<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) MUNICIPAL
INCOME FUND
SEMIANNUAL REPORT o SEPTEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 19
Notes to Financial Statements ............................................. 25
MFS' Year 2000 Readiness Disclosure ....................................... 31
Trustees and Officers ..................................................... 33
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
The current investment and economic environment bears little resemblance to
last year's. One year ago, global economies were floundering, and the crisis
in Asia threatened an already weak U.S. economy. Corporate earnings were flat,
and economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve Board
(the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low.
Many corporations are focused on improving their profitability, and investors
have been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999 will average 12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis
has passed. In fact, Japan's economic woes seem to have reached bottom.
Although the process is in its infancy, some Japanese corporations not only
are talking about restructuring and cost cutting, they also are beginning to
take action, looking within to become more competitive and improve returns on
equity. While still lagging the United States, Europe is beginning to
restructure and consolidate. These signs of international growth have
contributed to concerns that the U.S. economy now may be too strong.
In June, and again in August, the Fed raised rates by one-quarter of a
percentage point to help ward off the specter of inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current
market many investors are taking on additional risk - whether through day
trading or investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago.
We believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top
25 stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged
index of common stock total return performance, are still the most overvalued.
Such extreme overvaluation makes the stock market sensitive to interest-rate
news and any negative earnings surprises. The Year 2000 (Y2K) computer problem
is another factor causing investor concern. While we believe corporate America
is well prepared to address any Y2K situations that may arise at year-end, no
one can predict investor behavior. In our opinion, it is investor behavior
that has the greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is
through our continuing commitment to MFS Original Research(R) and our
fundamental investment tenet of long-term investing. Whether markets
are up or down, MFS analysts focus on analyzing industries and visiting
companies to determine the long-term winners and the prices that will make
them attractive opportunities. Because all companies will not benefit equally
from the improving international environment, bottom-up research remains
critical to identifying those that we believe are successfully restructuring,
consolidating, and gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at
attractive prices. For this reason, we are continuing to expand our domestic
and international capabilities to ensure that MFS has primary, in-house
research on companies worldwide. We believe that we have built the right
investment team, backed by MFS Original Research, to take advantage of those
opportunities for our shareholders.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
October 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Christopher J. Mier]
Christopher J. Mier
For the six months ended September 30, 1999, Class A shares of the Fund
provided a total return of -2.52%, Class B shares -2.88%, and Class C shares
- -2.88%. These returns include the reinvestment of any distributions but
exclude the effects of any sales charges and compare to a -2.16% return over
the same period for the Lehman Brothers Municipal Bond Index (the Lehman
Index), an unmanaged index of national municipal bond investments rated "Baa"
or higher, and to a -3.63% return for the average general municipal debt fund
tracked by Lipper Analytical Services, Inc., an independent firm that reports
mutual fund performance.
Q. WHAT FACTORS LED TO THE NEGATIVE RETURNS OF THE MUNICIPAL BOND MARKET AND THE
FUND?
A. Rising interest rates were the main reason municipal bonds struggled during
the period. Remember, as rates rise, bond prices fall. Market rates started
to rise in the first quarter of 1999 and continued to do so through most of
the period. Rates rose in response to concerns that the continued
phenomenal strength of the U.S. economy would spark inflationary pressures.
The Federal Reserve Board (the Fed) was concerned enough to raise short-
term interest rates in June and in August. Looking more closely at the
municipal bond market, its performance relative to U.S. Treasuries was
restrained by issues related to supply and demand. On the supply side, new
issuance was still very strong, even though it didn't match the huge
quantity that came to market in 1998 when municipalities sought to take
advantage of lower interest rates to reduce their borrowing costs. However,
demand was weak as traditional purchasers of municipal bonds such as
insurance companies were less active. In addition, municipal bonds and
other non-Treasury investments lagged as market participants sought the
liquidity offered by U.S. Treasury securities in anticipation of any
problems associated with the approach of the year 2000.
Q. AT THE SAME TIME, THE FUND WAS ABLE TO OUTPERFORM ITS LIPPER AVERAGE. WHY WAS
THAT?
A. The Fund was well positioned for a rising interest-rate environment. There
were several factors that helped. First, the Fund had a shorter duration
than the average of its competitors. A shorter duration meant that the Fund
was less susceptible than its peers to price declines resulting from
interest-rate increases. Second, the Fund was focused on intermediate-
maturity securities. This segment of the market was hurt less by rate
increases and price declines than long- or short-term securities. Third,
the Fund benefited from its holdings in low-rated and nonrated securities.
These investments are generally less susceptible to rising interest rates
than higher-rated securities and offer higher yields but they are also
associated with greater than average additional credit risk -- the risk
that their issuers will not meet their payments. The combination of our
effective credit research and a healthy economy
that helped municipal issues to experience more credit upgrades
than downgrades by rating agencies helped us avoid any significant credit
problems.
Q. HAVE THERE BEEN OTHER SIGNIFICANT CHANGES TO THE FUND RECENTLY?
A. No. Instead of making a call on the future direction of interest rates or
taking on excess credit risk, we've looked to invest in bonds with multiple
attributes -- higher coupons with shorter durations, particular maturity
ranges, and refundable features -- that we believe can perform well in a
variety of investment environments.
Q. DID YOU FAVOR ANY PARTICULAR STATES OR SECTORS OF THE MARKET?
A. For several years, the U.S. economy as a whole has performed very well. It
used to be that we'd see a cycle in which one region would perform better
than the others, but recently that hasn't been the case. Thus, we haven't
pursued a state- or region-specific strategy. With regard to sectors, we've
generally been very cautious and selective with investments in the health
care industry. On the other hand, higher education and housing were more
attractive during the period.
Q. WHAT IS YOUR OUTLOOK FOR THE REST OF 1999?
A. As far as interest rates are concerned, I believe we'll see them trade in a
narrow range fairly close to current levels instead of moving sharply up or
down. It would not be surprising to see the Fed raise short-term interest
rates one more time in November or early next year. Also, I suspect that we
will see a gradual rebound in non-Treasury bond sectors, including
municipals, as we cross into the year 2000 and liquidity becomes less of an
issue. At this point, municipal securities are very attractively valued on
an absolute basis and relative to Treasuries. (Principle value and interest
of treasury securities is guaranteed by the U.S. government if held to
maturity.) We believe they offer very attractive yields, enjoy the
advantage of being tax exempt, and benefit from very strong credit quality.
As a result, we believe there are many good reasons to own municipal bonds
at this juncture.
/s/ Christopher J. Mier
Christopher J. Mier
Portfolio Manager
Note to Shareholders: Effective May 1, 1999, Mr. Mier became Portfolio Manager
of the Fund, succeeding John P. Kihn.
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on
the cover. The manager's views are subject to change at any time based on
market and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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CHRISTOPHER J. MIER IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R) AND PORTFOLIO MANAGER OF MFS(R) MUNICIPAL LIMITED MATURITY
FUND AND MFS(R) MUNICIPAL INCOME FUND. HE IS ALSO A PORTFOLIO MANAGER OF
THE MFS(R) ALABAMA, ARKANSAS, CALIFORNIA, FLORIDA, MARYLAND,
MASSACHUSETTS, MISSISSIPPI, NEW YORK, PENNSYLVANIA, AND TENNESSEE
MUNICIPAL BOND FUNDS.
MR. MIER JOINED MFS IN MAY 1999. PRIOR TO JOINING MFS, HE SPENT 13 YEARS
AS A MANAGING DIRECTOR AND PORTFOLIO MANAGER IN THE MUNICIPAL BOND
DEPARTMENT AT A MAJOR INTERNATIONAL MONEY MANAGER. HE EARNED A
BACHELOR'S DEGREE IN ECONOMICS FROM THE UNIVERSITY OF MICHIGAN AND A
MASTERS OF MANAGEMENT DEGREE FROM NORTHWESTERN UNIVERSITY. HE IS A
CHARTERED FINANCIAL ANALYST.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial consultant, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT
FROM FEDERAL INCOME TAXES AS IS CONSISTENT WITH
PRUDENT INVESTING AND PROTECTION OF
SHAREHOLDERS' CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 7, 1993
CLASS B DECEMBER 29, 1986
CLASS C JANUARY 3, 1994
SIZE: $360.5 MILLION NET ASSETS AS OF SEPTEMBER 30,
1999
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PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH SEPTEMBER 30, 1999
<TABLE>
CLASS A
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge -2.52% -1.45% +16.35% +33.03% +83.79%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -- -1.45% + 5.18% + 5.87% + 6.28%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -- -6.14% + 3.48% + 4.85% + 5.76%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CLASS B
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge -2.88% -2.19% +13.74% +27.85% +74.59%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -- -2.19% + 4.38% + 5.04% + 5.73%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -- -5.92% + 3.47% + 4.71% + 5.73%
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</TABLE>
<TABLE>
CLASS C
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge -2.88% -2.18% +13.87% +28.02% +75.02%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -- -2.18% + 4.43% + 5.06% + 5.76%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -- -3.12% + 4.43% + 5.06% + 5.76%
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</TABLE>
<PAGE>
NOTES TO PERFORMANCE SUMMARY
The Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 4.75% sales charge. Class B Share Performance
Including Sales Charge takes into account the deduction of the applicable
contingent deferred sales charge (CDSC), which declines over six years from 4%
to 0%. Class C Share Performance Including Sales Charge takes into account the
deduction of the 1% CDSC applicable to shares redeemed within 12 months.
Class A and C share performance include the performance of the Fund's Class B
shares for periods prior to their inception (blended performance). Class A
blended performance has been adjusted to take into account the initial sales
charge applicable to Class A shares rather than the CDSC applicable to Class B
shares. Class C blended performance has been adjusted to take into account the
lower CDSC applicable to Class C shares. These blended performance figures
have not been adjusted to take into account differences in class-specific
operating expenses. Because operating expenses for Class A shares are lower
than those of Class B shares, the blended Class A share performance is lower
than it would have been had Class A shares been offered for the entire period.
Because operating expenses of Class B and C shares are approximately the same,
the blended Class C performance is approximately the same as it would have
been had Class C shares been offered for the entire period.
All performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
A small portion of income may be subject to state, federal, and/or alternative
minimum tax. Capital gains, if any, are subject to a capital gains tax. See
the prospectus for details.
PORTFOLIO CONCENTRATION AS OF SEPTEMBER 30, 1999
QUALITY RATINGS
Source: Standard & Poor's and Moody's.
"AAA" 41.2%
"AA" 13.6%
"A" 6.0%
"BBB" 12.8%
"BB" 2.7%
"B" 1.4%
Not Rated 22.3%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- September 30, 1999
<TABLE>
<CAPTION>
Municipal Bonds - 100.0%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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<S> <C> <C>
General Obligation - 9.3%
Birmingham, AL, 5.75s, 2019 $ 210 $ 212,390
Chicago, IL, Board of Education, AMBAC, 0s, 2015 1,500 585,345
Comal, TX, Independent School District, PSF, 6s, 2020 6,065 6,155,793
District of Columbia, FSA, 5.5s, 2012 1,855 1,857,282
Dudley-Charlton, MA, Regional School District, FGIC,
6.545s, 2017(++)+ 1,495 1,393,998
Fort Bend, TX, Independent School District, PSF, 5.5s, 2015 2,000 1,985,060
Fresno, CA, Unified School District, 6.55s, 2020 1,225 1,350,954
Hamilton, OH, City School District, 6.15s, 2012 200 216,086
Houston, TX, Independent School District, PSF, 6.446s, 2017(++)+ 2,325 2,099,940
Jackson, MI, Public School System, FGIC, 6s, 2013 375 392,767
Manchester, NH, 5.875s, 2019 560 566,087
Massachusetts STR, Consolidated Loan Series C, 5.875s, 2017 3,205 3,259,902
New Orleans, LA, AMBAC, 0s, 2015 3,000 1,225,260
New York City, NY, 8.2s, 2003 4,595 5,037,222
New York City, NY, 8.2s, 2003 405 442,163
New York City, NY, 7.5s, 2008 180 195,115
Richardson, TX, Hospital Authority Rev. (Baylor-Richardson),
5.25s, 2013 600 557,220
San Antonio, TX, 5s, 2020 700 614,502
Shelby County, TN, 0s, 2013 3,000 1,403,910
State of Massachusetts, 5.25s, 2015 500 484,185
Worcester, MA, FSA, 6s, 2017 3,475 3,594,297
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$ 33,629,478
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State and Local Appropriation - 2.2%
Chicago, IL, Public Building Commission Rev., 6.446s, 2016(++)+ $1,500 $ 1,387,590
Chicago, IL, Public Building Commission Rev., 6.446s, 2017(++)+ 1,250 1,142,250
New York Medical Care Facilities Finance Agency (Mental
Health Services), 7.875s, 2008 235 245,925
New York Medical Care Facilities Finance Agency (Mental
Health Services), 7.75s, 2020 290 298,450
New York Medical Care Facilities Finance Agency (Mental
Health Services), 7.5s, 2021 205 214,867
New York Urban Development Corp. Rev., Correctional
Capital Facilities, FSA, 5.25s, 2014 2,000 1,971,700
Philadelphia, PA, Regional Port Authority Lease Rev.,
MBIA, 8.37s, 2020(++) 2,500 2,622,325
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$ 7,883,107
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Refunded and Special Obligations - 9.0%
Adams County, CO, Single Family Mortgage Rev., 8.875s, 2011 $2,510 $ 3,289,982
Chapel Hill, NC, Parking Facilities Rev. (Rosemary
Street), 8.125s, 2000 860 917,861
Chapel Hill, NC, Parking Facilities Rev. (Rosemary
Street), 8.25s, 2000 1,000 1,068,680
Clermont County, OH, Hospital Facilities Rev. (Mercy
Health Systems), AMBAC, 9.441s, 2001(++) 1,500 1,695,555
Denver, CO, City & County Airport Rev., 8.75s, 2001 1,260 1,395,488
Martha's Vineyard, MA, Land Bank (Land Acquisition),
8.125s, 2011 1,600 1,709,520
Massachusetts Industrial Finance Agency, Tunnel Rev
(Mass. Turnpike), 9s, 2000 2,715 2,890,172
New York City, NY, 8.25s, 2001 4,140 4,542,573
New York Medical Care Facilities Financing Agency Rev
(Mental Health Services), 7.875s, 2000 1,180 1,244,475
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2004 3,000 2,488,380
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2005 1,800 1,419,858
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Rev., 0s, 2009 6,750 4,292,595
Savannah, GA, Economic Development Authority, 0s, 2021 6,125 1,448,624
Texas Turnpike Authority (Houston Ship Channel Bridge),
12.625s, 2002 3,000 3,684,690
Washington Public Power Supply System Rev. (Nuclear
Project #1), 14.375s, 2001 400 436,164
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$ 32,524,617
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Airport and Port Revenue - 12.9%
Chicago, IL, O'Hare International Airport, Special
Facilities Rev. (American Airlines), 7.875s, 2025 $3,500 $ 3,668,840
Chicago, IL, O'Hare International Airport, Special
Facilities Rev. (United Airlines), 8.85s, 2018 2,715 2,898,996
Chicago, IL, O'Hare International Airport, Special
Facilities Rev. (United Airlines), 8.85s, 2018 6,020 6,427,975
Cleveland, OH, Airport Special Facilities Rev
(Continental Airlines), 5.7s, 2019 1,000 908,230
Cleveland, OH, Airport Special Facilities Rev
(Continental Airlines), 9s, 2019 4,300 4,418,250
Connecticut Airport Rev. (Bradley International
Airport), FGIC, 7.65s, 2012 1,000 1,121,500
Dallas-Fort Worth, TX, International Airport (American
Airlines), 7.5s, 2025 5,000 5,226,700
Denver, CO, City & County Airport Rev., 8.75s, 2023 3,490 3,790,419
Hillsborough County, FL, Aviation Authority Rev. (US Air),
8.6s, 2022 2,000 2,168,800
Kenton County, KY, Airport Board Special Facilities
(Delta Airlines), 7.5s, 2020 1,000 1,059,440
Louisville & Jeff County, KY, Regional Airport
Authority, "A", MBIA, 6.5s, 2017 3,000 3,198,810
Minneapolis & St. Paul, MN, FGIC, 5.625s, 2015 5,000 4,975,550
New Jersey Economic Development Authority, Special
Facilities Rev. (Continental Airlines, Inc.), 6.625s, 2012 1,250 1,319,912
Niagara, NY, Frontier Authority Airport Rev. (Buffalo-
Niagra International Airport), MBIA, 5.75s, 2012 1,525 1,546,152
Tulsa, OK, Municipal Airport Trust Rev. (American
Airlines), 7.375s, 2020 3,500 3,658,410
------------
$ 46,387,984
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Electric and Gas Utility Revenue - 14.8%
Apache County, AZ, Industrial Development Authority,
Pollution Control Rev. (Tuscon Electric Power Co.),
5.875s, 2033 $1,000 $ 912,620
Austin, TX, Utility Systems Rev., AMBAC, 0s, 2010 7,500 4,184,775
Austin, TX, Utility Systems Rev., AMBAC, 6.75s, 2011 3,325 3,779,461
Chicago, IL, Gas Supply Rev. (People's Gas), 8.1s, 2020 2,000 2,081,680
Corpus Christi, TX, Utility Systems Rev., FSA, 5.5s, 2010 4,000 4,000,760
Georgia Municipal Electric Power Authority Rev., MBIA,
6.375s, 2016 2,000 2,176,860
Georgia Municipal Electric Power Authority Rev., MBIA,
6.5s, 2020 7,350 8,087,720
Intermountain Power Agency, UT, MBIA, 5s, 2019 2,050 1,835,980
Klamath Falls, OR, Electric Rev. (Klamath
Cogeneration), 6s, 2025 3,500 3,304,175
Matagorda County, TX (Reliant Energy), 5.95s, 2030 2,000 1,884,500
McAlester, OK, Public Works Authority, Utility System
Rev., FSA, 5.75s, 2020 1,390 1,358,808
Midland, MI, Environmental Development Authority,
Pollution Control Rev. (Midland Cogeneration), 9.5s, 2009 2,000 2,095,220
North Carolina Eastern Municipal Power Agency, MBIA,
7s, 2007 3,250 3,638,440
Ohio Water Development, Pollution Control Rev
(Cleveland Electric), 5.58s, 2033 1,000 965,000
Pima County, AZ, Industrial Development Authority
(Tuscon Electric Power Co.), 6.1s, 2025 2,000 1,880,960
Pittsylvania County, VA, Industrial Development
Authority Rev., 7.5s, 2014 6,000 6,385,140
Tacoma, WA, Electric Systems Rev., FSA, 5.625s, 2018 3,000 2,950,590
West Feliciana Parish, LA (Entergy Gulf States), 6.6s, 2028 1,665 1,662,786
------------
$ 53,185,475
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Health Care Revenue - 6.1%
Baxter County, AR, Hospital Rev., 5.375s, 2014 $1,000 $ 941,440
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 7.25s, 2001 65 63,721
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 7.75s, 2006 140 132,334
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 8.125s, 2016 505 459,206
Bell County, TX, Health Facilities Development Corp.
(Advanced Living Technology), 8.5s, 2026 1,130 1,017,497
Bell County, TX, Health Facilities Development Corp.
(Kings Daughters Hospital), 9.25s, 2008 1,315 1,365,391
Chemung County, NY, Industrial Development Agency,
Civic Facilities Rev. (St. Joseph's Hospital-Elmira),
6s, 2013 1,000 961,330
Fulton County, NY, Industrial Development Agency Rev
(Nathan Littauer Hospital Association), 5.75s, 2009 250 240,303
Gadsden County, FL, Industrial Development Authority
(RHA/FL Properties), 10.45s, 2018 1,840 1,857,885
Geisinger Authority, PA, Health Systems Rev., 3.9s, 1999 300 300,000
Goldsboro, NC, Housing Authority Rev. (North Carolina
Housing Foundation, Inc.), 7.25s, 2029 1,000 966,710
Indiana Health Facilities Financing Authority, Hospital
Rev. (Riverview Hospital), 5.25s, 2014 400 368,068
Indiana Health Facilities Financing Authority, Hospital
Rev. (Riverview Hospital), 5.5s, 2019 650 590,037
Indiana Health Facilities Financing Authority Rev
(Hoosier Care), 7.125s, 2034 855 829,444
Indiana Health Facilities Financing Authority Rev
(Metro Health/Indiana, Inc.), 6.3s, 2023 1,240 1,165,104
Jefferson County, KY, Health Care Authority Rev
(Beverly Enterprises, Inc.), 5.875s, 2007 250 244,933
Louisiana Public Facilities Authority (Southwest
Medical Center), 11s, 2006 1,170 198,924
Lufkin, TX, Health Facilities Development Corp.
(Memorial Health System of East Texas), 6.875s, 2026 350 366,884
Marion County, FL, Hospital District Rev., 5.625s, 2019 750 714,045
Massachusetts Health & Education Facilities Authority
(Caritas Christi), 5.7s, 2015 1,000 946,920
Mecosta County, MI, General Hospital Rev., 6s, 2018 300 286,311
Millbrae, CA, Residential Facility (Magnolia Of
Millbrae), 7.375s, 2027 1,000 1,031,070
New Hampshire Business Finance Authority, Health Care
Facilities Rev. (Metropolitian Health Foundation,
Inc.), 6.55s, 2028 1,000 938,310
Ohio County, WV, County Commission Health System (Ohio
Valley Medical Center), 5.75s, 2013 900 853,641
Royston Georgia Hospital Authority Hospital Revenue, Ty
Cobb Healthcare Systems, Inc., 6.5s, 2027 340 331,442
State of Michigan Hospital Finance Authority Rev
(Memorial Healthcare Center), 5.75s, 2015 800 776,856
Stillwater, OK, Medical Center Authority (Stillwater
Medical Center), 6.5s, 2019 1,000 1,020,870
Tennessee Veterans Home Board Rev. (Humboldt), 6.75s, 2021 1,000 1,057,950
Torrance, CA, Hospital Rev., 6.875s, 2015 1,600 1,717,760
West Plains, MO, Industrial Development Authority Rev
(Ozarks Medical Center), 6.75s, 2024 195 193,327
------------
$ 21,937,713
- ------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 9.5%
Burns Habor, IN, Solid Waste Disposal Facilities Rev
(Bethlehem Steel), 8s, 2024 $3,000 $ 3,224,850
Carbon County, UT, Solid Waste Disposal Rev. (Laidlaw
Environmental), 7.45s, 2017 2,500 2,675,850
Delaware County, PA, Industrial Development Authority
(Resources Recovery Facility), 5.5s, 2002 270 269,077
Delaware County, PA, Industrial Development Authority
(Resources Recovery Facility), 6s, 2003 460 463,169
Delaware County, PA, Industrial Development Authority
(Resources Recovery Facility), 6.1s, 2005 875 880,110
East Chicago, IN, Exempt Facilities Rev. (Inland Steel
Co.), 6.7s, 2012 2,070 2,190,826
Erie County, PA (International Paper), 7.875s, 2016 1,200 1,254,132
Farmington, NM, Pollution Control Rev. (Public Service
Co. of NM), 6.375s, 2022 1,000 1,008,470
Green Bay, WI, Redevelopment Authority Industrial Rev
(Fort James Project), 5.6s, 2019 3,000 2,826,060
Lake Charles, LA, Harbor & Terminal District Port
(Occidental Petroleum), 7.2s, 2020 1,000 1,064,790
Luzerne County, PA, Industrial Development Authority
(Beverly Enterprise Inc.), 6.75s, 2008 500 498,715
Massachusetts Development Finance Agency Rev
(Springfield Resources Recovery), 5.625s, 2019 2,400 2,299,056
Navajo County, AZ, Industrial Development Authority
(Stone Container Corp.), 7.4s, 2026 5,150 5,506,740
Navajo County, AZ, Industrial Development Authority
(Stone Container Corp.), 7.2s, 2027 1,000 1,062,490
Northampton County, PA, Industrial Development
Authority (Bethlehem Steel), 7.55s, 2017 1,200 1,275,552
Onondaga County, NY Industrial Development Agency,
Solid Waste Disposal Facility Rev. (Solvay Paperboard
LLC), 6.8s, 2014 1,000 997,430
Port of New Orleans, LA (Avondale Industries), 8.5s, 2014 1,975 2,166,911
Virginia Peninsula Ports Authority Rev. (Zeigler Coal),
6.9s, 2022 2,250 2,181,218
West Side Calhoun County, TX, Navigation District
(Union Carbide), 8.2s, 2021 2,000 2,110,880
Westmoreland County, PA, Industrial Development Corp.
(Valley Landfill), LOC, 5.1s, 2018 500 466,940
------------
$ 34,423,266
- ------------------------------------------------------------------------------------------------------
Insured Health Care Revenue - 2.9%
Jefferson County, KY, Hospital Rev., MBIA, 8.836s, 2014(++) $1,000 $ 1,070,270
Jefferson County, KY, Hospital Rev., MBIA, 8.938s, 2014(++) 500 575,260
Lauderdale County & Florence, AL (Coffee Health Group),
MBIA, 5.75s, 2014 850 845,512
Louisiana Public Facilities Authority Hospital Rev
(Franciscan Missionaries), MBIA, 5.375s, 2013 4,095 4,048,399
Mississippi Hospital Equipment & Facilities Authority
Rev. (Rush Medical Foundation), Connie Lee, 6.7s, 2018 1,000 1,051,870
Rio Grande Valley, TX, Health Facilities Development
Corp., MBIA, 7.604s, 2015(++)+ 2,800 2,970,268
------------
$ 10,561,579
- ------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 5.7%
Austin, TX, Housing Finance Corp. (Woodland Heights
Apartments), 7.25s, 2027 $1,000 $ 1,108,630
Austin, TX, Housing Finance Corp. (Woodland Heights
Apartments), 7.25s, 2027 605 618,231
Austin, TX, Housing Finance Corp. (Woodland Heights
Apartments), 10s, 2027 380 378,936
California Statewide Community Development Authority
(Equity Residential), 5.2s, 2029 1,000 978,780
Charter Mac Equity Issuer Trust, 6.625s, 2009 2,000 1,992,640
Colorado Housing Finance Authority, 7.15s, 2014 130 139,616
Colorado Housing Finance Authority, FHA, 8.3s, 2023 2,750 2,876,280
Eaglebend, CO, Affordable Housing Corp., 6.2s, 2012 1,000 1,001,010
Pennsylvania Housing Finance Agency, 7.6s, 2013 1,000 1,044,340
Ridgeland, MS, Urban Renewal, Multifamily Housing Rev
(Northbrook I & III Apartments), 6.15s, 2019 1,250 1,174,263
Texas Department of Housing & Community Affairs, 10s, 2026+ 2,280 2,299,973
Vermont Housing Finance Agency, 8.375s, 2020 2,600 2,634,944
Wisconsin Housing & Economic Development Authority,
7.2s, 2013 4,000 4,182,720
------------
$ 20,430,363
- ------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 2.3%
Metropolitan Pier & Exposition Authority, IL, MBIA, 0s, 2016 $8,400 $ 3,197,376
Regional Transport Authority Illinois, FSA, 5.75s, 2017 5,000 5,054,300
------------
$ 8,251,676
- ------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 7.2%
California Housing Finance Agency Rev., MBIA, 0s, 2027 $1,625 $ 354,039
California Housing Finance Agency Rev., MBIA, 0s, 2028 4,455 1,002,642
California Rural Home Mortgage Finance Authority, GNMA,
5.2s, 2030 400 421,948
Chicago, IL, GNMA, 7.05s, 2030 200 217,678
Chicago, IL, Residential Mortgage Rev., MBIA, 0s, 2009 1,645 823,208
Chicago, IL, Single Family Mortgage Rev., GNMA, 6.35s, 2030 1,190 1,257,080
Colorado Housing Finance Authority, 7.4s, 2027 360 385,938
Colorado Housing Finance Authority, 6.875s, 2028 1,000 1,064,570
Colorado Housing Finance Authority, 6.8s, 2030 550 586,652
Cook County, IL, Single Family Mortgage Rev., 0s, 2015 3,330 600,799
De Kalb, IL, Single Family Mortgage Rev., GNMA, 7.45s, 2009 120 125,428
Jefferson Parish, LA, Home Mortgage Authority Rev.,
GNMA, 6.75s, 2030 300 321,546
Kentucky Housing Corp., FHA, 7.45s, 2023 2,730 2,815,367
Lee County, FL, Housing Finance Authority Rev., GNMA,
7s, 2031 190 204,261
Mississippi Home Corp., GNMA, 7.1s, 2023 454 473,333
Mississippi Home Corp., GNMA, 5s, 2030 1,305 1,367,027
Missouri Housing Development Commission, Mortgage Rev.,
GNMA, 6.3s, 2029 230 238,551
Missouri Housing Development Commission, Mortgage Rev.,
GNMA, 6.45s, 2029 250 264,428
Missouri Housing Development Commission, Mortgage Rev.,
GNMA, 6.7s, 2030 1,000 1,070,400
Nebraska Investment Finance Authority, Series F, GNMA,
5.6s, 2020 400 390,000
New Hampshire Housing Finance Authority, 7.2s, 2010 4,350 4,526,044
New Mexico Mortgage Finance Authority, 6.75s, 2029 500 535,670
Oklahoma Housing Finance Agency, 6.8s, 2026 505 537,471
Pima County, AZ, Industrial Development Authority Rev.,
GNMA, 6.2s, 2030 2,000 2,086,580
Sedgwick & Shawnee Counties, KS, GNMA, 6.5s, 2022 350 367,623
Sedgwick & Shawnee Counties, KS, GNMA, 5.5s, 2026 750 798,787
Tennessee Housing Development Agency, 0s, 2017 3,445 1,194,726
Utah Housing Finance Agency, GNMA, 8.625s, 2019 125 125,301
Utah Housing Finance Agency, FHA, 9.25s, 2019 15 15,177
Utah Housing Finance Agency, FHA, 6.3s, 2028 1,755 1,788,591
------------
$ 25,960,865
- ------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 2.0%
Henrico County, VA, Industrial Development Authority
Rev. (Bon Secours), FSA, 7.934s, 2027(++) $5,000 $ 5,234,150
Henrico County, VA, Industrial Development Authority
Rev. (Browning-Ferris), 5.3s, 2011 1,000 966,320
Hudson County, NJ, Solid Waste System Rev., 5.9s, 2015 1,000 987,490
------------
$ 7,187,960
- ------------------------------------------------------------------------------------------------------
Special Assessment District - 0.9%
Broadview, IL, Tax Increment Rev., 5.25s, 2012### $1,000 $ 943,580
Katy, TX, Development Authority Rev., 5.8s, 2011 1,000 958,950
Katy, TX, Development Authority Rev., 6s, 2018 1,500 1,425,030
------------
$ 3,327,560
- ------------------------------------------------------------------------------------------------------
Student Loan Revenue - 2.2%
Arizona Student Loan Acquisition Authority, 5.8s, 2016 $ 675 674,703
Arizona Student Loan Acquisition Authority, 5.85s, 2017 700 699,692
Pennsylvania State Higher Educational Assistance
Agency, AMBAC, 9.723s, 2026(++) 5,500 6,421,525
------------
$ 7,795,920
- ------------------------------------------------------------------------------------------------------
Turnpike Revenue - 2.0%
New Jersey Economic Development Authority, Special
Facilities Rev., FSA, 6s, 2016 $ 325 $ 334,838
New Jersey Transportation Trust Fund Authority, 5.625s, 2013 1,400 1,432,424
New Jersey Turnpike Authority Rev., MBIA, 6.5s, 2016 1,450 1,602,569
New York Thruway Authority Rev., Highway & Bridges,
FGIC, 5.125s, 2015 4,000 3,803,880
------------
$ 7,173,711
- ------------------------------------------------------------------------------------------------------
Universities - 4.8%
Clark County, NV, Economic Development Rev. (Alexander
Dawson School), 5.5s, 2020 $1,500 $ 1,388,265
Georgia Private Colleges & University Authority Rev
(Emory University), 5.75s, 2016 5,495 5,577,865
Islip, NY, Community Development Agency Rev. (New York
Institute of Technology), 7.5s, 2026 2,000 2,117,480
Maine Finance Authority, Waynflete School Issue, 6.4s, 2019 1,000 999,460
Maine Finance Authority, Waynflete School Issue, 6.5s, 2029 1,000 1,000,700
New Hampshire Higher Education & Health Facilities
Authority Rev. (New Hampshire College), 6.375s, 2027 1,435 1,408,467
St. Joseph County, IN, Educational Facilities Rev
(University of Notre Dame), 6.5s, 2026 1,000 1,108,680
Texas A & M University Rev., Financing Systems, 5.375s, 2016 3,515 3,414,471
University of Akron, OH, FGIC, 6s, 2015 250 258,552
------------
$ 17,273,940
- ------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 5.8%
Atlanta, GA, Water & Wastewater Rev., FGIC, 6.946s, 2016(++) $1,000 $ 1,005,400
Columbia, SC, Waterworks & Sewer Rev., 6s, 2014 2,000 2,070,500
Columbia, SC, Waterworks & Sewer Rev., 6s, 2015 1,960 2,021,309
Massachusetts Water Resources Authority, 6.5s, 2019, 7,495 8,184,240
New York Environmental Facilities Corp., Clean Water &
Drinking, 5s, 2016 2,000 1,837,720
Pittsburgh, PA, Water & Sewer Authority Rev., FGIC, 0s, 2017 2,300 817,650
Pittsburgh, PA, Water & Sewer Authority Rev., FGIC, 0s, 2018 2,300 768,913
Salt Lake County, UT, Water Conservancy District Rev.,
AMBAC, 0s, 2008 2,100 1,339,842
Triborough Bridge & Tunnel Authority Rev., NY, 5.25s, 2017 3,065 2,913,987
------------
$ 20,959,561
- ------------------------------------------------------------------------------------------------------
Other - 0.4%
Alabama Building Renovation Authority, AMBAC, 6s, 2018 $ 760 $ 773,247
Iowa Finance Authority Community Provider Rev
(Boys & Girls Home), 6.25s, 2028 500 462,820
Rail Connections Inc., MA Rev., 0s, 2016 100 32,822
Rail Connections Inc., MA Rev., 0s, 2017 210 63,934
Rail Connections Inc., MA Rev., 0s, 2018 300 85,098
------------
$ 1,417,921
- ------------------------------------------------------------------------------------------------------
Total Municipal Bonds $360,312,696
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $350,488,065) $360,312,696
Other Assets, Less Liabilities 169,660
- ------------------------------------------------------------------------------------------------------
Net assets - 100.0% $360,482,356
- ------------------------------------------------------------------------------------------------------
(++) Inverse floating rate security.
+ Restricted security.
### Security segregated as collateral for an open futures contract.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $350,488,065) $ 360,312,696
Cash 2,004,878
Receivable for Fund shares sold 516,795
Receivable for investments sold 6,358,530
Interest receivable 6,095,583
Other assets 5,093
-------------
Total assets $ 375,293,575
-------------
Liabilities:
Distributions payable $ 713,666
Payable for Fund shares reacquired 556,813
Payable for investments purchased 13,388,209
Payable for daily variation margin on open futures
contracts 8,156
Payable to affiliates -
Management fee 3,930
Shareholder servicing agent fee 983
Distribution and service fee 5,533
Administrative fee 147
Accrued expenses and other liabilities 133,782
-------------
Total liabilities $ 14,811,219
-------------
Net assets $ 360,482,356
=============
Net assets consist of:
Paid-in capital $ 346,466,629
Unrealized appreciation on investments 9,814,070
Accumulated net realized gain on investments 3,373,527
Accumulated undistributed net investment income 828,130
-------------
Total $ 360,482,356
=============
Shares of beneficial interest outstanding 42,353,870
==========
Class A shares:
Net asset value per share
(net assets of $210,073,820 / 24,695,864 shares of
beneficial interest outstanding) $8.51
=====
Offering price per share (100 / 95.25) $8.93
=====
Class B shares:
Net asset value and offering price per share
(net assets of $122,220,359 / 14,351,573 shares of
beneficial interest outstanding) $8.52
=====
Class C shares:
Net asset value and offering price per share
(net assets of $28,188,177 / 3,306,433 shares of
beneficial interest outstanding) $8.53
=====
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.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 1999
- -------------------------------------------------------------------------
Net investment income:
Interest income $ 11,999,004
------------
Expenses -
Management fee $ 1,329,587
Trustees' compensation 22,497
Shareholder servicing agent fee 188,286
Distribution and service fee (Class A) 267,796
Distribution and service fee (Class B) 660,350
Distribution and service fee (Class C) 151,318
Administrative fee 28,242
Custodian fee 53,586
Postage 11,437
Auditing fees 16,091
Legal fees 3,160
Miscellaneous 75,023
------------
Total expenses $ 2,807,373
Fees paid indirectly (54,568)
Reduction of expenses by investment adviser (570,041)
------------
Net expenses $ 2,182,764
------------
Net investment income $ 9,816,240
------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 1,878,384
Futures contracts 30,306
------------
Net realized gain on investments $ 1,908,690
------------
Change in unrealized depreciation -
Investments $(22,074,359)
Futures contracts (10,561)
------------
Net unrealized loss on investments $(22,084,920)
------------
Net realized and unrealized loss on investments $(20,176,230)
------------
Decrease in net assets from operations $(10,359,990)
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 9,816,240 $ 18,990,701
Net realized gain on investments 1,908,690 11,934,284
Net unrealized loss on investments (22,084,920) (13,129,075)
------------ ------------
Increase (decrease) in net assets from
operations $(10,359,990) $ 17,795,910
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (5,808,896) $(10,453,353)
From net investment income (Class B) (3,078,497) (7,052,099)
From net investment income (Class C) (704,355) (1,199,356)
------------ ------------
Total distributions declared to shareholders $ (9,591,748) $(18,704,808)
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions $ (8,458,947) $ 6,604,815
------------ ------------
Total increase (decrease) in net assets $(28,410,685) $ 5,695,917
Net assets:
At beginning of period 388,893,041 383,197,124
------------ ------------
At end of period (including accumulated undistributed
net investment income of $828,130 and $603,638,
respectively) $360,482,356 $388,893,041
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
SIX MONTHS ENDED ----------------------------------------------------------------------------
SEPTEMBER 30, 1999 1999 1998 1997 1996 1995
(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 $ 8.97 $ 8.99 $ 8.50 $ 8.62 $ 8.56 $ 8.56
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.24 $ 0.47 $ 0.48 $ 0.49 $ 0.51 $ 0.50
Net realized and unrealized
gain (loss) on investments (0.46) (0.02) 0.49 (0.12) 0.05 0.02
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.22) $ 0.45 $ 0.97 $ 0.37 $ 0.56 $ 0.52
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.24) $(0.47) $(0.48) $(0.49) $(0.50) $(0.52)
In excess of net investment
income -- -- -- -- (0.00)+++ --
In excess of net realized
gain on investments -- -- -- -- -- (0.00)+++
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.24) $(0.47) $(0.48) $(0.49) $(0.50) $(0.52)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.51 $ 8.97 $ 8.99 $ 8.50 $ 8.62 $ 8.56
====== ====== ====== ====== ====== ======
Total return(+) (2.52)%++ 5.16% 11.61% 4.28% 6.81% 6.33%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.86%+ 1.08% 1.23% 1.31% 1.28% 1.13%
Net investment income 5.53%+ 5.35% 5.44% 5.75% 5.75% 6.20%
Portfolio turnover 38% 31% 23% 30% 23% 25%
Net assets at end of period
(000 omitted) $210,074 $215,858 $189,056 $152,039 $121,903 $25,270
(S) The investment adviser voluntarily waived a portion of its fee, for certain 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 $ 0.23 $ 0.47 $ -- $ -- $ -- $ --
Ratios (to average net assets):
Expenses## 1.16%+ 1.21% -- -- -- --
Net investment income 5.23%+ 5.22% -- -- -- --
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
SIX MONTHS ENDED ----------------------------------------------------------------------------
SEPTEMBER 30, 1999 1999 1998 1997 1996 1995
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
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 $ 8.98 $ 9.00 $ 8.51 $ 8.63 $ 8.57 $ 8.56
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.21 $ 0.41 $ 0.42 $ 0.43 $ 0.43 $ 0.44
Net realized and unrealized
gain (loss) on investments (0.47) (0.02) 0.48 (0.13) 0.06 --
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.26) $ 0.39 $ 0.90 $ 0.30 $ 0.49 $ 0.44
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.20) $(0.41) $(0.41) $(0.42) $(0.43) $(0.43)
In excess of net investment
income -- -- -- -- (0.00)+++ --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.20) $(0.41) $(0.41) $(0.42) $(0.43) $(0.43)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.52 $ 8.98 $ 9.00 $ 8.51 $ 8.63 $ 8.57
====== ====== ====== ====== ====== ======
Total return (2.88)%++ 4.38% 10.77% 3.44% 5.87% 5.32%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.61%+ 1.83% 1.98% 2.11% 2.13% 2.16%
Net investment income 4.77%+ 4.59% 4.69% 4.95% 4.90% 5.15%
Portfolio turnover 38% 31% 23% 30% 23% 25%
Net assets at end of period
(000 omitted) $122,220 $140,871 $172,339 $226,138 $306,889 $412,965
(S) The investment adviser voluntarily waived a portion of its fee, for certain 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 $ 0.20 $ 0.40 $ -- $ -- $ -- $ --
Ratios (to average net assets):
Expenses## 1.91%+ 1.96% -- -- -- --
Net investment income 4.47%+ 4.46% -- -- -- --
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
SIX MONTHS ENDED ----------------------------------------------------------------------------
SEPTEMBER 30, 1999 1999 1998 1997 1996 1995
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
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 $ 8.99 $ 9.01 $ 8.52 $ 8.64 $ 8.57 $ 8.56
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.21 $ 0.41 $ 0.41 $ 0.43 $ 0.43 $ 0.44
Net realized and unrealized
gain (loss) on investments (0.47) (0.02) 0.49 (0.12) 0.07 0.01
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.26) $ 0.39 $ 0.90 $ 0.31 $ 0.50 $ 0.45
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.20) $(0.41) $(0.41) $(0.43) $(0.43) $(0.44)
In excess of net investment
income -- -- -- -- (0.00)+++ --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.20) $(0.41) $(0.41) $(0.43) $(0.43) $(0.44)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.53 $ 8.99 $ 9.01 $ 8.52 $ 8.64 $ 8.57
====== ====== ====== ====== ====== ======
Total return (2.88)%++ 4.37% 10.75% 3.62% 5.94% 5.39%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.61%+ 1.81% 1.98% 2.06% 2.05% 2.09%
Net investment income 4.77%+ 4.59% 4.69% 5.00% 4.95% 5.23%
Portfolio turnover 38% 31% 23% 30% 23% 25%
Net assets at end of period
(000 omitted) $28,188 $32,164 $21,802 $19,159 $16,504 $10,936
(S) The investment adviser voluntarily waived a portion of its fee, for certain 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 $ 0.20 $ 0.40 $ -- $ -- $ -- $ --
Ratios (to average net assets):
Expenses## 1.91%+ 1.94% -- -- -- --
Net investment income 4.47%+ 4.46% -- -- -- --
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Municipal Income Fund (the Fund) is a diversified series of MFS Municipal
Series Trust (the Trust). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Futures
contracts listed on commodities exchanges are reported at market value using
closing settlement prices. Securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Trustees.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities or contracts based on financial indices at a fixed price
on a future date. In entering such contracts, the Fund is required to deposit
with the broker either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
the Fund each day, depending on the daily fluctuations in the value of the
contract, and are recorded for financial statement purposes as unrealized gains
or losses by the Fund. The Fund's investment in futures contracts is designed to
hedge against anticipated future changes in interest rates or securities prices.
Investments in interest rate futures for purposes other than hedging may be made
to modify the duration of the portfolio without incurring the additional
transaction costs involved in buying and selling the underlying securities.
Should interest rates or securities prices move unexpectedly, the Fund may not
achieve the anticipated benefits of the futures contracts and may realize a
loss.
Indexed Securities - The Fund may invest 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.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount is amortized or accreted for financial statement and tax
reporting purposes as required by federal income tax regulations. Interest
payments received in additional securities are recorded on the ex- interest date
in an amount equal to the value of the security on such date. The Fund uses the
effective interest method for reporting interest income on payment-in-kind (PIK)
bonds. Legal fees and other related expenses incurred to preserve and protect
the value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions, which are generally non-recurring,
incurred to protect or enhance the value of high- yield debt securities, are
reported as additions to the cost basis of the security. Costs that are incurred
to negotiate the terms or conditions of capital infusions or that are expected
to result in a plan of reorganization are reported as realized losses. Ongoing
costs incurred to protect or enhance an investment, or costs incurred to pursue
other claims or legal actions, are expensed.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. Distributions paid by the Fund from
net interest received on tax-exempt municipal bonds are not includable by
shareholders as gross income for federal income tax purposes because the Fund
intends to meet certain requirements of the Code applicable to regulated
investment companies, which will enable 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. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as distributions from paid in
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B shares will convert to Class A shares approximately eight
years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.30% of
the average daily net assets and 6.43% of investment income. The investment
adviser has voluntarily agreed to waive a portion of its fee, which is reflected
as a reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net pension expense of $6,260 for the six months ended
September 30, 1999.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$30,754 for the six months ended September 30, 1999, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets which are attributable to that
securities dealer and a distribution fee to MFD 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 MFD wholesalers for sales at or above a certain dollar
level, and other such distribution-related expenses that are approved by the
Trustees. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $23,089 for the six months ended September
30, 1999. Fees incurred under the distribution plan during the six months ended
September 30, 1999, were 0.25% of average daily net assets attributable to Class
A shares on an annualized basis. Payment of the 0.10% per annum Class A
distribution fee will be implemented on such date as the Trustees of the Fund
may determine.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B 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 consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $9,629 and $229 for Class B and Class C shares, respectively, for
the six months ended September 30, 1999. Fees incurred under the distribution
plan during the six months ended September 30, 1999, were 1.00% of average daily
net assets attributable to both Class B and Class C shares.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended September
30, 1999 were $46, $84,563, and $17,096 for Class A, Class B, and Class C
shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.10%. Prior to April 1, 1999, the fee was calculated as a percentage of the
Fund's average daily net assets at an annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations,
aggregated $142,368,386 and $146,377,991, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $350,488,065
------------
Gross unrealized appreciation $ 15,885,846
Gross unrealized depreciation (6,061,215)
------------
Net unrealized appreciation $ 9,824,631
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
SIX MONTHS ENDED SEPTEMBER 30, 1999 YEAR ENDED MARCH 31, 1999
----------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,817,599 $ 24,799,626 17,940,018 $ 161,458,718
Shares issued to shareholders
in reinvestment of
distributions 352,138 3,063,241 656,208 5,905,944
Shares reacquired (2,541,970) (22,291,420) (15,559,589) (140,049,954)
------------- ------------- ------------- -------------
Net increase 627,767 $ 5,571,447 3,036,637 $ 27,314,708
============= ============= ============= =============
<CAPTION>
Class B Shares
SIX MONTHS ENDED SEPTEMBER 30, 1999 YEAR ENDED MARCH 31, 1999
----------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 925,836 $ 8,135,360 1,719,464 $ 15,505,630
Shares issued to shareholders
in reinvestment of
distributions 193,513 1,686,569 438,965 3,957,222
Shares reacquired (2,457,285) (21,480,641) (5,619,360) (50,627,988)
------------- ------------- ------------- -------------
Net increase (decrease) (1,337,936) $ (11,658,712) 3,460,931 $ 31,165,136
============= ============= ============= =============
<CAPTION>
Class C Shares
SIX MONTHS ENDED SEPTEMBER 30, 1999 YEAR ENDED MARCH 31, 1999
----------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 403,671 $ 3,568,620 1,793,587 $ 16,187,441
Shares issued to shareholders
in reinvestment of
distributions 49,532 432,263 85,755 773,910
Shares reacquired (725,461) (6,372,565) (721,227) (6,506,108)
------------- ------------- ------------- -------------
Net increase (decrease) (272,258) $ (2,371,682) 1,158,115 $ 10,455,243
============= ============= ============= =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of Fund
shares. Interest is charged to each fund, based on its borrowings, at a rate
equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Fund for the six months ended September 30, 1999, was $1,278.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates. These financial instruments include future contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION DEPRECIATION
- --------------------------------------------------------------------------------
U.S. Treasury Bond December 1999 29 Short $ 3,624
Municipal Bond Index December 1999 29 Long 6,937
-------
$10,561
=======
At September 30, 1999, the Fund had sufficient cash and/or securities to cover
any margin requirements under these contracts.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At September 30, 1999,
the Fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 3.4% of net assets which may not be publicly sold
without registration under the Securities Act of 1933. The Fund does not have
the right to demand that such securities be registered. The value of these
securities is determined by valuations furnished by dealers or by a pricing
service, or if not available, in good faith by the Trustees.
<TABLE>
<CAPTION>
DATE OF PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlanta, GA, Water & Wastewater Rev.,
FGIC, 6.946s, 2016 4/20/99 $1,000,000 $1,167,100 $ 1,005,400
Chicago, IL, Public Building Commission
Rev., 6.446s, 2016 3/10/99 1,500,000 1,619,550 1,387,590
Chicago, IL, Public Building Commission
Rev., 6.446s, 2017 3/10/99 1,250,000 1,337,550 1,142,250
Dudley-Charlton, MA, Regional School
District, FGIC, 6.545s, 2017 5/5/99 1,495,000 1,615,945 1,393,998
Houston, TX, Independent School District,
PSF, 6.446s, 2017 2/26/99 2,325,000 2,440,831 2,099,940
Rio Grande Valley, TX, Health Facilities
Development Corp., MBIA,
7.604s, 2015 7/1/92 2,800,000 2,766,764 2,970,268
Texas Department of Housing & Community
Affairs, 10s, 2026 11/1/96 2,280,000 2,290,000 2,299,973
-----------
$12,299,419
===========
</TABLE>
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial consultants who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers and
software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking steps
to ascertain the Y2K readiness of MFS' internal systems and is working with our
external systems vendors to determine whether they expect their systems to be
ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness. Each year, MFS' research analysts and portfolio managers conduct
more than 1,000 on-site meetings with companies whose securities are, or may be,
held in fund and client portfolios, and host an additional 1,500 meetings at
MFS' headquarters. When assessing the Y2K readiness of these companies, MFS'
research analysts and portfolio managers may rely upon discussions at these
meetings as well as SEC disclosure documents and third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS, shareholders of MFS funds, participants in retirement
plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston Street,
Boston, MA 02116-3741.
<PAGE>
<TABLE>
MFS(R) MUNICIPAL INCOME FUND
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Richard B. Bailey* - Private Investor; Mark E. Bradley*
Former Chairman and Director (until 1991), MFS Ellen Moynihan*
Investment Management James O. Yost*
Marshall N. Cohan - Private Investor SECRETARY
Stephen E. Cavan*
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; ASSISTANT SECRETARY
Professor of Surgery, Harvard Medical School James R. Bordewick, Jr.*
The Hon. Sir J. David Gibbons, KBE - Chief CUSTODIAN
Executive Officer, Edmund Gibbons Ltd.; State Street Bank and Trust Company
Chairman, Colonial Insurance Company, Ltd.
INVESTOR INFORMATION
Abby M. O'Neill - Private Investor For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
Walter E. Robb, III - President and Treasurer, touch-tone telephone.
Benchmark Advisors, Inc.; President, Benchmark
Consulting Group, Inc. For information on MFS mutual funds, call
your financial consultant or, for an
Arnold D. Scott* - Senior Executive information kit, call toll free:
Vice President, Director, and Secretary, 1-800-637-2929 any business day from 9 a.m. to
MFS Investment Management 5 p.m. Eastern time (or leave a message
anytime).
Jeffrey L. Shames* - Chairman, Chief
Executive Officer, and Director, INVESTOR SERVICE
MFS Investment Management MFS Service Center, Inc.
P.O. Box 2281
J. Dale Sherratt - President, Insight Boston, MA 02107-9906
Resources, Inc.; Managing General Partner,
Wellfleet Investments; Chief Executive For general information, call toll free:
Officer, Cambridge Nutraceuticals 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Ward Smith - Former Chairman (until 1994),
NACCO Industries For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business day
INVESTMENT ADVISER from 9 a.m. to 5 p.m. Eastern time. (To use
Massachusetts Financial Services Company this service, your phone must be equipped with
500 Boylston Street a Telecommunications Device for the Deaf.)
Boston, MA 02116-3741
For share prices, account balances, and
DISTRIBUTOR exchanges, call toll free: 1-800-MFS-TALK
MFS Fund Distributors, Inc. (1-800-637-8255) anytime from a touch-tone
500 Boylston Street telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
CHAIRMAN AND PRESIDENT www.mfs.com
Jeffrey L. Shames*
PORTFOLIO MANAGER
Christopher J. Mier*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) MUNICIPAL INCOME FUND ------------
BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MMI-3 11/99 20M 02/202/302
