The exemption of interest on Municipal Obligations for
federal income tax purposes does not necessarily result in exemption under
the income, corporate or personal property tax laws of any state or city.
Individual shareholders of the Portfolios are in many states exempt from
taxation on distributions derived from the interest on Municipal Obligations of
their state of residence. Distributions to individual shareholders from the New
York Portfolio derived from obligations exempt from New York State taxation are
also generally exempt from New York City personal income tax. Distributions to
corporate taxpayers in New York may be subject to New York State and New York
City corporate franchise taxes. For a further discussion of state tax treatment
relating to the New York and Pennsylvania Portfolios, see Appendices B and C to
this Prospectus.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Portfolios and theirshareholders. No attempt is made
to present a detailed explanation of the federal or state income or other tax
treatment of the Portfolios or their shareholders, and this discussion is not
intended as a substitute for careful tax planning. Accordingly, you are urged
to consult your own tax advisors with specific references to your tax situation.
At the end of each quarter, at least 50% of the value of a Portfolio's assets
must be invested in
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Municipal Obligations in order for distributions to qualify as exempt-interest
dividends. Under particularly unusual circumstances, such as when a Portfolio
is in a prolonged defensive investment position, it is possible that no
portion of a Portfolio's distributions of income to its shareholders for a
fiscal year would be exempt from federal income tax. However, the Fund does
not presently anticipate that such unusual circumstances will occur.
Redemptions and exchanges of shares of a Portfolio are taxable events and,
accordingly, shareholders may realize gain or loss on these transactions.
Each Portfolio intends to qualify for taxation as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended, and intends to
make sufficient distributions so that it will not be subject to federal income
tax with respect to amounts distributed to shareholders.
Shareholders may be subject to 31% withholding on reportable dividend and
redemption payments ("backup withholding"). Generally, a shareholder will be
subject to backup withholding if the shareholder's taxpayer identification
number is not on file with the Fund or if the Portfolio knows or has been
notified by the Internal Revenue Service that the taxpayer identification number
furnished is an incorrect number. An individual's taxpayer identification number
is his or her social security number.
INVESTMENT ADVISER
Boston Security Counsellors, Inc. ("BSC"), 100 Federal Street, Boston,
Massachusetts 02110, serves as investment adviser to each of the Portfolios. BSC
is a wholly-owned subsidiary of The Advest Group, Inc., which also is the parent
company of Advest, Inc., the Fund's distributor, and Advest Transfer Services,
Inc., the Fund's transfer agent and dividend disbursing agent. The Advest Group,
Inc. is a publicly-owned holding company offering diverse financial services
principally in securities-related areas through its subsidiaries. BSC and its
predecessors and affiliates have provided investment advice to individuals,
employee benefit plans, charitable and other nonprofit organizations,
corporations and mutual funds for more than 15 years.
Subject to the supervision and direction of the Trustees of the Fund, BSC
manages each Portfolio in accordance with its stated investment objective
and policies, makes investment decisions for each Portfolio, places orders to
purchase and sell securities on behalf of each Portfolio, and administers the
affairs of the Fund. For its services, each Portfolio pays BSC a monthly fee at
the accrued rate of .45% of the Portfolio's average aggregate daily net assets
(subject to voluntary waiver or reimbursement by BSC and its affiliates).
Margaret D. Patel, a Senior Vice President of BSC and a Vice President of the
Fund, serves as portfolio manager for each of the Portfolios. She has been
associated with BSC since 1988.
EXPENSES. Each Portfolio bears all expenses of its operations other than those
incurred by BSC under its investment advisory agreement with the Fund. Each
Portfolio pays the following expenses, among others: investment advisory fees;
amounts pursuant to its Rule 12b-1 plan, bookkeeping, share pricing and
shareholder servicing fees and expenses; custodian
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fees and expenses; legal and auditing fees; expenses of prospectuses,
statements of additional information and shareholder reports for distribution
to current shareholders; registration and reporting fees and expenses; and
Trustees' fees and expenses. Under the investment advisory agreement, BSC will
reduce its fee to the extent that expenses payable by a Portfolio would exceed
the limit on expenses applicable to a Portfolio in any state in which the
Portfolio's shares are then qualified for sale. Any expenses not clearly
attributable to a particular Portfolio will be allocated among the Portfolios
as deemed fair and appropriate by or under the direction of the Trustees.
PORTFOLIO BROKERAGE TRANSACTIONS. Subject to the supervision of the Trustees,
BSC selects the brokers and dealers which execute orders to purchase and sell
securities for each Portfolio. BSC seeks to obtain the best available price and
most favorable execution with respect to all transactions for each Portfolio.
Subject to the consideration of best price and execution and to applicable
regulations, sales of shares of other investment companies distributed by
Advest as principal underwriter may be considered as a factor in the selection
of brokers and dealers which execute orders to purchase and sell portfolio
securities for the Fund.
DISTRIBUTOR AND RULE 12b-1 PLANS
Advest serves as distributor of shares for each of the Portfolios. Advest is a
registered broker-dealer and is wholly-owned by The Advest Group, Inc.
The Fund and Advest have entered into a distribution agreement under which
Advest has agreed to act as exclusive distribution agent for shares of the
Portfolios. Advest may sell shares of the Portfolios to or through qualified
dealers or others. Under the distribution agreement with the Fund, Advest is
entitled to such commissions and maintenance and other fees as may be
authorized and provided under the Fund's Distribution and Service Plans. In
addition, Advest will receive the contingent deferred sales load imposed with
respect to certain redemptions of shares of the Portfolios.
RULE 12B-1 PLANS. Each Portfolio has adopted a Distribution and Service Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Distribution and Service Plans, the Trustees have authorized the payment by each
Portfolio to Advest of .40% annually of its average daily net asset value for
each year elapsed subsequent to adoption of the Plan, as compensation to Advest
for activities which are primarily intended to result in the sale of shares of
the Portfolio (the "Distribution Fee").
In addition to the Distribution Fee, each Portfolio's Distribution and Service
Plan provides for the payment by the Portfolio to Advest of a fee at the annual
rate of .10% annually of the Portfolio's average daily net assets, as
compensation for personal services to investors in shares of the Portfolio
and/or the maintenance of shareholder accounts (the "Service Fee"). While the
Trustees of the Fund have set each Portfolio's Distribution Fee and Service
Fee at the rate of .40% and .10% per annum of average aggregate net assets of
the Portfolio, under each Plan the Trustees may raise the percentage
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of such fees to .75% and .25%, respectively, without obtaining shareholder
approval. However, they have no present intention of raising the fee rates.
Each Distribution and Service Plan requires that at least quarterly the
Trustees review a written report with respect to the amounts expended
under the Plan and the purposes therefor. The Trustees have approved the
Distribution and Service Plans and determined that there is a reasonable
likelihood that the Plans will benefit the Portfolios and their shareholders.
Rule 12b-1 requires that while the Plans are in effect the selection of
Trustees who are not interested persons of the Fund be made by the
disinterested Trustees.
PERFORMANCE INFORMATION
From time to time the Fund may advertise the "total return" or "yield"
or "tax-equivalent yield" of a Portfolio and may compare its performance with
that of other mutual funds as listed in the rankings or ratings prepared by
Lipper Analytical Services, Inc., Morningstar, Inc. or similar independent
services monitoring mutual fund performance, and with appropriate securities
indices. The "total return" of a Portfolio refers to the average annual
compounded rate of return over the stated period that would equate an initial
investment in the Portfolio at the beginning of the period to its ending
redeemable value, assuming reinvestment of all dividends and distributions and
deduction of all recurring charges and any contingent deferred sales charge. A
Portfolio's current "yield" for any period is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of such period. In computing net investment
income, all recurring charges are recognized. A Portfolio's "tax-equivalent
yield" is the net annualized taxable yield needed to produce a specified
tax-exempt yield at a given tax rate based on a specified period, assuming
semiannual compounding of income. The methods used to calculate "total return,"
"yield" and "tax-equivalent yield" are described further in the Statement of
Additional Information.
The performance of each Portfolio will vary from time to time in response to
fluctuations in market conditions, interest rates, the composition of the
Portfolio's investments and its expenses. Consequently, a Portfolio's
performance figures should not be considered representative of the performance
of the Portfolio for any future period. Current performance information for
each Portfolio may be obtained by contacting your Advest account executive.
THE FUND AND ITS SHARES
The Fund was established as an unincorporated business trust under the
laws of The Commonwealth of Massachusetts on February 25, 1993. The Trustees
of the Fund have authority to issue an unlimited number of shares of
beneficial interest without par value in an unlimited number of various series
(Portfolios) and classes of series. The initial Portfolios of the Fund are the
National, New York and Pennsylvania Portfolios, each of which issues one class
of shares. When issued, each share will be fully paid and nonassessable by a
Portfolio. Shareholders do not have preemptive or conversion rights. All
shares of a Portfolio have equal rights with other outstanding shares of that
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Portfolio with respect to redemption, dividends, distributions, liquidation
and other matters relating to that Portfolio and with all other outstanding
shares of the Fund relating to the election of Trustees and with other shares
with respect to other matters relating in the same manner to such other
shares. Each share of a Portfolio is entitled to one vote. Shares of the
Portfolios do not have cumulative voting rights. Fractional shares have
proportional voting rights and participate in any distributions and
dividends.
Certificates for shares of the Fund will be issued only upon specific written
request to the Fund. The Fund's transfer agent maintains records of each
shareholder's account and confirmations showing purchase and sale transactions
are issued.
The Fund is not required to hold annual meetings of shareholders. However,
special meetings of shareholders may be called for purposes such as
electing or removing Trustees, changing a fundamental investment policy or
approving an investment advisory agreement or a Rule 12b- 1 Plan. In addition, a
special meeting of shareholders of the Fund will be held if, at any time, less
than a majority of the Trustees then in office have been elected by shareholders
of the Fund. Shareholders of the Fund have the right to communicate with other
shareholders in accordance with the provisions of Section 16(c) of the
Investment Company Act of 1940.
The Trustees of the Fund are:
Robert L. Thomas
President of BSC; Executive Vice President of Advest and Director of Advest
and The Advest Group, Inc.
Geoffrey Nunes
Senior Vice President and General Counsel of Millipore Corporation and
Director of Reebok International, Ltd.
Richard C. Farr
Chairman and Chief Executive Officer of Farr Investment Co.; Chairman of
Bituminous Coal Corp., Inc.; and Director of Darling and Co., Inc., Seal,
Inc., Bouton Corp., Lincoln Logs, Ltd., Hunter Environ. Services, Inc. and
Northwest Direct Marketing Inc.
Linda G. Sprague
Professor of Operations Management at the Whittemore School of Business and
Economics, University of New Hampshire; Director of the Corporate
Broadcasting Network; and Management Advisor to Societe Internationale de
Chirurgie Orthopedique et de Traumotologie.
Allen Weintraub
Chief Executive Officer and Director of Advest and The Advest Group, Inc.
Inquiries concerning the Fund or a Portfolio should be made by contacting the
Fund or an Advest account executive. The Fund's address and telephone number
are listed on the cover page of this Prospectus.
CUSTODIAN; TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, serves as custodian of all cash and securities of
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the Portfolios. Advest Transfer Services, Inc., an affiliate of Advest and BSC,
serves as the Portfolios' transfer agent and dividend disbursing agent. The
address of Advest Transfer Services, Inc. is 280 Trumbull Street, Hartford,
Connecticut 06103.
AUDITORS
Price Waterhouse, Boston, Massachusetts, serves as independent accountants for
the Fund and will audit its financial statements annually. The fiscal year of
the Fund ends on December 31.
LEGAL COUNSEL
Ropes & Gray, Boston, Massachusetts, is legal counsel to the Fund.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR IN THE STATEMENT OF ADDITIONAL INFORMATION, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
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APPENDIX A - RATINGS OF DEBT INSTRUMENTS
STANDARD & POOR'S CORPORATION ("S&P"). CORPORATE AND MUNICIPAL BOND RATINGS.
An S&P corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor, with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees. The debt rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform any audit in connection with the ratings and may, on occasion, rely
on unaudited financial information.
The ratings are based, in varying degrees, on the following considerations:
(a) Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (b) Nature of and provisions of the obligation; and
(c) Protection afforded by and relative position of the obligation in the
event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "CCC" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
Bond ratings are as follows:
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues; however, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB - rating.
B - Debt rated B is regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
S&P MUNICIPAL NOTE RATINGS. An S&P note rating reflects the liquidity concerns
and market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria are used in
making that assessment: (a) Amortization schedule (the larger the final
maturity relative to other maturities the more likely it will be treated as a
note), and (b) Source of payment (the more dependent the issue is on the
market for its refinancing, the more likely it will be treated as a note).
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Note ratings are as follows:
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given
a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
SP-3 - Speculative capacity to pay principal and interest.
TAX EXEMPT DEMAND BONDS. S&P assigns "dual" ratings to all long-term debt
issues that have as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1/A-1+").
MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS. Moody's ratings are as follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Con. (-) - Municipal bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable
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credit stature upon completion of construction or elimination of basis of
condition.
MOODY'S MUNICIPAL NOTE RATINGS. Moody's Short-Term Loan Ratings - Moody's
ratings for state and municipal short-term obligations will be designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of major importance in bond risk
are of lesser importance over the short run.
Rating symbols and their meanings follow:
MIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG-3 - This designation denotes favorable quality. All security elements are
accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG-4 - This designation denotes adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly
or predominantly speculative, there is specific risk.
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APPENDIX B - THE NEW YORK PORTFOLIO
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT. Individual shareholders of the
New York Portfolio who are subject to New York State and New York City
personal income tax will not be subject to New York State or City personal
income tax on dividends paid by the New York Portfolio to the extent that they
are derived from interest on obligations of the State of New York and its
political subdivisions which is exempt from federal income tax. However,
dividends derived from interest on debt obligations of other states will, and of
the United States may, be treated as taxable ordinary income for purposes of New
York State and New York City personal income tax.
For New York State and City personal income tax purposes, long term capital
gain distributions are taxable as long term capital gains regardless of the
length of time shareholders have owned their shares (although net capital gain
income is taxed at the same rates as ordinary income). Short term capital
gains and any other taxable income distributions are taxable as ordinary income.
To the extent that investors are subject to state or local taxes outside of
New York City or outside of the State of New York, exempt-interest and other
dividends earned by an investment in the New York Portfolio may represent
taxable income.
Exempt-interest dividends are not subject to the New York State or New York
City alternative minimum taxes.
Neither the New York State nor the New York City personal income tax is imposed
on any portion of Social Security or Railroad Retirement benefits.
Interest on indebtedness incurred or continued to purchase or to carry shares
of the New York Portfolio generally is not deductible for federal, New York
State or New York City personal income tax purposes.
Exempt-interest and other dividends may be subject to New York State franchise
taxes and to the New York City General Corporation Tax, if received by a
corporation subject to those taxes.
SPECIAL FACTORS AFFECTING THE NEW YORK PORTFOLIO. Because the New York
Portfolio invests in New York municipal obligations, its yield and price
stability is more susceptible to factors adversely affecting issuers of New
York municipal obligations than a comparable municipal bond fund that does not
emphasize these issuers to this degree. The State of New York and New York City
have experienced long term economic problems which may adversely affect their
creditworthiness. The fiscal stability of the State is related, at least in
part, to the fiscal stability of its localities and authorities. State
agencies, authorities and localities have issued large amounts of bonds and
notes, guaranteed or supported by the State. New York State, New York City and
other State entities have experienced serious financial difficulties in the
past, which jeopardized their credit standing and impaired their borrowing
abilities and contributed to high interest rates on, and lower market prices
for, debt obligations issued by them. A recurrence of such financial
difficulties or a failure of certain financial recovery programs could result
in defaults or declines in the market values of various Municipal Bonds in
which the New York Portfolio may invest. A default or other financial crisis
relating to New York State or City or a New York State or City agency, or a
State municipality, could have an adverse effect on the market value and
marketability of outstanding New York Municipal Bonds held by the New York
Portfolio and on the interest income of the New York Portfolio. Because the
State, New York City, the State's other political subdivisions and New York's
authorities, all of which borrow money, are, or are perceived in the market
place to be, financially interdependent, any financial difficulty experienced
by one can adversely affect the market value and marketability of obligations
issued by others.
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APPENDIX C - THE PENNSYLVANIA PORTFOLIO
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT. Distributions paid by the
Pennsylvania Portfolio of the Fund to shareholders will not be subject to the
Pennsylvania personal income tax or to the Philadelphia School District
investment net income tax to the extent that the distributions are attributable
to interest received by the Fund from its investments in (i) obligations issued
by the Commonwealth of Pennsylvania, any public authority, commission, board or
agency created by the Commonwealth of Pennsylvania or any public authority
created by such political subdivision (collectively, "Pennsylvania Obligations")
and (ii) obligations of the United States, the interest and gains from which are
statutorily free from state taxation in the Commonwealth or the United States
(collectively, "U.S. Obligations"). Distributions by the Fund to a Pennsylvania
resident that are attributable to most other sources will not be exempt from the
Pennsylvania personal income tax or (for residents of Philadelphia) to the
Philadelphia School District investment net income tax.
Shares of the Pennsylvania Portfolio which are held by individual shareholders
subject to the Pennsylvania county personal property tax will be exempt from
such tax to the extent that the investments of the Pennsylvania Portfolio
consist of Pennsylvania Obligations and U.S. Obligations (collectively
"Exempt Obligations") that are statutorily free from taxation in Pennsylvania.
Shares of the Pennsylvania Portfolio that are held by individual shareholders
subject to personal property taxes imposed by the City of Pittsburgh or the
School District of Pittsburgh will be exempt from such taxes to the extent that
the investments of the Pennsylvania Portfolio consist of Exempt Obligations.
Distributions paid by the Fund which are excludable as exempt income for
federal tax purposesare not subject to the Pennsylvania corporate net income
tax. An additional deduction from Pennsylvania taxable income is permitted for
the amount of distributions paid by the Fund attributable to interest received
by the Fund from its investments in Pennsylvania Obligations and U.S.
Obligations to the extent included in federal taxable income, but such a
deduction is reduced by any interest on indebtedness incurred to carry the
securities and other expenses incurred inthe production of such interest
income, including expenses deducted on the federal income tax return that would
not have been allowed under the Internal Revenue Code if the interest were
exempt from federal income tax. Distributions by the Fund attributable to most
other sources may be subject to the Pennsylvania corporate net income tax. It
is the current position of the Pennsylvania Department of Revenue that Fund
shares are considered exempt assets (with a pro rata exclusion based on the
value of the Fund attributable to its investments in Pennsylvania Municipal
Obligations and U.S. Government Obligations) for purposes of determining a
corporation's capital stock value subject to the Commonwealth's capital stock
or franchise tax.
SPECIAL FACTORS AFFECTING PENNSYLVANIA PORTFOLIO. The Pennsylvania
Portfolio's yield and share price stability are tied in part to conditions
within the Commonwealth. Changes in economic conditions in or governmental
policies of the Commonwealth could have a significant impact on the performance
of Pennsylvania obligations held by the Pennsylvania Portfolio. The
availability, marketability and market value of Pennsylvania Municipal
Obligations may be affected by certain Pennsylvania circumstances which, if not
resolved, could adversely affect the various issuers' abilities to meet their
financial obligations. For example, the Commonwealth's continued dependence on
manufacturing, mining and steel has made the Commonwealth vulnerable to cyclical
industry fluctuations, foreign imports and environmental concerns. However,
growth in the service and trade sectors has helped diversify the Commonwealth's
economy and reduce its unemployment rate below the national average. Changes in
local economic conditions or local governmental policies within the
Commonwealth, which can vary substantially by region, could also have a
significant impact on the performance of municipal obligations held by the
Pennsylvania Portfolio. Recent financial problems of the City of Philadelphia,
for example, have adversely affected the ratings of its obligations. Legislation
providing for the establishment of the Pennsylvania Intergovernmental
Cooperation
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Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was
recently enacted. PICA is designed to provide assistance through the issuance
of funding debt to liquidate budget deficits and to make factual findings and
recommendations to the City concerning its budgetary and fiscal affairs. At
this time, Philadelphia is operating under a five year fiscal plan approved by
PICA in 1992 and amended in May 1993. In July 1993, PICA issued $643.4 million
of Special Tax Revenue Bonds to refund certain general obligation bonds of the
city and to fund additional capital projects. Also, the Pennsylvania Portfolio
will invest in obligations that are secured by obligors other than the
Commonwealth or its political subdivisions (such as hospitals, universities,
corporate obligors and corporate credit and liquidity providers) and
obligations limited to specific revenue pledges (such as sewer authority
bonds), and the creditworthiness of these obligors may be wholly or partly
independent of the creditworthiness of the Commonwealth or its municipal
authorities.
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INVESTMENT ADVISER
Boston Security Counsellors, Inc.
100 Federal Street
Boston, MA 02110
DISTRIBUTOR
Advest, Inc.
One Commercial Plaza
280 Trumbull Street
Hanford, CT 06103
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Advest Transfer Services, Inc.
280 Trumbull Street
Hartford, CT 06103
INDEPENDENT ACCOUNTANTS
Price Waterhouse
160 Federal Street
Boston, MA 02110
CONTENTS
PAGE
----
Introduction............................................... 2
Summary of Expenses........................................ 2
Financial Highlights....................................... 3
Investment Objectives and Policies......................... 4
Risk Factors............................................... 6
Types of Municipal Obligations............................. 6
Other Investment Policies and Techniques................... 9
Purchase of Shares......................................... 12
Redemption of Shares....................................... 13
Shareholder Services....................................... 14
Dividends and Distributions; Taxes......................... 15
Investment Adviser......................................... 17
Distributor and Rule 12b-1 Plans........................... 18
Performance Information.................................... 19
The Fund and its Shares.................................... 19
Custodian; Transfer Agent and
Dividend Disbursing Agent............................... 20
Auditors................................................... 21
Legal Counsel.............................................. 21
Appendix A................................................. 22
Appendix B................................................. 25
Appendix C................................................. 26
THE ADVANTAGE FUNDS
THE
MUNICIPAL
BOND FUNDS
THE NATIONAL PORTFOLIO
THE NEW YORK PORTFOLIO
THE PENNSYLVANIA PORTFOLIO
PROSPECTUS
APRIL 18, 1994
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THE ADVANTAGE MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 18, 1994
THE NATIONAL PORTFOLIO
THE NEW YORK PORTFOLIO
THE PENNSYLVANIA PORTFOLIO
100 Federal Street
Boston, Massachusetts 02110
(617) 348-3100
This Statement of Additional Information is not a prospectus, but expands upon
and supplements the information contained in the Prospectus of The Advantage
Municipal Bond Fund (the "Fund"), dated April 18, 1994, as supplemented from
time to time, and should be read in conjunction with the Prospectus. The
Prospectus may be obtained from the Fund or an Advest, Inc. investment broker.
<PAGE> 329
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. DESCRIPTION OF MUNICIPAL OBLIGATIONS . . . . . . . . . . . . . . 1
II. INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . 4
A. Options and Futures Strategies . . . . . . . . . . . . . . . 4
B. Repurchase Agreements . . . . . . . . . . . . . . . . . . . 9
C. Lending of Portfolio Securities . . . . . . . . . . . . . . 10
D. Forward Commitments . . . . . . . . . . . . . . . . . . . . 11
E. Floating or Variable Rate Instruments . . . . . . . . . . . 11
F. Zero Coupon Treasury Securities . . . . . . . . . . . . . . 12
G. Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . 13
H. Risks Associated With High Yield High Risk Investments . . . 15
I. Liquidity of Municipal Lease Obligations . . . . . . . . . . 15
III. INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . 15
IV. TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . 19
V. INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . 21
VI. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT . . . . . . . . . . 22
VII. DISTRIBUTION AGREEMENT AND RULE 12B-1 PLANS . . . . . . . . . . 23
VIII. SPECIAL REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . 24
IX. PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 24
X. NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . 25
XI. TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
XII. PERFORMANCE INFORMATION
A. Total Return . . . . . . . . . . . . . . . . . . . . . . . . 29
B. Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
C. Tax-Equivalent Yield . . . . . . . . . . . . . . . . . . . . 31
D. Non-Standardized Total Return . . . . . . . . . . . . . . . 31
E. Other Information Concerning Fund Performance . . . . . . . 32
XIII. DESCRIPTION OF THE FUND . . . . . . . . . . . . . . . . . . . . 39
XIV. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 39
XV. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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I. DESCRIPTION OF MUNICIPAL OBLIGATIONS
The following discussion supplements the description in the Prospectus of the
portfolio investments of the Fund and its three Portfolios -- the National
Portfolio, the New York Portfolio and the Pennsylvania Portfolio (each, a
Portfolio and together, the "Portfolios").
MUNICIPAL OBLIGATIONS
"Municipal Obligations" are debt obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities to obtain
funds for various public and private purposes. Such obligations include bonds
as well as municipal lease obligations, tax-exempt commercial paper, project
notes and municipal notes such as tax, revenue and bond anticipation notes of
short maturity, generally less than three years.
The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest. The taxes that can be levied for
the payment of debt service may be limited or unlimited as to rate and amount.
In contrast, the principal security for a revenue bond is generally the net
revenues derived from a particular facility or group of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Revenue bonds are not backed by a pledge of the issuer's general taxing power.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities; colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability
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(without legal obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are normally secured by annual lease rental payments from the
state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally issued
by municipal authorities, are in most cases revenue bonds and are generally not
secured by the taxing power of the municipality but are usually secured by the
revenues of the authority derived from payments by the industrial user or
users.
Each Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights to convert to or purchase equity securities. Such warrants or
rights may be held indefinitely, but if exercised, each Portfolio anticipates
that it would, under normal circumstances, dispose of any equity securities so
acquired within a reasonably short period of time.
Some municipal bonds are additionally secured by insurance, bank credit
agreements, escrow accounts, or other credit enhancements. In such situations,
a Portfolio may rely in whole or in part upon the creditworthiness of a party
rather than the issuing municipality.
While many municipal bonds pay a fixed rate of interest semi-annually in cash,
there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those prevailing, with price adjustments reflecting such
deviation.
Most municipal bonds have a fixed final maturity date. However, it is common
for the issuer to reserve the right to call the bond earlier than that date.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder.
The obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any,
which may be enacted by Congress or state bankruptcy laws extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. There is also the possibility that as a
result of litigation or other conditions the power or ability of an issuer to
pay principal when due and/or interest on its Municipal Obligations may be
materially affected.
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Municipal Obligations that are not rated or are in the medium and lower rating
categories of recognized rating agencies are subject to greater credit risks
than securities in higher rating categories. These risks include, without
limitation, the possibility of default by or bankruptcy of either the issuers
of such Municipal Obligations or the underlying sources of funds for debt
service of such Municipal Obligations. In this connection there have been
recent instances of such defaults and bankruptcies which were not foreseen by
the financial and investment communities. Medium and lower quality Municipal
Obligations have varying degrees of speculative characteristic. While certain
of such Municipal Obligations have some protective characteristics, these
characteristics can be expected to be partially offset or outweighed by large
uncertainties or major risk exposures to adverse conditions. With respect to
Municipal Obligations which are not rated by a major rating agency, the Fund
will be more reliant on the judgment, analysis and experience of the Fund's
investment adviser than would be the case if such Municipal Obligations were
rated. In evaluating the creditworthiness of an issue, whether rated or
unrated, the investment adviser will normally take into consideration, among
other things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The investment adviser will attempt to reduce the risks of
investing in medium or lower rated or unrated Municipal Obligations through
active portfolio management, diversification, credit analysis and attention to
current developments and trends in the economy and the financial markets. The
Fund will also take such action as it considers appropriate in the event of
anticipated financial difficulties, default or bankruptcy of either the issuer
of any such obligation or of the underlying source of funds for debt service.
Such action may include retaining the services of various persons and firms
(including affiliates of the investment adviser) to evaluate or protect any
real estate, facilities or other assets securing any such obligation or
acquired by the Fund as a result of any such event. The Fund anticipates that
real estate consulting and management services may be required with respect to
properties securing various Municipal Obligations in its Portfolios or
subsequently acquired by a Portfolio.
Medium or lower rated and unrated Municipal Obligations are frequently traded
in markets where the number of potential purchasers and sellers is limited.
Each Portfolio does not intend to purchase a Municipal Obligation if such
purchase at the time thereof would cause more than 15% of its net assets, taken
at current market value, to be invested in illiquid Municipal Obligations and
other assets for which there is no readily available market.
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The yields on Municipal Obligations are dependent on a variety of factors,
including the purpose of the issue and source of funds for repayment, general
money market conditions, general conditions of the Municipal Obligations
market, size of a particular offering, the maturity of the obligation and
rating of the issue. The ratings of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P") represent their opinions
as to the quality of the Municipal Obligations which they undertake to rate.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, Municipal Obligations with the same
maturity, coupon and rating may have different yields while Municipal
Obligations of the same maturity and coupon with different ratings may have the
same yield. In addition, the market price of Municipal Obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of a Portfolio's shares will be affected by such changes. For a
description of the ratings assigned by S&P and Moody's, see Appendix A to the
Prospectus.
Subsequent to its purchase by a Portfolio, an issue of industrial revenue bonds
may cease to be rated or its rating may be reduced below the minimum grade in
which the Portfolios have represented in the Prospectus they will invest.
Neither event requires a Portfolio to eliminate such obligation from its
holdings, but the Fund's investment adviser will consider such an event in its
determination of whether the particular Portfolio should continue to hold the
obligation. To the extent that the ratings accorded by S&P or Moody's for
Municipal Obligations or temporary investments may change as a result of
changes in such organizations, or changes in their rating systems, the adviser
will attempt to use comparable ratings as standards in making portfolio
investments for the Portfolios.
II. INVESTMENT POLICIES AND TECHNIQUES
The Prospectus describes the investment objective of each of the Portfolios and
summarizes certain investment policies and techniques they will employ. The
following discussion supplements the description of the Portfolios' investment
policies and techniques in the Prospectus.
A. OPTIONS AND FUTURES STRATEGIES
Boston Security Counsellors, Inc. ("BSC"), the Fund's investment adviser, may
at times seek to hedge against a decline in the value of securities held by a
Portfolio or against an increase in the price of securities which it plans to
purchase for a Portfolio through the writing and purchase of options and the
purchase and sale of financial futures contracts and related options. Expenses
and losses incurred as a result of such
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hedging strategies will reduce the current return of a Portfolio employing
these hedging strategies. In addition, BSC may seek to increase the current
return of a Portfolio by writing covered call options or secured put options.
The ability of the Portfolios to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that
may exist in various types of options or futures. Therefore, no assurance can
be given that the Portfolios will be able to use these instruments effectively
for the purposes stated below. Although the Portfolios will only engage in
options and futures transactions for limited purposes, such transactions will
involve certain risks which are described below under "Risks of Options and
Futures Strategies." The Portfolios will not engage in options and futures
transactions for speculative purposes.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. Each Portfolio may purchase a
put option to protect against a decline in the market value of a security held
by the Portfolio. This protection is provided during the life of the put
option since the Portfolio, as holder of the put, is able to sell the
underlying security at the exercise price regardless of any decline in the
underlying security's market price. For the purchase of a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium paid for the option
and transaction costs. By using put options in this manner, any profit which
the Portfolio purchasing the put option might otherwise have realized on the
underlying security will be reduced by the premium paid for the put option and
by other transaction costs.
A Portfolio may purchase a call option to protect against an increase in the
price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Portfolio, as holder of the call,
is able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs of the option. By using call options in this manner, any profit which
the Portfolio purchasing the call option might have realized had it bought the
underlying security at the time it purchased the call option will be reduced by
the premium paid for the call option and by transaction costs.
The Portfolios do not intend to purchase put or call options if, as a result of
any such transaction, the aggregate cost of options held by a Portfolio at the
time of such transaction would
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exceed 5% of the total assets of such Portfolio.
WRITING COVERED OPTIONS ON SECURITIES. Each Portfolio may write covered call
options and covered put options on optionable securities of the types in which
it is permitted to invest from time to time as BSC determines is appropriate in
seeking to attain its objectives. Call options written by a Portfolio give the
holder the right to buy the underlying security from the Portfolio at a stated
exercise price; put options written by a Portfolio give the holder the right to
sell an underlying security to the Portfolio at a stated price.
A Portfolio may only write call options on a covered basis or for cross-hedging
purposes and will write only covered put options. A call option is covered if
a Portfolio owns or has the right to acquire the underlying securities subject
to the call option (or comparable securities satisfying the cover requirements
of securities exchanges) at all times during the option period. A call option
is for cross-hedging purposes if it is not covered, but is designed to provide
a hedge against price movements of a security which the Portfolio owns or has
the right to acquire. In the case of a call written for cross-hedging purposes
or a put option, the Portfolio will maintain in a segregated account at its
custodian bank, cash or short-term U.S. Government Securities with a value
equal to or greater than the Portfolio's obligation under the option. The
Portfolios may also write combinations of covered puts and covered calls on the
same underlying security.
A Portfolio will receive a premium from writing an option which increases the
Portfolio's return in the event the option expires unexercised or is terminated
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, a Portfolio
forgoes the opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a Portfolio will assume the risk that it may be required to purchase
the underlying security for an exercise price higher than the security's then
current market price, resulting in a capital loss if the purchase price exceeds
the market price plus the amount of the premium which the Portfolio received
for writing the option.
A Portfolio may terminate an option which it has written prior to its
expiration by entering into a closing transaction in which it purchases an
option having the same terms as the option written. The Portfolio will realize
a profit (or loss) on such a transaction if the cost of the transaction is less
(or more) than the premium received from the writing of the option. Because
increases in the market price of a call option will generally
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reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option may be offset in whole or in
part by unrealized appreciation of the underlying security owned by the
Portfolio.
PURCHASE AND SALE OF INTEREST RATE FUTURES CONTRACTS. Each Portfolio may
purchase and sell interest rate futures contracts on U.S. Treasury bills, notes
and bonds for the purpose of hedging its security holdings against the adverse
effects of anticipated movements in market interest rates.
A Portfolio may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the securities held by a Portfolio will fall, thus
reducing the Portfolio's net asset value. This interest rate risk can be
reduced without employing futures as a hedge by selling such securities and
either reinvesting the proceeds in securities with shorter maturities or by
holding assets in cash. However, this strategy entails increased transaction
costs in the form of dealer spreads and brokerage commissions and would
typically reduce the Portfolio's average yield as a result of the shortening of
maturities.
The sale of interest rate futures contracts provides another means of hedging
against rising interest rates. As rates increase, the value of a Portfolio's
short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of the
Portfolio's investments which are being hedged. While the Portfolio will incur
commission expenses in selling and closing out futures positions (which is done
by taking an opposite position in the futures contract), commissions on futures
transactions are lower than transaction costs incurred in the purchase and sale
of portfolio securities.
A Portfolio may purchase interest rate futures contracts in anticipation of a
decline in interest rates when it is not fully invested. As the Portfolio
becomes more fully invested, the Portfolio intends that an equivalent amount of
futures contracts will be closed out.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase and write call and
put options on interest rate futures contracts. A Portfolio may use such
options on futures contracts in connection with its hedging strategies in lieu
of purchasing and writing options directly on the underlying securities or
purchasing or selling the underlying futures contract. For example, a
Portfolio may purchase put options or write call options on interest rate
futures, rather than selling futures contracts, in anticipation of a rise in
interest rates. Alternatively, a Portfolio may purchase call options or write
put options on
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interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of debt securities which the Portfolio intends
to purchase.
A Portfolio engaging in transactions in interest rate futures and related
options on such futures will be required to deposit as "initial margin" an
amount of cash and short-term U.S. Government Securities. The current initial
margin requirement per contract is approximately 2% of the contract amount.
Thereafter, subsequent payments (referred to as "variation margin") are made to
and from the broker to reflect changes in the value of the futures contract.
Brokers may establish deposit requirements higher than exchange minimums.
LIMITATIONS. A Portfolio will not purchase or sell futures contracts or
options on futures contracts if, as a result, the sum of the initial margin
deposits on its existing futures contracts and related options positions and
premiums paid for options on futures contracts or stock indices would exceed 5%
of such Portfolio's total assets unless the transaction meets certain "bona
fide hedging" criteria. In addition, with respect to each futures contract
purchased or long position in an option, the Portfolio may set aside in a
segregated account at its custodian bank an amount of cash or short-term U.S.
Government Securities equal to the total market value of such contracts less
the initial margin deposited therefor.
A Portfolio will sell futures contracts only to offset expected declines in the
value of portfolio securities, and the value of such futures contracts will not
exceed the total market value of those securities (plus such additional amount
as may be necessary because of differences in the volatility factor of the
portfolio securities vis a vis the futures contracts).
RISKS OF OPTIONS AND FUTURES STRATEGIES. The effective use of options and
futures strategies by a Portfolio depends, among other things, on the
Portfolio's ability to terminate options and futures positions at times when
its investment adviser deems it desirable to do so. Although a Portfolio will
not enter into an option or futures position unless the investment adviser
believes that a liquid market exists for such option or future, there can be no
assurance that the Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price. The Portfolios generally expect
that their options and futures transactions will be conducted on recognized
exchanges. In certain instances, however, a Portfolio may purchase and sell
options in the over-the-counter market. The staff of the Securities and
Exchange Commission considers over-the-counter options and the securities
underlying them to be illiquid. A Portfolio's ability to terminate option
positions established in the over-the-counter market may be more limited than
in the case of exchange-traded options and may also involve the risk that
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securities dealers participating in such transactions would fail to meet their
obligations to the Portfolio.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of the hedge. The successful use of these
strategies also depends on the ability of the investment adviser to forecast
correctly interest rate movements and general stock market price movements.
The risk increases as the composition of the security holdings of the Portfolio
using these strategies diverges from the composition of the relevant option or
futures contract.
B. REPURCHASE AGREEMENTS
A repurchase agreement is an agreement under which a Portfolio acquires a money
market instrument (generally a security issued by the U.S. Government or an
agency or instrumentality thereof, a banker's acceptance or a certificate of
deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally the next business day). The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by the Portfolio and is unrelated to the interest rate on
the underlying instrument. In these transactions, the instruments acquired by
a Portfolio (including accrued interest) must have a total value in excess of
the value of the repurchase agreement and will be held by the Portfolio's
custodian bank until repurchased. The Portfolios' investment adviser will use
standards set by each Portfolio's Trustees in reviewing the creditworthiness of
parties to repurchase agreements with the Portfolios. In addition, no more
than an aggregate of 15% of any Portfolio's net assets, at the time of
investment, will be invested in illiquid investments including repurchase
agreements having maturities longer than seven days.
The use of repurchase agreements by a Portfolio involves certain risks. For
example, if the seller under a repurchase agreement defaults on its obligation
to repurchase the underlying instrument at a time when the value of the
instrument has declined, the Portfolio may incur a loss upon its disposition.
If the seller becomes insolvent and subject to liquidation or reorganization
under bankruptcy or other laws, a bankruptcy court may determine that the
underlying instrument is collateral for a loan by the Portfolio and therefore
is subject to sale by the trustee in bankruptcy. Finally, a Portfolio's right
to liquidate its collateral in the event of a default could involve certain
costs, losses or delays and, to the extent that proceeds from any sale upon
default of the obligation to repurchase are less than the repurchase price, the
Portfolio could suffer a loss.
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As an alternative to using repurchase agreements, the Portfolios may from
time-to-time invest up to 5% of their assets in money market investment
companies sponsored by a third party for short-term liquidity purposes. Such
investments are subject to a non-fundamental investment limitation described
in this Statement of Additional Information.
C. LENDING OF PORTFOLIO SECURITIES
A Portfolio may lend its securities to broker-dealers and other financial
institutions in an amount up to one-third of the value of its total assets,
provided that such loans are callable at any time by the Portfolio and are at
all times secured by collateral held by the Portfolio at least equal to the
market value, determined daily, of the loaned securities. A Portfolio loaning
securities will continue to receive any income on the loaned securities, and at
the same time will earn interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee in the case of
collateral in the form of U.S. Government Securities. A loan may be terminated
at any time by either the Portfolio loaning the securities or the borrower.
Upon termination of a loan, the borrower will be required to return the
securities to the Portfolio, and any gain or loss in the market price during
the period of the loan would accrue to the Portfolio. If the borrower fails to
maintain the requisite amount of collateral, the loan will automatically
terminate, and the Portfolio may use the collateral to replace the loaned
securities while holding the borrower liable for any excess of the replacement
cost over the amount of the collateral.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Portfolios will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Portfolio's investment in
the securities which are the subject of the loan. The Portfolios may pay
reasonable finders, administrative and custody fees in connection with loans of
their portfolio securities.
As with any extension of credit, there are risks of delay in recovery of the
loaned securities and in some cases loss of rights in the collateral should the
borrower of the securities fail financially. However, loans of securities will
only be made to firms considered by the Portfolios' investment adviser to be
creditworthy under guidelines adopted by the Trustees.
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D. FORWARD COMMITMENTS
Each Portfolio may enter into forward commitments to purchase securities. An
amount of cash or short-term U.S. Government Securities equal to the
Portfolio's commitment may be deposited in a segregated account at the
Portfolio's custodian bank to secure the Portfolio's obligation. Although a
Portfolio will generally enter into forward commitments to purchase securities
with the intention of actually acquiring and holding the securities (or for
delivery pursuant to options contracts it has entered into), the Portfolio may
dispose of a security prior to settlement if BSC deems it advisable to do so.
The Portfolio entering into the forward commitment may realize short-term gains
or losses in connection with such sales.
E. FLOATING OR VARIABLE RATE INSTRUMENTS
Each Portfolio may purchase floating or variable rate instruments, which
normally provide that the holder can demand payment of the obligation on short
notice at par with accrued interest, which bonds are frequently secured by
letters of credit or other credit support arrangements provided by banks.
Floating or variable rate instruments provide for adjustments in the interest
rate at specified intervals (weekly, monthly, semiannually, etc.). The revised
rates are usually set at the issuer's discretion in which case the investor
normally enjoys the right to "put" the security back to the issuer or the
stockholder's agent. Rate revisions may alternatively be determined by formula
or in some other contractual fashion. To the extent that such letters of
credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, the banks may be treated as the issuer of a security for
the purposes of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder. A
Portfolio would anticipate using these bonds as cash equivalents pending longer
term investment of its funds. Other longer term fixed-rate bonds, with a right
of the holder to request redemption at certain times (often annually after the
lapse of an intermediate term), may also be purchased by the Portfolio. These
bonds are more defensive than conventional long-term bonds (protecting to some
degree against a rise in interest rates), while providing greater opportunity
than comparable intermediate term bonds since the Portfolio may retain the bond
if interest rates decline. By acquiring these kinds of bonds the Portfolio
obtains the contractual right to require the issuer of the security or some
other person (other than a broker or dealer) to purchase the security at an
agreed upon price, which right is contained in the obligation itself rather
than in a separate agreement with the seller or some other person. Since this
right is assignable with the security which is readily marketable and valued in
the customary manner, the Portfolio will not assign any separate
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value to such right.
F. ZERO COUPON TREASURY SECURITIES
Each Portfolio may invest a portion of its total assets in "zero coupon"
Treasury securities. Such securities consist of Treasury bills or U.S.
Treasury bonds or notes stripped of their interest components. A zero coupon
security pays no interest to its holder during its life. An investor acquires
a zero coupon security at a price which is generally an amount based upon its
present value, and which, depending upon the time remaining until maturity, may
be significantly less than its face value (sometimes referred to as a "deep
discount" price). Upon maturity of the zero coupon security, the investor
receives the face value of the security.
Currently the only U.S. Treasury security actually issued without coupons is
the Treasury bill. However, Treasury bonds or notes can be purchased which
have been stripped of their interest components through the U.S. Treasury's
STRIPS program which permits the beneficial ownership of the interest and
principal components to be recorded directly in the Treasury's book-entry
system. Each Portfolio may also purchase custodial receipts evidencing
beneficial ownership of direct interests in component parts of U.S. Treasury
bonds or notes held by a bank in a custodian or trust account.
Stripped interests in U.S. Treasury securities that are not issued through the
U.S. Treasury's STRIPS program are not considered to be U.S. Government
Securities.
Zero coupon securities (including both U.S. Treasury bills issued without
coupons and U.S. Treasury bonds or notes stripped of their interest components)
do not entitle the holder to periodic payments of interest prior to maturity.
Accordingly, such securities usually trade at a deep discount from their face
or par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturity which make periodic distributions of interest. On the other hand,
because there are no periodic interest payments to be reinvested prior to
maturity, zero coupon securities eliminate the reinvestment risk and lock in a
rate of return to maturity. Current federal tax law requires that a holder
(such as a Portfolio) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though
during the year no interest payment on the security is actually received in
cash.
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G. PORTFOLIO TURNOVER
Securities will generally not be purchased for short-term trading profits but
for the purpose of receiving the income generated by the securities. However,
the rate of portfolio turnover is not a limiting factor and a Portfolio's
holdings of securities will be changed if the Portfolios' investment adviser
deems it advisable. The rate of portfolio turnover during the period ended
December 31, 1993 for the Portfolios is set forth in the Prospectus.
A high rate of portfolio turnover involves a correspondingly greater amount of
brokerage commissions (or dealer mark-ups) and other costs which will be borne
directly by a Portfolio and thus reduce the yield to its shareholders. It may
also result in the realization of larger amounts of short-term capital gains
which are taxable to shareholders as ordinary income.
H. RISKS ASSOCIATED WITH HIGH YIELD HIGH RISK INVESTMENTS
Up to 10% of the assets of a Portfolio may be invested in high risk high yield
Municipal Obligations. High yield bonds are commonly known as "junk bonds." A
Portfolio's investment in such Municipal Obligations is subject to the risk
factors outlined below.
YOUTH AND GROWTH OF THE HIGH YIELD BOND MARKET. The high yield bond
market is relatively new and its early growth paralleled a long economic
expansion. During 1989 and 1990, the high yield bond market experienced a
substantial loss of market value and liquidity and although some of this loss
has since been recovered, the high yield bond market continues to be subject to
great volatility. Any economic downturn or increase in interest rates in the
future is likely to have a negative effect on the high yield bond market and on
the value of the high yield bonds held by a Portfolio, as well as on the
ability of the bonds' issuers to repay principal and interest. Issuers of high
yield bonds may be of low creditworthiness and the high yield bonds may be
subordinated to the claims of banks and other senior lenders. During periods
of economic downturn or rising interest rates the issuers of high yield bonds
may have greater potential for insolvency and a higher incidence of high yield
bond defaults may be experienced.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. Changes in the
economy and interest rates affect high yield securities differently from other
securities. The prices of high yield bonds have been found to be less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic changes or individual issuer developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service
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their principal and interest payment obligations, to meet projected business
goals, and to obtain additional financing. If the issuer of a bond owned by a
Portfolio defaults, the Portfolio may incur additional expenses in seeking
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of high yield bonds
and the Portfolio's asset value. Yields on high yield bonds will fluctuate
over time. Furthermore, in the case of high yield bonds structured as zero
coupon or pay-in-kind securities, their market prices are affected to a greater
extent by interest rate changes and thereby tend to be more volatile than
market prices of securities which pay interest periodically and in cash.
PAYMENT EXPECTATIONS. High yield bonds present risks based on payment
expectations. For example, high yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest
rate market, a Portfolio would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high yield bond's value will decrease in a rising interest rate market thus
reducing the value of the assets of the Portfolio holding that bond. If a
Portfolio experiences unexpected net redemptions of Portfolio shares, it may be
forced to sell its high yield bonds to pay for the redemptions, without regard
to the investment merits of the bonds, thereby decreasing the asset base upon
which the Portfolio's expenses can be spread and possibly reducing the
Portfolio's rate of return.
LIQUIDITY AND VALUATION. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and
there may be a negative impact on a Portfolio's ability to accurately value
high yield bonds and on the Portfolio's ability to dispose of the bonds.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of high yield bonds, especially
in a thinly traded market. To the extent a Portfolio owns or may acquire
illiquid or restricted high yield bonds, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity
difficulties, and judgment will play a greater role in valuation because there
is less reliable, objective data available.
TAXATION. Special tax considerations are associated with investing in
high yield bonds structured as zero coupon or pay-in-kind securities. A
Portfolio will report the interest on these securities as income annually even
though it receives no cash with respect to the security until the security's
maturity or payment date. The Portfolio may be required to sell some of its
assets to distribute such income to shareholders so as to continue to be
treated as a pass-through entity for federal income tax purposes. These
actions are likely to reduce the
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Portfolio's assets and may thereby increase its expense ratio and decrease its
rate of return.
CREDIT RATINGS. Certain risks are associated with using credit
ratings of recognized rating agencies as a method for evaluating high yield
bonds. Credit ratings evaluate the safety of principal and interest payments,
but not the market value risk of high yield bonds. Since credit rating
agencies may fail to timely change the credit ratings to reflect subsequent
events, the Fund's investment adviser must continuously monitor the issuers of
high yield bonds in a Portfolio to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments, and to attempt to assure the bonds' liquidity so that the Portfolio
can meet redemption requests. To the extent that a Portfolio invests in high
yield bonds, the achievement of the Portfolio's investment objective may be
more dependent on the investment adviser's own credit analysis than is the case
for higher quality bonds. A Portfolio may retain a portfolio security whose
rating has been changed after the security is acquired if the investment
adviser deems it advisable to do so.
I. LIQUIDITY OF MUNICIPAL LEASE OBLIGATIONS.
The Fund's investment adviser, under the direction of the Board of Trustees,
will determine the liquidity of municipal lease obligations based upon whether
the lease can be terminated by the lessee, the lessee's general credit
strength, the potential recovery from a sale of the leased property upon
termination of the lease, the likelihood that the lessee will continue to
appropriate funding for the leased property, any credit enhancement or legal
recourse provided upon an event of non-appropriation or other termination of
the lease, and whether the security can be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Portfolio
has valued the security for purposes of calculating the Portfolio's net asset
value.
III. INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT POLICIES. Each Portfolio has adopted certain
fundamental investment policies. These fundamental investment policies cannot
be changed by a Portfolio unless the change is approved by the lesser of (i)
67% or more of the voting securities of the Portfolio present at a meeting, if
the holders of more than 50% of the outstanding voting securities of the
Portfolio are present or represented by proxy at the meeting, or (ii) more than
50% of all outstanding voting securities of the Portfolio. These policies are
identical for each of the Portfolios and provide that a Portfolio will not:
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1. Borrow money, except from a bank and as a temporary measure
for extraordinary or emergency purposes, and provided the Portfolio maintains
asset coverage of 300% for all borrowings;
2. Purchase securities of any one issuer (except U.S. Government
securities) if, as a result, more than 5% of the Portfolio's total assets would
be invested in that issuer or the Portfolio would own or hold more than 10% of
the outstanding voting securities of the issuer, provided, however, that up to
25% of the Portfolio's total assets may be invested without regard to these
limitations;
3. Underwrite the securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, a
Portfolio may be deemed to be an underwriter;
4. Concentrate its assets in the securities of issuers all of
which conduct their principal business activities in the same industry (this
restriction does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);
5. Make any investment in real estate, commodities or commodity
contracts, except that a Portfolio may: (a) purchase or sell readily
marketable securities which are secured by interests in real estate or issued
by companies which deal in real estate, including real estate investment and
mortgage investment trusts; and (b) engage in financial futures contracts and
related options as described previously herein, in the Prospectus and in
accordance with regulations of the Commodity Futures Trading Commission;
6. Make loans, except that a Portfolio may (a) invest in
repurchase agreements, and (b) loan its portfolio securities in amounts up to
one-third of the market or other fair value of its total assets;
7. Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, provided that the deposit or
payment by a Portfolio of initial or maintenance margin in connection with
futures contracts and related options is not considered the issuance of senior
securities; and
8. A Portfolio may, notwithstanding any other investment policy
or restriction, invest all of its assets in the securities of a single
investment company or series or class thereof with substantially the same
fundamental investment objectives, policies and restrictions as the Fund.
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NON-FUNDAMENTAL INVESTMENT POLICIES. In addition to the fundamental investment
policies described above, the Portfolios have adopted certain non-fundamental
policies which may be changed at any time by the Board of Trustees without a
vote of shareholders. These non-fundamental limitations are identical for each
of the Portfolios and provide that a Portfolio may not:
1. Borrow money in excess of 5% of its total assets (taken at market
value).
2. Pledge, mortgage or hypothecate in excess of 5% of its total
assets. The deposit or payment by the Portfolio of initial or maintenance
margin in connection with futures contracts and related options is not
considered a pledge or hypothecation of assets.
3. Purchase more than 10% of the voting securities of any one issuer,
except Government securities.
4. Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than 7 days, that cannot be
disposed of within the normal course of business at approximately the amount at
which the Portfolio has valued the securities.
5. Purchase securities of any issuer with a record of less than 3
years of continuous operation, including by predecessors, except U.S.
Government securities and obligations issued or guaranteed by any foreign
government or its agencies or instrumentalities, if such purchase would cause
the investments of the Portfolio in all such issuers to exceed 5% of the total
assets of the Portfolio taken at market value.
6. Purchase securities on margin, except the Portfolio may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities. The deposit or payment by the Portfolio of initial or
maintenance margin in connection with futures contracts or related options is
not considered the purchase of a security on margin.
7. Write put and call options unless the options are covered and the
Portfolio invests through premium payments no more than 5% of its total assets
in options transactions other than options on futures contracts.
8. Purchase and sell futures contracts and options on futures
contracts unless the sum of margin deposits on all futures contracts held by
the Portfolio (other than bona fide hedging positions) and premiums paid on
related options held by the Portfolio does not exceed more than 5% of the
Portfolio's assets. (In the case of an option that is in-the-money at the
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time of purchase, the in-the-money amount may be excluded in computing the 5%.)
9. Invest in securities of any issuer if any officer or trustee of
the Fund or any officer or director of the Fund's investment adviser owns more
than 1/2 of 1% of the outstanding securities of the issuer and such officers,
directors and trustees own in the aggregate more than 5% of the securities of
such issuer.
10. Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers which own or invest in
such interests).
11. Purchase securities of any investment company except by purchase
in the open market where no commission or profit to a sponsor or dealer results
from such purchase or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event, the Portfolio may not purchase more than
3% of the outstanding voting securities of another investment company, may not
invest more than 5% of its total assets in another single investment company
and may not invest more than 10% of its total assets in other investment
companies in the aggregate.
12. Purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of the
Portfolio's net assets or if warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable listing requirements
taken at the lower of cost or market value would represent more than 2% of the
value of the Portfolio's net assets. (For this purpose, warrants attached to
securities will be deemed to have no value.)
13. Make short sales, unless, by virtue of its ownership of other
securities, the Portfolio has the right to obtain securities equivalent in kind
and amount to the securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with arbitrage
transactions.
14. Purchase securities which are not publicly traded and which a
Portfolio is restricted from selling to the public without registration under
the Securities Act of 1933 if by reason thereof the value of its aggregate
investment in such classes will exceed 10% of its total assets (not including
for these purposes securities sold pursuant to Rule 144A under the Securities
Act of 1933).
15. Invest in interests of real estate limited partnerships.
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In applying the various investment policies and restrictions discussed
in this Statement of Additional Information and in the Prospectus, each state
and each political subdivision, agency or instrumentality of such state, and
each multi-state agency of which a state is a member is considered a separate
"issuer". Non-government users of facilities financed by industrial
development or pollution control bonds are also considered separate issuers
from the sponsoring governmental entity.
I. TRUSTEES AND OFFICERS
The Trustees and executive officers of the Fund are listed below. As described
below, certain of the executive officers of the Fund are affiliates of
organizations that provide services to the Fund, namely Boston Security
Counsellors, Inc. ("BSC"), the Fund's investment adviser, Advest, Inc.
("Advest"), the Fund's distributor, and Advest Transfer Services, Inc. ("ATS"),
the Fund's transfer agent, or are affiliates of The Advest Group, Inc. ("AGI"),
which corporation owns all of the outstanding shares of BSC, Advest and ATS.
Each Trustee also serves as a trustee of Scottish Widows International Fund, a
mutual fund for which BSC serves as investment adviser, Advest serves as
distributor and ATS serves as the transfer agent.
<TABLE>
<CAPTION>
Position
Held With Principal Occupation
Name and Address the Fund During Past Five Years
- ---------------- -------- ----------------------
<S> <C> <C>
Robert L. Thomas* President President of BSC since
Boston Security and December 1988; Executive
Counsellors, Inc. Trustee Vice President of Advest;
100 Federal Street Director of AGI and Advest.
Boston, MA 02110
Geoffrey Nunes Trustee Senior Vice President and
94 Brattle Street General Counsel of Millipore
Cambridge, MA 02138 Corporation, Bedford,
Massachusetts since 1975;
Director of Reebok International,
Ltd.
Richard C. Farr Trustee Chairman and Chief Executive
40 Colony Road Officer of Farr Investment Co.
West Hartford, CT since 1980; Chairman of the Board
of Directors of Bituminous Coal
Corp., Inc.; Director of Darling
and Co., Inc., Seal, Inc., Bouton
Corp., Lincoln Logs, Ltd., Hunter
</TABLE>
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<TABLE>
<S> <C> <C>
Environ. Services, Inc., Northwest Direct Marketing Inc. and
The United Way (San Francisco).
Linda G. Sprague Trustee Professor of Operations
University of New Hampshire Management at the Whittemore
Durham, NH 03824 School of Business and Economics,
University of New Hampshire;
Director of Executive Programs
for the Whittemore School of
Business from 1981-86; Professor
of Operations Management at IMDE
(International Management
Development Institute in
Lausanne, Switzerland), 1985;
Director of the Corporate
Broadcasting Network; Management
Advisor to Societe Internationale
de Chirurgie Orthopedique et de
Traumotologie.
Allen Weintraub* Trustee Chief Executive Officer and
280 Trumbull Street Director of AGI and Advest.
Hartford, CT 06103
Martin M. Lilienthal Vice- Senior Vice President,
280 Trumbull Street President Treasurer and Chief Financial
Hartford, CT 06103 and Officer of AGI and Advest;
Treasurer Treasurer of The Advantage Family
of Funds; Director of Advest and
ATS.
David A. Horowitz Secretary Assistant Secretary and
280 Trumbull Street Assistant General Counsel of
Hartford, CT 06103 AGI and Advest since October,
1987; Attorney in Private
Practice prior to October 1987.
Margaret D. Patel Vice Senior Vice President of Boston
Boston Security President Security Counsellors, Inc. (since
Counsellors, Inc. 1988), President and Portfolio
100 Federal Street Manager at Fixed Income Asset
Boston, MA 02110 Management, Inc. (1986-1988);
Portfolio manager at American
Capital and Dreyfus Corporation
(prior to 1988).
</TABLE>
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<PAGE> 350
<TABLE>
<S> <C> <C>
Donna McAdam Vice Vice President and Chief
Boston Security President Operating Officer of BSC since
Counsellors, Inc. and April 1987; Consultant with
100 Federal Street Assistant AGI, 1986-1987.
Boston, MA 02110 Secretary
</TABLE>
______________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act of 1940.
During the period ended December 31, 1993, Messrs. Farr and Nunes and Dr.
Sprague each received a fee of $500 for serving as a trustee to the Fund, in
addition to reimbursement of their expenses.
Although nominee holders of shares of the Portfolios may at times be the record
holders of 5% or more of the outstanding shares of one or more of the
Portfolios, to the knowledge of the Fund no person owns beneficially 5% or more
of the shares of any Portfolio as of the date hereof. As of the date hereof,
the Trustees and officers of the Fund as a group owned less than 1% of the
outstanding shares of each of the Portfolios.
II. INVESTMENT ADVISER
Boston Security Counsellors, Inc. ("BSC") serves as investment adviser to the
Fund and its Portfolios pursuant to a written investment advisory agreement.
BSC is a Massachusetts corporation organized in 1982, and is a registered
investment adviser under the Investment Advisers Act of 1940. Robert L.
Thomas, Trustee and President of the Fund, is President, Chief Executive
Officer and a Director of BSC. Martin M. Lilienthal, Vice President and
Treasurer of the Fund, is Treasurer and Director of BSC. Margaret D. Patel,
Vice President of the Fund, is Senior Vice President of BSC. Donna McAdam,
Vice President and Assistant Secretary of the Fund, is Vice President and Chief
Operating Officer of BSC. As of December 31, 1993, BSC managed approximately
$588 million in mutual fund assets for approximately 44,000 shareholders.
Certain services provided by BSC under the investment advisory agreement are
described in the Prospectus. In addition to those services, BSC provides the
Fund and its Portfolios with office space for managing their affairs, with the
services of required executive personnel, and with certain clerical services
and facilities. These services are provided without reimbursement by the Fund
for any costs incurred. As compensation for its services, each Portfolio pays
BSC a fee based upon the Portfolio's average daily net asset value. This fee
is computed
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daily and paid monthly. The rate at which the fee is paid is described in the
Prospectus. BSC waived all advisory fees due from the Portfolios during the
period ended December 31, 1993 and voluntarily reimbursed some of the
Portfolios' expenses. The amount of advisory fees that would have been
received by BSC absent this waiver and the amount of the Portfolios' expenses
voluntarily reimbursed by BSC during the period ended December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
Advisory Fees Expenses Reimbursed
(before waiver) by BSC
--------------- -------------------
<S> <C> <C>
National Portfolio $42,690 $55,135
New York Portfolio 19,210 45,637
Pennsylvania Portfolio 17,980 44,485
</TABLE>
Each Portfolio pays the expenses for its own legal and auditing services, taxes
and governmental registrations, reports and fees, certain insurance premiums,
the cost of share certificates, fees and disbursements of its custodian bank
and transfer agent, brokerage, interest, and all other costs and expenses
properly payable by such Portfolio and not borne by BSC. The Fund also pays
all costs of shareholder notices and reports and prospectuses and statements of
additional information used in complying with laws regulating the issue and
sale of securities (including the cost of typesetting and printing prospectuses
for current shareholders). However, the investment advisory agreement with BSC
provides that if the total expenses of a Portfolio in any fiscal year exceed
the permissible limits applicable to the Portfolio in any state in which shares
of the Portfolio are then qualified for sale, the compensation due BSC for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof at the time such compensation is payable after the end of each
calendar month during such fiscal year of the Portfolio, subject to
readjustment during the Portfolio's fiscal year. Currently, the only state
expense limitation provision applicable to the National Portfolio limits such
Portfolio's expenses to 2 1/2% of the first $30 million of average net assets,
2% of the next $70 million of average net assets and 1 1/2% of any remaining
average net assets. Currently, no state expense limitation applies to the New
York or Pennsylvania Portfolio. Each Portfolio also pays taxes, brokerage
costs, interest expenses, extraordinary expenses and expenses incurred pursuant
to the Fund's distribution plan.
III. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Advest Transfer Services, Inc. ("ATS"), a subsidiary of AGI and an affiliate of
Advest, Inc. and BSC, serves as the Fund's transfer and dividend disbursing
agent and performs shareholder
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service activities. The address of ATS is 280 Trumbull Street, Hartford,
Connecticut 06103.
The services of ATS are provided pursuant to a Transfer Agency and Service
Agreement with the Fund. Pursuant to such Agreement, ATS will receive from the
Fund an annual fee of $8.00 for each shareholder account in the Fund. ATS also
receives reimbursement under the Agreement for certain out-of-pocket expenses
incurred in rendering such services. These fees have been approved by the
Trustees of the Fund. For the period ended December 31, 1993, ATS received the
following amount of transfer agency fees and reimbursement for out-of-pocket
expenses from each of the Portfolios:
<TABLE>
<CAPTION>
Transfer Out-of-Pocket
Agency Fees Expenses Reimbursed
----------- -------------------
<S> <C> <C>
National Portfolio $4,372 $420
New York Portfolio 2,806 294
Pennsylvania Portfolio 3,386 294
</TABLE>
IV. DISTRIBUTION AGREEMENT AND RULE 12B-1 PLANS
As described in the Prospectus, the Fund has entered into a distribution
agreement with Advest under which Advest has agreed to act as exclusive
distribution agent for shares of the Portfolios. Under the distribution
agreement, Advest will receive the contingent deferred sales load imposed with
respect to certain redemptions of shares of the Portfolios. Advest is also
entitled to such commissions and maintenance and other fees as may be
authorized and provided under the Fund's Distribution and Service Plans.
Each Portfolio has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940. A description of the Plans is
set forth in the Prospectus. During the fiscal year ended December 31, 1993,
the Portfolios paid the following amounts to Advest pursuant to the
Distribution and Service Plans.
<TABLE>
<CAPTION>
Distribution Service
Fees Fees Total
------------ ------- -------
<S> <C> <C> <C>
The National Portfolio $37,946 $ 9,486 $47,432
The New York Portfolio 17,074 4,269 21,343
The Pennsylvania Portfolio 15,982 3,996 19,978
------- ------- -------
TOTALS: $71,002 $17,751 $88,753
======= ======= =======
</TABLE>
During the fiscal year ended December 31, 1993 Advest collected $1,767, $802
and $152 respectively in contingent deferred sales
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loads on redemptions of shares from the National, New York and Pennsylvania
Portfolios.
During the fiscal year ended December 31, 1993, the amounts collected pursuant
to the Distribution and Service Plans were used by Advest as follows:
<TABLE>
<CAPTION>
National New York Pennsylvania
Portfolio Portfolio Portfolio Total
--------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Sales Commissions $346,084 $157,145 $147,058 $ 650,287
Trail Commissions 0 0 0 0
Marketing Expenses 99,466 44,430 41,665 185,561
Retail Branch Costs 148,578 67,598 63,194 279,370
Allocated Overhead Costs 31,737 14,965 13,740 60,442
-------- -------- -------- ----------
TOTALS: $625,865 $284,138 $265,657 $1,175,660
</TABLE>
V. SPECIAL REDEMPTIONS
A Portfolio will pay in cash all redemptions during any 90-day period, in
amounts up to the lesser of $250,000 or 1% of the Portfolio's net assets at the
beginning of the period. Redemptions in excess of this limit may be paid, in
whole or in part, in securities or in cash, as the Trustees deem advisable;
however, payment will be made wholly in cash unless the Trustees believe that
economic or market conditions exist which would make the practice detrimental
to the best interests of the Fund and its Portfolios. If redemptions are paid
in securities, the securities will be valued as set forth under "Net Asset
Value" herein and a redeeming shareholder would normally incur brokerage
expenses if he or she converted the securities into cash.
VI. PORTFOLIO TRANSACTIONS
BSC, the investment adviser to the Fund and its Portfolios, is responsible for
decisions to buy and sell securities for the Portfolios and for the placement
of their portfolio business and negotiation of commissions, if any, paid on
these transactions. Fixed income securities in which the Portfolios invest are
traded in the over-the-counter market. These securities are generally traded
on a net basis with dealers acting as principal for their own accounts without
a stated commission, although prices of the securities usually include a profit
to the dealers. In over-the-counter transactions, orders are placed directly
with a principal market maker unless BSC believes that a better price and
execution can be obtained through other methods. Brokerage commissions are
paid on listed securities, options, futures contracts and options thereon. BSC
is responsible for effecting portfolio transactions and will do so in a manner
deemed fair and reasonable to the Portfolio for which the transaction is
effected and not according to any formula. The primary consideration in all
portfolio transactions will be prompt execution of orders in an
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efficient manner at the most favorable price. In selecting broker-dealers and
negotiating commissions, BSC considers the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to brokers who provide research or statistical materials or other services to
the Fund or BSC. BSC is of the opinion that, because material must be analyzed
and reviewed by its staff, its receipt and use does not tend to reduce expenses
but may benefit the Fund and its Portfolios by supplementing BSC's research.
The Fund may, from time to time, place brokerage transactions with Advest,
which is an affiliate of BSC. The negotiated commission paid to Advest on any
such transactions will be comparable to that payable to a non-affiliated broker
in a similar transaction and it will be fair and reasonable as determined
pursuant to procedures adopted by the Trustees to comply with Rule 17e-1 under
the Investment Company Act of 1940. The Fund may not effect portfolio
transactions conducted on a principal basis with Advest.
BSC effects portfolio transactions for other investment companies and accounts.
Research services furnished by firms through which the Portfolios effect their
securities transactions may be used by BSC in servicing all of its accounts;
not all of these services may be used by BSC in connection with the Fund and
its Portfolios. In recognition of the value of such research services, BSC may
pay a brokerage commission to a broker that provides such service in excess of
that which another broker might have charged for effecting the same
transaction. In the opinion of BSC, it is generally not possible to measure
the benefits from research services to each of the accounts (including the
Portfolios).
BSC will attempt to allocate portfolio transactions equitably among the
Portfolios and other accounts whenever concurrent decisions are made to
purchase or sell securities by the Portfolios and other accounts. In making
such allocations, the main factors to be considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the persons
responsible for recommending investments to the Funds and the others. In the
opinion of BSC, however, the results of such procedures will, on the whole, be
in the best interests of each of the clients.
During the fiscal year ended December 31, 1993, the Fund paid no brokerage
commissions.
VII. NET ASSET VALUE
The Portfolios calculate their net asset value on each business day except
those holidays on which the New York Stock Exchange is closed
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(currently New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas). The net asset
value per share of each Portfolio is determined as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m., New York time) and
is computed by dividing the value of all securities and other assets of the
Portfolio less all liabilities by the number of shares of that Portfolio
outstanding, and adjusting to the nearest cent per share.
All of the Fund's securities, except money market instruments and short-term
municipal obligations with remaining maturities of 60 days or less, are valued
at market value by BSC or by pricing services approved by the Trustees, which
use information with respect to bond and note transactions, quotations from
bond dealers, market transactions in comparable securities and various
relationships between securities. Money market instruments and short-term
municipal obligations with remaining maturities of 60 days or less are valued
by the amortized cost method. Open futures contracts are valued at the most
recent settlement price, unless such price does not reflect the fair value of
the contract in which case such positions will be valued by, or under the
direction of the Trustees. Options on futures contracts listed or admitted to
trading on a national exchange are valued at their last sale price on such
exchange or, if no sale is made on that day, at the mean between the bid and
the asked price. Other securities and assets for which market quotations are
not readily available are valued in good faith at fair value as determined by
or under the direction of the Trustees. Such fair value may be determined by
various methods, including using information furnished by pricing services
which determine calculations for such securities using methods based, among
other things, upon market transactions for comparable securities and various
relationships between securities which are generally recognized as relevant.
VIII. TAXATION
The Portfolios intend to qualify each year as regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify, a Portfolio must, among other things, (i)
derive at least 90% of its gross income from dividends, interest, payments with
respect to certain securities loans, gains from the sale of securities or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in stock, securities or currencies; (ii) derive less than 30% of its
gross income from gains from the sale or other disposition of securities held
for less than three months; (iii) distribute at least 90% of its dividend,
interest and certain other taxable income each year; and (iv) at the end of
each fiscal quarter maintain at least 50% of the value of its total assets in
cash, government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to
each
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<PAGE> 356
issuer, no more than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and with no more than 25% of its
assets invested in the securities (other than those of the government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Portfolio controls and which are engaged in the same, similar or
related trades and businesses. As a regulated investment company, a Portfolio
will not be subject to federal income tax on income paid to its shareholders in
the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Portfolio's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Portfolio's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from prior years. The Portfolios each intend to make distributions
sufficient to avoid imposition of the excise tax. For a distribution to
qualify as such with respect to a calendar year under the foregoing rules, it
must be declared by a Portfolio during October, November or December and paid
by the Portfolio before the following February 1. Such distributions will be
taxable in the year they are declared, rather than the year in which they are
received.
Under current federal tax law, a Portfolio will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize interest attributable to it from holding zero coupon
Treasury securities. Current federal tax law requires that a holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Portfolio receives no interest
payment in cash on the security during the year. To qualify as a regulated
investment company, each Portfolio must pay out substantially all of its net
investment income each year. Accordingly, a Portfolio may be required to pay
out as an income distribution each year an amount which is greater than the
total amount of interest the Portfolio received in the form of cash. Such
distributions will be made from the cash assets of the Portfolio or by
liquidation of portfolio securities, if necessary. If a distribution requires
the liquidation of portfolio securities, BSC will select which securities to
sell. A Portfolio may realize a gain or loss from such sales. In the event a
Portfolio realizes net capital gains from such transactions, shareholders may
receive a larger capital gain distribution than they would in the absence of
such transactions.
The 30% limit on gains from the sale of securities held for less than three
months and the diversification requirements applicable to a Portfolio's assets
may limit the extent to which the Portfolio will be able to engage in
transactions in options, futures contracts, or options on futures contracts.
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<PAGE> 357
Shareholders of a Portfolio will be subject to federal income taxes on certain
distributions made by a Portfolio whether received in cash or additional shares
of a Portfolio. However, interest earned on Municipal Obligations is not
includable by shareholders in their respective gross incomes for regular
federal income tax purposes. However, interest earned by Portfolios on certain
Municipal Obligations will be treated as a tax preference item under the
federal alternative minimum tax. The receipt of exempt-interest dividends may
affect the taxability of social security and railroad retirement benefits.
Distributions of net investment income derived from certain investments (such
as certificates of deposit, commercial paper and U.S. Government Securities)
and short-term capital gains, if any, will be taxable to the shareholders as
ordinary income. Distributions of long-term capital gains, if any, will be
taxable to the shareholders as long-term capital gains, without regard to how
long a shareholder has held shares of the Portfolio. A loss on the sale of
shares held by the Portfolio for 6 months or less will be treated as a
long-term capital loss to the extent of any long-term capital gain dividend
paid to the shareholder with respect to such shares. Corporate shareholders
should not anticipate that dividends and distributions by the Portfolios will
qualify for the dividends received deduction, since dividends paid by the
Portfolios are not expected to be derived from dividend income.
Redemptions and exchanges of Portfolio shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
If shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss unless the shareholder is a dealer in
securities. Furthermore, no loss will be allowed on the sale of Portfolio
shares to the extent the shareholder acquired other Portfolio shares of the
same Portfolio within 30 days prior to or 30 days after the sale of the loss
shares.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and local taxes.
Dividends paid by the Portfolios from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Each Portfolio will advise shareholders of the proportion of its dividends
consisting of such governmental interest. Shareholders should consult their
tax advisers regarding the possible exclusion of this portion of their
dividends for state and local tax purposes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
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The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Portfolios, including the
possibility that distributions may be subject to a 30% United States
withholding tax (or a reduced rate of withholding provided by treaty).
IX. PERFORMANCE INFORMATION
A. TOTAL RETURN
From time to time, quotations of a Portfolio's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following
manner:
"Total return" is computed by finding the average annual compounded rates of
return over the designated periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P(1+T) = ERV
(n)
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period assuming a
hypothetical $1,000 payment made at the beginning of the designated
period
The calculation set forth above is based on the further assumptions that: (i)
all dividends and distributions of a Portfolio during the period were
reinvested at the net asset value on the reinvestment dates; (ii) all recurring
expenses that were charged to all shareholder accounts during the applicable
period were deducted; (iii) the Fund's maximum contingent deferred sales charge
of 4.0% was deducted. A Portfolio may also quote total return without
reflecting the deduction of the maximum sales charge, as described below under
the heading "Non-Standardized Total Return."
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share
(NAV) over the period. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
Portfolio over a stated
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period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had
been constant over the period. For example, a cumulative return of 100% over
ten years would produce an average annual return of 7.18%, which is the steady
annual return rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that a Portfolio's
performance is not constant over time, but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Portfolio.
The total return for each Portfolio, so calculated, for the period ended
December 31, 1993 was 0.83% for the National Portfolio, 0.43% for the New York
Portfolio and 1.00% for the Pennsylvania Portfolio.
B. YIELD
Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming a semiannual compounding of income.
Yield is computed by dividing the net investment income per share earned during
the period by the maximum offering price per share on the last day of the
period, according to the following formula:
(6)
Yield = 2[(a-b +1) -1]
---
cd
Where:
a = dividends and interest earned during the period, including the
amortization of market premium or accretion of market discount
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, each Portfolio computes the yield to maturity of each obligation
held by the Portfolio based on the market value of the obligation (including
actual accrued interest) at the close of the last business day of the month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360
and the quotient is multiplied by the market value of the obligation (including
actual accrued interest) to determine the interest income on the obligation for
each day of the subsequent month that the obligation is in the portfolio.
Solely for the purpose of computing yield, the Portfolios recognize dividend
income by accruing 1/360 of the stated dividend rate of a security each day
that a security is in the portfolio.
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Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter.
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Portfolio's distribution plans.
The yield for each Portfolio, so calculated, for the one month period ended
December 31, 1993 was 5.19% for the National Portfolio, 5.04% for the New York
Portfolio and 4.78% for the Pennsylvania Portfolio.
C. TAX-EQUIVALENT YIELD
Tax-equivalent yield is the net annualized taxable yield needed to produce a
specified tax-exempt yield at a given tax rate based on a specified 30-day (or
one month period assuming semiannual compounding of income. Tax-equivalent
yield is calculated by dividing that portion of a Portfolio's yield (as
computed in the yield description in B above) which is tax-exempt by one minus
a stated income tax rate and adding the product to that portion, if any, of the
yield of the Portfolio that is not tax-exempt.
The tax-equivalent yield of each Portfolio, so calculated, for the one month
period ended December 31, 1993 was 7.52% for the National Portfolio, 7.30% for
the New York Portfolio and 6.92% for the Pennsylvania Portfolio based on an
assumed tax rate of 31.0%.
D. NON-STANDARDIZED TOTAL RETURN
In addition to the performance information described above, the Portfolios may
provide total return information for designated periods, such as for the most
recent rolling six months or most recent rolling twelve months. A Portfolio
may quote unaveraged or cumulative total returns reflecting the simple change
in value of an investment over a stated period. Average annual and cumulative
total returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted with or without
taking into account a Portfolio's maximum contingent deferred sales charge of
4.0% of the purchase price. Excluding a Portfolio's sales charge from a total
return
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<PAGE> 361
calculation produces a higher total return figure. Total returns and other
performance information may be quoted numerically or in a table, graph or
similar illustration.
E. OTHER INFORMATION CONCERNING FUND PERFORMANCE
A Portfolio may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied
by the Portfolios in advertising is historical and is not intended to indicate
future returns. Each Portfolio's share prices and total returns fluctuate in
response to market conditions and other factors, and the value of a Portfolio's
shares when redeemed may be more or less than their original cost.
A Portfolio may quote a distribution rate calculated by annualizing the latest
dividend paid and dividing by the net asset value per share as of the
applicable date. A distribution rate reflects only dividends paid out of net
investment income. Except as indicated, it does not reflect realized long- or
short-term capital gains or losses, or unrealized gains or losses.
The Portfolios may compare their performance over various periods to various
indices, including the performance record of the Standard & Poor's 500
Composite Stock Price Index (S&P), the Dow Jones Industrial Average (DJIA), the
NASDAQ Industrial Index and the cost of living (measured by the Consumer Price
Index, or CPI) over the same period. Comparisons may also be made to yields on
certificates of deposit, treasury instruments or money market instruments. The
comparisons to the S&P and DJIA show how such Portfolio's total return compared
to the record of a broad average of common stock prices (S&P) and a narrower
set of stocks of major industrial companies (DJIA). A Portfolio may have the
ability to invest in securities not included in either index, and its
investment portfolio may or may not be similar in composition to the indices.
Figures for the S&P and DJIA are based on the prices of unmanaged groups of
stocks, and unlike the Portfolio's returns, their returns do not include the
effect of paying brokerage commissions and other costs of investing.
The Portfolios may also compare their performance to the Bond Buyer Revenue
Bond Index. The Bond Buyer Revenue Bond Index is an unmanaged list of
tax-exempt, 30-year revenue bonds frequently used as a general measure of the
performance of tax-exempt securities. The average quality of bonds included in
the index may differ from the average quality of those bonds in which the Fund
customarily invests. The index does not include bonds in certain of the lower
rating classifications in which the Fund may invest. The index represents the
average of estimates of what 25 current coupon bonds would yield if each bond
were sold at par value. Total return performance figures for the index reflect
mathematically derived changes of market prices and reinvestment of interest
payments, as computed by BSC. Because
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the Fund is a managed portfolio investing primarily in tax exempt securities,
the securities it owns will not match those in the index.
Comparisons may be made on the basis of a hypothetical initial investment in a
Portfolio (such as $10,000), and reflect the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (that is, their
cash value at the time they were reinvested). Such comparisons may also
reflect the change in value of such an investment assuming distributions are
not reinvested. Tax consequences of different investments may not be factored
into the figures presented.
A Portfolio's performance may be compared in advertising to the performance of
other mutual funds in general or to the performance of particular types of
mutual funds, especially those with similar objectives.
Other groupings of funds prepared by Lipper and other organizations may also be
used for comparison to one or more of the Portfolios. Although Lipper
Analytical Services, Inc. ("Lipper") and other organizations such as Investment
Company Data, Inc. ("ICD"), CDA Investment Technologies, Inc. ("CDA") and
Morningstar Investors, Inc. include funds within various classifications based
upon similarities in their investment objectives and policies, investors should
be aware that these may differ significantly among funds within a grouping.
Ibbotson Associates of Chicago (Ibbotson), IL and others provide historical
returns of the capital markets in the United States. A Portfolio may compare
its performance to the long-term performance of the U.S. capital markets in
order to demonstrate general long-term risk versus reward investment scenarios.
Performance comparisons could also include the value of a hypothetical
investment in common stocks, long-term bonds or treasuries. A Portfolio may
discuss the performance of financial markets and indices over various time
periods.
The capital markets tracked by Ibbotson are common stocks, small capitalization
stocks, long-term corporate bonds, intermediate-term government bonds,
long-term government bonds, Treasury Bills, and the U.S. rate of inflation.
These capital markets are based on the returns of several different indices.
For common stocks the S&P is used. Unlike an investment in a common stock
mutual fund, an investment in bonds that are held to maturity provides a fixed
and stated rate of return. Bonds have a senior priority in liquidation or
bankruptcy to common stocks and interest on bonds is generally paid from assets
of the corporation before any distributions to common shareholders. Bonds
rated in the two highest rating categories are considered high quality and
present minimal risks of default. See Appendix A to the Prospectus for a more
complete explanation of ratings of Municipal Bonds. An additional advantage of
investing in government bonds is that they are securities backed by the credit
and taxing power of the United States government and, therefore, present
-33-
<PAGE> 363
virtually no risk of default. Although government securities fluctuate in
price, they are highly liquid and may be purchased and sold with relatively
small transaction costs (direct purchase of Treasury securities can be made
with no transaction costs). Long-term corporate bond returns are based on the
performance of the Salomon Brothers Long-Term-High-Grade Corporate Bond Index
which includes nearly all Aaa- and Aa- rated bonds. Returns on
intermediate-term government bonds are based on a one-bond portfolio
constructed each year, containing a bond which is the shortest non-callable
bond available with a maturity not less than 5 years. This bond is held for
the calendar year and returns are recorded. Returns on long-term government
bonds are based on a one-bond portfolio constructed each year, containing a
bond that meets several criteria, including having a term of approximately 20
years. The bond is held for the calendar year and returns are recorded.
Returns on U.S. Treasury Bills are based on a one-bill portfolio constructed
each month, containing the shortest-term bill having not less than one month to
maturity. The total return on the bill is the month-end price divided by the
previous month-end price, minus one. Data up to 1976 is from the U.S.
Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same
manner as the Portfolios.
Other widely used indices that a Fund may use for comparison purposes include
the Shearson Lehman Bond Index, The Shearson Lehman GNMA Single Family Index
and the Shearson Lehman Government/Corporate Bond Index.
A Portfolio may also discuss in advertising the relative performance of various
types of investment instruments, such as stocks, treasury securities and bonds,
over various time periods and covering various holding periods. Such
comparisons may compare these investment categories to each other or to changes
in the CPI.
The Fund seeks a high level of current income exempt from federal income taxes
and to conserve principal by investing primarily in diversified investments in
high and upper medium grade quality municipal bonds.
There are many benefits to investing in municipal bonds. These include:
- - With the elimination of many tax exemptions and shelters in the last few
years, tax-exempt municipal securities provide one of the few remaining ways to
earn tax-advantaged income.
- - By investing in municipal securities, the assets of the Advantage Municipal
Bond Fund will help support many projects designed to improve America's
infrastructure; projects ranging from pollution control to highway
improvements.
-34-
<PAGE> 364
- - Investing in municipal securities may allow many investors to earn more on an
after-tax basis than they would have realized by investing in taxable
securities. Also, the benefits of tax-free investing continues to grow with
your tax bracket (see chart below).
-35-
<PAGE> 365
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES
The table below shows the effect of the tax status of tax exempt securities on
the effective yield received by their individual holders under the federal
income tax laws in effect for 1994. It gives the approximate yield a taxable
security must earn at various income levels to produce after-tax yields
equivalent to those of tax-exempt securities yielding from 3.0% to 8.0%.
<TABLE>
<CAPTION>
Taxable Income* Marginal federal Tax-exempt yield
income tax 3% 4% 5% 6% 7% 8%
Joint Single bracket**
Equivalent taxable yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 38,000 $ 0 - 22,750 15.0% 3.5% 4.7% 5.9% 7.1% 8.2% 9.4%
38,001 91,850 22,751 55,100 28.0 4.2 5.6 6.9 8.3 9.7 11.1
91,851 140,000 *** 55,101 115,000 *** 31.0 4.3 5.8 7.2 8.7 10.1 11.6
140,000 250,000 *** 115,001 250,000 *** 36.0 4.7 6.3 7.8 9.4 10.9 12.5
over 250,000 *** over 250,000 *** 39.6 5.0 6.6 8.3 9.9 11.6 13.2
</TABLE>
* This amount represents taxable income as defined in the Internal
Revenue Code of 1986, as amended (the "Code").
** These rates are the current marginal federal income tax rates on
taxable income for 1994 under the Code.
*** The amount of taxable income in this bracket may be affected by the
phase-out of personal exemptions and the limitation on itemized
deductions under the Code.
The above chart is for illustrative purposes only; there can be no guarantee
that the Portfolios will achieve any particular tax exempt yield. Yield
fluctuates. A portion of the Portfolio's income may be treated as a preference
item for some investors for the purposes of the Federal alternative minimum
tax. The chart does not take into account the effect of any state taxes or
social security taxes. Capital gains, if any, generally are subject to
Federal, state and local taxes.
-36-
<PAGE> 366
THE ADVANTAGE OF TAX EXEMPT COMPOUNDING
<TABLE>
<CAPTION>
Period Taxed Untaxed
- ------ ----- -------
<S> <C> <C>
Five Years $127,555 $141,763
Ten Years $162,704 $200,966
Fifteen Years $207,537 $284,895
Twenty Years $264,725 $403,874
</TABLE>
This example assumes a $100,000 initial investment is made at the beginning of
the year; taxes are paid at the end of the year; the investor is in the 31%
federal income tax bracket for 1993; there is a 7% return from each investment;
dividends and interest compound monthly; there is no fluctuation in the value
of the principal. Yields are for illustrative purposes only and are not
necessarily reflective of yields of any particular Fund. Of course, each
Portfolio's dividends and share price will fluctuate with market conditions.
A Portfolio may also discuss in advertising the highest, lowest and median or
average returns of various types of investments over various holding periods.
These comparisons tend to show that while certain types of investments may
exhibit a wide range of returns over short periods of time and subject the
short-term investor to the risk of substantial loss, the range of returns over
longer holding periods narrows and returns tend to be more stable and positive.
A Portfolio may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, the
investor invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares had been purchased at those intervals. In evaluating
such a plan, investors should consider their ability to continue purchasing
shares through periods of low price levels.
The Portfolios may be available for purchase through retirement plans or other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $1,000 investment earning
a taxable return of 10% annually would have an after-tax value of $2,004 after
ten years, assuming tax was deducted from the return each year at a 28% rate.
An equivalent tax-deferred investment would have an after-tax value of $2,147
after ten years, assuming tax was deducted at a 28% rate from the deferred
earnings at the end of the ten year period.
Advertisements and sales literature concerning the Portfolios may refer to
various measures of the tax burden on American workers. Two such measurers are
the "tax freedom day" and the "tax bite in the 8-hour day." "Tax freedom day"
is the theoretical day in a year on which a typical taxpayer would have paid
off all of his or her federal taxes (or combined federal, state and local
taxes, depending on the example given) for that year, assuming that the
taxpayer earns income equally throughout the year and applies all of his or her
income to the payment of taxes until all taxes that will be owed on that year's
income have been paid. Calculations of "tax freedom day" necessarily assume an
overall effective tax rate to apply to all Americans even though individual tax
rates will differ.
-37-
<PAGE> 367
The "tax bite" is an alternative way to express the tax burden calculated with
similar assumptions. It is defined as the portion of each 8- hour workday
needed for a worker to earn enough money to meet his or her federal (or
combined federal, state and local) tax obligations. The "tax bite" might be
used to compare taxes against other personal expenditures, such as housing,
food, clothing and transportation, to provide a measure of taxes as a "cost"
that must be paid in the same way as other living expenses.
Evaluations of Portfolio performance made by independent sources may also be
used in advertisements concerning the Fund and its Portfolios, including
reprints of, or selections from, editorials or articles about the Fund and its
Portfolios. Sources for Portfolio performance information and articles about
the Fund may include the following.
BANXQUOTE
BARRON'S
BUSINESS WEEK
CDA INVESTMENT TECHNOLOGIES, INC.
CHANGING TIMES. THE KIPLINGER MAGAZINE
CONSUMER DIGEST
FINANCIAL WORLD
FORBES
FORTUNE
IBC/DONOGHUES'S MONEY FUND REPORT
IBBOTSON ASSOCIATES, INC.
INVESTMENT COMPANY DATA, INC.
INVESTOR'S DAILY
LIPPER ANALYTICAL SERVICES,
INC.'S MUTUAL FUND PERFORMANCE ANALYSIS
MONEY
MUTUAL FUND VALUES
THE NEW YORK TIMES
PERSONAL INVESTING NEWS
PERSONAL INVESTOR
SUCCESS
USA TODAY
U.S. NEWS AND WORLD REPORT
WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
-38-
<PAGE> 368
WORKING WOMAN
X. DESCRIPTION OF THE FUND
The Fund is an open-end diversified series management investment company
established as an unincorporated business trust under the laws of The
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated February
25, 1993.
The Trustees of the Fund have authority to issue an unlimited number of shares
of beneficial interest in each Portfolio without par value. Each share in a
particular Portfolio represents an equal proportionate interest in that
Portfolio with each other share of that Portfolio and is entitled to such
dividends and distributions as are declared by the Fund's Trustees. Upon any
liquidation of a Portfolio, shareholders of that Portfolio are entitled to
share pro rata in the net assets of that Portfolio available for distribution.
Shareholders in one of the Portfolios have no interest in, or rights upon
liquidation of, any of the other Portfolios.
The Fund will normally not hold annual meetings of shareholders to elect
Trustees. If less than a majority of the Trustees of the Fund holding office
have been elected by shareholders, a special meeting of shareholders of the
Fund will be called to elect Trustees. Under the Declaration of Trust of the
Fund and the Investment Company Act of 1940, the record holders of not less
than two-thirds of the outstanding shares of the Fund may remove a Fund Trustee
by votes cast in person or by proxy at a meeting called for the purpose or by a
written declaration filed with the Fund's custodian bank. Except as described
above, the Trustees will continue to hold office and may appoint successor
Trustees.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust of the Fund disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Fund
or the Trustees. The Declaration of Trust of the Fund provides for
indemnification out of the Fund's property for all loss and expense of any
shareholder held personally liable for obligations of the Fund. Thus, the risk
of a shareholder of the Fund incurring a financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations. The likelihood of such circumstances
is remote.
XI. ADDITIONAL INFORMATION
Further information concerning the Fund and its Portfolios and their shares may
be found in the Registration Statement, of which the Prospectus and this
Statement of Additional Information constitute a part, on file with the
Securities and Exchange Commission.
XII. FINANCIAL STATEMENTS
Price Waterhouse are the Fund's independent accountants. The Report of
Independent Accountants and financial statements included in the Fund's Annual
Report for the period ended December 31, 1993 are incorporated into this
Statement of Additional Information by reference.
-39-
<PAGE> 369
THE ADVANTAGE MUNICIPAL BOND FUND
DECEMBER 31, 1994
MESSAGE FROM THE PRESIDENT OF THE ADVANTAGE MUNICIPAL BOND FUND
TO OUR SHAREHOLDERS:
The year just ended was the first full year for the Advantage
Municipal Bond Fund, with its National, New York and Pennsylvania Portfolios.
If we had been told at the beginning of the year that the Consumer Price Index
(CPI) would rise by only 2.7% for the year and the Producer Price Index by
considerably less; that the strengthening economy would dramatically lift tax
receipts for state and local governments; and that wage settlements would
remain modest, we would have concluded that 1994 would be a very good year for
municipal bonds. In fact, in last year's letter to you I wrote: "We don't
think the kind of economic recovery we are having will generate a meaningful
pickup in inflation for some time ... we believe there are structural reasons
for thinking the 1990s will be a decade of modest growth and equally modest
inflation." As it turned out, 1994 proved to be the worst market for bonds in
the last 70 years -- a rout created by the Federal Reserve's unparalleled six
interest rate increases during the year.
Investors who were relatively new to the bond market reflected their
uneasiness by reducing the level of purchases of all bond funds as 1994
progressed. In fact, during the final quarter of 1994, many municipal bond
funds experienced redemptions from investors who were discouraged by price
declines and interest rate uncertainty. These redemptions helped to obscure the
substantial drop in newly issued municipal bonds in 1994 as is discussed in
greater detail on the following pages.
We would like to remind our shareholders that none of our Portfolios
have had any investments in so-called exotic derivative issues, and we have not
invested in this sector since the Fund's inception in July 1993. We do not feel
these securities can advance our investment goal of producing a high level of
tax-free current income. Further, none of our Portfolios have held issues which
were directly negatively affected by the December 1994 bankruptcy of Orange
County, California.
To date, we have seen no reason to change our views of last year. In
fact in recent comments, Federal Reserve Chairman Greenspan has suggested that
our means of measuring inflation are suspect and that CPI figures may
overstate the actual rate. Our conclusion is that currently municipal bond
yields offer great value to investors. We have structured the Fund's
Portfolios to participate fully in the price recovery we anticipate in 1995.
Further, we are optimistic our assessment of the long-term outlook for
bonds will prove correct in 1995. While aftershocks from the derivatives
scandals or a further preemptive move by the Fed could influence the near
term, we believe total returns for 1995 will be positive as more and more
investors are attracted to the values offered by municipal bonds.
We appreciate your support. We would be delighted to hear from you if
you have questions or concerns that you would like to discuss with us.
Sincerely,
/s/ Robert L. Thomas
----------------
Robert L. Thomas, President
1
<PAGE> 370
THE ADVANTAGE MUNICIPAL BOND FUND
DECEMBER 31, 1994
MESSAGE FROM MARGARET D. PATEL, THE PORTFOLIO MANAGER OF THE ADVANTAGE
MUNICIPAL BOND FUND
Interest rates on municipal bonds moved substantially higher during
1994 as a result of the Federal Reserve causing interest rates to rise by
increasing the Federal Funds rate from 3% at the beginning of 1994 to 5.5% at
year end.
These increases in short-term rates spilled over into the markets for
longer-term securities including Treasury and corporate bonds, as well as the
municipal bond market. To illustrate, the yield for Treasury bonds due in 30
years rose from 6.24% on December 31, 1993 to 7.88% on December 30, 1994.
Municipal bonds followed this trend toward higher rates very closely: good
quality long-term revenue bonds, as measured by The Bond Buyer newspaper, rose
from 5.52% at year end 1993 to 6.97% at the end of December 1994.
Bond prices move in the opposite direction from interest rates.
Therefore, as yields rose, bond prices declined. The decline in bond prices
was reflected in the net asset values of the National, New York, and
Pennsylvania Portfolios of the Advantage Municipal Bond Fund. The total rate
of return of each Portfolio, which measures the change in share price plus
income received in 1994, is shown on the facing page.
There were no material changes in the composition of the individual
portfolios during this tumultuous year. We feel that our emphasis on tax-free
yields from good quality longer-term issues (primarily revenue bonds)
represent attractive relative value for our shareholders.
NATIONAL PORTFOLIO:
As the economy continues to advance in 1995, we expect all states to
participate in improving employment and economic growth. Those regions with a
strong base in manufacturing and export industries probably should continue to
grow faster than the national average.
In general, employment levels for almost all states are equal to or
greater than their pre-recession peaks. The New England and Mid-Atlantic
regions and California suffered greater setbacks during the recession than did
the rest of the country. They are now making a subdued, but steady comeback.
The State of California's economy apparently hit bottom in 1994, after
experiencing declining employment levels in 1992 and 1993 because of defense
cutbacks, anti-business regulation, high taxes and falling real estate prices.
We have had minimal holdings in California due to the long-term financial and
social challenges it faces.
NEW YORK PORTFOLIO:
New York State suffered more than the nation as a whole during the
economic downturn early in the 1990s. Its economic rebound since then has been
more muted. Total employment is still well below its pre-recession peak, and
population growth has been minimal since 1980.
Going forward, it is probable that the number of new issues in 1995
will not exceed 1994's depressed levels. The volume of newly issued bonds in
New York declined sharply by 39% in 1994 to $18.8 billion from $30.8 billion
in 1993. This smaller new issue calendar, combined with an improving economy,
and income higher than the US national average should provide a favorable
backdrop for New York municipal investors.
FIGURE 1
Ms. Patel joined Boston Security Counsellors as a Senior Vice
President in 1988. She has managed the Advantage Government Securities Fund
since then and the Advantage Municipal Bond Fund since July 1993. She also
managed the Advantage High Yield Bond Fund from June 1989 through November
1993. Before joining BSC, Ms. Patel was President of Fixed Income Asset
Management, Inc., a registered investment adviser.
Her experience also includes years with American Capital Asset
Management, Inc., and work as Assistant Treasurer/Investments for the United
Mine Workers of America Health and Retirement Funds. Earlier she managed fixed
income portfolios for Maryland State Retirement Systems, and was with Dreyfus
Management, Inc., the US government and The Brookings Institution.
She holds a BA from the University of Pittsburgh and pursued graduate
studies in Economics at George Washington University. She is a member of the
New York Society of Security Analysts.
2
<PAGE> 371
ADVANTAGE MUNICIPAL BOND FUND
Value of $10,000 investment from inception
(7/1/93 to 12/31/94)
FIGURE 2
FIGURE 3
FIGURE 4
Past performance is not perceptive to future performances.
ADVANTAGE MUNICIPAL BOND FUND
DECEMBER 31, 1994 ANNUAL REPORT
Graph currently depicted on page 3 of the annual report
Value of $10,000 investment from inception
(7/1/93 to 12/31/94)
<TABLE>
<CAPTION>
Lehman
National New York Pennsylvania Municipal
Portfolio Portlio Portfolio Bond index
--------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Inception 7/1/93 10,000 10,000 10,000 10,000
9/30/93 10,356 10,284 10,381 10,338
12/31/93 10,483 10,443 10,501 10,484
3/31/94 9,615 9,490 9,557 9,908
6/30/94 9,729 9,549 9,698 10,017
9/30/94 9,769 9,597 9,756 10,088
12/31/94 value
with CDSL 9,138 9,040 9,193 9,942
12/31/94 value
without CDSL 9,398 9,297 9,455 9,942
</TABLE>
AVERAGE ANNUAL TOTAL RETURN*
FOR PERIOD 7/1/93 (INCEPTION) TO 12/31/94
<TABLE>
<CAPTION>
WITHOUT CDSL WITH MAXIMUM CDSL
------------ -----------------
SINCE SINCE
1-YEAR INCEPTION 1-YEAR INCEPTION
<S> <C> <C> <C> <C>
National Portfolio -10.35% -4.05% -13.74% -5.83%
New York Portfolio -10.97% -4.74% -14.34% -6.51%
Pennsylvania Portfolio -9.96% -3.67% -13.37% -5.46%
</TABLE>
* Please refer to the inside front cover for further information.
PENNSYLVANIA PORTFOLIO:
Like New York State, Pennsylvania experienced a sharper than average
economic contraction in 1990, with unemployment since then improving but
remaining above the national average. Population growth has been slower than
the national average, and thus has helped to slow the general pace of economic
expansion. The average per capita income is slightly above the average in the
US.
The volume of newly issued Pennsylvania municipal bonds dropped by a
significant 39% in 1994, to $8.8 billion from $14.5 billion in 1993. Due to
the state's conservative financing practices and a generally improving state
economy, it is unlikely that new volume in 1995 should exceed 1994's depressed
level. Thus the Pennsylvania municipal bond market should offer a relatively
conservative and stable one for municipal investors.
Looking ahead to 1995, we are optimistic that the municipal bond
market will be more favorable to investors than in 1994. For many investors,
after taking the effect of taxes into consideration, yields on municipal bonds
are very attractive compared to the rates for taxable bonds. Even investors
who consider themselves to be in the middle income range may be surprised to
see that the tax-free yields of municipal bonds are often higher than the
after-tax income of taxable bonds.
We expect municipals to perform well compared to taxable sectors
because of the likelihood that the new supply of municipal bonds available to
investors probably will not increase in 1995 over 1994's depressed level. The
total new issuance of long-term municipals in 1994 was just under $163
billion, which represented a 44% drop in volume from 1993's $292 billion
amount. In fact, many municipal bond analysts estimate that in 1995 and for
several years beyond, total issuance of new bonds will probably amount to
around $130-150 billion per annum. However, annual debt retirements should
also equal $130-150 billion annually. Thus it is unlikely that the availability
of new bonds should increase.
This development contrasts sharply with the large escalation in supply
of outstanding municipal debt over the past decade: From 1984 to 1994, bonds
outstanding more than doubled, as new issue supply outpaced bond maturities
and retirements.
We have maintained our Portfolios fully invested in longer maturity
issues due to the possibility of shortages of certain types of municipals over
the near term. This strategy, we believe, is the best way over the long-term
to maximize tax-free income for our shareholders, despite occasional market
setbacks such as was registered by municipals in 1994. [ ]
3
<PAGE> 372
THE ADVANTAGE MUNICIPAL BOND FUND
THE NATIONAL PORTFOLIO
DECEMBER 31, 1994
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
RATINGS (B)
-----------
PRINCIPAL STANDARD MARKET
TAX-EXEMPT BONDS (97.37% OF NET ASSETS) AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUE BONDS 87.17%
CONSTRUCTION 1.85%
Inglewood California Redevelopment Agency
6.125% 07/01/23 $ 600,000 -- BBB $ 508,416
---------
EDUCATION 8.92%
Medical University of South Carolina 7.500% 01/01/08 600,000 Baa(1) -- 601,230
Pennsylvania State Higher Education 6.000% 07/01/19 925,000 Aa A+ 826,256
Philadelphia Pennsylvania Hospital & Higher Education
6.250% 07/01/18 600,000 Baa(1) BBB+ 491,712
Rio California School District 6.045% 09/01/28 (C) 1,140,000 Aaa AAA 525,426
----------
2,444,624
----------
ELECTRIC/POWER 12.38%
Massachusetts Municipal Wholesale Electric Co. 6.000% 07/01/18 700,000 Baa(1) BBB+ 625,016
North Carolina Eastern Municipal Power 5.750% 01/01/19 830,000 A A- 686,949
Puerto Rico Electric Power Authority Series T 6.125% 07/01/08 700,000 Baa(1) A- 663,432
Sam Rayburn Texas Municipal Power Agency 6.125% 10/01/13 1,005,000 Baa BBB 858,049
San Diego California Industrial Development 5.900% 09/01/18 650,000 Aa (3) A+ 561,178
----------
3,394,624
----------
HOSPITAL 15.99%
Cumberland County Pennsylvania Carlisle Hospital 6.800% 11/15/23 1,000,000 Baa BBB- 856,580
Erie County Ohio Providence Hospital 6.000% 01/01/13 405,000 -- A- 341,678
Oklahoma City Hillcrest Health Center 6.400% 07/01/20 575,000 -- A- 492,068
Richardson Texas Medical Center 6.500% 12/01/12 330,000 Baa BBB- 284,971
Savannah Georgia Chandler Hospital 7.000% 01/01/23 700,000 Baa BBB+ 631,519
Tarrant County Texas Fort Worth Osteopathic 7.000% 05/15/28 500,000 Baa BBB 439,915
Tomball Texas Hospital Authority 6.125% 07/01/23 1,000,000 Baa -- 782,460
Union County Pennsylvania Hospital Authority Series A 5.875% 07/01/23 700,000 -- A- 554,701
----------
4,383,892
----------
HOUSING 0.75%
Tulsa County Oklahoma Breckenridge Apartments 6.450% 10/01/34 220,000 -- AA 204,635
----------
LONG-TERM CARE 7.69%
Massachusetts Industrial Finance Agency Berkshire
Retirement Community 6.500% 07/01/09 1,000,000 -- -- 908,460
Montgomery County Pennsylvania IDA Health Care Facilities
8.500% 12/01/23 300,000 -- -- 272,700
Tennessee State Veterans Home Board Humboldt
Project 6.750% 02/01/21 1,000,000 -- A+ 927,480
----------
2,108,640
----------
POLLUTION CONTROL 18.15%
Dickinson County Michigan Pollution Control 5.850% 10/01/18 1,500,000 Baa(1) BBB 1,251,810
Franklin County New York Solid Waste Management Authority
6.250% 06/01/15 700,000 -- BBB 592,550
</TABLE>
The Accompanying notes are an integral part of these financial statements.
4
<PAGE> 373
THE ADVANTAGE MUNICIPAL BOND FUND
THE NATIONAL PORTFOLIO
DECEMBER 31, 1994
STATEMENT OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
RATINGS (B)
-----------
PRINCIPAL STANDARD MARKET
REVENUE BONDS (continued) AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -------
<S> <C> <C> <C> <C>
POLLUTION CONTROL (continued)
Lawrenceburg Indiana Industrial Pollution Control 5.900% 11/01/19 1,000,000 Baa(2) BBB 817,030
Massachusetts Industrial Development Pollution Control
5.875% 08/01/08 980,000 Baa(2) BBB 858,696
Montgomery County Maryland Pollution Control 5.375% 02/15/24 400,000 A A+ 323,844
Northampton County Pennsylvania Pollution Control 7.550% 06/01/17 1,200,000 -- -- 1,133,304
-----------
4,977,234
-----------
TRANSPORTATION 5.86%
Dallas Fort Worth International Airport 6.250% 11/01/13 900,000 Ba (1) BB 761,859
Puerto Rico Highway Authority 5.500% 07/01/17 1,000,000 Baa(1) A 845,250
-----------
1,607,109
-----------
WATER & SEWER 3.26%
Massachusetts State Water Resource Authority 5.750% 12/01/21 1,050,000 A A- 895,230
-----------
MISCELLANEOUS 12.32%
Harrisburg Pennsylvania Resource Recovery Series A
5.875% 09/01/21 1,250,000 Baa A 1,069,125
Rhode Island Depositors Economic Protection Corp. Series A
5.75% 08/01/21 1,400,000 Baa(1) A- 1,169,658
St. Louis Missouri Municipal Finance Corp. 6.143%
07/15/14 (C) 2,500,000 Aa (3) AA- 615,725
Savannah Georgia Economic Development Authority Series A
6.178% 12/01/21 (C) 1,500,000 AAA -- 223,815
Savannah Georgia Economic Development Authority Series C
4.746% 12/01/21 (C) 2,000,000 AAA -- 298,420
-----------
3,376,743
-----------
TOTAL REVENUE BONDS (COST $27,297,648) 23,901,147
-----------
GENERAL OBLIGATION BONDS 10.20%
State & County 10.20%
District of Columbia Series E 5.875% 06/01/08 500,000 Baa A 430,135
Guam Government Series A 5.400% 11/15/18 1,200,000 -- BBB+ 950,820
New York City Series B 7.000% 06/01/12 500,000 Baa(1) A- 495,980
Puerto Rico Commonwealth 6.450% 07/01/17 500,000 Baa(1) A 484,445
Puerto Rico Commonwealth 5.500% 07/01/13 500,000 Baa(1) A 435,025
-----------
TOTAL GENERAL OBLIGATION BONDS (Cost $3,174,265) 2,796,405
-----------
TOTAL INVESTMENTS (Cost $30,471,913; 97.37% of net assets) $26,697,552(A)
===========
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS
A. The aggregate cost of investments for federal income tax purposes was
$30,471,913 as of December 31, 1994, resulting in gross unrealized
appreciation and depreciation of $5,852 and $3,780,213, respectively, or
net unrealized depreciation of $3,774,361.
B. Unaudited. The ratings shown are believed to be the most recent ratings
available at December 31, 1994. Securities are generally rated at the
time of issuance. The rating agencies may revise their ratings from time
to time. As a result there can be no assurance that the same ratings would
be assigned if the securities were rated at December 31, 1994. The Fund's
adviser independently evaluates the Fund's portfolio securities and in
making investment decisions does not rely solely on the ratings of
agencies.
C. Zero coupon bond; interest rate listed is effective rate based on
acquisition cost.
D. As of December 31, 1994, the Fund had a capital loss carryover of
approximately $511,000 which may be available to offset future realized
capital gains, to the extent provided by regulations. This carryover will
expire December 31, 2002.
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 374
THE ADVANTAGE MUNICIPAL BOND FUND
THE NEW YORK PORTFOLIO
DECEMBER 31, 1994
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
RATINGS (B)
-----------
PRINCIPAL STANDARD MARKET
TAX-EXEMPT BONDS (97.31% OF NET ASSETS) AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUE BONDS 81.47%
CONSTRUCTION 7.00%
Grand Central New York Business Improvement -- Capital
Improvements 5.250% 01/01/22 $ 500,000 A (1) A $ 393,520
New York State UDC -- Correctional Facilities 5.375% 01/01/23 700,000 Baa(1) BBB 540,225
Triborough Bridge & Tunnel NY Convention Center
5.172% 01/01/12 (C) 360,000 Baa(1) BBB 106,744
----------
1,040,489
----------
EDUCATION 14.94%
New York Dorm Authority Court Facilities 5.700% 05/15/22 650,000 Baa(1) BBB+ 534,742
New York Dorm Authority City University Series A 5.750% 07/01/18 525,000 Baa(1) BBB 442,465
New York Dorm Authority State University Series A 5.875% 05/15/17 610,000 Baa(1) BBB+ 532,341
New York Dorm Authority State University Series B 6.000% 05/15/17 500,000 Baa(1) BBB+ 439,275
New York Urban Development Syracuse University 5.500% 01/01/14 330,000 Baa(1) BBB 272,428
----------
2,221,251
----------
ELECTRIC/POWER 8.12%
New York State Power Authority 5.250% 01/01/18 525,000 Aa AA- 427,408
Puerto Rico Electric Power Series N 5.060% 07/01/17 (C) 500,000 Baa(1) A- 106,955
Puerto Rico Electric Power Authority 6.000% 07/01/14 500,000 Baa(1) A- 458,665
Puerto Rico Telephone Authority Series N 5.500% 01/01/13 250,000 A A+ 214,710
----------
1,207,738
----------
HOSPITAL 20.52%
New York City Health & Hospital 6.300% 02/15/20 300,000 Baa BBB 265,359
New York Dorm Authority Department of Health 5.600% 07/01/23 425,000 Baa(1) BBB 343,578
New York Dorm Authority Department of Health 5.500% 07/01/14 325,000 Baa(1) BBB 270,868
New York Med Care St. Lukes Hospital 5.600% 08/15/13 1,000,000 Aa AAA 882,000
New York Med Care Facilities Mental Health Services Series D
6.150% 02/15/15 600,000 Aaa AAA 563,160
New York State Med Care 5.500% 08/15/24 875,000 Aa AAA 725,970
----------
3,050,935
----------
HOUSING 6.39%
Housing New York Corporation 5.500% 11/01/20 500,000 A (1) AA 418,725
New York Housing Finance Agency 5.875% 09/15/14 250,000 Baa(1) BBB 216,810
United Nations Development Corp. Series A 6.000% 07/01/26 350,000 A -- 314,660
----------
950,195
----------
LONG-TERM CARE 4.47%
Tompkins County New York Lifecare Community 7.875% 06/01/24 700,000 -- -- 664,412
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 375
THE ADVANTAGE MUNICIPAL BOND FUND
THE NEW YORK PORTFOLIO
DECEMBER 31, 1994
STATEMENT OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
RATINGS (B)
-----------
PRINCIPAL STANDARD MARKET
REVENUE BONDS (continued) AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -------
<S> <C> <C> <C> <C>
POLLUTION CONTROL 3.50%
Franklin County New York Solid Waste Management Authority
6.250% 06/01/15 300,000 -- BBB 253,950
Ulster County New York Resource Recovery Agency
6.000% 03/01/14 300,000 Baa BBB 266,571
-----------
520,521
-----------
TRANSPORTATION 11.36%
Metropolitan Transit Authority Service Contract Series O
5.750% 07/01/07 250,000 Baa(1) BBB 226,392
Metropolitan Transit Authority Service Contract Series P
5.750% 07/01/15 550,000 Baa(1) BBB 463,177
New York City Transit Authority Livingston Plaza 5.250% 01/01/20 385,000 Aaa AAA 315,731
New York State Thruway Series A 5.750% 01/01/19 500,000 A (1) A 430,435
Triborough Bridge & Tunnel General Purpose Series X
6.625% 01/01/12 250,000 Aa A+ 252,665
-----------
1,688,400
-----------
WATER & SEWER 1.22%
New York City Municipal Water Finance Authority 6.000% 06/15/17 200,000 A A- 181,070
-----------
MISCELLANEOUS 3.95%
New York Local Assistance Series B 5.500% 04/01/21 700,000 A A 587,020
-----------
TOTAL REVENUE BONDS (cost $13,811,888) 12,112,031
-----------
GENERAL OBLIGATION BONDS 15.84%
State & County 15.84%
Guam Government Series A 5.400% 11/15/18 400,000 -- BBB+ 316,940
New York City Series E 5.750% 05/15/13 600,000 Baa(1) A- 507,252
New York City Series A 6.250% 08/01/20 1,400,000 Baa(1) A- 1,249,948
New York City Series A 6.250% 08/01/21 315,000 Baa(1) A- 280,785
-----------
TOTAL GENERAL OBLIGATION BONDS (Cost $2,630,332) 2,354,925
-----------
TOTAL INVESTMENTS (Cost $16,442,220; 97.31% of net assets) $14,466,956(A)
===========
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS
A. The aggregate cost of investments for federal income tax purposes was
$16,442,220, as of December 31, 1994, resulting in gross unrealized
appreciation and depreciation of $6,465 and $1,981,729, respectively, or
net unrealized depreciation of $1,975,264.
B. Unaudited. The ratings shown are believed to be the most recent ratings
available at December 31, 1994. Securities are generally rated at the
time of issuance. The rating agencies may revise their ratings from time
to time. As a result there can be no assurance that the same ratings would
be assigned if the securities were rated at December 31, 1994. The Fund's
adviser independently evaluates the Fund's portfolio securities and in
making investment decisions does not rely solely on the ratings of
agencies.
C. Zero coupon bond; interest rate listed is effective rate based on
acquisition cost.
D. As of December 31, 1994, the Fund had a capital loss carryover of
approximately $168,000 which may be available to offset future realized
capital gains, to the extent provided by regulations. This carryover will
expire December 31, 2002.
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 376
THE ADVANTAGE MUNICIPAL BOND FUND
THE PENNSYLVANIA PORFOLIO
DECEMBER 31, 1994
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
RATINGS (B)
-----------
PRINCIPAL STANDARD MARKET
TAX-EXEMPT BONDS (97.18% OF NET ASSETS) AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUE BONDS 88.01%
CONSTRUCTION 2.53%
Pittsburgh Pennsylvania Urban Redevelopment Series A
5.500% 10/01/10 $ 400,000 A (1) A $ 348,104
----------
EDUCATION 14.15%
Pennsylvania State Higher Education 6.000% 07/01/19 625,000 Aa A+ 558,281
Pennsylvania State Higher Education Series I 5.500% 06/15/11 180,000 Aaa AAA 160,641
Philadelphia Hospital & Education Facilities Graduate Health System
6.250% 07/01/18 300,000 Baa BBB+ 245,856
Philadelphia Hospital & Higher Education Facilities Community
College 6.125% 05/01/14 700,000 Aaa AAA 658,105
Pittsburgh Pennsylvania School District Series D 5.500% 09/01/16 250,000 Aaa AAA 215,190
Southern Fulton Pennsylvania School District 6.030% 09/15/16 (C) 460,000 Aaa AAA 106,554
----------
1,944,627
----------
ELECTRIC 1.03%
Puerto Rico Electric Power Authority Series T 6.125% 07/01/08 150,000 Baa (1) A- 142,164
----------
HOSPITAL 19.27%
Allegheny County Hospital Auth. Magee Woman's Hospital 5.168%
10/01/15 (C) 1,000,000 Aaa AAA 251,060
Blair County Hospital Auth. Altoona Hospital 5.500% 07/01/08 470,000 Aaa AAA 428,607
Cumberland County Pennsylvania Carlisle Hospital
6.800% 11/15/23 500,000 Baa BBB- 428,290
Dauphin County Pennsylvania General Authority 5.500% 07/01/23 500,000 Aaa AAA 414,310
Philadelphia Hospital & Higher Education 6.600% 07/01/10 500,000 -- BBB 443,730
Sayre Pennsylvania Health Care Facilities 6.375% 07/01/22 160,000 Aaa AAA 152,158
Sewickley Valley Pennsylvania Hospital Authority 5.750% 10/15/16 350,000 A A 291,575
Union County Pennsylvania Hospital Authority Series A
5.875% 07/01/23 300,000 -- A- 237,729
----------
2,647,459
----------
HOUSING 10.03%
Pennsylvania Housing Finance Agency Series C 5.800% 07/01/22 800,000 Aaa AAA 687,856
Pennsylvania Housing Finance Agency Single Family Series 38
6.125% 10/01/24 500,000 Aa AA 449,515
Pennsylvania Housing Finance Agency 5.750% 07/01/14 275,000 Aaa AAA 241,387
----------
1,378,758
----------
INDUSTRIAL DEVELOPMENT 4.22%
Butler County Pennsylvania IDA Sherwood Oaks Project
5.750% 06/01/11 400,000 -- A- 328,660
Luzerne County Pennsylvania IDA Gas & Water 6.050% 01/01/19 300,000 Baa (3) BBB- 251,046
----------
579,706
----------
LONG-TERM CARE 1.39%
Montgomery County Pennsylvania IDA Health Care Facilities
8.500% 12/01/23 210,000 -- -- 190,890
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 377
THE ADVANTAGE MUNICIPAL BOND FUND
THE PENNSYLVANIA PORFOLIO
DECEMBER 31, 1994
STATEMENT OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
RATINGS (B)
-----------
PRINCIPAL STANDARD MARKET
REVENUE BONDS (continued) AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -------
<S> <C> <C> <C> <C>
POLLUTION CONTROL 11.58%
Beaver County Pennsylvania IDA Pollution Control
J. Ray McDermott Project 6.800% 02/01/09 835,000 Baa(3) BBB- 835,802
Northampton County Pennsylvania Pollution Control
7.550% 06/01/17 800,000 -- -- 755,536
-----------
1,591,338
-----------
TRANSPORTATION 1.90%
Pennsylvania State Turnpike Commission 5.500% 12/01/17 300,000 Aaa AAA 260,964
-----------
WATER & SEWER 5.87%
Center Township Pennsylvania Sewer Authority Series A
5.500% 04/15/16 300,000 Aaa AAA 265,026
Philadelphia Pennsylvania Water & Waste Water 5.750% 06/15/13 275,000 Baa BBB 234,388
Smithfield Pennsylvania Guaranteed Sewer Revenue 6.200% 01/15/18 350,000 -- -- 307,307
-----------
806,721
MISCELLANEOUS 16.04% -----------
Dauphin County Pennsylvania General Authority 5.485% 10/01/20 (C) 940,000 Aaa AAA 164,932
Harrisburg Pennslyvania Resource Recovery Series A 5.875% 09/01/21 1,000,000 Baa A 855,300
Pennsylvania State Finance Authority 6.600% 11/01/09 400,000 -- A 390,004
Philadelphia Pennsylvania Gas Works 6.375% 07/01/14 250,000 Baa BBB 233,768
Philadelphia Pennsylvania Municipal Authority Series A
5.625% 11/15/18 650,000 Aaa AAA 560,410
-----------
2,204,414
-----------
TOTAL REVENUE BONDS (Cost $13,657,535) 12,095,145
-----------
GENERAL OBLIGATION BONDS 9.17%
State & County 9.17%
Dauphin County Pennsylvania General Authority Series CCC
5.800% 06/01/26 400,000 -- A 354,888
Greene County Pennsylvania 6.000% 06/01/10 100,000 -- BBB- 90,659
Kennett Pennsylvania Consolidated School District 5.650% 02/15/13 250,000 Aaa AAA 224,132
Montour Pennsylvania School District Series B 5.950% 01/01/19 (C) 1,190,000 Aaa AAA 236,132
Westmoreland County Pennsylvania 5.250% 08/01/09 400,000 Aaa AAA 355,088
-----------
TOTAL GENERAL OBLIGATION BONDS (Cost $1,434,720) 1,260,899
-----------
TOTAL INVESTMENTS (Cost $15,092,255; 97.18% of net assets) $13,356,044(A)
===========
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS
A. The aggregate cost of investments for federal income tax purposes was
$15,092,255 as of December 31, 1994, resulting in gross unrealized
appreciation and depreciation of $0 and $1,736,211, respectively, or net
unrealized depreciation of $1,736,211.
B. Unaudited. The ratings shown are believed to be the most recent ratings
available at December 31, 1994. Securities are generally rated at the time
of issuance. The rating agencies may revise their ratings from time to
time. As a result there can be no assurance that the same ratings would be
assigned if the securities were rated at December 31, 1994. The Fund's
adviser independently evaluates the Fund's portfolio securities and in
making investment decisions does not rely solely on the ratings of
agencies.
C. Zero coupon bond; interest rate listed is effective rate based on
acquisition cost.
D. As of December 31, 1994, the Fund had a capital loss carryover of
approximately $146,000 which may be available to offset future realized
capital gains, to the extent provided by regulations. This carryover will
expire December 31, 2002.
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 378
THE ADVANTAGE MUNICIPAL BOND
DECEMBER 31, 1994
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
THE THE THE
NATIONAL NEW YORK PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------
<S> <C> <C> <C>
ASSETS
Investment securities at identified cost................................. $30,471,913 $16,442,220 $15,092,255
=========== =========== ===========
Investment securities at market value.................................... $26,697,552 $14,466,956 $13,356,044
Cash..................................................................... 199,249 68,348 126,308
Receivables:
Interest............................................................... 593,231 342,488 264,744
Fund shares sold....................................................... 74,920 13,567 21,877
Deferred organization expenses, net...................................... 31,704 26,749 30,734
Other assets............................................................. 11,574 2,646 3,793
----------- ----------- -----------
TOTAL ASSETS........................................................... 27,608,230 14,920,754 13,803,500
----------- ----------- -----------
LIABILITIES
Payables:
Fund shares repurchased................................................ 134,272 31,713 27,226
Due to affiliates...................................................... 21,458 153 4,774
Transfer agent fees.................................................... 1,258 621 817
Other accrued liabilities.............................................. 32,791 20,715 27,494
----------- ----------- -----------
TOTAL LIABILITIES...................................................... 189,779 53,202 60,311
----------- ----------- -----------
NET ASSETS............................................................... $27,418,451 $14,867,552 $13,743,189
=========== =========== ===========
Net assets consist of:
Paid-in capital........................................................ $31,672,329 $17,011,006 $15,625,695
Accumulated undistributed net investment income........................ 31,837 43 42
Accumulated net realized loss.......................................... (511,354) (168,233) (146,337)
Net unrealized depreciation............................................ (3,774,361) (1,975,264) (1,736,211)
----------- ----------- -----------
NET ASSETS............................................................... $27,418,451 $14,867,552 $13,743,189
=========== =========== ===========
Shares of beneficial interest outstanding without
par value, unlimited authorized...................................... 3,167,133 1,733,759 1,572,792
=========== =========== ===========
NET ASSET VALUE PER SHARE................................................ $ 8.66 $ 8.58 $ 8.74
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 379
THE ADVANTAGE MUNICIPAL BOND FUND
FOR THE YEAR ENDED DECEMBER 31, 1994
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE THE THE
NATIONAL NEW YORK PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest................................................................. $ 1,817,572 $ 823,018 $ 813,849
----------- ----------- -----------
Total investment income................................................ 1,817,572 823,018 813,849
----------- ----------- -----------
EXPENSES
Distribution and service fees............................................ 140,148 68,530 65,802
Investment advisory fee.................................................. 126,131 61,697 59,523
Custodian................................................................ 32,808 14,594 21,265
Registration fees........................................................ 25,861 2,611 4,020
Audit.................................................................... 13,771 13,771 13,771
Transfer agent........................................................... 11,540 4,768 7,122
Insurance................................................................ 11,113 5,369 4,934
Amortization of deferred organization expenses........................... 9,070 7,654 8,789
Legal.................................................................... 7,484 7,338 7,374
Printing................................................................. 7,467 2,351 5,075
Trustees' fee............................................................ 2,110 1,110 1,110
Other.................................................................... 3,569 1,635 2,055
Reimbursement/waiver from investment adviser and affiliates.............. (151,721) (120,648) (93,389)
----------- ----------- -----------
TOTAL EXPENSES......................................................... 239,351 70,780 107,451
----------- ----------- -----------
NET INVESTMENT INCOME.................................................. 1,578,221 752,238 706,398
----------- ----------- -----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS
Net realized loss from sale of investments............................... (511,354) (168,233) (146,337)
Net unrealized depreciation on investments............................... (4,172,270) (2,151,020) (1,925,009)
----------- ----------- -----------
NET LOSS ON INVESTMENTS.................................................. (4,683,624) (2,319,253) (2,071,346)
----------- ----------- -----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $(3,105,403) $(1,567,015) $(1,364,948)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 380
THE ADVANTAGE MUNICIPAL BOND FUND
FOR THE PERIODS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
THE NATIONAL PORTFOLIO
----------------------
YEAR PERIOD
ENDED ENDED
12/31/94 12/31/93
-------- --------
<S> <C> <C>
FROM OPERATIONS
Net investment income........................................................ $ 1,578,221 $ 448,932
Net realized gain (loss)..................................................... (511,354) 10,018
Net unrealized appreciation (depreciation)................................... (4,172,270) 397,909
----------- -----------
Net increase (decrease) in net assets resulting
from operations............................................................ (3,105,403) 856,859
----------- -----------
FROM DIVIDENDS TO SHAREHOLDERS
Net investment income........................................................ (1,569,645) (448,932)
Net realized gains........................................................... -- (10,018)
Distributions in excess of net investment income............................. -- (17,494)
----------- -----------
Decrease in net assets from dividends to shareholders........................ (1,569,645) (476,444)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares................................................ 10,980,451 24,563,798
Net asset value of shares issued from
reinvestment of dividends.................................................. 834,037 270,961
Cost of shares repurchased................................................... (4,871,924) (164,239)
Increase in net assets derived from ----------- -----------
share transactions......................................................... 6,942,564 24,670,520
----------- -----------
NET INCREASE IN NET ASSETS..................................................... 2,267,516 25,050,935
NET ASSETS
Beginning of period.......................................................... 25,150,935 100,000
----------- -----------
End of period................................................................ $27,418,451 $25,150,935
=========== ===========
Undistributed net investment income included in net assets
at end of period ............................................................ $ 31,837 $ 1,551
=========== ===========
SHARE TRANSACTIONS
Shares sold.................................................................. 1,158,622 2,440,958
Shares issued in reinvestment of dividends................................... 90,432 26,718
Shares redeemed.............................................................. (543,479) (16,118)
----------- -----------
NET INCREASE IN SHARES......................................................... 705,575 2,451,558
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 381
THE NEW YORK PORTFOLIO THE PENNSYLVANIA PORTFOLIO
---------------------- --------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/94 12/31/93 12/31/94 12/31/93
-------- -------- -------- --------
$ 752,238 $ 201,723 $ 706,398 $ 185,009
(168,233) -- (146,337) --
(2,151,020) 175,756 (1,925,009) 188,798
----------- ----------- ----------- -----------
(1,567,015) 377,479 (1,364,948) 373,807
----------- ----------- ----------- -----------
(752,249) (201,723) (706,398) 185,009
-- -- -- --
(7,595) (4,215) (7,839) (4,528)
----------- ----------- ----------- -----------
(759,844) (205,938) (714,237) (189,537)
----------- ----------- ----------- -----------
5,969,315 11,561,356 5,227,894 10,596,572
463,940 124,718 463,359 121,276
(1,074,043) (22,416) (765,562) (5,435)
----------- ----------- ----------- -----------
5,359,212 11,663,658 4,925,691 10,712,413
----------- ----------- ----------- -----------
3,032,353 11,835,199 2,846,506 10,896,683
11,835,199 0 10,896,683 0
----------- ----------- ----------- -----------
$14,867,552 $11,835,199 $13,743,189 $10,896,683
=========== =========== =========== ===========
$ 43 $ 11 $ 42 $ 0
=========== =========== =========== ===========
641,772 1,150,709 546,624 1,051,661
51,104 12,366 50,285 11,946
(120,006) (2,186) (87,186) (538)
----------- ----------- ----------- -----------
572,870 1,160,889 509,723 1,063,069
=========== =========== =========== ===========
13
<PAGE> 382
THE ADVANTAGE MUNICIPAL BOND FUND
DECEMBER 31, 1994
FINANCIAL HIGHLIGHTS
Selected data for each share outstanding throughout the indicated periods, by
Portfolio, are as follows:
<TABLE>
<CAPTION>
NET DIVIDENDS FROM
ASSET VALUE NET NET REALIZED ------------------------------------------
PERIOD ---------- INVEST- AND TOTAL FROM NET NET
ENDED BEGINNING MENT UNREALIZED INVESTMENT INVESTMENT REALIZED
DEC. 31 OF PERIOD INCOME GAIN OPERATIONS INCOME GAIN OTHER(4)
- -------- ------------ --------- ------------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
THE NATIONAL PORTFOLIO
1994 $10.22 $0.53 ($1.57) ($1.04) ($0.52) -- --
1993 10.00 0.24 0.23 0.47 (0.24) -- (0.01)
THE NEW YORK PORTFOLIO
1994 10.19 0.51 (1.61) (1.10) (0.51) -- --
1993 10.00 0.24 0.20 0.44 (0.24) -- (0.01)
THE PENNSYLVANIA PORTFOLIO
1994 10.25 0.51 (1.51) (1.00) (0.51) -- --
1993 10.00 0.24 0.26 0.50 (0.24) -- (0.01)
<CAPTION>
NET NET RATIO OF RATIO OF NET
ASSET VALUE ASSETS OPERATING INVESTMENTS
PERIOD ----------- AT END OF EXPENSES TO INCOME IN PORTFOLIO
ENDED TOTAL END OF TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER
DEC. 31 DISTRIBUTIONS PERIOD RETURN(3) (THOUSANDS) ASSETS ASSETS RATE
- -------- ------------- -------- ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
THE NATIONAL PORTFOLIO
1994 ($0.52) $ 8.66 (10.35%) $27,418 0.85%(2) 5.63% 21.38%
1993 (0.25) 10.22 4.83 25,151 0.71 (1)(2) 4.71(1) 15.12(1)
THE NEW YORK PORTFOLIO
1994 (0.51) 8.58 (10.97) 14,868 0.52 (2) 5.48 12.96
1993 (0.25) 10.19 4.43 11,835 0.36 (1)(2) 4.70(1) 0.00
THE PENNSYLVANIA PORTFOLIO
1994 (0.51) 8.74 (9.96) 13,743 0.81 (2) 5.35 17.67
1993 (0.25) 10.25 5.00 10,897 0.38 (1)(2) 4.61(1) 0.00
</TABLE>
(1) Annualized
(2) Had Boston Security Counsellors not elected to waive its investment
advisory fee and to reimburse expenses, the ratio of expenses to average
net assets, on an annualized basis would have been:
<TABLE>
<CAPTION>
Periods Ended
12/31/94 12/31/93
-------- --------
<S> <C> <C>
The National Portfolio 1.39% 1.73%
The New York Portfolio 1.40% 1.87%
The Pennsylvania Portfolio 1.52% 1.94%
</TABLE>
(3) Total return does not reflect the Fund's contingent deferred sales load
maximum 4%. This charge goes into effect only if shares of the Fund are
redeemed within 4 years of purchase. Total returns for 1993 represent
actual, not annualized percentages.
(4) Other dividends represent distributions in excess of net investment income
due to differences in book and tax income.
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 383
THE ADVANTAGE MUNICIPAL BOND FUND
DECEMBER 31, 1994
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Advantage Municipal Bond Fund (the "Fund") was organized as a
Massachusetts business trust on February 25, 1993 and commenced operations
on July 1, 1993. The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end diversified management investment company.
The Fund consists of three separate series portfolios, the National, New
York and Pennsylvania Portfolios (the "Portfolios"), each of which issues
shares evidencing interests in the respective Portfolio.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION
Market values for the Portfolios' investments are
determined as follows:
a. Municipal bonds are valued on the basis of valuations furnished by a
pricing service approved by the trustees, which uses information with
respect to bond and note transactions, quotations from bond dealers,
market transactions in comparable securities and various relationships
between securities in determining value.
b. Money market instruments and short-term municipal obligations with an
initial maturity or remaining maturity of 60 days or less are valued at
amortized cost, provided that it approximates market value.
c. Other securities for which market quotations are not readily available
and other assets are valued at their fair value as determined by or
under the direction of the Trustees. Such fair value may be determined
by various methods, including utilizing information furnished by
pricing services which determine calculations for such securities using
methods based, among other things, upon market transactions for
comparable securities and various relationships between securities
which are generally recognized as relevant.
SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are accounted for on the date that the securities are
purchased or sold. Interest income is recorded on the accrual basis and
includes accretion of discount and amortization of premium using the yield
to maturity method. Dividend income is recorded on the ex-dividend date. The
Portfolios use the identified cost basis in computing gains or losses on
sales of investment securities.
INCOME TAX
For federal income tax purposes, each Portfolio intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"), as amended, by distributing substantially
all of its taxable and tax-exempt income to its shareholders and otherwise
complying with the requirements for regulated investment companies. It is
also the intention of each Portfolio to distribute an amount sufficient to
avoid imposition of any excise tax under Section 4982 of the Code.
Accordingly, no provision for federal income taxes or excise taxes has been
made.
DIVIDENDS TO SHAREHOLDERS
The Portfolios declare dividends daily and pay monthly distributions from
net investment income. Dividends paid by the Portfolios from net interest
earned on tax-exempt municipal bonds are not includable by shareholders as
gross income for federal income tax purposes. Distributions from realized
capital gains, if any, are paid at least annually and will be taxable to
shareholders.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatment for deductibility of organization expenses. The
Portfolios have reclassified these permanent differences to increase
undistributed net investment income and decrease paid-in capital by
$21,710, $7,638 and $7,881 for the National, New York and Pennsylvania
Portfolios, respectively, for the year ended December 31, 1994.
15
<PAGE> 384
THE ADVANTAGE MUNICIPAL BOND FUND
DECEMBER 31, 1994
NOTES TO FINANCIAL STATEMENTS (continued)
GENERAL AND ORGANIZATION EXPENSES
General expenses of the Fund which do not specifically relate to an
individual Portfolio are allocated among the Portfolios in proportion to
their net assets or as deemed appropriate by the treasurer. Custodian
fees have been reduced by credits allowed by the custodian.
Costs incurred by the Fund in connection with its organization and its
original registration, amounting to $127,562, have been capitalized and
are being amortized on a straight-line basis over a 60 month period.
Advest Group, Inc. ("AGI") has agreed that if any of the initial shares
of the Fund (10,000 shares originally purchased by AGI) are redeemed
during such amortization period, the redemption proceeds will be reduced
by the amount of the then unamortized organization expenses in the same
ratio as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
3. INVESTMENT ADVISORY, DISTRIBUTION AND TRANSFER AGENT AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Boston
Security Counsellors, Inc. ("BSC"), a wholly owned subsidiary of AGI.
For its services as Investment Adviser, BSC receives from each Portfolio
an advisory fee equal on an annual basis to .45% of its average daily
net assets. BSC waived its fee through June 30, 1994. Also, BSC and its
affiliates have voluntarily agreed to waive or reimburse expenses to the
extent necessary to limit total operating expenses of each Portfolio to
no greater than .70% of average daily net assets through June 30, 1994
and to no greater than 1.00% there-after. For the New York Portfolio,
BSC and its affiliates reimbursed an additional $45,822 for the year
ended December 31, 1994.
The Fund has entered into a Distribution Agreement with Advest, Inc., a
wholly owned subsidiary of AGI, and has adopted a distribution and
service plan pursuant to Rule 12b-1 under the Investment Company Act of
1940. Each Portfolio will pay an annual combined distribution and
service fee of .50% of its average daily net assets. Advest also
receives the proceeds of any contingent deferred sale charges on certain
redemptions of shares. During the year ended December 31, 1994, Advest
received gross distribution fees of $274,480 and contingent deferred
sales charges of $107,989.
The Fund has entered into a transfer agency and service agreement with
Advest Transfer Services, Inc. ("ATS"), a wholly owned subsidiary of
AGI. As the Fund's transfer agent, ATS performs dividend-disbursing
functions and provides various services in connection with the purchase
and redemption of Fund shares. For those services, the Fund pays ATS
fees based on the type and number of accounts in the Fund and the number
of transactions made by shareholders. The Portfolios were charged
$23,430 for the year ended December 31, 1994.
4. RELATED PARTY TRANSACTIONS
As of December 31, 1994, AGI held 10,000 shares of The Advantage
Municipal Bond Fund - the National Portfolio.
Unaffiliated trustees of the Fund receive a fee of $500 for each
Trustees' meeting attended.
5. PURCHASES, SALES AND MATURITIES OF INVESTMENTS
For the year ended December 31, 1994, purchases, sales and maturities
(excluding short-term securities) of investments for each Portfolio
are as follows:
<TABLE>
<CAPTION>
SALES AND
PURCHASES MATURITIES
--------- ----------
<S> <C> <C>
National Portfolio $12,806,966 $5,863,422
New York Portfolio 7,187,563 1,685,490
Pennsylvania Portfolio 7,292,058 2,259,405
</TABLE>
6. CONCENTRATION OF CREDIT
The New York and Pennsylvania Portfolios primarily invest in
debt obligations issued by municipalities in their respective
states. In addition, the Portfolios are concentrated in various
industries as disclosed in the Statements of Investments. The
ability of the issuers of the debt securities to meet their
obligations may be affected by economic or political developments
in the specific industry or state.
16
<PAGE> 385
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF THE ADVANTAGE MUNICIPAL BOND FUND:
In our opinion, the accompanying statements of assets and liabilities,
including the statements of investments, (except for bond ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The National Portfolio, The New York Portfolio and The Pennsylvania Portfolio
(constituting The Advantage Municipal Bond Fund, hereafter referred to as the
"Fund") at December 31, 1994, and the results of each of their operations, the
changes in each of their net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at December 31, 1994 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 15, 1995
17
<PAGE> 386
<TABLE>
<S> <C>
CONTENTS
Message from the President 1
Municipal Bond Fund Review 2
Statements of Investments 4
Statements of Assets and Liabilities 10
Statements of Operations 11
Statements of Changes in Net Assets 12
Financial Highlights 14
Notes to Financial Statements 15
Report of Independent Accountants 17
</TABLE>
TRUSTEES
Richard C. Farr
Geoffrey Nunes
Linda G. Sprague
Robert L. Thomas
Allen Weintraub
OFFICERS
Robert L. Thomas, President
Martin M. Lilienthal, Vice President and Treasurer
David A. Horowitz, Secretary
Margaret B. Patel, Vice President
Donna McAdam,
Vice President and Assistant Secretary
HEADQUARTERS
100 Federal Street
Boston, MA 02110
(617) 348-3100
INVESTMENT ADVISER
BOSTON SECURITY COUNSELLORS, INC.
100 Federal Street
Boston, MA 02110
(800) 523-5903
TRANSFER AGENT
ATS, INC.
280 Trumbull Street
Hartford, CT 06103
(800) 544-9268
DISTRIBUTOR
ADVEST, INC.*
Corporate Headquarters
280 Trumbull Street
Hartford, CT 06103
(800) 241-2039
*Member: New York, American & other principal
stock exchanges.
Member: SIPC.
This publication, when not used for the general information of the shareholders
of The Advantage Municipal Bond Fund, must be preceded or accompanied by a
current prospectus for the Fund that includes management fees, charges and
expenses. Please read the prospectus carefully before investing in any of the
Portfolios of the Fund.
As a valued shareholder in the Advantage Municipal Bond Fund, you are
encouraged to write or call your Account Executive regarding any questions you
have.
Total returns for the period ended 12/31/94 that appear throughout this
report (except where noted) do not reflect the Fund's contingent deferred sales
load (CDSL), maximum 4%. This charge goes into effect only if shares of the Fund
are redeemed within four years of purchase. The sales charge on redemptions
declines to 1% after three years and 0% after four years. Total returns include
change in share price and reinvestment of dividends and distributions. Past
performance is no guarantee of future results. Share prices and returns will
vary and there may be a gain or loss when shares are sold.
Charts on page 3 illustrate the growth in value of a $10,000 investment in
various Portfolios, assuming that you had reinvested all your capital gains
distributions and income dividends. No adjustment has been made in these
illustrations for any income taxes payable by shareholders on income dividends
and capital gains distributions. These results should not be considered as
representative of the dividend income or capital gain or loss which may be
realized from an investment made in the Fund today.
The charts compare performance of the Portfolios to the Lehman Municipal Bond
Index. This Index is an unmanaged index of 25,000 revenue and general
obligation non-zero coupon issues with maturities greater than one year and
with ratings by Moody's of Baa or better.
PERCENTAGE OF INCOME EARNED BY STATE
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NATIONAL NEW YORK PENNSYLVANIA
(UNAUDITED) PORTFOLIO PORTFOLIO PORTFOLIO
- ----------- --------- --------- ---------
<S> <C> <C> <C>
Pennsylvania 20.52% 92.58%
New York 3.76 88.42%
Puerto Rico & Guam 15.65 11.58 7.42
Texas 16.83
Massachusetts 10.79
Georgia 4.27
California 4.10
Oklahoma 3.43
Indiana 2.86
North Carolina 2.63
Missouri 2.42
South Carolina 2.39
Michigan 2.34
Rhode Island 1.71
District of Columbia 1.62
Maryland 1.52
Ohio 1.34
Tennessee 1.28
Illinois 0.54
-------- ------- -------
TOTAL 100.00% 100.00% 100.00%
======== ======= =======
TAX TREATMENT OF
PER SHARE DISTRIBUTIONS
MADE (UNAUDITED):
- -----------------
Tax-Exempt $0.52208 $0.5100 $0.5052
======== ======= =======
</TABLE>
NOTE: Dividends to shareholders are not subject to state income tax in an
amount equal to the percent of income earned in that state. In addition, income
from Puerto Rico and Guam is not subject to federal or state income tax.
PLEASE CONSULT YOUR TAX ADVISER FOR FURTHER INFORMATION.
<PAGE> 387
================================================================================
THE ADVANTAGE
MUNICIPAL BOND FUND
1993 ANNUAL REPORT
<PAGE> 388
CONTENTS
<TABLE>
<S> <C>
Message from the President 1
Municipal Bond Fund Review 2
Statements of Investments 4
Statements of Assets and Liabilities 10
Statements of Operations 11
Statements of Changes in Net Assets 12
Financial Highlights 13
Notes to Financial Statements 14
Report of Independent Accountants 16
</TABLE>
Total returns for the period ended 12/31/93 that appear throughout this report
(except where noted) do not reflect the Fund's contingent deferred sales load
(CDSL), maximum 4%. This charge goes into effect only if shares of the Fund are
redeemed within four years of purchase. The sales charge on redemptions declines
to 1% after three years and 0% after four years. Total returns include change in
share price and reinvestment of dividends and distributions. Past performance is
no guarantee of future results. Share prices and returns will vary and there may
be a gain or loss when shares are sold.
Charts on page 3 illustrate the growth in value of a $10,000 investment in
various Portfolios, assuming that you had reinvested all your capital gains
distributions and income dividends. No adjustment has been made in these
illustrations for any income taxes payable by shareholders on income dividends
and capital gains distributions. These results should not be considered as
representative of the dividend income or capital gain or loss which may be
realized from an investment made in the Fund today.
The charts compare performance of the Portfolios to the Lehman Municipal Bond
Index. This Index is an unmanaged index of 25,000 revenue and general obligation
non-zero coupon issues with maturities greater than one year and with ratings by
Moody's of Baa or better.
Investors wishing more complete information, including charges and expenses, on
the Advantage Government Securities Fund referred to in this report, should
contact Advest, Inc., the Distributor of this Fund at 280 Trumbull Street,
Hartford, CT 06103, (203) 241-2030, or (800) 243-8115, x2030. Please read the
prospectus carefully before investing.
<PAGE> 389
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
DECEMBER 31, 1993
MESSAGE FROM MARGARET D. PATEL, THE PORTFOLIO MANAGER OF THE ADVANTAGE MUNICIPAL
BOND FUND
- --------------------------------------------------------------------------------
The Advantage Municipal Bond Fund was established on July 1, 1993 and consists
of three separate portfolios: The National Portfolio, investing in issues from a
variety of states exempt from federal taxes; The New York Portfolio,
concentrating on New York tax-exempt issues; and The Pennsylvania Portfolio,
investing in holdings exempt from that state's taxes.
All three Portfolios had gains in net asset value from inception to December
31, 1993, reflecting the slight decline in municipal bond yields resulting in
bond price increases in the second half of 1993. To illustrate, the Bond Buyer
index of 25 good quality revenue bonds yielded 5.75% to maturity in early July,
and dropped to 5.52% by year-end 1993. As bond yields decline, prices rise.
Rates fell because of expectations of continued low inflation, thus providing a
positive backdrop for fixed income investors. In addition, the very heavy
new-issue supply was well absorbed by year end, causing supply and demand to be
in better balance.
Your Fund's total returns reflect the fact that the Adviser has agreed to
waive its management fee and limit total expenses for the first year of each
Portfolio's operations. Each Portfolio attempts to maintain a stable dividend
policy limiting fluctuations in dividends from one month to the next. This
policy has not had a material effect on the management of the Portfolios or on
their net asset values.
NATIONAL PORTFOLIO:
The National Portfolio remained fully invested in 1993 with minimal cash
equivalent holdings. At year end, over 90% of the Portfolio's assets were in
investment grade bonds
================================================================================
2
<PAGE> 390
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVANTAGE MUNICIPAL BOND FUND
Value of $10,000 investment from inception
(7/1/93 to 12/31/93)
<TABLE>
<CAPTION>
7/1/93 9/30/93 12/31/93
------ ------- --------
<S> <C> <C> <C>
National Portfolio $10,000 $10,483 $10,083
Lehmann Municipal Bond Index $10,000 $10,483 $10,484
</TABLE>
<TABLE>
<CAPTION>
7/1/93 9/30/93 12/31/93
------ ------- --------
<S> <C> <C> <C>
New York Portfolio $10,000 $10,443 $10,043
Lehmann Municipal Bond Index $10,000 $10,443 $10,484
</TABLE>
<TABLE>
<CAPTION>
7/1/93 9/30/93 12/31/93
------ ------- --------
<S> <C> <C> <C>
Pennsylvania Portfolio $10,000 $10,501 $10,101
Lehmann Municipal Bond Index $10,000 $10,501 $10,484
</TABLE>
Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURN*
for Period 7/1/93 (inception) to 12/31/93
<TABLE>
<CAPTION>
WITH
WITHOUT MAXIMUM
CDSL CDSL
------- -------
<S> <C> <C>
National Portfolio 4.83% 0.83%
New York Portfolio 4.43% 0.43%
Pennsylvania Portfolio 5.00% 1.00%
</TABLE>
Total return figures are not annualized.
* Please refer to the inside front cover for further information.
with an average maturity of 21.70 years, reflecting the higher yields available
from long-term issues. Holdings were widely diversified with bonds representing
13 states and three additional political sub divisions. Major sectors
represented include health care, education, electric/power, transportation and
general obligation bonds.
NEW YORK PORTFOLIO:
The New York Portfolio at the end of 1993 was comprised primarily of issues in
New York State and included obligations of the Commonwealth of Puerto Rico and
Guam, both of which are exempt from New York taxes. As of December 31, 1993, the
Portfolio held 32 different issues and 26 of those were in New York State. The
average maturity of the Portfolio was 21.84 years, because in the second half of
1993 longer maturity bonds had relatively attractive yields compared to shorter
maturity issues. Major sectors in the Portfolio included health care, education,
transportation and general obligation bonds. The average quality of the
Portfolio was Baa as rated by Moody's, and no holdings were less than investment
grade.
PENNSYLVANIA PORTFOLIO:
The Pennsylvania Portfolio was widely diversified among issues exempt from
Pennsylvania taxes with 35 holdings at December 31, 1993. The average quality
rating of the Portfolio as measured by Moody's was A. The average maturity in
the Portfolio was 19.77 years, reflecting the additional yield advantage of
longer term bonds over shorter issues. The Portfolio's largest holdings were in
health care, education, and general obligation bonds.
The outlook for the municipal bond market appears favorable. Continued low
inflation should cause stable bond prices. The very large new-issue calendar of
1993 should decline in 1994, and demand from individuals should remain strong as
higher tax rates make municipal bonds attractive compared to taxable fixed
income issues.
================================================================================
3
<PAGE> 391
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
THE NATIONAL PORTFOLIO
DECEMBER 31, 1993
STATEMENT OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS(B)
-----------
PRINCIPAL STANDARD MARKET
AMOUNT MOODY'S & POOR'S VALUE
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
TAX-EXEMPT BONDS (96.71% OF NET ASSETS)
REVENUE BONDS 88.10%
CONSTRUCTION 4.19%
Inglewood California Redevelopment Agency
6.125% 07/01/23 $ 600,000 -- BBB $ 601,500
New York State Urban Development 6.500% 01/01/21 400,000 Baa1 BBB 452,500
----------
1,054,000
----------
EDUCATION 15.38%
Medical University of South Carolina 7.500% 01/01/08 600,000 Baa1 -- 663,000
Pennsylvania State Higher Education 6.000% 07/01/19 925,000 Aa A+ 948,125
Philadelphia Pennsylvania Hospital & Higher Education
6.250% 07/01/18 600,000 Baa1 BBB+ 607,500
Puerto Rico Public Building Authority 5.750% 07/01/15 500,000 Baa1 A 511,875
Rio California School District 6.145% 09/01/28(C) 1,140,000 Aaa AAA 646,950
Western Illinois University Auxiliary Facilities 5.250% 04/01/16 500,000 A -- 491,875
----------
3,869,325
----------
ELECTRIC/POWER 10.85%
Massachusetts Municipal Wholesale Electric Co. 6.000% 07/01/08 700,000 Baa1 BBB+ 716,625
North Carolina Eastern Municipal Power 5.750% 01/01/19 830,000 A A- 830,000
San Diego California Industrial Development 5.900% 09/01/18 650,000 Aa3 A+ 677,625
Sam Rayburn Texas Municipal Power Agency 6.125% 10/01/13 505,000 Baa BBB 504,369
----------
2,728,619
----------
HOSPITAL 21.91%
Erie County Ohio Providence Hospital 6.000% 01/01/13 405,000 -- A- 415,631
New York City Health & Hospital 6.300% 02/15/20 600,000 Baa BBB 632,250
Oklahoma City Hillcrest Health Center 6.400% 07/01/20 575,000 -- A- 599,437
Richardson Texas Medical Center 6.500% 12/01/12 350,000 Baa BBB- 360,938
Savannah Georgia Chandler Hospital 7.000% 01/01/23 700,000 Baa BBB+ 747,250
Tarrant County Texas Fort Worth Osteopathic 7.000% 05/15/28 500,000 Baa BBB 522,500
Titus County Texas Hospital 5.875% 08/15/06 700,000 Baa BBB- 687,750
Tomball Texas Hospital Authority 6.125% 07/01/23 860,000 Baa -- 842,800
Union County Pennsylvania Hospital Authority 5.875% 07/01/23 700,000 -- A- 702,625
----------
5,511,181
----------
HOUSING 2.12%
Tulsa County Oklahoma Breckenridge Apartments 6.450% 10/01/34 500,000 -- AA 533,125
----------
LONG-TERM CARE 1.19%
Montgomery County Pennsylvania IDA Health Care Facilities
8.500% 12/01/23 300,000 -- -- 298,125
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
4
<PAGE> 392
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
THE NATIONAL PORTFOLIO
DECEMBER 31, 1993
STATEMENT OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS(B)
----------
PRINCIPAL STANDARD MARKET
AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -----------
<S> <C> <C> <C> <C>
REVENUE BONDS (continued)
POLLUTION CONTROL 8.09%
Franklin County New York Solid Waste Management Authority
6.250% 06/01/15 700,000 -- BBB 731,500
Lawrenceburg Indiana Industrial Pollution Control 5.900% 11/01/19 800,000 Baa2 BBB 808,000
Massachusetts State Industrial Development Pollution Control
5.875% 08/01/08 480,000 Baa2 BBB 496,200
-----------
2,035,700
-----------
TRANSPORTATION 9.97%
Dallas Fort Worth International Airport 6.250% 11/01/13 900,000 Ba1 BB 904,500
Puerto Rico Highway Authority 5.500% 07/01/17 1,600,000 Baa1 A 1,602,000
-----------
2,506,500
-----------
WATER & SEWER 4.17%
Massachusetts State Water Resource Authority 5.750% 12/01/21 1,050,000 A A- 1,050,000
-----------
MISCELLANEOUS 10.23%
Pennsylvania State Finance Authority 6.600% 11/01/09 600,000 -- A- 655,500
Philadelphia Pennsylvania Gas Works 6.375% 07/01/14 600,000 Baa BBB 639,000
St. Louis Missouri Municipal Finance Corp. 5.850% 07/15/14(C) 2,500,000 Aa3 AA- 721,875
Savannah Georgia Economic Development Authority Series A
6.182% 12/01/21(C) 1,500,000 AAA -- 238,125
Savannah Georgia Economic Development Authority Series C
4.532% 12/01/21(C) 2,000,000 AAA -- 317,500
-----------
2,572,000
-----------
TOTAL REVENUE BONDS (Cost $21,751,344) 22,158,575
-----------
GENERAL OBLIGATION BONDS 8.61%
STATE & COUNTY 8.61%
District of Columbia Series E 5.875% 06/01/08 500,000 Baa A 503,750
Guam Government Series A 5.400% 11/15/18 1,200,000 -- BBB+ 1,159,500
Puerto Rico 5.500% 07/01/13 500,000 Baa1 A 502,500
-----------
TOTAL GENERAL OBLIGATION BONDS (Cost $2,175,072) 2,165,750
-----------
TOTAL INVESTMENTS (Cost $23,926,416; 96.71% of net assets) $24,324,325(A)
===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS
A. The aggregate cost of investments for federal income tax purposes was
$23,926,416 as of December 31, 1993, resulting in gross unrealized
appreciation and depreciation of $432,699 and $34,790, respectively, or net
unrealized appreciation of $397,909.
B. The ratings shown are believed to be the most recent ratings available at
December 31, 1993. Securities are generally rated at the time of issuance.
The rating agencies may revise their ratings from time to time. As a result
there can be no assurance that the same ratings would be assigned if the
securities were rated at December 31, 1993. The Fund's adviser
independently evaluates the Fund's portfolio securities and in making
investment decisions does not rely solely on the ratings of agencies.
C. Zero coupon bond; interest rate listed is effective rate.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
5
<PAGE> 393
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
THE NEW YORK PORTFOLIO
DECEMBER 31, 1993
STATEMENT OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS(B)
----------
PRINCIPAL STANDARD MARKET
AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
TAX-EXEMPT BONDS (95.27% OF NET ASSETS)
REVENUE BONDS 78.54%
CONSTRUCTION 3.00%
New York State Urban Development 6.500% 01/01/21 $200,000 Baa1 BBB $ 226,250
Triborough Bridge & Tunnel NY Convention Center
4.800% 01/01/12(C) 360,000 Baa1 BBB 128,700
----------
354,950
----------
EDUCATION 20.39%
New York Dorm Authority Court Facilities 5.700% 05/15/22 500,000 Baa1 BBB+ 499,375
New York Dorm Authority State University Series B 6.000% 05/15/17 250,000 Baa1 BBB+ 257,812
New York Dorm Authority City University Series A 5.750% 07/01/18 525,000 Baa1 BBB 534,844
New York State Local Government Series D 6.750% 04/01/06 160,000 A A 183,000
New York Urban Development Syracuse University 5.500% 01/01/14 330,000 Baa1 BBB 323,812
Puerto Rico Public Building Authority 5.750% 07/01/15 600,000 Baa1 A 614,250
----------
2,413,093
----------
ELECTRIC/POWER 7.77%
New York State Power Authority 5.250% 01/01/18 525,000 Aa AA- 524,344
Puerto Rico Electric Power Series N 4.731% 07/01/17(C) 500,000 Baa1 A- 139,375
Puerto Rico Telephone Authority Series N 5.500% 01/01/13 250,000 A A+ 256,562
----------
920,281
----------
HOSPITAL 12.16%
New York City Health & Hospital 6.300% 02/15/20 300,000 Baa BBB 316,125
New York Dorm Authority Department of Health 5.600% 07/01/23 425,000 Baa1 BBB 423,406
New York Dorm Authority Department of Health 5.500% 07/01/14 325,000 Baa1 BBB 318,094
New York Med Care St. Lukes Hospital 5.600% 08/15/13 375,000 Aa AAA 381,563
----------
1,439,188
----------
HOUSING 5.24%
New York Housing Finance Agency 5.875% 09/15/14 250,000 Baa1 BBB 254,375
United Nations Development Corp. Series A 6.000% 07/01/26 350,000 A -- 365,750
----------
620,125
----------
POLLUTION CONTROL 5.23%
Franklin County New York Solid Waste 6.250% 06/01/15 300,000 -- BBB 313,500
Ulster County New York Resource Recovery Agency
6.000% 03/01/14 300,000 Baa BBB 305,250
----------
618,750
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
6
<PAGE> 394
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
THE NEW YORK PROTFOLIO
DECEMBER 31, 1993
STATEMENT OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> RATINGS(B)
----------
PRINCIPAL STANDARD MARKET
AMOUNT MOODY'S & POOR'S VALUE
--------- ------- -------- -----------
<S> <C> <C> <C> <C>
REVENUE BONDS (continued)
TRANSPORTATION 19.59%
Metropolitan Transit Authority Service Contract Series O
5.750% 07/01/07 250,000 Baa1 BBB 254,375
Metropolitan Transit Authority Service Contract Series P
5.750% 07/01/15 250,000 Baa1 BBB 250,938
New York City Transit Authority Livingston Plaza 5.250% 01/01/20 385,000 Aaa AAA 376,819
New York State Thruway Series A 5.750% 01/01/19 500,000 A1 A 518,750
Puerto Rico Highway Authority 5.500% 07/01/17 625,000 Baa1 A 625,781
Triborough Bridge & Tunnel General Purpose Series X
6.625% 01/01/12 250,000 Aa A+ 292,500
-----------
2,319,163
-----------
WATER & SEWER 1.76%
New York City Municipal Water Finance Authority 6.000% 06/15/17 200,000 A A- 208,250
-----------
MISCELLANEOUS 3.40%
New York Local Assistance Series B 5.500% 04/01/21 400,000 A A 402,000
-----------
TOTAL REVENUE BONDS (Cost $9,132,612) 9,295,800
-----------
GENERAL OBLIGATION BONDS 16.73%
STATE & COUNTY 16.73%
Guam Government Series A 5.400% 11/15/18 400,000 -- BBB+ 386,500
New York City Series E 5.750% 05/15/13 600,000 Baa1 A- 600,750
New York City Series A 6.250% 08/01/20 400,000 Baa1 A- 414,500
New York City Series A 6.250% 08/01/21 315,000 Baa1 A- 326,419
Puerto Rico 5.500% 07/01/13 250,000 Baa1 A 251,250
-----------
TOTAL GENERAL OBLIGATION BONDS (Cost $1,966,851) 1,979,419
-----------
TOTAL INVESTMENTS (Cost $11,099,463; 95.27% of net assets) $11,275,219(A)
===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS
A. The aggregate cost of investments for federal income tax purpose was
$11,099,463 as of December 31, 1993, resulting in gross unrealized
appreciation and depreciation of $188,724 and $12,968, respectively, or net
unrealized appreciation of $175,756.
B. The ratings shown are believed to be the most recent ratings available at
December 31, 1993. Securities are generally rated at the time of issuance.
The rating agencies may revise their ratings from time to time. As a result
there can be no assurance that the same ratings would be assigned if the
securities were rated at December 31, 1993. The Fund's adviser
independently evaluates the Fund's securities and in making investment
decisions does not rely solely on the ratings of agencies.
C. Zero coupon bond; interest rate listed is effective rate.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
7
<PAGE> 395
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
THE PENNSYLVANIA PORTFOLIO
DECEMBER 31, 1993
STATEMENT OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS(B)
----------
PRINCIPAL STANDARD MARKET
AMOUNT MOODY'S & POOR'S VALUE
---------- ------- -------- -----------
<S> <C> <C> <C> <C>
TAX-EXEMPT BONDS (94.97% OF NET ASSETS)
REVENUE BONDS 75.76%
CONSTRUCTION 3.63%
Pittsburgh Pennsylvania Urban Redevelopment Series A
5.500% 10/01/10 $ 400,000 A1 A $ 396,000
----------
EDUCATION 16.23%
Pennsylvania State Higher Education 6.000% 07/01/09 475,000 Aa A+ 486,875
Pennsylvania State Higher Education Series I 5.500% 06/15/11 180,000 Aaa AAA 183,150
Philadelphia Hospital & Education Facilities Graduate Health System
6.250% 07/01/08 300,000 Baa BBB+ 303,750
Pittsburgh Pennsylvania School District Series D 5.500% 09/01/16 250,000 Aaa AAA 254,375
Puerto Rico Public Building Authority 5.750% 07/01/15 400,000 Baa1 BBB 409,500
Southern Fulton Pennsylvania School District 6.050% 09/15/16(C) 460,000 Aaa AAA 130,525
----------
1,768,175
----------
HOSPITAL 14.82%
Allegheny County Hospital Auth. Magee Woman's Hospital 5.013%
10/01/15(C) 1,000,000 Aaa AAA 298,750
Blair County Hospital Auth. Altoona Hospital 5.500% 07/01/08 470,000 Aaa AAA 491,150
Sayre Pennsylvania Health Care Facilities 6.375% 07/01/22 160,000 Aaa AAA 174,200
Sewickley Valley Pennsylvania Hospital Authority 5.750% 10/15/16 350,000 A A 349,125
Union County Pennsylvania Hospital Authority Series A
5.875% 07/01/23 300,000 -- A- 301,125
----------
1,614,350
----------
HOUSING 7.93%
Pennsylvania Housing Finance Agency 5.750% 07/01/14 275,000 Aaa AAA 279,125
Pennsylvania Housing Finance Agency Series C 5.800% 07/01/22 350,000 Aaa AAA 354,375
Puerto Rico Public Building Authority Series L 5.750% 07/01/16 225,000 Baa1 A 230,344
----------
863,844
----------
INDUSTRIAL DEVELOPMENT 5.07%
Butler County Pennsylvania IDA Sherwood Oaks Project
5.750% 06/01/11 400,000 -- A- 400,500
Luzerne County Pennsylvania IDA Gas & Water 6.050% 01/01/19 150,000 Baa3 BBB- 151,500
----------
522,000
----------
LONG-TERM CARE 1.91%
Montgomery County Pennsylvania IDA Health Care Facilities
8.500% 12/01/23 210,000 -- -- 208,687
----------
TRANSPORTATION 6.92%
Pennsylvania State Turnpike Commission 5.50% 12/01/17 300,000 Aaa AAA 303,000
Puerto Rico Highway Authority Series X 5.500% 07/01/19 250,000 Baa1 A 250,312
Puerto Rico Highway Authority Series W 5.500% 07/01/17 200,000 Baa1 A 200,250
----------
753,562
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
8
<PAGE> 396
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
THE PENNSYLVANIA PORTFOLIO
DECEMBER 31, 1993
STATEMENT OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS(B)
----------
PRINCIPAL STANDARD MARKET
AMOUNT MOODY'S & POOR'S VALUE
---------- ------- -------- -----------
<S> <C> <C> <C> <C>
REVENUE BONDS (continued)
WATER & SEWER 8.53%
Center Township Pennsylvania Sewer Authority Series A
5.500% 04/15/16 300,000 Aaa AAA 306,000
Philadelphia Pennsylvania Water & Waste Water 5.750% 06/15/13 275,000 Baa BBB 272,594
Smithfield Pennsylvania Guaranteed Sewer Revenue 6.200% 01/15/18 350,000 -- -- 351,313
-----------
929,907
-----------
MISCELLANEOUS 10.72%
Dauphin County Pennsylvania General Authority 5.232% 10/01/20(C) 940,000 Aaa AAA 210,325
Pennsylvania State Finance Authority 6.600% 11/01/09 400,000 -- A 437,000
Philadelphia Pennsylvania Gas Works 6.375% 07/01/14 250,000 Baa1 BBB 266,250
Philadelphia Pennsylvania Municipal Authority Series A
5.625% 11/15/18 250,000 Aaa AAA 255,000
-----------
1,168,575
-----------
TOTAL REVENUE BONDS (Cost $8,099,037) 8,255,100
-----------
GENERAL OBLIGATION BONDS 19.21%
STATE & COUNTY 19.21%
Dauphin County Pennsylvania General Authority Series BB
5.800% 06/01/26 400,000 -- A 405,000
Greene County Pennsylvania 6.000% 06/01/10 100,000 -- BBB- 102,750
Guam Government Series A 5.400% 11/15/18 400,000 -- BBB+ 386,500
Kennett Pennsylvania Consolidated School District 5.650% 02/15/13 250,000 Aaa AAA 253,750
Montour Pennsylvania School District Series B 5.950% 01/01/19(C) 1,190,000 Aaa AAA 293,038
Puerto Rico 5.500% 07/01/13 250,000 Baa1 A 251,250
Westmoreland County Pennsylvania 5.250% 08/01/09 400,000 Aaa AAA 401,000
-----------
TOTAL GENERAL OBLIGATION BONDS (Cost $2,060,553) 2,093,288
-----------
TOTAL INVESTMENTS (Cost $10,159,590; 94.97% of net assets) $10,348,388(A)
===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS
A. The aggregate cost of investments for federal income tax purposes was
$10,159,590 as of December 31, 1993, resulting in gross unrealized
appreciation and depreciation of $205,140 and $16,342, respectively, or net
unrealized appreciation of $188,798.
B. The ratings shown are believed to be the most recent ratings available at
December 31, 1993. Securities are generally rated at the time of issuance.
The rating agencies may revise their ratings from time to time. As a result
there can be no assurance that the same ratings would be assigned if the
securities were rated at December 31, 1993. The Fund's adviser
independently evaluates the Fund's portfolio securities and in making
investment decisions does not rely solely on the ratings of agencies.
C. Zero coupon bond; interest rate listed is effective rate.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
9
<PAGE> 397
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
DECEMBER 31, 1993
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE THE THE
NATIONAL NEW YORK PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------
<S> <C> <C> <C>
ASSETS
Investment securities at identified cost............ $23,926,416 $11,099,463 $10,159,590
=========== =========== ===========
Investment securities at market value............... $24,324,325 $11,275,219 $10,348,388
Cash................................................ 457,564 183,955 358,506
Receivables:
Interest.......................................... 479,927 240,685 176,869
Fund shares sold.................................. 179,086 119,561 199,012
Due from investment adviser....................... 14,184 10,093 10,978
Deferred organization expenses, net................. 40,774 34,403 39,523
Other assets........................................ 17,452 2,858 2,917
----------- ----------- -----------
TOTAL ASSETS...................................... 25,513,312 11,866,774 11,136,193
----------- ----------- -----------
LIABILITIES
Payables:
Investment securities purchased................... 299,125 -- 209,388
Fund shares repurchased........................... 13,746 -- --
Accrued distribution and service fees............. 10,329 4,778 4,394
Transfer agent fees............................... 1,240 1,355 354
Other accrued liabilities......................... 37,937 25,442 25,374
----------- ----------- -----------
TOTAL LIABILITIES................................. 362,377 31,575 239,510
----------- ----------- -----------
NET ASSETS.......................................... $25,150,935 $11,835,199 $10,896,683
=========== =========== ===========
NET ASSETS CONSIST OF:
Paid in capital................................... $24,751,475 $11,659,432 $10,707,885
Accumulated undistributed net investment income... 1,551 11 --
Net unrealized appreciation....................... 397,909 175,756 188,798
----------- ----------- -----------
NET ASSETS.......................................... $25,150,935 $11,835,199 $10,896,683
=========== =========== ===========
Shares of beneficial interest outstanding without
par value, unlimited authorized................... 2,461,558 1,160,889 1,063,069
=========== =========== ===========
NET ASSETS VALUE PER SHARE.......................... $10.22 $10.19 $10.25
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
10
<PAGE> 398
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1993
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE THE THE
NATIONAL NEW YORK PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest................................................ $516,186 $216,996 $200,353
-------- -------- --------
TOTAL INVESTMENT INCOME............................... 516,186 216,996 200,353
-------- -------- --------
EXPENSES
Distribution and service fees........................... 47,432 21,343 19,978
Investment advisory fee................................. 42,690 19,210 17,980
Registration fees....................................... 23,372 4,708 4,682
Custodian fee........................................... 17,494 10,261 10,865
Printing................................................ 7,583 4,044 3,538
Audit fees.............................................. 6,690 6,690 6,690
Insurance expense....................................... 6,350 3,659 2,691
Transfer agent fee...................................... 4,792 3,100 3,680
Amortization of deferred organization expense........... 4,572 3,859 4,431
Legal fees.............................................. 2,183 2,221 2,238
Trustees fee............................................ 1,019 820 820
Other................................................... 902 205 216
Reimbursement/waiver from investment adviser............ (97,825) (64,847) (62,465)
-------- -------- --------
TOTAL EXPENSES........................................ 67,254 15,273 15,344
-------- -------- --------
NET INVESTMENT INCOME................................. 448,932 201,723 185,009
-------- -------- --------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from sale of investments.............. 10,018 -- --
Net unrealized appreciation on investments.............. 397,909 175,756 188,798
-------- -------- --------
NET GAIN ON INVESTMENTS................................. 407,927 175,756 188,798
-------- -------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS......................................... $856,859 $377,479 $373,807
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
11
<PAGE> 399
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1993
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE THE THE
NATIONAL NEW YORK PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income.............................................. $ 448,932 $ 201,723 $ 185,009
Net realized gain.................................................. 10,018 -- --
Net unrealized appreciation........................................ 397,909 175,756 188,798
----------- ----------- -----------
Net increase in net assets resulting from operations............... 856,859 377,479 373,807
----------- ----------- -----------
FROM DIVIDENDS TO SHAREHOLDERS
Net investment income.............................................. (448,932) (201,723) (185,009)
Net realized gains................................................. (10,018) -- --
Distributions in excess of net investment income................... (17,494) (4,215) (4,528)
----------- ----------- -----------
Decrease in net assets from dividends to shareholders.............. (476,444) (205,938) (189,537)
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares...................................... 24,563,798 11,561,356 10,596,527
Net asset value of shares issued from reinvestment of dividends.... 270,961 124,718 121,276
Cost of shares repurchased......................................... (164,239) (22,416) (5,435)
----------- ----------- -----------
Increase in net assets derived from share transactions............. 24,670,520 11,663,658 10,712,413
----------- ----------- -----------
NET INCREASE IN NET ASSETS........................................... 25,050,935 11,835,199 10,896,683
NET ASSETS
Beginning of period (Initial capitalization of 10,000 shares)...... 100,000 0 0
----------- ----------- -----------
End of period...................................................... $25,150,935 $11,835,199 $10,896,683
=========== =========== ===========
Undistributed net investment income included in net assets
at end of period................................................. $1,551 $11 --
=========== =========== ===========
SHARE TRANSACTIONS
Shares sold........................................................ 2,440,958 1,150,709 1,051,661
Shares issued in reinvestment of dividends......................... 26,718 12,366 11,946
Shares redeemed.................................................... (16,118) (2,186) (538)
NET INCREASE IN SHARES............................................... 2,451,558 1,160,889 1,063,069
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
12
<PAGE> 400
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share outstanding throughout the indicated periods, by
Portfolio, are as follows:
<TABLE>
<CAPTION>
NET DIVIDENDS FROM
ASSET VALUE NET NET REALIZED ------------------------------------
PERIOD ----------- INVEST- AND TOTAL FROM NET NET
ENDED BEGINNING MENT UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL
DEC. 31 OF PERIOD INCOME GAIN OPERATIONS INCOME GAIN OTHER(4) DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE NATIONAL PORTFOLIO
1993 $10.00 $0.24 $0.23 $0.47 ($0.24) -- (0.01) ($0.25)
THE NEW YORK PORTFOLIO
1993 10.00 0.24 0.20 0.44 (0.24) -- (0.01) (0.25)
THE PENNSYLVANIA PORTFOLIO
1993 10.00 0.24 0.26 0.50 (0.24) -- (0.01) (0.25)
NET NET RATIO OF RATIO OF NET
ASSET VALUE ASSETS OPERATING INVESTMENT
PERIOD ----------- AT END OF EXPENSES TO INCOME TO PORTFOLIO
ENDED END OF TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER
DEC. 31 PERIOD RETURN(3) (THOUSANDS) ASSETS ASSETS RATE
- ------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
THE NATIONAL PORTFOLIO
1993 $10.22 4.83% $25,151 0.71%(1)(2) 4.71%(1) 15.12%(1)
THE NEW YORK PORTFOLIO
1993 10.19 4.43 11,835 0.36 (1)(2) 4.70 (1) 0.00
THE PENNSYLVANIA PORTFOLIO
1993 10.25 5.00 10,897 0.38 (1)(2) 4.61 (1) 0.00
</TABLE>
(1) Annualized
(2) Had Boston Security Counsellors not elected to waive its investment
advisory fee and to reimburse expenses, the ratio of expenses to average net
assets, on an annualized basis would have been:
The National Portfolio 1.73%
The New York Portfolio 1.87%
The Pennsylvania Portfolio 1.94%
(3) Total return does not reflect the Fund's contingent deferred sales load
maximum 4%. This charge goes into effect only if shares of the fund are
redeemed within 4 years of purchase. Total returns for 1993 represent
actual, not annualized percentages.
(4) Other dividends represent distributions in excess of investment income due
to differences in book and tax income.
See footnote 2.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
================================================================================
13
<PAGE> 401
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
DECEMBER 31, 1993
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Advantage Municipal Bond Fund (the "Fund") was organized as a
Massachusetts business trust on February 25, 1993 and commenced operations on
July 1, 1993. the Fund is registered under the Investment Company Act of
1940, as amended, as an open-end diversified management investment company.
The Fund consists of three separate series portfolios, the National, New York
and Pennsylvania Portfolios (the "Portfolios"), each of which issued shares
evidencing interests in the respective Portfolio.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles.
SECURITY VALUATION
Market values for the Portfolios' investments are determined as follows:
a. Municipal bonds are valued on the basis of valuations furnished by a
pricing service approved by the trustees, which uses information with
respect to bond and note transactions, quotations from bond dealers,
market transactions in comparable securities and various relationships
between securities in determining value.
b. Money market instruments and short-term municipal obligations with an
initial maturity or remaining maturity of 60 days or less are valued at
amortized cost, provided that it approximates market value.
c. Other securities for which market quotations are not readily available and
other assets are valued at their fair value as determined by or under the
direction of the Trustees. Such fair value may be determined by various
methods, including utilizing information furnished by pricing services
which determine calculations for such securities using methods based,
among other things, upon market transactions for comparable securities
and various relationships between securities which are generally
recognized as relevant.
SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are accounted for on the date that the securities are
purchased or sold. Interest income is recorded on the accrual basis and
includes accretion of discount and amortization of premium using the yield to
maturity method. Dividend income is recorded on the ex-dividend date. The
Portfolios use the identified cost basis in computing gains or losses on
sales of investment securities.
INCOME TAX
For federal income tax purposes, each Portfolio intends to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986 (the "Code"), as amended, by distributing substantially all of its
taxable and tax-exempt income to its shareholders or otherwise complying with
the requirements for regulated investment companies. It is also the
intention of each Portfolio to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Code. Accordingly, no
provision for federal income taxes or excise tax has been made.
DIVIDENDS TO SHAREHOLDERS
The Portfolios declare dividends daily and pay monthly distributions from net
investment income. Dividends paid by the Portfolios from net interest earned
on tax-exempt municipal bonds are not includable by shareholders as gross
income for federal income tax purposes. distributions from realized capital
gains, if any, are paid at least annually and will be taxable to
shareholders.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. these differences are primarily due to
differing treatment for deductibility of organization expenses. The
Portfolios have reclassified these permanent differences to increase
undistributed net investment income and decrease paid-in capital by $19,045,
$4,226 and $4,528 for the National, New York and Pennsylvania Portfolios,
respectively.
================================================================================
14
<PAGE> 402
================================================================================
THE ADVANTAGE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
DECEMBER 31, 1993
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
GENERAL AND ORGANIZATION EXPENSES
General expenses of the Fund which do not specifically relate to an
individual Portfolio are allocated among the Portfolios in proportion to
their net assets or as deemed appropriate by the treasurer. Custodian fees
have been reduced by credits allowed by the custodian.
Costs incurred by the Fund in connection with its organization and its
original registration, amounting to $127,562, have been capitalized and are
being amortized on a straight-line basis over a 60 month period. Advest
Group, Inc. ("AGI") has agreed that if any of the initial shares of the Fund
(10,000 shares originally purchased by AGI) are redeemed during such
amortization period, the redemption proceeds will be reduced by the amount of
the then unamortized organization expenses in the same ratio as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
3. INVESTMENT ADVISORY, DISTRIBUTION AND TRANSFER AGENT AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Boston
Security Counsellors, Inc. ("BSC"), a wholly owned subsidiary of AGI. For
its services as Investment Advisor, BSC receives from each Portfolio an
advisory fee equal on an annual basis to .45% of its average daily net
assets. BSC has agreed to waive its fee during the first year of operations.
Also, BSC and its affiliates have voluntarily agreed to waive or reimburse
expenses to the extent necessary to limit total operating expenses of each
Portfolio to no greater than .70% of average daily net assets after
commencement of operations for one year. BSC and its affiliates waived
and/or reimbursed expenses of $225,137 for the period ended December 31,
1993.
The Fund has entered into a Distribution Agreement with Advest, Inc., a
wholly owned subsidiary of AGI, and has adopted a distribution and service
plan pursuant to Rule 12b-1 under the Investment Company Act of 1940. Each
Portfolio will pay an annual combined distribution and service fee of .50% of
its average daily net assets. Advest also receives the proceeds of any
contingent deferred sale charges on certain redemptions of shares. During
the period ended December 31, 1993, Advest received gross distribution fees
of $88,753 and contingent deferred sales charges of $2,721.
The Fund has entered into a transfer agency and service agreement with Advest
Transfer Services, Inc. ("ATS"), a wholly owned subsidiary of AGI. As the
Fund's transfer agent, ATS performs dividend-disbursing functions and
provides various services in connection with the purchase and redemption of
Fund shares. For those services, the Fund pays ATS fees based on the type
and number of accounts in the Fund and the number of transactions made by
shareholders. The Portfolios were charged $11,572 for the period ended
December 31, 1993.
4. RELATED PARTY TRANSACTIONS
As of December 31, 1993, AGI held 10,000 shares of The Advantage Municipal
Bond Fund - the National Portfolio.
Unaffiliated trustees of the Fund receive an annual Trustee's fee of $500,
and an additional fee for each Trustees' meeting attended.
5. PURCHASES, SALES AND MATURITIES OF INVESTMENTS
For the period ended December 31, 1993, purchases, sales and maturities
(excluding short-term securities) of investments at market value for each
Portfolio are as follows:
<TABLE>
<CAPTION>
SALES AND
PURCHASES MATURITIES
----------- ----------
<S> <C> <C>
NATIONAL PORTFOLIO $25,411,857 $1,518,885
NEW YORK PORTFOLIO $11,099,463 --
PENNSYLVANIA PORTFOLIO $10,159,589 --
</TABLE>
6. CONCENTRATION OF CREDIT
The New York and Pennsylvania Portfolios primarily invest in debt
obligations issued by municipalities in their respective states. In
addition, the Portfolios are concentrated in various industries as disclosed
in the Statements of Investments. The ability of the issuers of the debt
securities to meet their obligations may be affected by economic or political
developments in the specific industry or state.
================================================================================
15
<PAGE> 403
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF THE ADVANTAGE MUNICIPAL BOND FUND:
In our opinion, the accompanying statements of assets and liabilities,
including the statements of investments, (except for bond ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The National Portfolio, The New York Portfolio and The Pennsylvania Portfolio
(constituting The Advantage Municipal Bond Fund, hereafter referred to as the
"Fund") at December 31, 1993, and the results of their operations, the changes
in their net assets and the financial highlights for the period July 1, 1993
(commencement of operations) through December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at December 31, 1993 by
correspondence with the custodian and brokers, (and the application of
alternative auditing procedures where confirmations from brokers were not
received), provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Boston, Massachusetts
February 16, 1994
================================================================================
16
<PAGE> 404
================================================================================
TRUSTEES
Richard C. Farr
Geoffrey Nunes
Linda G. Sprague
Robert L. Thomas
Allen Weintraub
OFFICERS
Robert L. Thomas, President
Martin M. Lilienthal, Vice President and Treasurer
David A. Horowitz, Secretary
Margaret B. Patel, Vice President
Donna McAdam, Vice President and Assistant Secretary
HEADQUARTERS
100 Federal Street
Boston, MA 02110
(617) 348-3100
INVESTMENT ADVISER
BOSTON SECURITY COUNSELLORS, INC.
100 Federal Street
Boston, MA 02110
(800) 523-5903
(617) 348-3100
TRANSFER AGENT
ATS, INC.
280 Trumbull Street
Hartford, CT 06103
(800) 544-9268
DISTRIBUTOR
ADVEST, INC.
Corporate Headquarters
280 Trumbull Street
Hartford, CT 06103
(800) 243-8115 x2030 (outside CT)
(203) 241-2030
- --------------------------------------------------------------------------------
This publication, when not used for the general information of the shareholders
of The Advantage Municipal Bond Fund, must be preceded or accompanied by a
current prospectus for the Fund that includes management fees, charges and
expenses. Please read the prospectus carefully before investing in any of the
Portfolios of the Fund.
<PAGE> 405
THE ADVANTAGE
MUNICIPAL BOND FUND [BULK RATE POSTAGE
PERMIT INSERTED HERE]
100 FEDERAL STREET, 29TH FLOOR
BOSTON, MA 02110
<PAGE> 406
PART C
ITEM 15. INDEMNIFICATION
The information set forth in Item 27 of Form N-1A filed as Post-Effective
Amendment No. 26 under the Securities Act of 1933 (File No. 2-92915) and
Amendment No. 27 to the Registration Statement under the Investment Company Act
of 1940 (File No. 811-4096), with the SEC on February 22, 1995, is incorporated
herein by reference. The Advantage Trust, solely on behalf of the Advantage
Fund, and The Advest Group, Inc. have agreed, jointly and severally, to
indemnify and hold harmless the Registrant, its trustees and officers, each
person who controls the MFS Fund within the meaning of applicable federal
securities laws, and MFS, it wholly-owned subsidiaries and the directors,
officers and employees of MFS and such subsidiaries, against any loss, claim
damage and expense, paid or incurred, arising out of (i) any untrue statement or
alleged untrue statement of material fact contained in the Notice of Special
Meeting or Proxy Statement and Prospectus contained in Part A hereof or in this
Registration Statement, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with respect to untrue statements or omissions
in or from those sections thereof identified as being the responsibility of the
Advantage Fund; (ii) any breach of any representation, warranty or covenant of
the Advantage Trust or the Advantage Fund set forth in the Reorganization
Agreement contained in Part A hereof or set forth in any certificate provided by
the Advantage Trust in connection with the consummation of the transactions
contemplated by the Reorganization Agreement (including, without limitation, any
certificate provided by the Advantage Trust in support of the legal opinion
required pursuant to Section 8.6 of the Reorganization Agreement); (iii) the
failure of the Advantage Fund or its designee to timely file all federal, state
and other tax returns, forms and reports when due of the Advantage Fund with
respect to all periods up to and including the Closing Date (as defined in the
Reorganization Agreement) or to pay any taxes due by the Advantage Fund to any
taxing authority with respect to all such periods, including without limitation,
any failure to pay such taxes due in a timely manner; and (iv) non-compliance of
the Advantage Fund with any applicable federal or state securities laws or with
applicable provisions of the Internal Revenue Code of 1986, as amended, or with
the investment policies and restrictions contained in the Advantage Fund's
prospectus and statement of additional information, as in effect from time to
time.
C-1
<PAGE> 407
<TABLE>
ITEM 16. EXHIBITS
<S> <C> <C>
1. Amended and Restated Declaration of Trust dated February 2, 1995. (7)
2. Amended and Restated By-Laws dated December 14, 1994. (7)
3. Not Applicable.
4. Form of Agreement and Plan of Reorganization between Registrant and the
Advantage Trust; filed herewith as Exhibit A to the MFS Fund Prospectus set
forth as Part A to the Registration Statement on Form N-14.
5. Form of Share Certificate for Class A and B shares. (6)
6. Investment Advisory Agreement dated April 14, 1993. (5)
7. (a) Amended and Restated Distribution Agreement, dated January 1, 1995. (7)
(b) Form of Dealer Agreement between MFS Fund Distributors, Inc., and a dealer,
dated December 28, 1994 and form of Mutual Fund Agreement between MFS Fund
Distributors, Inc. and a bank or NASD affiliate, dated December 28, 1994. (7)
8. Form of Retirement Plan for Non-Interested Person Trustees, dated January 1,
1991. (4)
9. (a) Custodian Contract, dated June 15, 1988. (2)
(b) Amendments to Custodian Agreement, dated August 10, 1988 and October 1, 1989,
respectively. (1)
(c) Amendment to Custodian Agreement, dated December 11, 1991. (3)
10. (a) Form of Class A Distribution Plan. (5)
(b) Form of Class B Distribution Plan. (5)
11. Opinion and Consent of Stephen E. Cavan, Senior Vice President and General
Counsel of Massachusetts Financial Services Company, as to the legality of
securities being issued; filed herewith.
12. Opinion and Consent of Ropes & Gray as to tax matters; filed herewith.
13. Form of Cross-Indemnity Agreement among the Registrant, the Advantage Trust
and the Advest Group, Inc.; filed herewith.
14. (a) Consent of Deloitte & Touche LLP regarding financial statements of the MFS
Fund; filed herewith.
(b) Consent of Price Waterhouse LLP regarding financial statements of the
Advantage Fund; filed herewith.
15. Not Applicable.
16. Power of Attorney dated August 11, 1994. (7)
17. Rule 24f-2 Notice of Election of Registrant; filed herewith.
<FN>
- ---------------
(1) Incorporated by reference to Post-Effective Amendment No. 11 filed with the
SEC March 30, 1990.
(2) Incorporated by reference to Post-Effective Amendment No. 12 filed with the
SEC March 29, 1991.
(3) Incorporated by reference to Post-Effective Amendment No. 16 filed with the
SEC May 28, 1992.
(4) Incorporated by reference to Post-Effective Amendment No. 20 filed with the
SEC on April 1, 1993.
(5) Incorporated by reference to Post-Effective Amendment No. 22 filed with the
SEC on June 28, 1993.
(6) Incorporated by reference to Post-Effective Amendment No. 23 filed with the
SEC October 29, 1993.
(7) Incorporated by reference to Post-Effective Amendment No. 26 filed with the
SEC February 22, 1995.
</TABLE>
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that, prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities affected therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
C-2
<PAGE> 408
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant in the City of Boston and The Commonwealth of
Massachusetts on the 24th day of February, 1995.
MFS MUNICIPAL SERIES TRUST ON BEHALF
OF MFS NEW YORK MUNICIPAL BOND FUND
James R. Bordewick, Jr.
By:.................................
NAME: JAMES R. BORDEWICK, JR.
TITLE: ASSISTANT SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on February 24, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
A. Keith Brodkin* Chairman, President (Principal Executive
........................................ Officer) and Trustee
A. KEITH BRODKIN
W. Thomas London* Treasurer (Principal Financial Officer and
........................................ Principal Accounting Officer)
W. THOMAS LONDON
Richard B. Bailey* Trustee
........................................
RICHARD B. BAILEY
Marshall N. Cohan* Trustee
........................................
MARSHALL N. COHAN
Lawrence H. Cohn* Trustee
........................................
LAWRENCE H. COHN
J. David Gibbons* Trustee
........................................
J. DAVID GIBBONS
Abby M. O'Neill* Trustee
........................................
ABBY M. O'NEILL
Walter E. Robb, III* Trustee
........................................
WALTER E. ROBB, III
Arnold D. Scott* Trustee
........................................
ARNOLD D. SCOTT
Jeffrey L. Shames* Trustee
........................................
JEFFREY L. SHAMES
J. Dale Sherratt* Trustee
........................................
J. DALE SHERRATT
Ward Smith* Trustee
........................................
WARD SMITH
James R. Bordewick, Jr.
*By:...............................
JAMES R. BORDEWICK, JR.,
AS ATTORNEY-IN-FACT
EXECUTED BY JAMES R. BORDEWICK, JR.
ON BEHALF OF THOSE INDICATED
PURSUANT TO A POWER-OF-ATTORNEY
DATED AUGUST 11, 1994 INCORPORATED
BY REFERENCE TO THE REGISTRANT'S
POST-EFFECTIVE AMENDMENT NO. 26,
FILED WITH THE SEC ON FEBRUARY 22,
1995.
</TABLE>
<PAGE> 409
EXHIBIT INDEX
The following exhibits are filed as a part of this Registration Statement
pursuant to General Instruction G of Form N-14.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C> <C>
(4) Form of Agreement and Plan of Reorganization between the Registrant and
the Advantage Trust filed herewith as Exhibit A to the MFS Fund
Prospectus set forth as Part A to the Registration Statement on Form
N-14.
(11) Opinion and Consent of Stephen E. Cavan, Senior Vice President and
General Counsel of Massachusetts Financial Service Company, as to
legality of securities being issued.
(12) Opinion and Consent of Ropes & Gray as to tax matters.
(13) Form of Cross-Indemnity Agreement among the Registrant, the Advantage
Trust and the Advest Group, Inc.
(14)(a) Consent of Deloitte & Touche LLP regarding the financial statements of
the MFS Fund.
(b) Consent of Price Waterhouse LLP regarding the financial statements of the
Advantage Fund.
(17) Rule 24f-2 Notice of Election.
</TABLE>
<PAGE> 1
EXHIBIT 11
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street - Boston, Massachusetts 02116-3741
STEPHEN E. CAVAN
Senior Vice President and General Counsel
Phone: (617) 954-5810
Fax: (617) 954-6624
February 23, 1995
MFS Pennsylvania Municipal Bond Fund
A series of the MFS Municipal Series Trust
I have acted as counsel to MFS Pennsylvania Municipal Bond Fund (the "MFS
Fund"), a series of MFS Municipal Series Trust, a Massachusetts business trust
(the "MFS Trust"), in connection with the Trust's Registration Statement on
Form N-14 to be filed with the Securities and Exchange Commission (the
"Commission") on or about February 24, 1995 (the "Registration Statement"),
with respect to an indefinite number of Shares of Beneficial Interest
designated as Class B Shares (no par value) (the "Shares") of the MFS Fund to
be issued pursuant to an Agreement and Plan of Reorganization dated February
23, 1995 by and among the MFS Trust, on behalf of the MFS Fund, and The
Advantage Municipal Bond Fund, a Massachusetts business trust ("Advantage
Trust"), on behalf of The Pennsylvania Portfolio (the "Advantage Fund"), a
series of the Advantage Trust (the "Agreement').
In connection with this opinion, I have examined the following documents:
(a) the Registration Statement;
(b) the Agreement;
(c) a certificate of the Secretary of State of The Commonwealth of
Massachusetts as to the existence of the MFS Trust;
(d) copies, certified by the Secretary of State of The Commonwealth of
Massachusetts, of the MFS Trust's Declaration of Trust and of
all amendments thereto on file in the office of the Secretary
of State; and
(e) the MFS Trust's Amended and Restated By-Laws and certain votes of
the Trustees of the MFS Trust.
<PAGE> 2
MFS Pennsylvania Municipal Bond Fund
February 23, 1995
Page 2
In such examination, I have assumed the genuineness of all signatures, the
conformity to the originals of all of the documents reviewed by me as copies,
the authenticity and completeness of all original documents reviewed by me in
original or copy form and the legal competence of each individual executing any
document. I have also assumed, for the purposes of this opinion, that the
Agreement, in substantially the form reviewed by me, is duly executed and
delivered by the parties thereto and that all of the conditions set forth in
"Conditions Precedent to Closing" in the Registration Statement shall have
occurred prior to the issuance and sale of the Shares.
This opinion is based entirely on my review of the documents listed above.
I have made no other review or investigation of any kind whatsoever, and I have
assumed, without independent inquiry, the accuracy of the information set forth
in such documents.
This opinion is limited solely to the laws of The Commonwealth of
Massachusetts (other than the Massachusetts Uniform Securities Act, as to which
I express no opinion) as applied by courts in such Commonwealth.
I understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is my
opinion that the Shares, when issued and sold in accordance with the
Registration Statement, the Agreement and the MFS Trust's Declaration of Trust
and By-laws, will be legally issued, fully paid and non-assessable, except that
shareholders of the MFS Trust may under certain circumstances be held
personally liable for the Trust's obligations.
A copy of the MFS Trust's Declaration of Trust is on file with the
Secretary of State of the Commonwealth of Massachusetts. I note specifically
that the obligations of or arising out of the agreement are not binding upon
any of the MFS Trust's trustees, officers, employees, agents or shareholders
individually, but are binding solely upon the assets and property of the MFS
Trust in accordance with its interest under the agreement. I further note that
the assets and liabilities of each series of the MFS Trust, such as the MFS
Fund, are separate and distinct and that the obligations of or arising out of
the Agreement are binding solely upon the assets or property of the MFS Fund.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
STEPHEN E. CAVAN
Stephen E. Cavan
SEC/kmm
<PAGE> 1
EXHIBIT 12
Ropes & Gray
[Letterhead]
February 24, 1995
The Advantage Municipal Bond Fund --
The New York Portfolio
100 Federal Street
Boston, MA 02110
MFS Municipal Series Trust --
MFS New York Municipal
Bond Fund
500 Boylston Street
Boston, MA 02116
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization (the "Agreement") to be dated as of February 23, 1995 between
The Advantage Municipal Bond Fund, a Massachusetts business trust, on behalf of
its separate series, the New York Portfolio (the "Transferor Fund"), and MFS
Municipal Series Trust, a Massachusetts business trust, on behalf of its
separate series, MFS New York Municipal Bond Fund (the "Acquiring Fund"). The
Agreement describes a proposed transaction (the "Transaction"), to occur on or
about May 1, 1995 (the date of the Transaction is referred to hereinafter as
the "Exchange Date"), pursuant to which Acquiring Fund will acquire
substantially all of the assets of Transferor Fund in exchange for the issuance
by Acquiring Fund to Transferor Fund of shares of beneficial interest in
Acquiring Fund (the "Acquiring Fund Shares") and the assumption by Acquiring
Fund of all of the stated liabilities of Transferor Fund, following which the
Acquiring Fund Shares will be distributed by Transferor Fund to its
shareholders in liquidation and termination of Transferor Fund. This opinion
as to certain federal income tax consequences of the Transaction is furnished
to you pursuant to section 8.6 of the Agreement. Terms used but not defined
herein have the same meaning as is ascribed to them in the Agreement.
The Advantage Municipal Bond Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. Shares of Transferor Fund are redeemable at net asset
value at each shareholder's option. Transferor Fund has elected to be a
regulated investment
<PAGE> 2
Ropes & Gray
The Advantage Municipal Bond Fund -2- February 24, 1995
MFS Municipal Series Trust
company for federal income tax purposes under section 851 of the Internal
Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is registered under the 1940 Act as an open-end
management investment company. Shares of Acquiring Fund are redeemable at net
asset value at each shareholder's option. Acquiring Fund has elected to be a
regulated investment company for federal income tax purposes under section 851
of the Code.
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement/Prospectus to be dated March 29, 1995 which will be distributed
to Transferor Fund shareholders (including the items incorporated by reference
therein), and such other items as we have deemed necessary to render this
opinion. In addition, you have represented to us that the following facts,
occurrences and information are true as of the date hereof and will be true as
of the Exchange Date, and have stated that we may rely upon the accuracy and
veracity of such facts, occurrences and information in rendering this opinion
(whether or not contained or reflected in the documents and items referred to
above):
1. Transferor Fund will transfer to Acquiring Fund all of its assets,
and Acquiring Fund will assume all of the stated liabilities of Transferor
Fund, as of the Exchange Date.
2. Transferor Fund will distribute the Acquiring Fund Shares it
receives in the Transaction to Transferor Fund's shareholders as provided in
the Agreement.
3. The fair market value of the Acquiring Fund Shares received by
each Transferor Fund shareholder will be approximately equal to the fair market
value of the Transferor Fund shares surrendered in exchange therefor. The
shareholders of the Transferor Fund will receive no consideration, other than
Acquiring Fund Shares (which may include fractional shares) as described in the
Agreement, in exchange for their Transferor Fund shares.
4. None of the compensation received by any shareholder-employees of
Transferor Fund, if any, will be separate consideration for, or allocable to,
any of their Transferor Fund shares; none of the Acquiring Fund Shares received
by any Transferor Fund shareholder-employee will be separate consideration for,
or allocable to, any employment agreement; and the compensation paid to any
Acquiring Fund or Transferor Fund shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts
<PAGE> 3
Ropes & Gray
The Advantage Municipal Bond Fund -3- February 24, 1994
MFS Municipal Series Trust
paid to third parties bargaining at arm's length for similar services.
5. There is no plan or intention by any Transferor Fund shareholder
who owns 5% or more of the outstanding Transferor Fund shares, and to the best
of the knowledge of the management of the Transferor Fund, there is no plan or
intention on the part of the remaining Transferor Fund shareholders to sell,
exchange, or otherwise dispose of a number of Acquiring Fund Shares such that
the Transferor Fund shareholders' ownership of Acquiring Fund Shares, in the
aggregate, would be reduced to a number of Acquiring Fund Shares having a
value, as of the date of the Transaction, of less than 50 percent of the value
of all of the formerly outstanding Transferor Fund shares as of the same date.
For purposes of this representation, Acquiring Fund Shares or Transferor Fund
shares surrendered by Transferor Fund shareholders in redemption or otherwise
disposed of, where such dispositions, if any, are initiated by Transferor Fund
shareholders in connection with or as a result of the Agreement or the
Transaction, will be treated as outstanding Transferor Fund shares on the date
of the Transaction.
6. Acquiring Fund will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of the
gross assets held by the Transferor Fund immediately prior to the Transaction.
For purposes of this representation, (a) amounts paid by the Transferor Fund to
Transferor Fund shareholders in redemption of Transferor Fund shares, where
such redemptions (if any) are initiated by Transferor Fund shareholders in
connection with or as a result of the Agreement or the Transaction rather than
in the ordinary course of business apart from the Agreement or the Transaction,
(b) amounts used by the Transferor Fund to pay expenses of the Transaction, and
(c) amounts used by the Transferor Fund to effect any distributions (except for
regular, normal distributions and dividends declared and paid in order to
ensure Transferor Fund's continued qualification as a regulated investment
company and to avoid imposition of fund-level tax, including distributions
declared and paid in accordance with Section 8.5 of the Agreement) made by
Transferor Fund immediately prior to the Transaction, will be included as
assets of Transferor Fund held immediately prior to the Transaction. Further,
for purposes of this representation, the amounts (if any) that Acquiring Fund
pays after the Transaction to Acquiring Fund shareholders who are former
Transferor Fund shareholders in redemption of Acquiring Fund Shares received in
exchange for Transferor Fund shares, where such redemptions are initiated by
such shareholders in connection with or as a result of the Agreement or the
Transaction rather than in the ordinary course
<PAGE> 4
Ropes & Gray
The Advantage Municipal Bond Fund -4- February 24, 1995
MFS Municipal Series Trust
of business apart from the Agreement or the Transaction, will be considered to
be assets of Transferor Fund that were not transferred to the Acquiring Fund.
7. Acquiring Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Transferor Fund acquired in the Transaction,
except for (i) dispositions made in the ordinary course of its business as a
series of an open-end investment company (i.e., dispositions resulting from
investment decisions made after the Transaction on the basis of investment
considerations independent of the Transaction) and (ii) dispositions made by
Acquiring Fund to realign its portfolio in order to reflect its investment
objective and conform to its investment restrictions and/or to maintain its
qualification as a "regulated investment company" for federal income tax
purposes under section 851 of the Code ("Realignment Dispositions"), which
Realignment Dispositions shall not exceed 50% of the net assets of Transferor
Fund immediately prior to the Exchange Date. For purposes of this
representation, Realignment Dispositions made by Transferor Fund, if any, will
be considered to have been made by Acquiring Fund.
8. Acquiring Fund has no plan or intention to reacquire any of the
Acquiring Fund Shares issued in the Transaction, except for Acquiring Fund
Shares reacquired in the ordinary course of its business as a series of an
open-end investment company.
9. The liabilities of Transferor Fund to be assumed by Acquiring
Fund, and the liabilities, if any, to which the transferred assets will be
subject, will have been incurred by Transferor Fund in the ordinary course of
its business and will be associated with the assets transferred to Acquiring
Fund. For purposes of this paragraph, expenses of the Transaction are not
treated as liabilities.
10. The fair market value of the Transferor Fund assets transferred
to Acquiring Fund will equal or exceed the sum of all of the liabilities
assumed by Acquiring Fund, plus the amount of liabilities, if any, to which the
transferred assets are subject.
11. Following the Transaction, the MFS Fund will use in its business a
significant portion (in this case, at least 50%) of the historic business
assets of the Advantage Fund. Specifically, the MFS Fund will use such
significant portion of the Advantage Fund's historic business assets in its
business by continuing to hold at least such portion of the assets transferred
to it by the Advantage Fund, except for dispositions made in the ordinary
course of the MFS Fund's business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made after the Transaction on
the basis of investment considerations independent of the Transaction).
12. Except as provided in Section 9.2 of the Agreement and the
agreement referred to therein, Transferor Fund, Acquiring Fund, and the
Transferor Fund shareholders will pay their respective expenses, if any,
incurred in connection with the Transaction; however, Acquiring Fund may pay
certain expenses of Transferor Fund which arise after the Transaction, provided
that Acquiring Fund will pay or assume only those expenses of
<PAGE> 5
Ropes & Gray
The Advantage Municipal Bond Fund -5- February 24, 1995
MFS Municipal Series Trust
Transferor Fund that are solely and directly related to the Transaction and
will pay such expenses directly to the relevant providers of services or other
payees, all in accordance with the guidelines established in Rev. Rul. 73-54,
1973-1 CB 187.
13. There is no intercorporate indebtedness existing between the
Acquiring Fund and the Transferor Fund.
14. Acquiring Fund does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any Transferor Fund
shares.
15. For federal income tax purposes, the Transferor Fund qualifies as
a regulated investment company, and the provisions of sections 851 through 855
of the Code apply to the Transferor Fund for its current taxable year beginning
January 1, 1995 and will continue to apply to it through the Exchange Date.
In that regard, on or prior to the Exchange Date, Transferor Fund will
distribute to its shareholders of record all of the excess of (i) its
investment income excludable from gross income under Section 103(a) of the Code
over (ii) its deductions disallowed under Sections 265 and 171(a)(2) of the
Code, all of its investment company taxable income as defined in Section
852(b)(2) of the Code and all of its net capital gain as such term is used in
Section 852(b)(3)(C) of the Code, after reduction by any capital loss
carryforward, in each case for its taxable year ending December 31, 1994 and
its short taxable year ending on the Closing Date.
16. For federal income tax purposes, Acquiring Fund qualifies as a
regulated investment company, and the provisions of sections 851 through 855 of
the Code apply to Acquiring Fund for its current taxable year beginning April
1, 1994 and will continue to apply to it through the Exchange Date.
17. Transferor Fund is not, and as of the Exchange Date will not be,
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of section 368(a)(3)(A) of the Code.
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The acquisition by the Acquiring Fund of all of the assets of
Transferor Fund, solely in exchange for Acquiring Fund Shares
and the assumption of the stated liabilities of Transferor
Fund by
<PAGE> 6
Ropes & Gray
The Advantage Municipal Bond Fund -6- February 24, 1995
MFS Municipal Series Trust
Acquiring Fund, followed by the distribution by Transferor
Fund of the Acquiring Fund Shares in complete liquidation to
the shareholders of Transferor Fund in exchange for their
Transferpr Fund shares and the Bond Fund, will constitute a
reorganization within the meaning of Section 368(a) of the
Code, and Transferor Fund and Acquiring Fund will each be "a
party to a reorganization" within the meaning of Section
368(b) of the Code;
(ii) No gain or loss will be recognized by Transferor Fund upon the
transfer of all of its assets to Acquiring Fund solely in
exchange for Acquiring Fund Shares and the assumption of the
stated liabilities of Transferor Fund by Acquiring Fund or
upon the distribution to Transferor Fund shareholders of such
Acquiring Fund Shares pursuant to the Agreement;
(iii) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Transferor Fund solely in exchange
for Acquiring Fund Shares and the assumption of the stated
liabilities of Transferor Fund by Acquiring Fund;
(iv) The basis of the assets of Transferor Fund acquired by
Acquiring Fund will be, in each instance, the same as the
basis of those assets in the hands of Transferor Fund
immediately prior to the transfer;
(v) The holding period of the assets of Transferor Fund in the
hands of Acquiring Fund will include, in each instance, the
holding period of such assets in the hands of Transferor Fund;
(vi) The shareholders of Transferor Fund will not recognize gain or
loss upon the exchange of all of their Transferor Fund shares
of beneficial interest solely for Acquiring Fund Shares as
part of the transaction;
<PAGE> 7
Ropes & Gray
The Advantage Municipal Bond Fund -7- February 24, 1995
MFS Municipal Series Trust
(vii) The basis of the Acquiring Fund Shares to be received
by each Transferor Fund shareholder will be, in the
aggregate, the same as the basis, in the aggregate,
of the Transferor Fund shares of beneficial interest
surrendered by such shareholder in exchange therefor;
and
(viii) The holding period of the Acquiring Fund Shares to be received
by each Transferor Fund shareholder will include the holding
period of the Transferor Fund shares of beneficial interest
surrendered by such shareholder in exchange therefor, provided
the Transferor Fund shares were held by such shareholder as
capital assets on the date of the exchange.
Very truly yours,
Ropes & Gray
Ropes & Gray
CRR/lr
<PAGE> 1
EXHIBIT 13
CROSS-INDEMNITY AGREEMENT
-------------------------
ARTICLE 1. The Advantage Municipal Bond Fund, a Massachusetts business trust
(the "Advantage Trust"), on behalf of The New York Portfolio, a series thereof
(the "Advantage Fund"), and not on behalf of any other series thereof, and The
Advest Group, Inc, a [Delaware] corporation ("Advest"), jointly and severally
agree to indemnify and hold harmless MFS Municipal Series Trust, a
Massachusetts business trust (the "MFS Trust"), on behalf of MFS New York
Municipal Bond Fund (the "MFS Fund"), a series of the Trust, the MFS Trust's
trustees and officers, and each person, if any, who controls the MFS Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), Section 20 of the Securities Exchange Act of 1934 (the "1934 Act") or
Section 48 of the Investment Company Act of 1940 (the "1940 Act"), and
Massachusetts Financial Services Company, a Delaware corporation ("MFS"),
together with its wholly-owned subsidiaries, and the directors, officers and
employees of MFS and such subsidiaries, to the extent and in the manner as
follows:
(a) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as paid or incurred, arising out
of any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement of the
MFS Fund filed on Form N-14 (the "Registration Statement")
with the Securities and Exchange Commission (the "SEC"), in
the Notice of a Special Meeting of Shareholders of the
Advantage Fund to be held on April 27, 1995 (the "Meeting") or
in the Proxy Statement and Prospectus of the Advantage Fund
and the MFS Fund mailed in connection with the Special Meeting
(such Notice and Proxy Statement and Prospectus being
collectively referred to herein as the "Proxy Statement and
Prospectus"), or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only with
respect to untrue statements or omissions, or alleged untrue
statements or omissions, in or from those sections of the
Registration Statement and Proxy Statement and Prospectus
identified as "Advantage Fund Information" on the copy of the
Registration Statement and Proxy Statement and Prospectus
attached hereto as Exhibits A and B, respectively ("Covered
Information");
(b) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as paid or incurred, arising out
of (i) any breach of any representation, warranty or covenant
of the Advantage Trust or the Advantage Fund set forth in the
Agreement and Plan of Reorganization dated February 23, 1995
(the "Reorganization Agreement") between the MFS Trust, on
behalf of the MFS Fund, and the Advantage Trust, on behalf of
the Advantage Fund, or set forth in any certificate provided
by the Advantage Trust in connection with the consummation of
the transactions contemplated by the Reorganization Agreement
- 1 -
<PAGE> 2
(including, without limitation, any certificate provided by the
Advantage Trust in support of the legal opinion required pursuant
to Section 8.6 of the Reorganization Agreement); (ii) the failure
of the Advantage Fund or its designee to timely file all federal,
state and other tax returns, forms and reports when due of the
Advantage Fund with respect to all periods up to and including the
Closing Date (as defined in the Reorganization Agreement) or to
pay any taxes due by the Advantage Fund to any taxing authority
with respect to all such periods, including without any
limitation, any failure to pay such taxes due in a timely manner;
and (iii) non-compliance of the Advantage Fund with any applicable
federal or state securities laws, including without limitation the
1933 Act, the 1934 Act and the 1940 Act, or with applicable
provisions of the Internal Revenue Code of 1986, as amended, or
with the investment policies and restrictions contained in the
Advantage Fund's prospectus and statement of additional
information, as in effect from time to time;
(c) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as paid or incurred, to the
extent of the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, with
respect to those matters for which indemnification is provided
as set forth in paragraphs (a) and (b) above, if settlement is
effected with the written consent of each indemnifying party;
and
(d) against any and all expense whatsoever, joint or several, as paid
or incurred (including, subject to Article 3 hereof, the fees
and disbursements of counsel chosen by the MFS Trust on behalf
of the MFS Fund), reasonably incurred in investigating,
preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or
body, commenced or threatened, with respect to those matters
for which indemnification is provided as set forth in
paragraphs (a) and (b) above, to the extent that any such
expense is not paid under paragraphs (a) or (b) above.
This Agreement will be in addition to any liability which any of the Advantage
Trust, on behalf of the Advantage Fund, and Advest may otherwise have.
ARTICLE 2. The MFS Trust, on behalf of the MFS Fund and not on behalf of any
other series of the MFS Trust, agrees to indemnify and hold harmless the
Advantage Trust, on behalf of the Advantage Fund, the Advantage Trust's
trustees and officers, and each person, if any, who controls the Advantage Fund
within the meaning of Section 15 of the 1933 Act, Section 20 of the 1934 Act or
Section 48 of the 1940 Act, and Advest, together with its wholly-owned
subsidiaries, and the directors, officers and employees of Advest and of such
subsidiaries, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in paragraphs (a), (c) and (d) (but not
paragraph (b)) of Article 1 of this Agreement, as paid or incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement or the Proxy Statement and
Prospectus, except
- 2 -
<PAGE> 3
that no indemnification shall be provided with respect to any such untrue
statements or omissions, or alleged untrue statements or omissions, in or from
the Covered Information or in or from those sections of the Registration
Statement and Proxy Statement and Prospectus identified as "Not Covered" on the
copy of the Registration Statement and Proxy Statement and Prospectus attached
hereto as Exhibits A and B, respectively. This Agreement will be in addition
to any liability that the MFS Trust, on behalf of the MFS Fund, may otherwise
have.
ARTICLE 3. Each indemnified party hereunder shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability which it may have otherwise than on account of this
Agreement, or relieve such indemnifying party from any liability under this
Agreement except to the extent that the indemnifying party's ability to defend
the action is materially adversely affected by the indemnified party's failure
to give notice as promptly as reasonably practicable. An indemnifying party
may participate at its own expense in the defense of any such action. In no
event shall the indemnifying party or parties be liable for fees and expenses
of more than one counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties under this Agreement in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
ARTICLE 4. Copies of the Declarations of Trust of the MFS Trust and the
Advantage Trust (the "Trusts") are on file with the Secretary of State of The
Commonwealth of Massachusetts. The undersigned acknowledge that the
obligations of or arising out of this Agreement are not binding upon any of
either Trust's officers, employees, agents or shareholders individually, but
are binding solely upon the assets and property of the MFS Fund, with respect
to the MFS Trust, and the Advantage Fund, with respect to the Advantage Trust,
as the case may be. The undersigned further acknowledge that the assets and
liabilities of each series of each Trust are separate and distinct and that the
obligations of or arising out of this Agreement are binding solely upon the
assets or property of the series on whose behalf each Trust has executed this
instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by a duly authorized officer on this ____ day of March, 1995.
THE ADVANTAGE MUNICIPAL BOND FUND,
on behalf of The New York Portfolio,
one of its series
By: ____________________________________
Name:
Title:
THE ADVEST GROUP, INC.
By: ____________________________________
Name:
Title:
MFS MUNICIPAL SERIES TRUST,
on behalf of MFS New York Municipal Bond
Fund, one of its series
By: ____________________________________
Name:
Title:
- 4 -
<PAGE> 1
Exhibit 14(a)
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the inclusion in the Registration Statement on Form N-14 of MFS
Municipal Series Trust on behalf of MFS New York Municipal Bond Fund (one of
the series constituting MFS Municipal Series Trust) of our reports dated
March 11, 1994 and May 5, 1994 appearing, respectively, in the Annual Reports
to shareholders of MFS Municipal Series Trust for the years ending January 31,
1994 and March 31, 1994. We also consent to the reference to us under the
heading "Experts" appearing in the Combined Prospectus/Proxy Statement which is
included as part of such Registration Statement.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Boston, Massachusetts
February 21, 1995
<PAGE> 1
EXHIBIT 14B
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the combined Statement of Additional
Information constituting part of this registration statement on Form N-14 (the
"Registration Statement") of our reports dated February 15, 1995 and February
16, 1994, relating to the financial statements and financial highlights
appearing in the December 31, 1994 Annual Report to Shareholders and the
December 31, 1993 Annual Report to Shareholders, respectively, of the New York
Portfolio of The Advantage Municipal Bond Fund, which appear in such Statement
of Additional Information, and to the incorporation by reference of our reports
into the Proxy Statement and Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Proxy Statement and Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 22, 1995
<PAGE> 1
EXHIBIT 17
As filed with the Securities and Exchange Commission on February 22, 1995
1933 Act File No. 2-92915
1940 Act File No. 811-4096
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 26
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 27
MFS MUNICIPAL SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
500 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (617) 954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
/x/ immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on [date] pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest (without par value), under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice on behalf of all of its
series for its fiscal year ended March 31, 1994 on May 26, 1994.
================================================================================