<PAGE>
[Logo] MFS(R) ANNUAL REPORT
INVESTMENT MANAGEMENT MARCH 31, 2000
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) MASSACHUSETTS
HIGH INCOME TAX FREE FUND
MFS(R) NEW YORK
HIGH INCOME TAX FREE FUND
<PAGE>
<TABLE>
MFS(R) MASSACHUSETTS HIGH INCOME TAX FREE FUND
MFS(R) NEW YORK HIGH INCOME TAX FREE FUND
<S> <C>
TRUSTEES TREASURER
Richard B. Bailey+ -- Private Investor; W. Thomas London*
Former Chairman and Director (until 1991),
MFS Investment Management(R) ASSISTANT TREASURERS
Mark E. Bradley*
Marshall N. Cohan+ -- Private Investor Ellen Moynihan*
James O. Yost*
Lawrence H. Cohn, M.D.+ -- Chief of Cardiac
Surgery, Brigham and Women's Hospital; SECRETARY
Professor of Surgery, Harvard Medical School Stephen E. Cavan*
The Hon. Sir J. David Gibbons, KBE+ -- Chief ASSISTANT SECRETARY
Executive Officer, Edmund Gibbons Ltd.; James R. Bordewick, Jr.*
Chairman, Colonial Insurance Company, Ltd.
CUSTODIAN
Abby M. O'Neill+ -- Private Investor State Street Bank and Trust Company
Walter E. Robb, III+ -- President and Treasurer, AUDITORS
Benchmark Advisors, Inc. (corporate financial Deloitte & Touche LLP
consultants); President, Benchmark
Consulting Group, Inc. (office services) INVESTOR INFORMATION
For information on MFS mutual funds, call
Arnold D. Scott* -- Senior Executive your investment professional or, for an
Vice President, Director, and Secretary, information kit, call toll free: 1-800-637-2929
MFS Investment Management any business day from 9 a.m. to 5 p.m.
Eastern time (or leave a message anytime).
Jeffrey L. Shames* -- Chairman and Chief
Executive Officer, MFS Investment INVESTOR SERVICE
Management MFS Service Center, Inc.
P.O. Box 2281
J. Dale Sherratt+ -- President, Insight Boston, MA 02107-9906
Resources, Inc. (acquisition planning
specialist) For general information, call toll free:
1-800-225-2606 any business day from
Ward Smith+ -- Former Chairman (until 1994), 8 a.m. to 8 p.m. Eastern time.
NACCO Industries (holding company)
For service to speech- or hearing-impaired,
INVESTMENT ADVISER call toll free: 1-800-637-6576 any business
Massachusetts Financial Services Company day from 9 a.m. to 5 p.m. Eastern time. (To
500 Boylston Street use this service, your phone must be equipped
Boston, MA 02116-3741 with a Telecommunications Device for the Deaf.)
DISTRIBUTOR For share prices, account balances, exchanges,
MFS Fund Distributors, Inc. or stock and bond outlooks, call toll free:
500 Boylston Street 1-800-MFS-TALK (1-800-637-8255) anytime from a
Boston, MA 02116-3741 touch-tone telephone.
CHAIRMAN AND PRESIDENT WORLD WIDE WEB
Jeffrey L. Shames* www.mfs.com
PORTFOLIO MANAGER
Michael W. Roberge*
+ Independent Trustee
* MFS Investment Management
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
This spring, the U.S. stock market experienced record point drops and
volatility that have given many investors cause for concern. While the recent
market correction has rattled a lot of nerves, it's important to put the
current market environment into perspective. Throughout the history of the
market, investors have experienced numerous corrections (declines of more than
20%) and periods of extreme volatility. Of course, past performance is no
guarantee of future results, however, over the long-term, stock and bond
investors have enjoyed returns that have solidly outpaced inflation.
From our perspective, as we look at the global investment climate at the
beginning of the new millennium, we see many reasons for optimism, as well as
the need to voice some words of caution. Our reasons for being optimistic
about both stock and bond markets include:
o STRONG CORPORATE EARNINGS GROWTH: We believe that, over time, the most
important driver of stock prices is corporate earnings. Our research
indicates that the average earnings growth for U.S. companies could approach
15% in 2000, which would bode very well for U.S. equities. We are also
seeing encouraging signs that companies worldwide, and particularly in
Europe, are beginning to focus more on earnings and shareholder value --
that is, delivering stock price performance that will reward investors. As
we research companies around the globe, we are finding that specific areas
of opportunity include technology companies, especially those involved in
wireless telecommunications and in supplying infrastructure and services for
the Internet.
o LOW INFLATION WORLDWIDE: We believe accelerating inflation is one of the
chief factors that could end the current economic boom. While the U.S.
economy continues to grow rapidly, we have not experienced significant signs
of inflation. In our opinion, perhaps the major force keeping inflation at
bay is worldwide productivity increases, fueled by advancing technology. A
technological revolution based on computerization and the Internet appears
to be making it possible for companies to produce more products with less
employees, thereby enabling companies to increase earnings without raising
prices. A related factor keeping inflation down is the heightened
competition of an increasingly global marketplace, where, for example,
businesses are beginning to use computer networks and the Internet to shop
worldwide for the lowest prices from suppliers.
o STRONG GLOBAL ECONOMIES: Our outlook is that a majority of national
economies will continue to experience healthy growth with low inflation. In
late January, the current economic boom in the United States became the
longest in the nation's history. It appears to us that the U.S. Federal
Reserve Board's (the Fed's) program of gradual interest-rate increases will
eventually be successful in cooling the somewhat-overheated U.S. economy
while prolonging the boom. In Europe, we see strong evidence that most
countries will continue on a moderate growth path with low inflation. A
major reason for this is that European companies have begun to adopt the
practices of downsizing, outsourcing, and consolidation that have helped
revitalize U.S. industry over the past decade. We are witnessing a similar
situation in Japan, as more firms merge, restructure, and invest in
technology. In the Pacific Rim, most economies have recovered from the
economic turmoil of late summer 1998 and are surging ahead. We believe
progress toward restructuring Asia's banking systems and other ailing
industries bodes well for stronger investor confidence in the region. While
business conditions have been less favorable in Latin America due to
relatively high inflation, increased exports and industrial production
suggest to us that the region's recession has ended.
Amid this positive global outlook, however, we believe investors should also
heed some cautionary notes:
o IT IS HIGHLY UNLIKELY THAT U.S. EQUITY MARKETS WILL CONTINUE TO PERFORM AT
THE PACE OF THE LAST SEVERAL YEARS. Although our outlook for U.S. markets
this year is quite positive, we believe it is unrealistic for investors to
expect stock market returns, as measured by the Standard & Poor's 500
Composite Index,(1) to routinely exceed 20%, as they did for the past four
years.
o HIGH VALUATIONS, ESPECIALLY OF TECHNOLOGY STOCKS, HAVE MADE U.S. MARKETS
INCREASINGLY VOLATILE. Investor excitement over the past year has pushed
many technology-related stocks to very high relative prices, as expressed by
their price/earnings (P/E) ratios. In general, we believe these higher
valuations are largely supported by the strong earnings growth mentioned
earlier. However, as we've recently experienced, this backdrop has led to a
highly volatile environment, where the market is swift to punish companies
whose earnings are less than expected and where fear can rapidly overcome
the desire to invest for long-term goals.
o RISING INTEREST RATES MAY DAMPEN MARKETS IN THE SHORT TERM, PARTICULARLY IN
THE UNITED STATES AND EUROPE. The Fed's current program of raising interest
rates could potentially cool both stock and bond markets, and the European
Central Bank has tended to follow the lead of the Fed in adjusting its own
interest rates. It is our expectation, however, that in the long term
interest rates will trend down again, perhaps by the end of this year. We
believe that could be favorable for both equity and fixed-income
investments.
On balance, it appears to us that the current global investment climate is
well matched to MFS' research-oriented style of investing. In the equity
markets, where we believe earnings growth is the most reliable indicator of
long-term performance, we feel our research team is second to none in
determining the real value of a company and its long-term earnings potential.
To do that, our portfolio managers and our worldwide team of research analysts
spend extensive time visiting with companies, talking to their customers, and
investigating their competition. In fixed-income investing, we believe the
quality of our research gives us an advantage by helping us determine which
types of securities can add the most value to a fund, and by helping us reduce
the credit risk which is the biggest danger to some higher-income bond funds.
In sum, MFS Original Research(R) is one of the most important factors in our
ongoing effort to deliver competitive performance to you, our investors.
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)
April 18, 2000
- --------------
(1) The Standard & Poor's 500 Composite Index (the S&P 500) is a popular,
unmanaged index of common stock total return performance. It is not
possible to invest directly in an index.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
MFS(R) Massachusetts High Income Tax Free Fund
Dear Shareholders,
The Fund, which commenced operations on August 2, 1999, provided a total
return of 1.42% through March 31, 2000. This return includes the reinvestment
of any distributions but excludes the effects of any sales charges and
compares to a return over the same period of 1.35% for the Fund's benchmark,
the Lehman Brothers Municipal Bond Index, an unmanaged index of investment-
grade bonds.
The Fund seeks to provide high current income exempt from federal income tax
and Massachusetts personal income tax. The Fund is nondiversified and may
invest in a small number of issuers. Most of the Fund's assets are invested in
municipal securities and participation interests in municipal securities,
which represent securities pooled by multiple issuers and backed by a letter
of credit or a guarantee from a bank.
Two main factors contributed to performance over the period. First, early in
the period, at a time when the bond market was going down, there was a large
amount of cash in the portfolio that had yet to be invested. This helped our
performance relative to the index. Second, credit spreads widened over the
period. As we began to put our money to work, we were able to purchase bonds
with more attractive yields and avoid some of the price declines we would have
suffered had we invested in high-yield instruments earlier.
We've added most of our yield in the health care and university areas. The
Boston area is a mecca for both hospitals and universities, and that afforded
opportunities for the Fund. The Boston health care market has been made
somewhat more difficult by the situation with Harvard Pilgrim, a large health
maintenance organization that experienced serious financial difficulties. As a
result, we've been very careful in that sector, but we do feel that health
care may offer some good opportunities.
Respectfully,
/s/ Michael W. Roberge
Michael W. Roberge
Portfolio Manager
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK -- continued
MFS(R) New York High Income Tax Free Fund
Dear Shareholders,
The Fund, which commenced operations on August 2, 1999, provided a total
return of 2.35% through March 31, 2000. This return includes the reinvestment
of any distributions but excludes the effects of any sales charges and
compares to a return over the same period of 1.35% for the Fund's benchmark,
the Lehman Brothers Municipal Bond Index.
The Fund seeks to provide high current income exempt from federal income tax
and New York state and city income taxes. The Fund is nondiversified and may
invest in a small number of issuers. Most of the Fund's assets are invested in
municipal securities and participation interests in municipal securities,
which represent securities pooled by multiple issuers and backed by a letter
of credit or a guarantee from a bank.
Two main factors contributed to performance over the period. First, early in
the period, at a time when the bond market was going down, there was a large
amount of cash in the portfolio that had yet to be invested. This helped our
performance relative to the index. Second, credit spreads widened over the
period. As we began to put our money to work, we were able to purchase bonds
with more attractive yields and avoid some of the price declines we would have
suffered had we invested in high-yield instruments earlier.
Our approach in managing the Fund has been to ease high-yield instruments into
the portfolio and become more aggressive as yield spreads widen. Over time, we
expect to be able to add more yield (and therefore more risk) to the
portfolio.
Respectfully,
/s/ Michael W. Roberge
Michael W. Roberge
Portfolio Manager
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.
The portfolios are actively managed, and current holdings may be different.
<PAGE>
PERFORMANCE SUMMARY
Currently, each Fund offers only Class A shares which are available for purchase
at net asset value only by: (1) residents of the Commonwealth of Massachusetts
or the State of New York (as applicable) who are employees (or certain relatives
of employees) of MFS and its affiliates; or (2) members of the governing boards
of the various funds sponsored by MFS.
The following information illustrates the historical performance of each
Fund's Class A shares in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary.) It is not possible to
invest directly in an index.
MFS MASSACHUSETTS HIGH INCOME TAX FREE FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Fund's investment operations,
August 2, 1999, through March 31, 2000. Index information is from August 1,
1999.)
MFS Massachusetts
Lehman Brothers High Income
Municipal Bond Index Tax Free Fund - Class A
-------------------- -----------------------
August, 1999 $10,000 $9,530
March, 2000 10,135 9,661
CUMULATIVE TOTAL RATES OF RETURN THROUGH MARCH 31, 2000
CLASS A
Life*
- -------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +1.42%
- -------------------------------------------------------------------------------
Cumulative Total Return Including Sales Charge -3.39%
- -------------------------------------------------------------------------------
COMPARATIVE INDEX
Life*
- -------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index# +1.35%
- -------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
August 2, 1999, through March 31, 2000. Index information is from August 1,
1999.
# Source: Standard & Poor's Micropal, Inc.
<PAGE>
PERFORMANCE SUMMARY -- continued
MFS NEW YORK HIGH INCOME TAX FREE FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Fund's investment operations,
August 2, 1999, through March 31, 2000. Index information is from August 1,
1999.)
MFS New York
Lehman Brothers High Income
Municipal Bond Index Tax Free Fund - Class A
-------------------- -----------------------
August, 1999 $10,000 $9,530
March, 2000 10,135 9,749
CUMULATIVE TOTAL RATES OF RETURN THROUGH MARCH 31, 2000
CLASS A
Life*
- --------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +2.35%
- --------------------------------------------------------------------------------
Cumulative Total Return Including Sales Charge -2.51%
- --------------------------------------------------------------------------------
COMPARATIVE INDEX
Life*
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index# +1.35%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
August 2, 1999, through March 31, 2000. Index information is from August 1,
1999.
# Source: Standard & Poor's Micropal, Inc.
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 4.75% sales charge.
All performance results reflect any applicable 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 include 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. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Both Funds are nondiversified and have more risk than diversified funds.
Investments in shares of the Fund should not be considered to constitute a
complete investment program.
Lower-rated securities may provide greater returns, but they are also
associated with greater-than-average risk. These risks may increase share
price volatility.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - March 31, 2000
MFS MASSACHUSETTS HIGH INCOME TAX FREE FUND
Municipal Bonds - 98.2%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Obligation - 34.2%
Boston, MA, 5.75s, 2019 $200 $ 201,224
Central Berkshire, MA, Regional School District, FSA, 5.25s, 2014### 100 98,415
Central Berkshire, MA, Regional School District, FSA, 5.25s, 2016 200 193,860
Chelmsford, MA, 6s, 2018 100 103,116
Commonwealth of Massachusetts, 5.25s, 2008 100 101,226
Commonwealth of Massachusetts, 6s, 2013 25 26,331
Commonwealth of Massachusetts, 6s, 2014 150 157,353
Holyoke, MA, 8s, 2001 150 153,450
Lawrence, MA, AMBAC, 9.75s, 2002 350 382,189
Lowell, MA, FGIC, 5.75s, 2004 100 103,163
Northbridge, MA, 7.6s, 2001 200 206,838
Puerto Rico Municipal Finance Agency, RITES, FSA, 7.857s, 2016+(++) 30 32,715
Springfield, MA, Municipal Purpose Loan, FSA, 6.25s, 2019 300 314,922
Worcester, MA, FSA, 6s, 2016 200 208,442
----------
$2,283,244
- ------------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 6.4%
Massachusetts Bay Transportation Authority (General
Transportation Systems), 6.2s, 2016 $400 $ 430,672
- ------------------------------------------------------------------------------------------------------------------
Refunded and Special Obligations - 8.2%
Commonwealth of Massachusetts, ETM, 6.5s, 2006 $350 $ 383,418
Commonwealth of Massachusetts, ETM, FGIC, 7s, 2007 100 113,645
Commonwealth of Massachusetts, Water Resources
Authority, MBIA, 5.25s, 2004 50 51,685
----------
$ 548,748
- ------------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 4.5%
Massachusetts Port Authority, 6s, 2015 $100 $ 103,715
Massachusetts Port Authority, FSA, 5.125s, 2017 100 94,446
Massachusetts Port Authority (US Airways), MBIA, 5s, 2006 100 99,222
----------
$ 297,383
- ------------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 1.2%
Puerto Rico Electric Power Authority, Power Rev., RITES, FSA,
6.357s, 2015+(++) $ 80 $ 77,478
- ------------------------------------------------------------------------------------------------------------------
Health Care Revenue - 2.2%
Massachusetts Health & Education Facilities Authority (Caritas Christi),
5.7s, 2015 $ 20 $ 16,670
Massachusetts Health & Education Facilities Authority (Jordan Hospital),
5.25s, 2018 100 80,341
Massachusetts Health & Education Facilities Authority
(North Adams Regional Hospital), 6.625s, 2018 25 23,439
Massachusetts Health & Education Facilities Authority
(South Shore Hospital), 5.625s, 2019 30 26,382
----------
$ 146,832
- ------------------------------------------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.7%
Massachusetts Development Finance Agency (Springfield
Resources Recovery), 5.625s, 2019 $ 50 $ 46,604
- ------------------------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 5.3%
Commonwealth of Massachusetts, 5s, 2017 $200 $ 186,614
Massachusetts Special Obligation Rev., 5.5s, 2012 120 123,272
Territory of Virgin Islands, Public Finance Authority, 5.5s, 2022 50 44,312
----------
$ 354,198
- ------------------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - 1.5%
Massachusetts Housing Finance Agency, MBIA, 5.35s, 2010 $100 $ 100,118
- ------------------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 1.1%
Massachusetts Development Finance Agency, Resource Recovery Rev.,
6.7s, 2014 $ 25 $ 25,421
Massachusetts Development Finance Agency, Resource Recovery Rev
(Waste Management, Inc.), 6.9s, 2029 25 24,936
Massachusetts Industrial Finance Agency (Ogden Haverhill),
5.5s, 2013 25 22,402
----------
$ 72,759
- ------------------------------------------------------------------------------------------------------------------
Student Loan Revenue - 1.5%
Massachusetts Educational Financing Authority, MBIA, 6.05s, 2017 $100 $ 100,882
- ------------------------------------------------------------------------------------------------------------------
Universities - 14.4%
Commonwealth of Massachusetts, College Building, MBIA, 5.625s, 2016 $100 $ 100,567
Massachusetts Development Finance Agency Rev. (Eastern Nazarine College),
5.625s, 2019 100 91,429
Massachusetts Development Finance Agency Rev. (Mass College of Pharmacy),
6.625s, 2020 50 50,275
Massachusetts Development Finance Agency Rev. (Williston Northampton School),
6.5s, 2028 200 184,456
Massachusetts Health & Educational Facilities Authority, RITES,
7.864s, 2020+(++) 90 107,176
Massachusetts Health & Educational Facilities Authority
(Simmons College), AMBAC, 5.75s, 2015 100 102,068
Massachusetts Industrial Finance Agency (Belmont Hill School),
5.625s, 2020 100 95,944
Massachusetts Industrial Finance Agency (Concord Academy), 5.5s, 2027 50 44,658
Massachusetts Industrial Finance Agency (Groton School), 5s, 2018 100 91,207
Massachusetts Industrial Finance Agency (Tabor Academy), 5.4s, 2018 100 90,166
----------
$ 957,946
- ------------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 13.4%
Massachusetts Water Pollution Abatement Trust, 5.375s, 2011 $ 75 $ 76,118
Massachusetts Water Pollution Abatement Trust, 5.5s, 2012 50 51,402
Massachusetts Water Pollution Abatement Trust, 5.5s, 2013 25 25,520
Massachusetts Water Pollution Abatement Trust, 5.75s, 2016 25 25,395
Massachusetts Water Pollution Abatement Trust, 5.75s, 2017 125 126,483
Massachusetts Water Resources Authority, 6s, 2010 100 106,937
Massachusetts Water Resources Authority, FGIC, 6s, 2017 200 206,964
Massachusetts Water Resources Authority, RITES, 8.192s, 2019(++) 225 276,313
----------
$ 895,132
- ------------------------------------------------------------------------------------------------------------------
Other - 3.6%
Commonwealth of Massachusetts, 5.125s, 2015 $200 $ 189,988
Rail Connections, Inc., MA (Route 128 Parking Garage), 6s, 2012 50 50,420
----------
$ 240,408
- ------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $6,489,871) $6,552,404
- ------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Note - 1.5%
- ------------------------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Authority, due 04/03/00,
at Identified Cost $100 $ 100,000
- ------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $6,589,871) $6,652,404
Other Assets, Less Liabilities - 0.3% 20,055
- ------------------------------------------------------------------------------------------------------------------
Net assets - 100.0% $6,672,459
- ------------------------------------------------------------------------------------------------------------------
See portfolio footnotes and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - March 31, 2000
MFS NEW YORK HIGH INCOME TAX FREE FUND
Municipal Bonds - 97.8%
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Obligation - 9.2%
Erie County, NY, Public Improvement, 5.625s, 2012 $15 $ 15,462
Nassau County, NY, FSA, 5.25s, 2008 15 15,123
Puerto Rico Municipal Finance Agency, RITES, FSA, 7.857s, 2016+(++) 15 16,357
--------
$ 46,942
- -------------------------------------------------------------------------------------------------------------
State and Local Appropriation - 25.4%
Metropolitan Transportation Authority, NY, Transportation Facilities
Rev., MBIA, 5s, 2014 $25 $ 23,757
New York Dormitory Authority Rev. (Mental Health Services Facilities),
6s, 2007 25 26,094
New York Dormitory Authority Rev. (Mental Health Services Facilities),
MBIA, 5.75s, 2020 5 4,988
New York Dormitory Authority Rev. (Office Facilities-Audit & Control),
MBIA, 5.25s, 2011 25 24,989
New York Dormitory Authority Rev. (State Universities), AMBAC, 5.5s, 2009 25 25,762
New York Urban Development Corp. Rev. (Correctional Capital Facilities),
FSA, 5.25s, 2014 25 24,678
--------
$130,268
- --------------------------------------------------------------------------------------------------------------
Refunded and Special Obligations - 4.2%
New York Medical Care Facilities Financing Agency Rev
(Mental Health Services), 6.375s, 2004 $20 $ 21,509
- --------------------------------------------------------------------------------------------------------------
Airport and Port Revenue - 4.0%
Niagara, NY, Frontier Authority Airport Rev. (Buffalo-
Niagra International Airport), MBIA, 5.5s, 2009 $20 $ 20,258
- --------------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 5.6%
Long Island, NY, Power Authority, Electric Systems Rev., FSA, 5s, 2015 $10 $ 9,357
Puerto Rico Electric Power Authority, RITES, FSA, 6.357s, 2015+(++) 20 19,370
--------
$ 28,727
- --------------------------------------------------------------------------------------------------------------
Health Care Revenue - 1.7%
New York City, NY, Health & Hospital Corp. Rev., 5.25s, 2017 $10 $ 8,796
- --------------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 3.9%
Rockland County, NY, Solid Waste Management Authority, 4.8s, 2005 $20 $ 19,905
- --------------------------------------------------------------------------------------------------------------
Turnpike Revenue - 18.1%
Metropolitan Transportation Authority, NY, FGIC, 5.875s, 2018 $20 $ 20,376
New York Thruway Authority, Highway & Bridges Rev., FSA, 5.8s, 2018 20 20,286
Triborough Bridge & Tunnel Authority, NY, 5.5s, 2006 25 25,684
Triborough Bridge & Tunnel Authority, NY, 5.75s, 2011 25 26,150
--------
$ 92,496
- --------------------------------------------------------------------------------------------------------------
Universities - 12.9%
Islip, NY, Community Development Agency Rev. (New York Institute of Technology),
7.5s, 2026 $10 $ 10,280
New York Dormitory Authority Rev. (New York University), MBIA, 5.75s, 2013 20 20,880
New York Dormitory Authority Rev. (SUNY), 6s, 2014 15 15,573
New York Dormitory Authority Rev. (University of Rochester), MBIA, 5.25s, 2015 20 19,502
--------
$ 66,235
- --------------------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 4.1%
New York Environmental Facilities Corp., Pollution Control Rev., 5.75s, 2012 $20 $ 20,976
- --------------------------------------------------------------------------------------------------------------
Other - 8.7%
New York City, NY, Cultural Resources Rev. (American Museum of Natural History),
AMBAC, 5.25s, 2017 $25 $ 23,927
Suffolk County, NY, Judical Facilities Rev. (John P Cohalan Complex), AMBAC,
5.5s, 2008 20 20,536
--------
$ 44,463
- --------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $502,019) $500,575
Other Assets, Less Liabilities - 2.2% 11,412
- --------------------------------------------------------------------------------------------------------------
Net assets - 100.0% $511,987
- --------------------------------------------------------------------------------------------------------------
See portfolio footnotes and notes to financial statements.
Portfolio Footnotes:
### Security segregated as collateral for an open futures contract.
+ Restricted security.
(++) Inverse floating rate security.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statements of Assets and Liabilities
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MASSACHUSETTS NEW YORK
HIGH INCOME HIGH INCOME
MARCH 31, 2000 TAX FREE FUND TAX FREE FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments -
Identified cost $6,589,871 $502,019
Unrealized appreciation (depreciation) 62,533 (1,444)
---------- --------
Total investments, at value $6,652,404 $500,575
Cash 34,664 3,016
Interest receivable 89,549 8,397
---------- --------
Total assets $6,776,617 $511,988
---------- --------
Liabilities:
Distributions payable $ 2,216 $ 1
Payable for daily variation margin on open futures contracts 1,719 --
Payable for investments purchased 100,223 --
---------- --------
Total liabilities $ 104,158 $ 1
---------- --------
Net assets $6,672,459 $511,987
========== ========
Net assets consist of:
Paid-in-capital $6,613,358 $516,746
Unrealized appreciation (depreciation) on investments 56,689 (1,444)
Accumulated undistributed net realized gain (loss) on investments 1,735 (3,262)
Accumulated undistributed (distributions in excess of) net
investment income 677 (53)
---------- --------
Total $6,672,459 $511,987
========== ========
Shares of beneficial interest outstanding: 679,948 51,711
========== ========
Class A shares:
Net asset value per share
(net assets / shares of beneficial interest outstanding) $ 9.81 $ 9.90
====== ======
Offering price per share (100 / 95.25 of net asset value per share) $10.30 $10.39
====== ======
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.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Operations
<CAPTION>
- -------------------------------------------------------------------------------------------------
MASSACHUSETTS NEW YORK
HIGH INCOME HIGH INCOME
PERIOD ENDED MARCH 31, 2000* TAX FREE FUND TAX FREE FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income:
Interest Income $111,954 $ 16,490
-------- --------
Expenses -
Management fee $ 8,406 $ 1,308
Shareholder servicing agent fee 2,102 327
Administrative fee 260 39
Custodian fee 3,740 3,060
Printing 22,402 3,857
Postage 128 52
Auditing fees 9,500 9,000
Legal fees 4,228 1,774
Miscellaneous 4,512 2,132
-------- --------
Total expenses $ 55,278 $ 21,549
Fees paid indirectly (675) (121)
Reduction of expenses by investment adviser (54,603) (21,428)
-------- --------
Net expenses $ -- $ --
-------- --------
Net investment income $111,954 $ 16,490
-------- --------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 4,748 $ (3,262)
Futures contracts (3,013) --
-------- --------
Net realized gain (loss) on investments $ 1,735 $ (3,262)
-------- --------
Change in unrealized appreciation (depreciation) -
Investments $ 62,533 $ (1,444)
Futures contracts (5,844) --
-------- --------
Net unrealized gain (loss) on investments $ 56,689 $ (1,444)
-------- --------
Net realized and unrealized gain (loss) on investments $ 58,424 $ (4,706)
-------- --------
Increase in net assets from operations $170,378 $ 11,784
======== ========
*For the period from the commencement of each Fund's investment operations, August 2, 1999,
through March 31, 2000.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------------
MASSACHUSETTS NEW YORK
HIGH INCOME HIGH INCOME
PERIOD ENDED MARCH 31, 2000* TAX FREE FUND TAX FREE FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 111,954 $ 16,490
Net realized gain (loss) on investments 1,735 (3,262)
Net unrealized gain (loss) on investments 56,689 (1,444)
---------- ---------
Increase in net assets from operations $ 170,378 $ 11,784
---------- ---------
Distributions declared to shareholders -
From net investment income $ (111,277) $ (16,490)
In excess of net investment income
-- (53)
---------- ---------
Total distributions declared to shareholders $ (111,277) $ (16,543)
---------- ---------
Net increase in net assets from Fund share transactions $6,613,358 $ 516,746
---------- ---------
Total increase in net assets $6,672,459 $ 511,987
Net assets:
At beginning of period -- --
---------- ---------
At end of period $6,672,459 $ 511,987
---------- ---------
Accumulated undistributed (distributions in excess of) net
investment income $ 677 $ (53)
========== =========
*For the period from the commencement of each Fund's investment operations, August 2, 1999,
through March 31, 2000.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS NEW YORK
HIGH INCOME HIGH INCOME
PERIOD ENDED MARCH 31, 2000* TAX FREE FUND TAX FREE FUND
- ----------------------------------------------------------------------------------------------------
CLASS A CLASS A
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.00 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.33 $ 0.33
Net realized and unrealized loss on investments (0.20) (0.10)
------ ------
Total from investment operations $ 0.13 $ 0.23
------ ------
Less distributions declared to shareholders -
From net investment income $(0.32) $(0.33)
In excess of net investment income -- (0.00)+++
------ ------
Net asset value - end of period $ 9.81 $ 9.90
====== ======
Total return(+) 1.42%++ 2.35%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.03%+ 0.04%+
Net investment income 5.27%+ 5.01%+
Portfolio turnover 65% 19%
Net assets at end of period (000 omitted) $6,672 $ 512
(S) The investment adviser voluntarily agreed to maintain the expenses of each Fund at 0.00% of its
average daily net assets. In addition, the investment adviser voluntarily waived its fee for the
periods indicated. To the extent actual expenses were over this limitation and the waiver had not
been in place, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.16 $(0.10)
Ratios (to average net assets):
Expenses## 2.60%+ 6.55%+
Net investment income (loss) 2.70%+ (1.50)%+
* For the period from the commencement of each Fund's investment operations, August 2, 1999, through
March 31, 2000.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had
been included, the results would have been lower.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Massachusetts High Income Tax Free Fund and MFS New York High Income Tax
Free Fund are each nondiversified 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. Because
each Fund invests primarily in the securities of a single state and its
political subdivisions, each Fund is vulnerable to the effects of changes in
the legal and economic environment of the particular state. Each Fund can
invest up to 75% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions.
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 in good faith, at fair value, by
the Trustees.
Futures Contracts - Each 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, each 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 each 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 each Fund. Each 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, each Fund may not achieve the anticipated benefits of the
futures contracts and may realize a loss.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount is amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Interest payments received in additional securities are recorded on the ex-
interest date in an amount equal to the value of the security on such date.
Each Fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds. Some securities may be purchased on a "when-
issued" or "forward delivery" basis, which means that the securities will be
delivered to each Fund at a future date, usually beyond customary settlement
time. 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 made directly to the security
issuer, 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 - Each Fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
each Fund. These amounts are shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - Each 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 tax-
exempt and net taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is provided.
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. 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 be 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.
At March 31, 2000, the following funds, for federal income tax purposes, had a
capital loss carryforward which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration.
<TABLE>
<CAPTION>
EXPIRATION DATE MASSACHUSETTS HIGH INCOME TAX FREE FUND NEW YORK HIGH INCOME TAX FREE FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
March 31, 2008 $(344) $(682)
</TABLE>
(3) Transactions with Affiliates
Investment Adviser - Each 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 0.40%
of each Fund's average daily net assets. The investment adviser has
voluntarily agreed to waive its fee, which is shown as a reduction of total
expenses in the Statement of Operations. The investment adviser has
voluntarily agreed to pay each Fund's operating expenses exclusive of
management fees such that the Fund's aggregate expenses do not exceed 0.00% of
its average daily net assets. This is reflected as a reduction of total
expenses in the Statement of Operations.
The Trust pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of each Fund, all of whom receive
remuneration for their services to the Trust from MFS. Certain officers and
Trustees of the Trust are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Trustees currently are
not receiving any payments for their services for the Funds.
Administrator - The Trust has an administrative services agreement with MFS to
provide the Trust with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, each Fund incurs an administrative fee
at the following annual percentages of each 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, did not
receive any sales charges for the period ended March 31, 2000, on sales of
Class A shares of each Fund.
The Trustees have adopted a distribution plan for Class A shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
Each Fund's distribution plan provides that each 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 attributable to
Class A shares 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. Distribution and service fees under
the Class A distribution will commence on such date as the Trustees may
determine.
Certain Class A shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within 12 months following purchase.
There were no contingent deferred sales charges imposed on Class A shares
during the period ended March 31, 2000.
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 each Fund's average daily net assets at an annual rate of
0.10%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities, and
short-term obligations, were as follows:
<TABLE>
<CAPTION>
MASSACHUSETTS NEW YORK
HIGH INCOME HIGH INCOME
TAX FREE FUND TAX FREE FUND
- -------------------------------------------------------------------------------------
<S> <C> <C>
Purchases $8,586,835 $596,444
---------- --------
Sales $2,094,900 $ 90,399
---------- --------
</TABLE>
The cost and unrealized appreciation and depreciation in the value of the
investments owned by each Fund, as computed on a federal income tax basis, are
as follows:
<TABLE>
<CAPTION>
MASSACHUSETTS NEW YORK
HIGH INCOME HIGH INCOME
TAX FREE FUND TAX FREE FUND
- -------------------------------------------------------------------------------------
<S> <C> <C>
Aggregate cost $6,589,871 $502,019
---------- --------
Gross unrealized depreciation $ (31,975) $ (4,210)
Gross unrealized appreciation 94,508 2,766
---------- --------
Net unrealized appreciation (depreciation) $ 62,533 $ (1,444)
========== ========
</TABLE>
(5) Shares of Beneficial Interest
The Trust's Declaration permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest. Transactions in Fund shares
were as follows:
<TABLE>
Class A Shares
<CAPTION>
MASSACHUSETTS HIGH INCOME NEW YORK HIGH INCOME
TAX FREE FUND TAX FREE FUND
---------------------------- ------------------------
PERIOD ENDED MARCH 31, 2000* SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 722,031 $7,020,749 50,021 $500,210
Shares issued to shareholders in reinvestment of
distributions 9,798 95,094 1,690 16,536
Shares reacquired (51,881) (502,485) -- --
------- ---------- ------ --------
Net increase 679,948 $6,613,358 51,711 $516,746
======= ========== ====== ========
*For the period from the commencement of each Fund's investment operations, August 2, 1999,
through March 31, 2000.
</TABLE>
(6) Financial Instruments
Each Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates. These financial instruments include
futures contracts. The notional or contractual amounts of these instruments
represent the investment each 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
Massachusetts High Income Tax Free Fund
<TABLE>
<CAPTION>
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION DEPRECIATION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bond Index March 2000 5 Long $5,844
</TABLE>
At March 31, 2000, the Fund had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(7) Restricted Securities
Each Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At March 31, 2000,
each Fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 3.3% and 7.0% of the MFS Massachusetts
High Income Tax Free Fund and MFS New York High Income Tax Free Fund's net
assets, respectively, which may not be publicly sold without registration
under the Securities Act of 1933. Each 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, at fair value by the Trustees.
<TABLE>
<CAPTION>
DATE OF PRINCIPAL
FUND DESCRIPTION ACQUISITION AMOUNT COST VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Massachusetts High Income Massachusetts Health & Educational
Tax Free Fund Facilities Authority,
RITES, 7.864s, 2020 9/23/1999 $90,000 $102,557 $107,176
Puerto Rico Electric Power Authority,
Power Rev., RITES, FSA,
6.357s, 2015 9/23/1999 80,000 78,120 77,478
Puerto Rico Municipal Finance Agency,
RITES, FSA,
7.857s, 2016 1/13/2000 30,000 31,170 32,715
--------
$217,369
========
New York High Income Tax Puerto Rico Electric Power Authority,
Free Fund RITES, FSA, 6.357s, 2015 9/23/1999 $20,000 $ 19,530 $ 19,370
Puerto Rico Municipal Finance Agency,
RITES, FSA, 7.857s, 2016 1/13/2000 15,000 15,585 16,357
--------
$ 35,727
========
</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>
INDEPENDENT AUDITORS REPORT
To The Trustees of MFS Municipal Series Trust and Shareholders of MFS
Massachusetts High Income Tax Free Fund and MFS New York High Income Tax Free
Fund:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of MFS Massachusetts High Income Tax
Free Fund and MFS New York High Income Tax Free Fund (portfolios of MFS
Municipal Series Trust) as of March 31, 2000, and the related statements of
operations, changes in net assets and the financial highlights for the period
from August 2, 1999 (commencement of investment operations) to March 31, 2000.
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 auditing standards generally
accepted in the United States of America. Those standards 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. Our procedures included confirmation of the
securities owned at March 31, 2000 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 present fairly, in all material
respects, the financial position of each of the aforementioned portfolios of
MFS Municipal Series Trust at March 31, 2000, the results of their operations,
the changes in their net assets, and their financial highlights for the
respective stated period from August 2, 1999 to March 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 4, 2000
<PAGE>
FEDERAL TAX INFORMATION
In January 2001, shareholders will be mailed a Tax Form Summary or Form 1099-
DIV if applicable, reporting the federal tax status of all distributions paid
during the calendar year 2000.
For federal income tax purposes, 100% of the total dividends paid by each Fund
from net investment income during the period ended March 31, 2000, is
designated as an exempt-interest dividend.
<PAGE>
MFS(R) MASSACHUSETTS HIGH INCOME TAX FREE FUND
MFS(R) NEW YORK HIGH INCOME TAX FREE FUND
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
INC-2MST 5/00 1.9M
