UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02794
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MFS SERIES TRUST III
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Stephen E. Cavan
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: January 31, 2003
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Date of reporting period: July 31, 2003
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ITEM 1. REPORT TO STOCKHOLDERS.
MFS(R) Mutual Funds
SEMIANNUAL REPORT 7/31/03
MFS(R) HIGH YIELD
OPPORTUNITIES FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
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MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
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Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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MFS(R) HIGH YIELD OPPORTUNITIES FUND
The fund seeks high current income.
TABLE OF CONTENTS
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LETTER FROM THE CHAIRMAN 1
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MFS ORIGINAL RESEARCH(R) 4
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MANAGEMENT REVIEW 5
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PERFORMANCE SUMMARY 8
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PORTFOLIO OF INVESTMENTS 11
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FINANCIAL STATEMENTS 29
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NOTES TO FINANCIAL STATEMENTS 42
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TRUSTEES AND OFFICERS 51
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MONEY MANAGEMENT FOR ALL TYPES
OF INVESTORS 53
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CONTACT INFORMATION 54
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ASSET ALLOCATION 55
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LETTER FROM THE CHAIRMAN
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Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is the
best means of achieving superior long-term investment performance. When you're
managing billions of dollars for investors, we think you have an obligation to
have in-depth, firsthand knowledge of every company owned, anywhere in the
world.
We have structured our equity and fixed-income investment teams to capitalize on
the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in each
segment of the fixed-income market and work as part of the same team ensuring
that every member has access to information that may have a material effect on
their investment decisions. As MFS(R) continues to grow and as markets become
more complex, we believe our structure will enable us to maintain a consistent
investment process with the goal of providing strong, long-term investment
performance across market capitalizations, investment disciplines, and country
borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts know
the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry insights
and a wider perspective on companies and industries. Our goal is to make sure
those two sets of perspectives coordinate and work well together. As the world's
markets become more interdependent, we believe our collaborative environment
allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of the
market. We do not believe that analysts and portfolio managers - no matter how
talented they may be - can succeed by working in a vacuum. Through the latest
technology available, our entire research team meets frequently via video and
telephone teleconferences, e-mail, and PDAs (personal digital assistants). When
we hire new analysts, we require them to spend an average of one year in Boston
to learn MFS' culture and to build relationships with their peers. We believe
the interaction among our analysts is the key to making our collaborative
process work toward delivering superior long-term investment performance for our
investors. Our analysts work out of four research offices in Boston, London,
Singapore, and Tokyo, and are assigned to specific regions and industries. They
meet regularly with their colleagues to discuss world trends affecting the
companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income analysts
will look at stability of a company's cash flow, the value of its assets, and
its capital structure to gauge whether the company can generate enough free cash
flow to pay off its debt. As a result of their collaboration, we believe we're
able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make better
investment decisions.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MFS Investment Management(R)
August 20, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
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MFS ORIGINAL RESEARCH(R)
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THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands of
institutions all over the world look to MFS to manage their assets with insight
and care.
Our success, we believe, has to do with the fact that we see investors as people
with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain
first-hand knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
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MANAGEMENT REVIEW
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MARKET ENVIRONMENT
The period began with interest rates on U.S. Treasury bonds near record lows. As
signs of economic improvement began to appear, investors seemed to regain lost
confidence and were more willing to invest in higher risk asset classes.
Discouraged by the yields available from high-quality bonds, investors began
reaching for the more attractive income available from lower-quality bonds.
Strong investor demand poured record levels of cash into the high-yield market
and caused bond prices to soar. (The principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity.)
By the end of the period, high-yield prices did come back down somewhat, and
we've seen a corresponding upward move in yields. However, July's price moves in
our view were not related to any deterioration in the group's fundamental
strength. We see the price moves as a return to more rational valuations.
PORTFOLIO POSITIONING
Throughout this period, we remained fairly cautious and maintained our focus on
the business fundamentals that underpinned the high-yield market. We were
overweighted in media, energy, and gaming bonds as part of our cautious stance;
however, we have trimmed those positions gradually since the beginning of the
period. The proceeds we took from those groups were invested primarily in the
utilities & communications sector. This shift was the most significant move we
made during the period.
At the end of January, we were significantly underweighted in utilities relative
to our benchmark because we were concerned about the group's ability to access
the capital markets for the liquidity needed to stay in business. When the
credit markets started lending once more to some of these companies, we had
initially focused our efforts on the bonds of investment-grade and higher-rated,
high-yield companies whose bond prices were severely depressed. As market access
continued to improve, we began to purchase true high-yield names such as Calpine
and Dynegy.
PORTFOLIO QUALITY
AS OF 7/31/03
"B" 52.0%
"BB" 19.0%
"CCC" 15.0%
Investment Grade 6.0%
Stock 3.0%
Unrated 2.0%
Other 2.0%
Below "CCC" rated 1.0%
The portfolio is actively managed, and current holdings may be different.
DETRACTORS FROM PERFORMANCE
The fund's underperformance relative to its benchmark was attributable largely
to factors such as being underweighted in a particular quality rating or sector.
For example, the bulk of the fund's holdings were invested in high- yield bonds
with "B" and "BB" ratings for the period because we were not comfortable
building substantial positions in the lower credit categories. Although bonds in
those quality ratings performed well, CCC-rated issues produced the highest
returns for much of the period. Utility bonds generated strong absolute returns
for the period, but the group detracted from relative performance because we
were underweighted.
Among individual securities, Westpoint Stevens, Fleming, and MMI Products
provided disappointing results. Textile manufacturer Westpoint Stevens faced
increased overseas competition and softer domestic demand and was forced to file
for bankruptcy protection. Food distributor Fleming was investigated for
allegations of accounting irregularities and ultimately filed for bankruptcy.
MMI, which makes fences and concrete accessories used in construction, was hurt
by the slow economy. We believe the company's results will recover when the
economy improves; it has, in our view, strong distribution channels and a solid
market share in its business lines.
CONTRIBUTORS TO PERFORMANCE
Cable industry holdings performed well during the period, especially our
holdings in Adelphia and its subsidiaries, as well as Charter Communications.
Both companies had accounting and corporate governance problems in 2002, and
Adelphia was ultimately forced into bankruptcy. We bought these bonds because we
believe in the long-term industry fundamentals and the asset value supporting
the bonds.
Calpine, a natural gas-fired power producer, was one of the fund's more notable
individual investments for the period. The company had suffered from unsettled
power markets and concern that it wouldn't meet its debt obligations. The power
market stabilized somewhat, and the company was able to obtain the financing it
needed. Calpine's prospects brightened as a result.
Emerging markets debt also made a modest contribution to fund performance for
the period. Bonds from Russia, Mexico, and particularly Brazil generated the
best returns for the period.
/s/ John F. Addeo
John F. Addeo
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.
These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
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PERFORMANCE SUMMARY THROUGH 7/31/03
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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. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (See Notes to
Performance Summary.)
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
A 7/1/98 -- 19.70% 4.53% 4.05% 4.02%
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B 7/1/98 -- 18.89% 3.90% 3.46% 3.39%
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C 7/1/98 -- 18.96% 3.87% 3.36% 3.34%
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I 7/1/98 -- 20.24% 4.75% 4.44% 4.41%
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Comparative benchmarks
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Average annual
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Average high current
yield fund+ 11.23% 20.41% 1.99% 0.40% 0.45%
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Lehman Brothers High
Yield Index# 13.41% 26.96% 4.78% 2.59% 2.66%
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Periods less than one year are actual, not annualized.
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Average annual
with sales charge
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A -- 14.01% 2.85% 3.04% 3.03%
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B -- 14.89% 3.13% 3.21% 3.15%
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C -- 17.96% 3.87% 3.36% 3.34%
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I class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
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Cumulative without
sales charge
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Share
class 6-mo 1-yr 3-yr 5-yr Life*
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A 11.49% 19.70% 14.21% 21.93% 22.17%
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B 11.11% 18.89% 12.15% 18.52% 18.47%
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C 11.14% 18.96% 12.05% 17.97% 18.17%
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I 11.65% 20.24% 14.92% 24.26% 24.54%
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's operations, July 1,
1998, through July 31, 2003. Index information is from July 1, 1998.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
LEHMAN BROTHERS HIGH YIELD INDEX - measures the performance of the high-yield
bond market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflect the deduction of the maximum
4.75% sales charge. Class B results, including sales charge, reflect the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales charge,
redeemed within one year from the end of the calendar month of purchase reflect
the deduction of the 1% CDSC. Class I shares have no sales charges and are
available only to certain investors.
All performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown; without these, the results would have been less
favorable. See the prospectus and financial statements 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, AND THE PERFORMANCE SHOWN DOES NOT REFLECT THE
DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS
OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
Investments in high yield or lower-rated securities may provide greater returns
but are subject to greater-than-average risk.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
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PORTFOLIO OF INVESTMENTS - (unaudited) 7/31/ 2003
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The Portfolio of Investments is a complete list of all securities owned by your fund. It's divided by
broad-based asset classes.
Bonds - 94.5%
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PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
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U.S. Bonds - 71.8%
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Advertising & Broadcasting - 6.3%
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Allbritton Communications Co., 7.75s, 2012 $755 $743,675
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Dex Media East LLC, 9.875s, 2009 415 454,425
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Directv Holdings LLC, 8.375s, 2013## 650 718,250
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Echostar DBS Corp., 9.375s, 2009 670 707,687
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Emmis Communications Corp., 0s to 2006, 12.5s to 2011 2,493 2,131,515
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Granite Broadcasting Corp., 10.375s, 2005 1,201 1,188,990
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LIN Television Corp., 8s, 2008 25 26,125
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Muzak LLC/ Muzak Finance Corp., 10s, 2009## 925 957,375
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Panamsat Corp., 8.5s, 2012 1,790 1,861,600
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Paxson Communications Corp., 10.75s, 2008 310 316,200
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Paxson Communications Corp., 0s to 2006, 12.25s to 2009 2,975 2,290,750
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Pegasus Communications Corp., 12.5s, 2005 1,500 1,501,875
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Primedia, Inc., 8.875s, 2011 680 703,800
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RH Donnelley Finance Corp., 8.875s, 2010## 115 124,488
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RH Donnelley Finance Corp., 10.875s, 2012## 270 303,750
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Spanish Broadcasting Systems, Inc., 9.625s, 2009 1,600 1,680,000
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XM Satellite Radio, Inc., 0s to 2005, 14s to 2009 1,163 842,957
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XM Satellite Radio, Inc., 12s, 2010## 1,450 1,435,500
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Young Broadcasting, Inc., 8.5s, 2008 935 986,425
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$18,975,387
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Aerospace - 1.4%
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BE Aerospace, Inc., 8.875s, 2011 $1,245 $1,045,800
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Esterline Technologies Corp., 7.75s, 2013## 245 252,350
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Hexcel Corp., 9.875s, 2008## 535 579,137
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Hexcel Corp., 9.75s, 2009 330 331,650
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K & F Industries, Inc., 9.25s, 2007 375 389,063
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K & F Industries, Inc., 9.625s, 2010 250 273,750
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Titan Corp., 8s, 2011## 650 672,750
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Transdigm, Inc., 8.375s, 2011## 715 727,513
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$4,272,013
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Airlines - 1.1%
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Continental Airlines, Inc., 6.545s, 2019 $827 $781,184
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Continental Airlines, Inc., 6.795s, 2020 1,773 1,357,581
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Continental Airlines Pass-Through Trust, Inc., 8.307s, 2018 1,604 1,238,091
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$3,376,856
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Apparel Manufacturers - 0.2%
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Westpoint Stevens, Inc., 7.875s, 2005** $875 $196,875
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Westpoint Stevens, Inc., 7.875s, 2008** 1,950 438,750
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$635,625
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Automotive - 4.3%
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Advanced Accessory Systems LLC, 10.75s, 2011## $600 $630,000
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Arvinmeritor, Inc., 8.75s, 2012 855 880,650
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Collins & Aikman Products Co., 10.75s, 2011 1,495 1,315,600
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Dana Corp., 10.125s, 2010 615 667,275
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Dana Corp., 9s, 2011 200 214,000
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Dura Operating Corp., 9s, 2009 1,565 1,455,450
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Eagle-Picher, Inc., 9.75s, 2013 495 491,040
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General Motors Corp., 7.125s, 2013 112 107,583
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Intermet Corp., 9.75s, 2009 1,000 960,000
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Metaldyne Corp., 11s, 2012 1,805 1,525,225
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Tenneco Automotive, Inc., 11.625s, 2009 1,395 1,213,650
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Tenneco Automotive, Inc., 10.25s, 2013## 925 929,625
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TRW Automotive Acquisition Corp., 9.375s, 2013## 445 485,050
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TRW Automotive Acquisition Corp., 11s, 2013## 1,655 1,837,050
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TRW Automotive Acquisition Corp., 11.75s, 2013 180 223,404
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Venture Holdings Trust, 11s, 2007** 750 131,250
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Venture Holdings Trust, 12s, 2009** 395 2,469
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$13,069,321
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Basic Industry - 0.8%
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Actuant Finance Corp., 13s, 2009 $367 $429,390
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Foamex LP/ Capital Corp., 10.75s, 2009 1,025 896,875
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International Wire Group, Inc., 11.75s, 2005 120 73,200
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Thermadyne Holdings Corp., 12.5s, 2008** 120 2
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Trimas Corp., 9.875s, 2012 1,005 1,020,075
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$2,419,542
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Broadcast & Cable TV - 3.1%
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Adelphia Communications Corp., 9.375s, 2009** $350 $236,250
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Adelphia Communications Corp., 10.25s, 2011** 975 658,125
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Avalon Cable Holdings LLC, 0s to 2003, 11.875s to 2008 100 98,000
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Charter Communications Holdings LLC, 8.625s, 2009 1,315 979,675
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Charter Communications Holdings LLC, 0s to 2004, 9.92s to 2011 3,330 2,347,650
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CSC Holdings, Inc., 8.125s, 2009 1,210 1,197,900
- -----------------------------------------------------------------------------------------------------
FrontierVision Holding LP, 11s, 2006** 70 70,700
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FrontierVision Holding LP, 11.875s, 2007** 550 489,500
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Insight Midwest LP, 9.75s, 2009 910 941,850
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Mediacom Broadband LLC, 11s, 2013 1,035 1,117,800
- -----------------------------------------------------------------------------------------------------
Mediacom LLC/Capital Corp., 9.5s, 2013 215 212,850
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Renaissance Media Louisiana LLC, 10s, 2008 1,055 1,044,450
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$9,394,750
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Building - 2.4%
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Atrium Cos, Inc., 10.5s, 2009 $395 $416,725
- -----------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 7.75s, 2005 635 631,825
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Building Materials Corp. of America, 8s, 2007 1,000 950,000
- -----------------------------------------------------------------------------------------------------
Dayton Superior Corp., 10.75s, 2008## 1,675 1,641,500
- -----------------------------------------------------------------------------------------------------
Formica Corp., 10.875s, 2009** 130 32,663
- -----------------------------------------------------------------------------------------------------
Integrated Electrical Services, Inc., 9.375s, 2009 80 80,600
- -----------------------------------------------------------------------------------------------------
Interface, Inc., 10.375s, 2010 864 833,760
- -----------------------------------------------------------------------------------------------------
Nortek, Inc., 9.25s, 2007 460 471,500
- -----------------------------------------------------------------------------------------------------
Texas Industries, Inc., 10.25s, 2011## 655 689,387
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Williams Scotsman, Inc., 9.875s, 2007 1,435 1,388,362
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$7,136,322
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Business Services - 0.7%
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General Binding Corp., 9.375s, 2008 $1,480 $1,435,600
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Lucent Technologies, Inc., 6.45s, 2029 180 116,100
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Xerox Corp., 7.625s, 2013 735 701,925
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$2,253,625
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Chemicals - 4.4%
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Compass Minerals Group, Inc., 10s, 2011 $425 $473,875
- -----------------------------------------------------------------------------------------------------
Equistar Chemicals LP, 10.625s, 2011 1,200 1,188,000
- -----------------------------------------------------------------------------------------------------
Huntsman ICI Holdings, 10.125s, 2009 3,420 3,283,200
- -----------------------------------------------------------------------------------------------------
Huntsman International Holdings, 0s, 2009 3,225 1,257,750
- -----------------------------------------------------------------------------------------------------
Huntsman International LLC, 9.875s, 2009## 100 102,500
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IMC Global, Inc., 10.875s, 2013## 980 965,300
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Johnson Diversey, Inc., 9.625s, 2012 1,855 2,037,100
- -----------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 9.625s, 2007 375 362,813
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Lyondell Chemical Co., 9.875s, 2007 10 9,700
- -----------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 9.5s, 2008 1,000 950,000
- -----------------------------------------------------------------------------------------------------
MacDermid, Inc., 9.125s, 2011 400 444,000
- -----------------------------------------------------------------------------------------------------
Noveon, Inc., 11s, 2011 250 280,000
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Rockwood Specialties Group, Inc., 10.625s, 2011## 1,500 1,541,250
- -----------------------------------------------------------------------------------------------------
Sovereign Specialty Chemicals, Inc., 11.875s, 2010 510 484,500
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$13,379,988
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Conglomerates - 0.4%
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Rexnord Corp., 10.125s, 2012 $450 $492,750
- -----------------------------------------------------------------------------------------------------
SPX Corp., 7.5s, 2013 540 561,600
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$1,054,350
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Consumer Goods & Services - 2.6%
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American Safety Razor Co., 9.875s, 2005 $270 $267,300
- -----------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.5s, 2009 885 904,912
- -----------------------------------------------------------------------------------------------------
Remington Arms, Inc., 10.5s, 2011## 1,065 1,099,506
- -----------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 12s, 2005 1,345 1,287,837
- -----------------------------------------------------------------------------------------------------
Samsonite Corp., 10.75s, 2008 855 880,650
- -----------------------------------------------------------------------------------------------------
Sealy Mattress Co., 9.875s, 2007 2,590 2,486,400
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Simmons Co., 10.25s, 2009 745 795,288
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$7,721,893
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Containers - 2.3%
- -----------------------------------------------------------------------------------------------------
Graham Packaging Co., 8.75s, 2008## $810 $805,950
- -----------------------------------------------------------------------------------------------------
Graphic Packaging Corp., 8.625s, 2012 315 321,300
- -----------------------------------------------------------------------------------------------------
Huntsman Packaging Corp., 13s, 2010 2,260 1,966,200
- -----------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.875s, 2009 340 355,300
- -----------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.75s, 2012 765 807,075
- -----------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.25s, 2013## 1,040 1,050,400
- -----------------------------------------------------------------------------------------------------
Plastipak Holdings, Inc., 10.75s, 2011 1,405 1,517,400
- -----------------------------------------------------------------------------------------------------
$6,823,625
- -----------------------------------------------------------------------------------------------------
Corporate Asset-Backed - 2.0%
- -----------------------------------------------------------------------------------------------------
Anthracite CDO Ltd., 6s, 2037## $1,500 $1,062,012
- -----------------------------------------------------------------------------------------------------
Deutsche Mortgage Acceptance Corp., 7.5s, 2031 850 611,269
- -----------------------------------------------------------------------------------------------------
Falcon Auto Dealership LLC, 3.877s, 2023 2,429 466,398
- -----------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage, 7s, 2014 1,000 912,145
- -----------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage, 7.5s, 2029 1,000 918,476
- -----------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Security, Inc., 6.02s, 2033 750 649,227
- -----------------------------------------------------------------------------------------------------
LB Commercial Conduit Mortgage Trust, 0s, 2028 (Interest Only) 9,264 334,847
- -----------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.706s, 2039 1,400 953,036
- -----------------------------------------------------------------------------------------------------
$5,907,410
- -----------------------------------------------------------------------------------------------------
Electronics - 0.7%
- -----------------------------------------------------------------------------------------------------
ON Semiconductor Corp., 13s, 2008 $1,900 $1,957,000
- -----------------------------------------------------------------------------------------------------
Energy - Independent - 1.5%
- -----------------------------------------------------------------------------------------------------
Belden & Blake Corp., 9.875s, 2007 $750 $697,500
- -----------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 8.125s, 2011## 1,510 1,591,162
- -----------------------------------------------------------------------------------------------------
Continental Resources, Inc., 10.25s, 2008 25 24,875
- -----------------------------------------------------------------------------------------------------
Magnum Hunter Resources, Inc., 9.6s, 2012 245 262,150
- -----------------------------------------------------------------------------------------------------
Pioneer Natural Resources Co., 7.5s, 2012 300 330,000
- -----------------------------------------------------------------------------------------------------
Semco Energy, Inc., 7.125s, 2008## 105 105,394
- -----------------------------------------------------------------------------------------------------
Semco Energy, Inc., 7.75s, 2013## 105 106,444
- -----------------------------------------------------------------------------------------------------
Stone Energy Corp., 8.25s, 2011 120 126,000
- -----------------------------------------------------------------------------------------------------
Vintage Petroleum, Inc., 8.25s, 2012 800 852,000
- -----------------------------------------------------------------------------------------------------
Westport Resources Corp., 8.25s, 2011 320 340,800
- -----------------------------------------------------------------------------------------------------
$4,436,325
- -----------------------------------------------------------------------------------------------------
Entertainment - 1.1%
- -----------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5s, 2011 $1,300 $1,345,500
- -----------------------------------------------------------------------------------------------------
Premier Parks, Inc., 9.75s, 2007 220 208,450
- -----------------------------------------------------------------------------------------------------
Regal Cinemas Corp., 9.375s, 2012 855 944,775
- -----------------------------------------------------------------------------------------------------
Six Flags, Inc., 9.75s, 2013## 780 727,350
- -----------------------------------------------------------------------------------------------------
$3,226,075
- -----------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 0.4%
- -----------------------------------------------------------------------------------------------------
Merisant Co., 9.5s, 2013## $565 $580,538
- -----------------------------------------------------------------------------------------------------
Michael Foods, Inc., 11.75s, 2011 480 552,000
- -----------------------------------------------------------------------------------------------------
$1,132,538
- -----------------------------------------------------------------------------------------------------
Forest & Paper Products - 2.2%
- -----------------------------------------------------------------------------------------------------
Buckeye Cellulose Corp., 8s, 2010 $1,695 $1,550,925
- -----------------------------------------------------------------------------------------------------
Fibermark, Inc., 10.75s, 2011 2,450 2,278,500
- -----------------------------------------------------------------------------------------------------
Georgia Pacific Corp., 9.375s, 2013## 680 720,800
- -----------------------------------------------------------------------------------------------------
Greif Brothers Corp., 8.875s, 2012 540 577,800
- -----------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.625s, 2007 250 258,750
- -----------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.875s, 2008 1,160 1,189,000
- -----------------------------------------------------------------------------------------------------
$6,575,775
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 4.3%
- -----------------------------------------------------------------------------------------------------
Ameristar Casinos, Inc., 10.75s, 2009 $140 $156,800
- -----------------------------------------------------------------------------------------------------
Argosy Gaming Co., 10.75s, 2009 40 43,400
- -----------------------------------------------------------------------------------------------------
Argosy Gaming Co., 9s, 2011 515 548,475
- -----------------------------------------------------------------------------------------------------
Aztar Corp., 8.875s, 2007 665 688,275
- -----------------------------------------------------------------------------------------------------
Corrections Corp. of America, 9.875s, 2009 650 715,000
- -----------------------------------------------------------------------------------------------------
Corrections Corp. of America, 7.5s, 2011 420 433,275
- -----------------------------------------------------------------------------------------------------
Hollywood Park, Inc., 9.25s, 2007 2,150 2,128,500
- -----------------------------------------------------------------------------------------------------
Hollywood Park, Inc., 9.5s, 2007 280 277,200
- -----------------------------------------------------------------------------------------------------
Host Marriott LP, 8.45s, 2008 1,225 1,240,312
- -----------------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.5s, 2010 230 256,450
- -----------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., 8.875s, 2008 745 813,913
- -----------------------------------------------------------------------------------------------------
Resorts International Hotel, Inc., 11.5s, 2009 1,150 1,095,375
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts, 7.875s, 2012 800 848,000
- -----------------------------------------------------------------------------------------------------
Station Casinos, Inc., 8.375s, 2008 810 862,650
- -----------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.875s, 2010 1,085 1,179,937
- -----------------------------------------------------------------------------------------------------
Vail Resorts, Inc., 8.75s, 2009 415 429,525
- -----------------------------------------------------------------------------------------------------
Venetian Casino Resort LLC, 11s, 2010 840 928,200
- -----------------------------------------------------------------------------------------------------
Wackenhut Corrections Corp., 8.25s, 2013 395 400,925
- -----------------------------------------------------------------------------------------------------
$13,046,212
- -----------------------------------------------------------------------------------------------------
Home Construction - 0.3%
- -----------------------------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625s, 2010## $270 $278,100
- -----------------------------------------------------------------------------------------------------
MMI Products, Inc., 11.25s, 2007 1,080 756,000
- -----------------------------------------------------------------------------------------------------
$1,034,100
- -----------------------------------------------------------------------------------------------------
Machinery & Tools - 4.1%
- -----------------------------------------------------------------------------------------------------
Agco Corp., 8.5s, 2006 $500 $500,000
- -----------------------------------------------------------------------------------------------------
Agco Corp., 9.5s, 2008 435 471,975
- -----------------------------------------------------------------------------------------------------
Blount, Inc., 7s, 2005 1,920 1,824,000
- -----------------------------------------------------------------------------------------------------
Blount, Inc., 13s, 2009 40 34,400
- -----------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25s, 2011## 600 582,000
- -----------------------------------------------------------------------------------------------------
Columbus McKinnon Corp., 8.5s, 2008 1,370 1,075,450
- -----------------------------------------------------------------------------------------------------
Columbus McKinnon Corp., 10s, 2010## 130 132,600
- -----------------------------------------------------------------------------------------------------
JLG Industries, Inc., 8.25s, 2008## 865 882,300
- -----------------------------------------------------------------------------------------------------
Joy Global, Inc., 8.75s, 2012 452 488,160
- -----------------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.375s, 2011 325 375,991
- -----------------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.5s, 2012 355 379,850
- -----------------------------------------------------------------------------------------------------
Motors & Gears, Inc., 10.75s, 2006 1,630 1,426,250
- -----------------------------------------------------------------------------------------------------
NMHG Holding Co., 10s, 2009 331 364,100
- -----------------------------------------------------------------------------------------------------
Terex Corp., 8.875s, 2008 250 255,000
- -----------------------------------------------------------------------------------------------------
Terex Corp., 10.375s, 2011 1,375 1,485,000
- -----------------------------------------------------------------------------------------------------
United Rentals, Inc., 10.75s, 2008 1,715 1,843,625
- -----------------------------------------------------------------------------------------------------
United Rentals, Inc., 9.25s, 2009 235 226,775
- -----------------------------------------------------------------------------------------------------
$12,347,476
- -----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.2%
- -----------------------------------------------------------------------------------------------------
Alliance Imaging, Inc., 10.375s, 2011## $1,430 $1,422,850
- -----------------------------------------------------------------------------------------------------
Beverly Enterprises, Inc., 9.625s, 2009 1,360 1,387,200
- -----------------------------------------------------------------------------------------------------
Healthsouth Corp., 8.5s, 2008 600 504,000
- -----------------------------------------------------------------------------------------------------
Insight Health Services Corp., 9.875s, 2011 100 102,500
- -----------------------------------------------------------------------------------------------------
NDC Health Corp., 10.5s, 2012## 305 328,638
- -----------------------------------------------------------------------------------------------------
$3,745,188
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 0.3%
- -----------------------------------------------------------------------------------------------------
Alpharma, Inc., 8.625s, 2011## $760 $798,000
- -----------------------------------------------------------------------------------------------------
Metals & Mining - 0.3%
- -----------------------------------------------------------------------------------------------------
Doe Run Resources Corp., 8.5s, 2008 $40 $15,880
- -----------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 9.875s, 2049** 435 343,650
- -----------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 12.75s, 2049** 575 46,000
- -----------------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75s, 2010 430 412,800
- -----------------------------------------------------------------------------------------------------
$818,330
- -----------------------------------------------------------------------------------------------------
Municipals - 0.2%
- -----------------------------------------------------------------------------------------------------
Dallas- Fort Worth, TX (International Airport), 5.95s, 2029 $775 $725,966
- -----------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.8%
- -----------------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875s, 2010## $210 $216,300
- -----------------------------------------------------------------------------------------------------
ANR Pipeline Co., 9.625s, 2021 940 1,034,000
- -----------------------------------------------------------------------------------------------------
Dynegy, Inc., 6.875s, 2011 2,360 1,758,200
- -----------------------------------------------------------------------------------------------------
El Paso Energy Corp., 7.75s, 2013## 885 811,987
- -----------------------------------------------------------------------------------------------------
Northwest Pipeline Corp., 8.125s, 2010 175 179,813
- -----------------------------------------------------------------------------------------------------
Plains All American Pipeline, 7.75s, 2012 260 285,350
- -----------------------------------------------------------------------------------------------------
Southern Natural Gas Co., 8.875s, 2010## 350 360,500
- -----------------------------------------------------------------------------------------------------
Williams Cos., Inc., 8.625s, 2010 930 927,675
- -----------------------------------------------------------------------------------------------------
Williams Cos., Inc., 7.125s, 2011 3,100 2,852,000
- -----------------------------------------------------------------------------------------------------
$8,425,825
- -----------------------------------------------------------------------------------------------------
Oil Services - 1.1%
- -----------------------------------------------------------------------------------------------------
Dresser, Inc., 9.375s, 2011 $900 $924,750
- -----------------------------------------------------------------------------------------------------
Gulfmark Offshore, Inc., 8.75s, 2008 750 750,000
- -----------------------------------------------------------------------------------------------------
Hanover Equipment Trust, 8.75s, 2011 725 757,625
- -----------------------------------------------------------------------------------------------------
SESI LLC, 8.875s, 2011 220 237,600
- -----------------------------------------------------------------------------------------------------
Trico Marine Services, Inc., 8.875s, 2012 1,000 717,500
- -----------------------------------------------------------------------------------------------------
$3,387,475
- -----------------------------------------------------------------------------------------------------
Oils - 1.3%
- -----------------------------------------------------------------------------------------------------
Citgo Petroleum Corp., 11.375s, 2011## $1,325 $1,460,813
- -----------------------------------------------------------------------------------------------------
Tesoro Petroleum Corp., 8s, 2008## 260 265,200
- -----------------------------------------------------------------------------------------------------
Tesoro Petroleum Corp., 9s, 2008 150 136,500
- -----------------------------------------------------------------------------------------------------
Tesoro Petroleum Corp., 9.625s, 2012 1,319 1,226,670
- -----------------------------------------------------------------------------------------------------
XTO Energy, Inc., 6.25s, 2013## 840 844,200
- -----------------------------------------------------------------------------------------------------
$3,933,383
- -----------------------------------------------------------------------------------------------------
Pollution Control - 1.3%
- -----------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 10s, 2009 $3,650 $3,846,188
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 2.2%
- -----------------------------------------------------------------------------------------------------
American Media Operations, Inc., 8.875s, 2011## $110 $116,875
- -----------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 9s, 2010 240 248,400
- -----------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 11.875s, 2011## 1,340 1,460,600
- -----------------------------------------------------------------------------------------------------
Houghton Mifflin Co., 8.25s, 2011## 160 162,800
- -----------------------------------------------------------------------------------------------------
Houghton Mifflin Co., 9.875s, 2013## 1,585 1,652,362
- -----------------------------------------------------------------------------------------------------
Mail-Well Corp., 8.75s, 2008 975 936,000
- -----------------------------------------------------------------------------------------------------
Mail-Well Corp., 9.625s, 2012 1,045 1,110,312
- -----------------------------------------------------------------------------------------------------
Moore North America Finance, Inc., 7.875s, 2011## 440 451,000
- -----------------------------------------------------------------------------------------------------
Transwestern Publishing Co., 9.625s, 2007 575 596,563
- -----------------------------------------------------------------------------------------------------
$6,734,912
- -----------------------------------------------------------------------------------------------------
Steel - 0.4%
- -----------------------------------------------------------------------------------------------------
AK Steel Corp., 7.875s, 2009 $400 $298,000
- -----------------------------------------------------------------------------------------------------
Commonwealth Aluminum Corp., 10.75s, 2006 505 506,262
- -----------------------------------------------------------------------------------------------------
Jorgensen (Earle M.) Co., 9.75s, 2012 395 415,244
- -----------------------------------------------------------------------------------------------------
WCI Steel, Inc., 10s, 2004 265 86,125
- -----------------------------------------------------------------------------------------------------
$1,305,631
- -----------------------------------------------------------------------------------------------------
Stores - 3.1%
- -----------------------------------------------------------------------------------------------------
Cole National Group, Inc., 8.625s, 2007 $325 $320,125
- -----------------------------------------------------------------------------------------------------
Cole National Group, Inc., 8.875s, 2012 1,060 1,033,500
- -----------------------------------------------------------------------------------------------------
Dollar General Corp., 8.625s, 2010 510 568,013
- -----------------------------------------------------------------------------------------------------
Finlay Enterprises, Inc., 9s, 2008 700 700,000
- -----------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 8.375s, 2008 545 550,450
- -----------------------------------------------------------------------------------------------------
J.Crew Operating Corp., 10.375s, 2007 1,885 1,847,300
- -----------------------------------------------------------------------------------------------------
J.Crew Operating Corp., 0s to 2005, 16s to 2008## 699 496,247
- -----------------------------------------------------------------------------------------------------
Oxford Industries, Inc., 8.875s, 2011## 535 560,413
- -----------------------------------------------------------------------------------------------------
PCA LLC, 11.875s, 2009 715 765,050
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 12.5s, 2006 665 744,800
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 8.125s, 2010## 225 229,500
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.5s, 2011## 1,095 1,166,175
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25s, 2013## 425 419,687
- -----------------------------------------------------------------------------------------------------
$9,401,260
- -----------------------------------------------------------------------------------------------------
Supermarkets - 0.3%
- -----------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 10.125s, 2008** $450 $54,000
- -----------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 9.25s, 2010** 230 27,600
- -----------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875s, 2012 775 794,375
- -----------------------------------------------------------------------------------------------------
$875,975
- -----------------------------------------------------------------------------------------------------
Supranational - 0.2%
- -----------------------------------------------------------------------------------------------------
Central American Bank Economic, 6.75s, 2013## $612 $609,782
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.5%
- -----------------------------------------------------------------------------------------------------
Fairpoint Communications, Inc., 11.875s, 2010## $720 $820,800
- -----------------------------------------------------------------------------------------------------
Qwest Services Corp., 13.5s, 2010## 2,735 2,940,125
- -----------------------------------------------------------------------------------------------------
Qwest Services Corp., 8.875s, 2012## 890 912,250
- -----------------------------------------------------------------------------------------------------
Time Warner Telecommunications LLC, 9.75s, 2008 1,670 1,603,200
- -----------------------------------------------------------------------------------------------------
WorldCom, Inc., 7.5s, 2011** 4,725 1,246,219
- -----------------------------------------------------------------------------------------------------
$7,522,594
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.4%
- -----------------------------------------------------------------------------------------------------
AES Corp., 10s, 2005## $700 $714,000
- -----------------------------------------------------------------------------------------------------
AES Corp., 8.5s, 2007 415 373,500
- -----------------------------------------------------------------------------------------------------
AES Corp., 8.875s, 2011 1,590 1,454,850
- -----------------------------------------------------------------------------------------------------
AES Corp., 8.75s, 2013## 500 491,250
- -----------------------------------------------------------------------------------------------------
AES Corp., 9s, 2015## 500 493,750
- -----------------------------------------------------------------------------------------------------
Calpine Corp., 8.5s, 2011 1,725 1,250,625
- -----------------------------------------------------------------------------------------------------
Calpine Corp., 8.75s, 2013## 1,100 990,000
- -----------------------------------------------------------------------------------------------------
Illinois Power Co., 11.5s, 2010## 1,165 1,293,150
- -----------------------------------------------------------------------------------------------------
PG&E Corp., 6.875s, 2008## 215 218,225
- -----------------------------------------------------------------------------------------------------
PSE&G Power LLC, 7.75s, 2007## 1,000 1,025,000
- -----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 5s, 2010## 50 43,937
- -----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25s, 2010## 785 753,600
- -----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.5s, 2013## 795 771,150
- -----------------------------------------------------------------------------------------------------
Teco Energy, Inc., 7.5s, 2010 245 243,775
- -----------------------------------------------------------------------------------------------------
$10,116,812
- -----------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.2%
- -----------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 7.25s, 2013## $640 $606,400
- -----------------------------------------------------------------------------------------------------
Venture Capital - 0.3%
- -----------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75s, 2013## $945 $930,825
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 4.1%
- -----------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 0s to 2005, 12.875s to 2010 $2,325 $1,557,750
- -----------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 12.5s, 2011 400 344,000
- -----------------------------------------------------------------------------------------------------
American Tower Corp., 0s, 2008 1,365 900,900
- -----------------------------------------------------------------------------------------------------
Centennial Cellular Operating Co., 10.125s, 2013## 940 918,850
- -----------------------------------------------------------------------------------------------------
Crown Castle International Corp.,
0s to 2004, 10.375s to 2011 1s, 2011 964 944,720
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25s, 2010 2,400 2,193,000
- -----------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.75s, 2010 2,920 2,482,000
- -----------------------------------------------------------------------------------------------------
Teligent, Inc., 11.5s, 2007** 175 0
- -----------------------------------------------------------------------------------------------------
Triton PCS, Inc., 8.75s, 2011 1,930 1,872,100
- -----------------------------------------------------------------------------------------------------
Triton PCS, Inc., 8.5s, 2013## 755 781,425
- -----------------------------------------------------------------------------------------------------
Western Wireless Corp., 9.25s, 2013## 450 427,500
- -----------------------------------------------------------------------------------------------------
$12,422,245
- -----------------------------------------------------------------------------------------------------
Total U.S. Bonds $216,382,999
- -----------------------------------------------------------------------------------------------------
Foreign Bonds - 22.7%
- -----------------------------------------------------------------------------------------------------
Algeria - 0.5%
- -----------------------------------------------------------------------------------------------------
Algeria Tranche, 2.188s, 2010 $1,660 $1,556,420
- -----------------------------------------------------------------------------------------------------
Argentina - 0.4%
- -----------------------------------------------------------------------------------------------------
Republic of Argentina, 2s, 2008 ARS $2,021 $522,915
- -----------------------------------------------------------------------------------------------------
Republic of Argentina, 1.369s, 2012 1,000 564,700
- -----------------------------------------------------------------------------------------------------
$1,087,615
- -----------------------------------------------------------------------------------------------------
Australia - 0.8%
- -----------------------------------------------------------------------------------------------------
Burns Philip Capital Property Ltd.,
9.75s, 2012 (Food & Grains)## $2,290 $2,267,100
- -----------------------------------------------------------------------------------------------------
Brazil - 3.2%
- -----------------------------------------------------------------------------------------------------
Banco Nacional de Desenvolvi, 8.754s, 2008
(Banks and Credit Cos.) $561 $530,145
- -----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2.188s, 2009 1,745 1,474,475
- -----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 10s, 2011 350 313,250
- -----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2.188s, 2012 6,017 4,603,005
- -----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8s, 2014 246 213,650
- -----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8.875s, 2024 3,473 2,465,830
- -----------------------------------------------------------------------------------------------------
$9,600,355
- -----------------------------------------------------------------------------------------------------
Bulgaria - 0.5%
- -----------------------------------------------------------------------------------------------------
National Republic of Bulgaria, 8.25s, 2015 $396 $442,530
- -----------------------------------------------------------------------------------------------------
National Republic of Bulgaria, 8.25s, 2015## 895 993,450
- -----------------------------------------------------------------------------------------------------
$1,435,980
- -----------------------------------------------------------------------------------------------------
Canada - 0.9%
- -----------------------------------------------------------------------------------------------------
Acetex Corp., 10.875s, 2009 (Chemicals) $1,235 $1,352,325
- -----------------------------------------------------------------------------------------------------
Canwest Media, Inc., 10.625s, 2011 (Advertising &
Broadcasting) 60 66,900
- -----------------------------------------------------------------------------------------------------
Canwest Media, Inc, 7.625s, 2013 (Advertising &
Broadcasting)## 255 262,650
- -----------------------------------------------------------------------------------------------------
Russel Metals, Inc., 10s, 2009 (Metals & Mining) 185 195,175
- -----------------------------------------------------------------------------------------------------
Tembec Industry, Inc., 7.75s, 2012 (Forest & Paper
Products) 760 691,600
- -----------------------------------------------------------------------------------------------------
$2,568,650
- -----------------------------------------------------------------------------------------------------
Chile - 0.3%
- -----------------------------------------------------------------------------------------------------
Empresa Nacional de Electricid, 8.35s, 2013 (Utilities -
Electric Power)## $813 $804,348
- -----------------------------------------------------------------------------------------------------
Colombia - 0.9%
- -----------------------------------------------------------------------------------------------------
Republic of Colombia, 9.75s, 2009 $907 $1,004,502
- -----------------------------------------------------------------------------------------------------
Republic of Colombia, 10.75s, 2013 1,057 1,160,057
- -----------------------------------------------------------------------------------------------------
Republic of Colombia, 11.75s, 2020 100 114,500
- -----------------------------------------------------------------------------------------------------
Republic of Colombia, 10.375s, 2033 281 288,728
- -----------------------------------------------------------------------------------------------------
$2,567,787
- -----------------------------------------------------------------------------------------------------
Dominican Republic - 0.3%
- -----------------------------------------------------------------------------------------------------
Republic of Dominican, 9.04s, 2013## $1,030 $927,000
- -----------------------------------------------------------------------------------------------------
Ecuador - 0.2%
- -----------------------------------------------------------------------------------------------------
Republic of Ecuador, 6s, 2030## $917 $574,501
- -----------------------------------------------------------------------------------------------------
France - 2.0%
- -----------------------------------------------------------------------------------------------------
Crown Cork & Seal, 9.5s, 2011 (Containers)## $480 $499,200
- -----------------------------------------------------------------------------------------------------
Crown Cork & Seal, 10.875s, 2013 (Containers)## 3,245 3,439,700
- -----------------------------------------------------------------------------------------------------
Rhodia S.A., 8.875s, 2011 (Chemicals)## 1,115 1,064,825
- -----------------------------------------------------------------------------------------------------
Vivendi Universal S.A., 6.25s, 2008 (Advertising & Broadcasting)## 485 473,481
- -----------------------------------------------------------------------------------------------------
Vivendi Universal S.A., 9.25s, 2010 (Advertising & Broadcasting)## 540 600,750
- -----------------------------------------------------------------------------------------------------
$6,077,956
- -----------------------------------------------------------------------------------------------------
Germany - 0.1%
- -----------------------------------------------------------------------------------------------------
Kronos International, Inc., 8.875s, 2009 (Chemicals) EUR 55 $61,158
- -----------------------------------------------------------------------------------------------------
Messer Grieshiem, 10.375s, 2011 (Chemicals) $175 214,251
- -----------------------------------------------------------------------------------------------------
$275,409
- -----------------------------------------------------------------------------------------------------
Ireland - 0.3%
- -----------------------------------------------------------------------------------------------------
MDP Acquisitions PLC, 9.625s, 2012 (Forest & Paper
Products) $755 $796,525
- -----------------------------------------------------------------------------------------------------
Kazakhstan - 0.5%
- -----------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125s, 2007 (Banks & Credit Cos.)+ $438 $473,423
- -----------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 8.5s, 2013 (Banks & Credit Cos.)## 750 725,625
- -----------------------------------------------------------------------------------------------------
Kaztransoil Co., 8.5s, 2006 (Oil Services)+ 441 463,851
- -----------------------------------------------------------------------------------------------------
$1,662,899
- -----------------------------------------------------------------------------------------------------
Luxembourg - 0.2%
- -----------------------------------------------------------------------------------------------------
Tyco International Group S.A., 7s, 2028 (Conglomerate) $810 $753,300
- -----------------------------------------------------------------------------------------------------
Mexico - 2.4%
- -----------------------------------------------------------------------------------------------------
Grupo Elektra S.A. de C.V., 12s, 2008 (Electronics) $900 $940,500
- -----------------------------------------------------------------------------------------------------
Grupo Televisa S.A. de C.V., 8.5s, 2032 (Broadcast & Cable TV) 1,043 1,061,252
- -----------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625s, 2022 (Quasi Government) 1,767 1,846,515
- -----------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.5s, 2027 (Oils) 2,026 2,340,030
- -----------------------------------------------------------------------------------------------------
United Mexican States, 8.125s, 2019 (Advertising & Broadcasting) 649 678,205
- -----------------------------------------------------------------------------------------------------
United Mexican States, 8.3s, 2031 (Advertising & Broadcasting) 325 338,813
- -----------------------------------------------------------------------------------------------------
$7,205,315
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.6%
- -----------------------------------------------------------------------------------------------------
Hurricane Finance B.V., 9.625s, 2010 (Oils)+ $1,000 $1,067,500
- -----------------------------------------------------------------------------------------------------
Kappa Beheer B.V., 10.625s, 2009 (Forest & Paper
Products) 685 732,950
- -----------------------------------------------------------------------------------------------------
Yell Finance B.V., 10.75s, 2011 (Printing & Publishing)## 132 151,800
- -----------------------------------------------------------------------------------------------------
$1,952,250
- -----------------------------------------------------------------------------------------------------
Norway - 0.3%
- -----------------------------------------------------------------------------------------------------
Findexa AS, 10.25s, 2011 (Printing & Publishing) EUR $275 $339,768
- -----------------------------------------------------------------------------------------------------
Ocean Rig Norway AS, 10.25s, 2008 (Oil Services) $650 552,500
- -----------------------------------------------------------------------------------------------------
$892,268
- -----------------------------------------------------------------------------------------------------
Panama - 0.9%
- -----------------------------------------------------------------------------------------------------
Republic of Panama, 1.938s, 2016 $1,473 $1,196,831
- -----------------------------------------------------------------------------------------------------
Republic of Panama, 9.375s, 2029 1,451 1,617,865
- -----------------------------------------------------------------------------------------------------
$2,814,696
- -----------------------------------------------------------------------------------------------------
Peru - 0.2%
- -----------------------------------------------------------------------------------------------------
Republic of Peru, 4.5s, 2017 $577 $461,600
- -----------------------------------------------------------------------------------------------------
Philippines - 0.4%
- -----------------------------------------------------------------------------------------------------
Republic of Philippines, 9s, 2013 $494 $503,263
- -----------------------------------------------------------------------------------------------------
Republic of Philippines, 10.625s, 2025 741 789,165
- -----------------------------------------------------------------------------------------------------
$1,292,428
- -----------------------------------------------------------------------------------------------------
Poland - 0.5%
- -----------------------------------------------------------------------------------------------------
PTC International Finance II S.A., 11.25s, 2009
(Wireless Communications) $1,398 $1,537,800
- -----------------------------------------------------------------------------------------------------
Qatar - 0.5%
- -----------------------------------------------------------------------------------------------------
State of Qatar, 9.75s, 2030 $1,166 $1,536,950
- -----------------------------------------------------------------------------------------------------
Russia - 2.2%
- -----------------------------------------------------------------------------------------------------
Gazprom, 9.625s, 2013 (Utilities - Gas)## $2,010 $2,104,825
- -----------------------------------------------------------------------------------------------------
Government of Russia, 5s, 2030 1,250 1,118,750
- -----------------------------------------------------------------------------------------------------
Government of Russia, 5s, 2030## 503 448,299
- -----------------------------------------------------------------------------------------------------
Mobile Telesystems Finance S.A., 9.75s, 2008 (Wireless
Communications)## 483 509,565
- -----------------------------------------------------------------------------------------------------
Siberian Oil Co., 10.75s, 2009 (Oils) 1,200 1,302,000
- -----------------------------------------------------------------------------------------------------
Tyumen Oil Co., 11s, 2007 (Oil Services)## 737 814,385
- -----------------------------------------------------------------------------------------------------
Vimpel Communications B.V., 10.45s, 2005 (Wireless Communications)## 425 452,625
- -----------------------------------------------------------------------------------------------------
$6,750,449
- -----------------------------------------------------------------------------------------------------
Singapore - 0.3%
- -----------------------------------------------------------------------------------------------------
Flextronics International Ltd., 9.875s, 2010 (Electronics) $855 $974,700
- -----------------------------------------------------------------------------------------------------
Turkey - 0.6%
- -----------------------------------------------------------------------------------------------------
Republic of Turkey, 11s, 2013 $500 $515,000
- -----------------------------------------------------------------------------------------------------
Republic of Turkey, 11.875s, 2030 1,121 1,177,050
- -----------------------------------------------------------------------------------------------------
$1,692,050
- -----------------------------------------------------------------------------------------------------
United Kingdom - 1.3%
- -----------------------------------------------------------------------------------------------------
Colt Telecom Group PLC, 12s, 2006 (Telecommunications - Wireline) $2,000 $2,020,000
- -----------------------------------------------------------------------------------------------------
Energis PLC, 9.75s, 2009 (Telecommunications - Wireline)** 80 1,600
- -----------------------------------------------------------------------------------------------------
Global Tele Systems Ltd., 10.875s, 2008
(Telecommunications - Wireline)** 20 2
- -----------------------------------------------------------------------------------------------------
Jazztel PLC, 12s, 2012 (Telecommunications - Wireline)** 20 8,484
- -----------------------------------------------------------------------------------------------------
Premier International Foods PLC, 12s, 2009 (Food &
Non Alcoholic Beverage Products) 820 902,000
- -----------------------------------------------------------------------------------------------------
Telewest Communications PLC, 0s to 2004, 9.25s to 2009
(Broadcast & Cable TV)** 310 99,975
- -----------------------------------------------------------------------------------------------------
Telewest Communications PLC, 0s to 2005, 11.375s to 2010
(Broadcast & Cable TV)** 625 178,125
- -----------------------------------------------------------------------------------------------------
United Biscuit Holding PLC, 10.625s, 2011 (Food &
Non Alcoholic Beverage Products) 650 828,641
- -----------------------------------------------------------------------------------------------------
$4,038,827
- -----------------------------------------------------------------------------------------------------
Venezuela - 0.6%
- -----------------------------------------------------------------------------------------------------
Republic of Venezuela, 9.25s, 2027 $2,617 $1,933,964
- -----------------------------------------------------------------------------------------------------
Vietnam - 0.3%
- -----------------------------------------------------------------------------------------------------
Republic of Vietnam, 3.5s, 2028 $1,250 $817,954
- -----------------------------------------------------------------------------------------------------
Ukraine - 0.5%
- -----------------------------------------------------------------------------------------------------
Republic of Ukraine, 7.65s, 2013## $100 $97,500
- -----------------------------------------------------------------------------------------------------
Ukrainian Cabinet of Ministers, 7.65s, 2013## 1,457 1,413,290
- -----------------------------------------------------------------------------------------------------
$1,510,790
- -----------------------------------------------------------------------------------------------------
Total Foreign Bonds $68,367,886
- -----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $279,400,261) $284,750,885
- -----------------------------------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 0.4%
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers
- -----------------------------------------------------------------------------------------------------
Sind Holdings, Inc.* 385 $25,025
- -----------------------------------------------------------------------------------------------------
Automotive - 0.1%
- -----------------------------------------------------------------------------------------------------
Hayes Lemmerz International, Inc.* 17,901 $246,139
- -----------------------------------------------------------------------------------------------------
Oxford Automotive, Inc.* 29 6,453
- -----------------------------------------------------------------------------------------------------
$252,592
- -----------------------------------------------------------------------------------------------------
Basic Industry
- -----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp.* 353 $4,236
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.1%
- -----------------------------------------------------------------------------------------------------
Sirius Satellite Radio, Inc.* 218,422 $393,159
- -----------------------------------------------------------------------------------------------------
Chemicals
- -----------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 194 $2,716
- -----------------------------------------------------------------------------------------------------
Machinery & Tools
- -----------------------------------------------------------------------------------------------------
IKS Corp.* 277 $374
- -----------------------------------------------------------------------------------------------------
Metals & Mining
- -----------------------------------------------------------------------------------------------------
Metal Management, Inc.** 952 $17,118
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc.* 235 $1,504
- -----------------------------------------------------------------------------------------------------
Telephone Services - 0.1%
- -----------------------------------------------------------------------------------------------------
NTL, Inc.* 8,752 $365,921
- -----------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.1%
- -----------------------------------------------------------------------------------------------------
ITC Deltacom, Inc.* 26,797 $99,149
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,161,794
- -----------------------------------------------------------------------------------------------------
Foreign Stocks
- -----------------------------------------------------------------------------------------------------
Netherlands
- -----------------------------------------------------------------------------------------------------
Completel Europe N.V. (Telecommunications - Wireline)##** 941 $13,476
- -----------------------------------------------------------------------------------------------------
Completel Europe N.V. Preferred (Telecommunications - Wireline)##** 9 15,173
- -----------------------------------------------------------------------------------------------------
Versatel Telecom International N.V.
(Telecommunications - Wireline)* 2,616 $3,938
- -----------------------------------------------------------------------------------------------------
$32,587
- -----------------------------------------------------------------------------------------------------
Sweden
- -----------------------------------------------------------------------------------------------------
Song Networks Holding AB (Utilities - Telephone)* 22,299 $113,952
- -----------------------------------------------------------------------------------------------------
Song Networks Holding AB (Utilities - Telephone) 2,412 3,228
- -----------------------------------------------------------------------------------------------------
$117,180
- -----------------------------------------------------------------------------------------------------
United Kingdom
- -----------------------------------------------------------------------------------------------------
Jazztel PLC (Telecommunications - Wireline) 101,230 $32,973
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $182,740
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $3,190,673) $1,344,534
- -----------------------------------------------------------------------------------------------------
Preferred Stocks - 1.8%
- -----------------------------------------------------------------------------------------------------
Automotive
- -----------------------------------------------------------------------------------------------------
Hayes Lemmerz International, Inc., 8s* 59 $4,425
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.4%
- -----------------------------------------------------------------------------------------------------
NTL, Inc., 10.5s* 14 $45
- -----------------------------------------------------------------------------------------------------
Paxon Communications Corp., 14.25s 117 1,111,500
- -----------------------------------------------------------------------------------------------------
$1,111,545
- -----------------------------------------------------------------------------------------------------
Engineering - Construction - 0.9%
- -----------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 11.125s 26,639 $2,770,456
- -----------------------------------------------------------------------------------------------------
Printing & Publishing
- -----------------------------------------------------------------------------------------------------
Primedia, Inc., 8.625s 650 $58,825
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline
- -----------------------------------------------------------------------------------------------------
Global Crossings Holdings Ltd., 10.5s** 1,052 $526
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 0.5%
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 11.125s 1,252 $1,352,160
- -----------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $4,731,485) $5,297,937
- -----------------------------------------------------------------------------------------------------
Warrants
- -----------------------------------------------------------------------------------------------------
GT Group Telecom, Inc. (Utilities - Telephone)* 750 $188
- -----------------------------------------------------------------------------------------------------
Ono Finance PLC (Broadcast & Cable TV)* 175 2
- -----------------------------------------------------------------------------------------------------
Ono Finance PLC (Broadcast & Cable TV)* 125 1
- -----------------------------------------------------------------------------------------------------
Pliant Corp. (Containers)##* 815 407
- -----------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (Chemicals)* 254 3
- -----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Basic Industry)* 558 279
- -----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Basic Industry)* 338 135
- -----------------------------------------------------------------------------------------------------
XM Satellite Radio, Inc. (Broadcast & Cable TV)* 300 2,850
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc. (Telecommunications - Wireline)* 470 1,316
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc. (Telecommunications - Wireline)* 352 1,021
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc. (Telecommunications - Wireline)* 352 598
- -----------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $239,185) $6,800
- -----------------------------------------------------------------------------------------------------
Short-Term Obligation - 0.8%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
New Center Asset Trust, due 8/01/03 at Amortized Cost $2,501 $2,501,000
- -----------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.8%
- -----------------------------------------------------------------------------------------------------
Merrill Lynch, dated 07/31/03, due 08/01/03, total to be received
$2,309,069 (secured by various U.S. Treasury and Federal Agency
obligations in a jointly traded account), at cost $2,309 $2,309,000
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $292,371,604) $296,210,156
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.7% 5,248,381
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $301,458,537
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
+ Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown in currencies other
than the U.S. Dollar. A list of abbreviations is shown below.
ARS = Argentine Peso EUR = Euro
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 7/31/03
ASSETS
Investments, at value (identified cost, $292,371,604) $296,210,156
- -----------------------------------------------------------------------------------------------------
Cash 825
- -----------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange
contracts 151,174
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 8,255,510
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,379,496
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 6,190,623
- -----------------------------------------------------------------------------------------------------
Total assets $312,187,784
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $2,010,687
- -----------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange
contracts 89,100
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased 4,124,912
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 4,492,892
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 5,461
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 6,195
- -----------------------------------------------------------------------------------------------------
Total liabilities $10,729,247
- -----------------------------------------------------------------------------------------------------
Net assets $301,458,537
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $306,053,806
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 3,899,385
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (8,135,492)
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (359,162)
- -----------------------------------------------------------------------------------------------------
Total $301,458,537
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 42,654,972
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $113,535,578
- -----------------------------------------------------------------------------------------------------
Shares outstanding 16,072,376
- -----------------------------------------------------------------------------------------------------
Net asset value per share $7.06
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$7.06) $7.41
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $114,613,811
- -----------------------------------------------------------------------------------------------------
Shares outstanding 16,184,621
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.08
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $69,120,321
- -----------------------------------------------------------------------------------------------------
Shares outstanding 9,807,242
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.05
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $4,188,827
- -----------------------------------------------------------------------------------------------------
Shares outstanding 590,733
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $7.09
- -----------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR SIX MONTHS ENDED 7/31/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Interest $12,182,810
- -----------------------------------------------------------------------------------------------------
Dividends 163,000
- -----------------------------------------------------------------------------------------------------
Total investment income $12,345,810
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $848,730
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 3,096
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 139,896
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 183,464
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 488,702
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 275,070
- -----------------------------------------------------------------------------------------------------
Administrative fee 21,740
- -----------------------------------------------------------------------------------------------------
Custodian fee 92,755
- -----------------------------------------------------------------------------------------------------
Printing 28,662
- -----------------------------------------------------------------------------------------------------
Postage 7,620
- -----------------------------------------------------------------------------------------------------
Auditing fees 22,956
- -----------------------------------------------------------------------------------------------------
Legal fees 1,964
- -----------------------------------------------------------------------------------------------------
Registration fees 87,744
- -----------------------------------------------------------------------------------------------------
Miscellaneous 114,804
- -----------------------------------------------------------------------------------------------------
Total expenses $2,317,203
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (6,083)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (515,157)
- -----------------------------------------------------------------------------------------------------
Net expenses $1,795,963
- -----------------------------------------------------------------------------------------------------
Net investment income $10,549,847
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $6,165,218
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (360,253)
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $5,804,965
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- -----------------------------------------------------------------------------------------------------
Investments $9,891,862
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 270,084
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation $10,161,946
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $15,966,911
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $26,516,758
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
SIX MONTHS YEAR
ENDED ENDED
7/31/03 1/31/03
(UNAUDITED)
OPERATIONS
Net investment income $10,549,847 $11,987,777
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 5,804,965 (7,467,282)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 10,161,946 108,090
- ------------------------------------------------------------- ------------ ------------
Increase in net assets from operations $26,516,758 $4,628,5859
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (Class A) $(4,499,613) $(4,957,251)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class B) (3,899,474) (5,003,082)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class C) (2,184,844) (2,355,367)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class I) (159,775) (124,254)
- -----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(10,743,706) $(12,439,954)
- ------------------------------------------------------------- ------------ ------------
Net increase in net assets from fund share transactions $101,834,072 $95,320,450
- ------------------------------------------------------------- ------------ ------------
Total increase in net assets $117,607,124 $87,509,081
- ------------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $183,851,413 $96,342,332
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $359,162 and $165,303,
respectively) $301,458,537 $183,851,413
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the Fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions).
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ---------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS A (UNAUDITED)
Net asset value, beginning of
period $6.61 $7.08 $7.96 $8.79 $8.53 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.30 $0.62 $0.80 $0.92 $0.91 $0.54
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.45 (0.43) (0.85) (0.67) 0.25 (1.50)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.75 $0.19 $(0.05) $0.25 $1.16 $(0.96)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.30) $(0.66) $(0.82) $(0.95) $(0.90) $(0.50)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign
currency transactions -- -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.01) (0.02) -- (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.04) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.30) $(0.66) $(0.83) $(1.08) $(0.90) $(0.51)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.06 $6.61 $7.08 $7.96 $8.79 $8.53
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+) 11.49++ 2.95 (0.30) 3.28 14.17 (9.45)++
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ---------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS A (CONTINUED) (UNAUDITED)
RATIOS (%) TO AVERAGE NET
ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.01+ 1.01 1.01 1.02 1.02 1.00+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 8.48+ 9.35 11.18 11.43 10.62 10.25+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 58 104 133 147 158 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $113,536 $70,892 $37,187 $19,982 $8,028 $2,052
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating
expenses, exclusive of management and distribution and service fees in excess of 0.00% of average daily net assets. To the
extent that actual expenses were over this limitation net investment income per share and the ratios would have been:
Net investment income $0.29 $0.60 $0.77 $0.88 $0.83 $0.33
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.41+ 1.37 1.46 1.53 2.00 4.90+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 8.08+ 8.99 10.73 10.92 9.64 6.35+
- -------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended
January 31, 2002 was to decrease net investment income per share, and increase net realized and unrealized gains and
losses per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net
investment income to average net assets was unaffected by this change. Per share, ratios, and supplemental data for
periods prior to February 1, 2001 have not been restated to reflect this change in presentation.
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ---------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS B (UNAUDITED)
Net asset value, beginning of
period $6.63 $7.09 $7.98 $8.81 $8.54 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.27 $0.58 $0.77 $0.89 $0.86 $0.47
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.46 (0.43) (0.87) (0.69) 0.25 (1.45)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.73 $0.15 $(0.10) $0.20 $1.11 $(0.98)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.28) $(0.61) $(0.78) $(0.90) $(0.84) $(0.47)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign
currency transactions -- -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- (0.01) (0.02) -- (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.04) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.28) $(0.61) $(0.79) $(1.03) $(0.84) $(0.48)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.08 $6.63 $7.09 $7.98 $8.81 $8.54
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) 11.11++ 2.43 (1.07) 2.63 13.54 (9.69)++
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ---------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS B (CONTINUED) (UNAUDITED)
RATIOS (%) TO AVERAGE NET
ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.66+ 1.66 1.66 1.67 1.67 1.65+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 7.88+ 8.75 10.59 10.83 9.94 9.60+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 58 104 133 147 158 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $114,614 $72,321 $41,481 $26,031 $12,367 $4,308
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating
expenses, exclusive of management and distribution and service fees in excess of 0.00% of average daily net assets. To the
extent that actual expenses were over this limitation net investment income per share and the ratios would have been:
Net investment income $0.26 $0.56 $0.73 $0.85 $0.78 $0.28
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.06+ 2.02 2.11 2.18 2.65 5.55+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 7.48+ 8.39 10.14 10.32 8.96 5.70+
- -------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended
January 31, 2002 was to decrease net investment income per share, and increase net realized and unrealized gains and
losses per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net
investment income to average net assets was unaffected by this change. Per share, ratios, and supplemental data for
periods prior to February 1, 2001 have not been restated to reflect this change in presentation.
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ---------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS C (UNAUDITED)
Net asset value, beginning of
period $6.60 $7.07 $7.95 $8.78 $8.52 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.27 $0.57 $0.77 $0.89 $0.85 $0.47
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.46 (0.43) (0.86) (0.69) 0.25 (1.47)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.73 $0.14 $(0.09) $0.20 $1.10 $(1.00)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.28) $(0.61) $(0.78) $(0.90) $(0.84) $(0.47)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign
currency transactions -- -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- (0.01) (0.02) -- (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.04) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.28) $(0.61) $(0.79) $(1.03) $(0.84) $(0.48)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $7.05 $6.60 $7.07 $7.95 $8.78 $8.52
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) 11.14++ 2.29 (0.94) 2.64 13.45 (9.89)++
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ---------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS C (CONTINUED) (UNAUDITED)
RATIOS (%) TO AVERAGE NET
ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.66+ 1.66 1.66 1.67 1.67 1.65+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 7.83+ 8.67 10.62 10.90 9.93 9.60+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 58 104 133 147 158 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $69,120 $38,130 $17,518 $11,221 $3,251 $941
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating
expenses, exclusive of management and distribution and service fees in excess of 0.00% of average daily net assets. To the
extent that actual expenses were over this limitation net investment income per share and the ratios would have been:
Net investment income $0.26 $0.55 $0.74 $0.84 $0.77 $0.27
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.06+ 2.02 2.11 2.18 2.65 5.55+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 7.43+ 8.31 10.17 10.39 8.95 5.54+
- -------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended
January 31, 2002 was to decrease net investment income per share, and increase net realized and unrealized gains and
losses per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net
investment income to average net assets was unaffected by this change. Per share, ratios, and supplemental data for
periods prior to February 1, 2001 have not been restated to reflect this change in presentation.
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ---------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS I (UNAUDITED)
Net asset value, beginning of period $6.64 $7.10 $8.04 $8.85 $8.56 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.31 $0.64 $0.59 $1.07 $0.97 $0.64
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.45 (0.42) (0.67) (0.77) 0.25 (1.55)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.76 $0.22 $(0.08) $0.30 $1.22 $(0.91)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.31) $(0.68) $(0.85) $(0.98) $(0.93) $(0.53)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions -- -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.01) (0.02) -- --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.04) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.31) $(0.68) $(0.86) $(1.11) $(0.93) $(0.53)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $7.09 $6.64 $7.10 $8.04 $8.85 $8.56
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) 11.65++ 3.45 (0.74) 3.88 14.87 (8.96)++
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ------------------------------------------------ ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS I (CONTINUED) (UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 0.66+ 0.66 0.66 0.67 0.67 0.65+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 8.89+ 9.76 10.25 11.75 10.43 11.10++
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 58 104 133 147 158 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $4,189 $2,508 $155 $0+++ $70 $0++
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating
expenses, exclusive of management fees in excess of 0.00% of average daily net assets. To the extent that actual expenses
were over this limitation net investment income per share and the ratios would have been:
Net investment income $0.30 $0.62 $0.56 $1.02 $0.78 $0.41
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.06+ 1.02 1.11 1.18 1.65 4.55+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 8.49+ 9.40 9.80 11.24 9.45 7.20+
- -------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended
January 31, 2002 was to decrease net investment income per share, and increase net realized and unrealized gains and
losses per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net
investment income to average net assets was unaffected by this change. Per share, ratios, and supplemental data for
periods prior to February 1, 2001 have not been restated to reflect this change in presentation.
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
+++ Class I net assets were less than $500.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS High Yield Opportunities Fund (the fund) is a diversified series of MFS
Series Trust III (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 accounting
principles generally accepted in the United States of America 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. The fund can invest up to 100% 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.
The fund can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Bonds and other fixed income securities (other than
short-term obligations) of U.S. issuers in the fund's portfolio are valued at an
evaluated bid price on the basis of quotes from brokers and dealers or on the
basis of valuations furnished by a pricing service. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the fund's portfolio for
which market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Forward contracts will be valued using a pricing
model taking into consideration market data from an external pricing source. Use
of the pricing services has been approved by the Board of Trustees. Short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes fair value as determined by the Board of Trustees. Short-term
obligations with a remaining maturity in excess of 60 days will be valued upon
dealer-supplied valuations. Portfolio investments for which market quotations
are not readily available, or whose values have been materially affected by
events occurring after the close of their primary markets, are valued at fair
value as determined in good faith by or at the direction of the Board of
Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the fund to obtain those securities
in the event of a default under the repurchase agreement. The fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund under each such
repurchase agreement. The fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The fund may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the fund may enter into contracts to
deliver or receive foreign currency it will receive from or require for its
normal investment activities. The fund may also use contracts in a manner
intended to protect foreign currency-denominated securities from declines in
value due to unfavorable exchange rate movements. For non-hedging purposes, the
fund may enter into contracts with the intent of changing the relative exposure
of the fund's portfolio of securities to different currencies to take advantage
of anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with generally accepted accounting principles. All discount is accreted for tax
reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
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 - The fund's custody 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 total expenses on the Statement of
Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
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 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, derivatives, defaulted bonds, capital
losses, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended January 31, 2003
and January 31, 2002 was as follows:
1/31/03 1/31/02
Distributions declared from
ordinary income 12,439,954 $7,577,195
-----------------------------------------------------------------------
As of January 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,272,292
-------------------------------------------------------------------------
Capital loss carryforward (11,634,232)
-------------------------------------------------------------------------
Unrealized depreciation (6,801,577)
-------------------------------------------------------------------------
Other temporary differences (3,204,804)
-------------------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on January 31, 2010, $5,461,164 and January 31,
2011, $6,173,068.
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 daily net
assets 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 0.65% of
the fund's average daily net assets. The investment adviser has contractually
agreed to pay the fund's operating expenses exclusive of management and
distribution fees such that the fund's expenses do not exceed 0.00% of its
average daily net assets. This is reflected as a reduction of expenses in the
Statement of Operations.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and 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 inactive Trustees and an unfunded
retirement benefit deferral plan for active Trustees. Included in Trustees'
compensation is a net increase of $521 as a result of the change in the fund's
pension liability for active Trustees and a pension expense of $51 for inactive
trustees for the six months ended July 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
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 $2 billion 0.0175%
----------------------------------------------------------
Next $2.5 billion 0.0130%
----------------------------------------------------------
Next $2.5 billion 0.0005%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$69,294 for the six months ended July 31, 2003, 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 an annual
percentage of its average daily net assets attributable to certain share classes
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 based
on the average daily net assets of accounts attributable to such dealers. These
fees are calculated based on each class' average daily net assets. The maximum
distribution and service fees for each class of shares are as follows:
CLASS A CLASS B CLASS C
Distribution Fee 0.10% 0.75% 0.75%
- ------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00%
- ------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the six months ended July 31, 2003, amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $8,278 $24 $252
- ------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended July 31,
2003, were as follows:
CLASS A CLASS B CLASS C
Total Distribution Plan 0.35% 1.00% 1.00%
- ------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for class A shares, 12
months following the purchase, and, for Class C shares, the first year from the
end of the calendar month of 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 from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the six months ended July 31, 2003, were
as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $1,806 $112,713 $13,179
- ------------------------------------------------------------------------------
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 annual rate of 0.11%.
Prior to April 1, 2003, the fee was 0.10% of the fund's average daily net
assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$246,054,774 and $140,094,806, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $293,199,338
------------------------------------------------------------------------
Gross unrealized appreciation $12,692,090
------------------------------------------------------------------------
Gross unrealized depreciation (9,681,272)
------------------------------------------------------------------------
Net unrealized appreciation $3,010,818
------------------------------------------------------------------------
(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. Transactions in
fund shares were as follows:
Six months ended Year ended
7/31/03 1/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 14,488,329 $100,988,744 12,804,218 $85,257,484
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of
distributions 298,586 2,070,304 321,529 2,142,890
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (9,436,454) (67,001,573) (7,655,593) (51,063,701)
- ------------------------------------------------------------------------------------------------------------
Net increase 5,350,461 $36,057,475 5,470,154 $36,336,673
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 6,793,882 $47,019,474 7,495,587 $50,446,725
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of
distributions 274,202 1,906,027 299,938 2,002,860
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,794,976) (12,534,327) (2,731,393) (18,090,799)
- ------------------------------------------------------------------------------------------------------------
Net increase 5,273,108 $36,391,174 5,064,132 $34,358,786
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 4,905,708 $34,046,537 4,406,532 $29,548,089
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of
distributions 148,207 1,026,815 153,503 1,021,408
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,026,218) (7,154,696) (1,259,419) (8,342,307)
- ------------------------------------------------------------------------------------------------------------
Net increase 4,027,697 $27,918,656 3,300,616 $22,227,190
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 214,823 $1,480,020 428,479 $2,866,500
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of
distributions 1,734 12,215 209 1,368
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (3,767) (25,468) (72,581) (470,067)
- ------------------------------------------------------------------------------------------------------------
Net increase 212,790 $1,466,767 356,107 $2,397,801
- ------------------------------------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. 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 July 31, 2003, was $1,272. The fund had no borrowings during the period.
(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 and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange 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.
Forward Foreign Currency Exchange Contracts
- -----------
SALES
- -----------
NET
IN UNREALIZED
CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
10/6/03 EUR 4,521,597 $5,225,655 $5,074,481 $151,174
- -----------
PURCHASES
- -----------
10/6/03 EUR 2,856,826 $3,296,201 $3,207,101 $(89,100)
At July 31, 2003, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) RESTRICTED SECURITIES
The fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At July 31, 2003,
the fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 0.66% 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 at the direction of the Trustees.
DATE OF SHARE/PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- --------------------------------------------------------------------------------
Kaztransoil Co., 8.5s, 2006 5/13/03 441,000 $441,000 $463,851
Kazkommerts International
B.V., 10.125s, 2007 5/30/03 438,000 438,000 473,423
Hurricane Finance B.V.,
9.625s, 2010 5/22/03 1,000,000 1,000,000 1,067,500
- --------------------------------------------------------------------------------
$2,004,774
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust III,
of which the fund is a series, including their principal occupations, which, unless specific dates are shown,
are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Ives, Perera and Poorvu, and Ms. Smith, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Messrs. Ballen and Gutow have each served as a Trustee of
the Trust since August 1, 2001. Messrs. Cohn, Sherratt and Smith, and Ms. O'Neill, were elected by
shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke has served as Trustee
of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 112 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR JP Morgan Chase Bank
MFS Fund Distributors, Inc. One Chase Manhattan Plaza
500 Boylston Street, Boston, MA New York, NY 10081
02116-3741
PORTFOLIO MANAGER
John F. Addeo(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international equity and
fixed-income investment across the full risk spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and risks
associated with investing. Read the prospectus carefully before investing or
sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors, Inc.
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec. gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255)
or stock and bond outlooks touch-tone required 24 hours a day, 365 days a
year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education, account
access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send you
prospectuses, reports, and proxies electronically. You get timely information
without mailbox clutter (and help your fund save printing and postage costs).
SIGN-UP instructions: If your account is registered with us, go to www.mfs.com,
log in to your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available to
you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C)2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116 HYO-SEM-9/03 44M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 7/31/03
MFS(R) HIGH INCOME FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- -------------------------------------------------------------------------------
MFS(R) HIGH INCOME FUND
The fund seeks high current income by investing primarily in a professionally
managed, diversified portfolio of fixed income securities, some of which may
involve equity features.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 29
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 47
- ----------------------------------------------------
TRUSTEES AND OFFICERS 58
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 60
- ----------------------------------------------------
CONTACT INFORMATION 61
- ----------------------------------------------------
ASSET ALLOCATION 62
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MFS Investment Management(R)
August 20, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
The period began with interest rates on U.S. Treasury bonds near record lows.
As signs of economic improvement began to appear, investors seemed to regain
lost confidence and were more willing to invest in higher-risk asset classes.
Discouraged by the yields available from high-quality bonds, investors began
reaching for the more attractive income available from lower-quality bonds.
Strong investor demand poured record levels of cash into the high-yield market
and caused bond prices to soar. (The principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity.)
By the end of the period, high-yield prices did come back down somewhat, and
we've seen a corresponding upward move in yields. However, July's price moves,
in our view, were not related to any deterioration in the group's fundamental
strength. We see the price moves as a return to more
rational valuations.
PORTFOLIO POSITIONING
Throughout this period, we remained fairly cautious and maintained our focus
on the business fundamentals that underpinned the high-yield market. We were
overweighted relative to our benchmark in media, energy, and gaming bonds as
part of our cautious stance; however, we have trimmed those positions
gradually since the beginning of the period. We took the proceeds from those
groups and cap invested them primarily in the utilities & communications
sector. This shift was the most significant move we made during the period.
At the end of January, we were significantly underweighted in utilities
relative to our benchmark because we were concerned about the group's ability
to access the capital markets for the liquidity needed to stay in business.
When the credit markets started lending once more to some of these companies,
we initially, focused our efforts on the bonds of investment-grade and higher
rated high-yield companies whose bond prices were severely depressed. As
market access continued to improve, we began to purchase true high-yield names
such as Calpine and Dynegy.
PORTFOLIO QUALITY RATING
7/31/03
"B" 53.0%
"BB" 21.1%
"CCC" 12.4%
Investment Grade 4.3%
Equity 3.6%
Not Rated 2.8%
Other 1.7%
"CC" & "D" 1.1%
The portfolio is actively managed, and current holdings may be different.
DETRACTORS FROM PERFORMANCE
The fund's underperformance relative to its benchmark was attributable largely
to factors such as being underweighted in a particular quality rating or
sector. For example, the bulk of the fund's holdings were invested in high-
yield bonds with "B" and "BB" ratings for the period because we were not
comfortable building substantial positions in the lower credit categories.
Although bonds in those quality ratings performed well, "CCC"-rated issues
produced the highest returns for much of the period. Utility bonds generated
strong absolute returns for the period, but the group detracted from relative
performance because we were underweighted in it.
Among individual securities, Westpoint Stevens, Fleming, and MMI Products
provided disappointing results. Textile manufacturer Westpoint Stevens faced
increased overseas competition and softer domestic demand and was forced to
file for bankruptcy protection. Food distributor Fleming was investigated for
allegations of accounting irregularities and ultimately filed for bankruptcy.
MMI, which makes fences and concrete accessories used in construction, was
hurt by the slow economy. We believe the company's results will recover when
the economy improves; it has, in our view, strong distribution channels and a
solid market share in its business lines.
CONTRIBUTORS TO PERFORMANCE
Cable industry holdings performed well during the period, especially our
holdings in Adelphia and its subsidiaries as well as Charter Communications.
Both companies had accounting and corporate governance problems in 2002, and
Adelphia was ultimately forced into bankruptcy. We bought these bonds because
we believed in the long-term industry fundamentals and the asset value
supporting the bonds.
Calpine, a natural gas-fired power producer, was one of the fund's more
notable individual investments for the period. The company had suffered from
unsettled power markets and concern that it wouldn't meet its debt
obligations. The power market stabilized somewhat, and the company was able to
obtain the financing it needed. Calpine's prospects brightened as a result.
Respectfully,
/s/ John F. Addeo
John F. Addeo
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. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 7/31/03
- -------------------------------------------------------------------------------
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. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (See
Notes to Performance Summary.)
TOTAL RETURNS
- ------------------------
Average annual without
sales charge
- ------------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 2/17/78 -- 18.09% 1.61% 1.29% 5.68%
- ------------------------------------------------------------------------------
B 9/27/93 -- 17.58% 0.97% 0.63% 4.93%
- ------------------------------------------------------------------------------
C 1/3/94 -- 17.55% 0.98% 0.63% 4.99%
- ------------------------------------------------------------------------------
I 1/2/97 -- 18.79% 1.92% 1.64% 5.89%
- ------------------------------------------------------------------------------
R 12/31/02 -- 17.96% 1.57% 1.26% 5.67%
- ------------------------------------------------------------------------------
529A 7/31/02 -- 17.75% 1.51% 1.23% 5.65%
- ------------------------------------------------------------------------------
529B 7/31/02 -- 16.68% 1.20% 1.04% 5.55%
- ------------------------------------------------------------------------------
529C 7/31/02 -- 16.95% 1.28% 1.09% 5.58%
- ------------------------------------------------------------------------------
Comparative benchmarks
- ------------------------
Average annual
- ------------------------
- ------------------------------------------------------------------------------
Average high current
yield bond fund+ 11.23% 20.41% 1.99% 0.40% 4.65%
- ------------------------------------------------------------------------------
Lehman Brothers
High Yield Index# 13.41% 26.96% 4.78% 2.59% 6.38%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- ------------------------
Average annual
with sales charge
- ------------------------
Share
class 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A -- 12.48% -0.03% 0.31% 5.16%
- ------------------------------------------------------------------------------
B -- 13.58% 0.20% 0.37% 4.93%
- ------------------------------------------------------------------------------
C -- 16.55% 0.98% 0.63% 4.99%
- ------------------------------------------------------------------------------
529A -- 12.16% -0.13% 0.25% 5.13%
- ------------------------------------------------------------------------------
529B -- 12.68% 0.43% 0.79% 5.55%
- ------------------------------------------------------------------------------
529C -- 15.95% 1.28% 1.09% 5.58%
- ------------------------------------------------------------------------------
I and R class shares do not have a sales charge. Please see Notes to
Performance Summary for
more details.
- ------------------------
Cumulative without
sales charge
- ------------------------
- ------------------------------------------------------------------------------
A 9.84% 18.09% 4.89% 6.60% 73.71%
- ------------------------------------------------------------------------------
B 9.45% 17.58% 2.95% 3.17% 61.86%
- ------------------------------------------------------------------------------
C 9.43% 17.55% 2.98% 3.19% 62.77%
- ------------------------------------------------------------------------------
I 10.00% 18.79% 5.87% 8.45% 77.27%
- ------------------------------------------------------------------------------
R 9.73% 17.96% 4.78% 6.48% 73.52%
- ------------------------------------------------------------------------------
529A 9.68% 17.75% 4.59% 6.29% 73.21%
- ------------------------------------------------------------------------------
529B 9.04% 16.68% 3.64% 5.33% 71.64%
- ------------------------------------------------------------------------------
529C 9.31% 16.95% 3.88% 5.58% 72.04%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
LEHMAN BROTHERS HIGH YIELD INDEX - measures the performance of the high-yield
bond market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results, including sales charge, reflects the deduction of
the maximum 4.75% sales charge. Class B and 529B results, including sales
charge, reflects the deduction of the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C and 529C
results, including sales charge, redeemed within one year from the end of the
calendar month of purchase reflects the deduction of the 1% CDSC. Class I
shares have no sales charges and are available only to certain investors.
Class R shares have no sales charges and are available only to certain
retirement plans. Class 529A, 529B, and 529C shares are only available in
conjunction with qualified tuition programs, such as the MFS 529 Savings Plan.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
All performance results reflect any applicable expense subsidies and waivers
in effect during the periods shown; without these, the results would have been
less favorable. See the prospectus and financial statements 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, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
Investments in high yield or lower-rated securities may provide greater
returns but are subject to greater-than-average risk.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (unaudited) 7/31/2003
- -----------------------------------------------------------------------------------------------------
Portfolio of Investments (unaudited) - continued
The Portfolio of Investments is a complete list of all securities owned by your fund. It's divided by
broad-based asset classes.
Bonds - 93.9%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Bonds - 85.1%
- -----------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 6.2%
- -----------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75s, 2012## $8,040 $7,919,400
- -----------------------------------------------------------------------------------------------------
Chancellor Media Corp., 8s, 2008 3,475 3,909,375
- -----------------------------------------------------------------------------------------------------
Directv Holdings LLC, 8.375s, 2013## 5,370 5,933,850
- -----------------------------------------------------------------------------------------------------
Echostar DBS Corp., 9.375s, 2009 320 338,000
- -----------------------------------------------------------------------------------------------------
Emmis Communications Corp., 0s to 2006, 12.5s to 2011 15,108 12,917,340
- -----------------------------------------------------------------------------------------------------
Granite Broadcasting Corp., 10.375s, 2005 2,143 2,121,570
- -----------------------------------------------------------------------------------------------------
Granite Broadcasting Corp., 8.875s, 2008 60 58,200
- -----------------------------------------------------------------------------------------------------
Lamar Media Corp., 7.25s, 2013## 750 765,000
- -----------------------------------------------------------------------------------------------------
LIN Television Corp., 8s, 2008 1,540 1,609,300
- -----------------------------------------------------------------------------------------------------
LIN Television Corp., 6.5s, 2013 4,850 4,631,750
- -----------------------------------------------------------------------------------------------------
Muzak LLC/ Muzak Finance Corp., 10s, 2009## 5,385 5,573,475
- -----------------------------------------------------------------------------------------------------
Panamsat Corp., 8.5s, 2012 6,130 6,375,200
- -----------------------------------------------------------------------------------------------------
Paxson Communications Corp., 10.75s, 2008 3,070 3,131,400
- -----------------------------------------------------------------------------------------------------
Paxson Communications Corp., 0s to 2006, 12.25s to 2009 11,480 8,839,600
- -----------------------------------------------------------------------------------------------------
Pegasus Communications Corp., 12.5s, 2005 9,350 9,022,219
- -----------------------------------------------------------------------------------------------------
Radio One, Inc., 8.875s, 2011 2,920 3,139,000
- -----------------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc., 9.625s, 2009 8,500 8,925,000
- -----------------------------------------------------------------------------------------------------
XM Satellite Radio, Inc., 0s to 2005, 14s to 2009** 4,415 3,201,005
- -----------------------------------------------------------------------------------------------------
XM Satellite Radio, Inc., 12s, 2010**## 4,340 4,296,600
- -----------------------------------------------------------------------------------------------------
Young Broadcasting, Inc., 8.5s, 2008 5,315 5,607,325
- -----------------------------------------------------------------------------------------------------
$98,314,609
- -----------------------------------------------------------------------------------------------------
Aerospace - 1.8%
- -----------------------------------------------------------------------------------------------------
Alliant Techsystems, Inc., 8.5s, 2011 $3,670 $3,926,900
- -----------------------------------------------------------------------------------------------------
Esterline Technologies Corp., 7.75s, 2013## 3,285 3,383,550
- -----------------------------------------------------------------------------------------------------
Hexcel Corp., 9.875s, 2008## 3,645 3,945,713
- -----------------------------------------------------------------------------------------------------
Hexcel Corp., 9.75s, 2009 1,180 1,185,900
- -----------------------------------------------------------------------------------------------------
K & F Industries, Inc., 9.25s, 2007 5,215 5,410,562
- -----------------------------------------------------------------------------------------------------
K & F Industries, Inc., 9.625s, 2010 2,085 2,283,075
- -----------------------------------------------------------------------------------------------------
Titan Corp., 8s, 2011## 3,925 4,062,375
- -----------------------------------------------------------------------------------------------------
Transdigm, Inc., 8.375s, 2011## 4,010 4,080,175
- -----------------------------------------------------------------------------------------------------
$28,278,250
- -----------------------------------------------------------------------------------------------------
Airlines - 0.6%
- -----------------------------------------------------------------------------------------------------
Airplane Pass-Through Trust, 10.875s, 2019+ $5,185 $103,708
- -----------------------------------------------------------------------------------------------------
Continental Airlines Inc., 6.545s, 2019 5,496 5,188,704
- -----------------------------------------------------------------------------------------------------
Continental Airlines Inc., 6.795s, 2020 5,352 4,099,130
- -----------------------------------------------------------------------------------------------------
Continental Airlines Inc., 7.566s, 2020 486 360,316
- -----------------------------------------------------------------------------------------------------
$9,751,858
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.2%
- -----------------------------------------------------------------------------------------------------
Westpoint Stevens, Inc., 7.875s, 2008** $11,105 $2,498,625
- -----------------------------------------------------------------------------------------------------
Automotive - 3.4%
- -----------------------------------------------------------------------------------------------------
Arvinmeritor, Inc., 8.75s, 2012 $6,945 $7,153,350
- -----------------------------------------------------------------------------------------------------
Collins & Aikman Products Co., 10.75s, 2011 5,840 5,139,200
- -----------------------------------------------------------------------------------------------------
Dana Corp., 10.125s, 2010 1,870 2,028,950
- -----------------------------------------------------------------------------------------------------
Dana Corp., 9s, 2011 3,745 4,007,150
- -----------------------------------------------------------------------------------------------------
Dura Operating Corp., 9s, 2009 5,810 5,403,300
- -----------------------------------------------------------------------------------------------------
Eagle-Picher, Inc., 9.75s, 2013 2,660 2,638,720
- -----------------------------------------------------------------------------------------------------
General Motors Corp., 7.125s, 2013 857 823,200
- -----------------------------------------------------------------------------------------------------
Metaldyne Corp., 11s, 2012 6,150 5,196,750
- -----------------------------------------------------------------------------------------------------
Tenneco Automotive, Inc., 11.625s, 2009 4,380 3,810,600
- -----------------------------------------------------------------------------------------------------
Tenneco Automotive, Inc., 10.25s, 2013## 5,385 5,411,925
- -----------------------------------------------------------------------------------------------------
TRW Automotive Acquisition Corp., 9.375s, 2013## 3,520 3,836,800
- -----------------------------------------------------------------------------------------------------
TRW Automotive Acquisition Corp., 11s, 2013## 5,655 6,277,050
- -----------------------------------------------------------------------------------------------------
TRW Automotive Acquisition Corp., 11.75s, 2013## 1,350 1,675,534
- -----------------------------------------------------------------------------------------------------
Venture Holdings Trust, 9.5s, 2005** 4,400 770,000
- -----------------------------------------------------------------------------------------------------
Venture Holdings Trust, 12s, 2009** 2,455 15,344
- -----------------------------------------------------------------------------------------------------
$54,187,873
- -----------------------------------------------------------------------------------------------------
Basic Industry - 0.7%
- -----------------------------------------------------------------------------------------------------
Foamex LP/ Capital Corp., 10.75s, 2009 $5,770 $5,048,750
- -----------------------------------------------------------------------------------------------------
International Wire Group, Inc., 11.75s, 2005 1,045 637,450
- -----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp., 12.5s, 2008** 12,375 248
- -----------------------------------------------------------------------------------------------------
Trimas Corp., 9.875s, 2012 6,080 6,171,200
- -----------------------------------------------------------------------------------------------------
$11,857,648
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.4%
- -----------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 8.375s, 2008** $7,970 $5,220,350
- -----------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 9.375s, 2009** 525 354,375
- -----------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 9.25s, 2049** 1,245 809,250
- -----------------------------------------------------------------------------------------------------
Avalon Cable Holdings LLC, 0s to 2003, 11.875s to 2008 8,000 7,840,000
- -----------------------------------------------------------------------------------------------------
Charter Communications Holdings, 8.25s, 2007 455 362,862
- -----------------------------------------------------------------------------------------------------
Charter Communications Holdings, 8.625s, 2009 13,435 10,009,075
- -----------------------------------------------------------------------------------------------------
Charter Communications Holdings, 0s to 2004, 9.92s to 2011 6,120 4,314,600
- -----------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 8.125s, 2009 12,690 12,563,100
- -----------------------------------------------------------------------------------------------------
FrontierVision Holding LP, 11s, 2006** 6,575 6,640,750
- -----------------------------------------------------------------------------------------------------
FrontierVision Holding LP, 11.875s, 2007** 250 222,500
- -----------------------------------------------------------------------------------------------------
Insight Midwest, 9.75s, 2009 8,785 9,092,475
- -----------------------------------------------------------------------------------------------------
Mediacom Broadband LLC, 11s, 2013 7,025 7,587,000
- -----------------------------------------------------------------------------------------------------
Mediacom LLC/Capital Corp., 9.5s, 2013 5,495 5,440,050
- -----------------------------------------------------------------------------------------------------
$70,456,387
- -----------------------------------------------------------------------------------------------------
Building - 3.4%
- -----------------------------------------------------------------------------------------------------
American Standard, Inc., 7.375s, 2008 $995 $1,082,062
- -----------------------------------------------------------------------------------------------------
Atrium Cos, Inc., 10.5s, 2009 3,745 3,950,975
- -----------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 8.625s, 2006 8,720 8,611,000
- -----------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 8s, 2007 2,625 2,493,750
- -----------------------------------------------------------------------------------------------------
Dayton Superior Corp., 10.75s, 2008## 5,485 5,375,300
- -----------------------------------------------------------------------------------------------------
Formica Corp., 10.875s, 2009** 5,535 1,390,669
- -----------------------------------------------------------------------------------------------------
Integrated Electrical Services, Inc., 9.375s, 2009 485 488,638
- -----------------------------------------------------------------------------------------------------
Interface, Inc., 10.375s, 2010 5,382 5,193,630
- -----------------------------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625s, 2010## 1,515 1,560,450
- -----------------------------------------------------------------------------------------------------
MMI Products, Inc., 11.25s, 2007 5,995 4,196,500
- -----------------------------------------------------------------------------------------------------
Nortek, Inc., 9.25s, 2007 3,875 3,971,875
- -----------------------------------------------------------------------------------------------------
Nortek, Inc., 8.875s, 2008 3,685 3,813,975
- -----------------------------------------------------------------------------------------------------
Texas Industries, Inc., 10.25s, 2011## 3,800 3,999,500
- -----------------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 9.875s, 2007 8,700 8,417,250
- -----------------------------------------------------------------------------------------------------
$54,545,574
- -----------------------------------------------------------------------------------------------------
Business Services - 1.6%
- -----------------------------------------------------------------------------------------------------
General Binding Corp., 9.375s, 2008 $11,950 $11,591,500
- -----------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625s, 2013 4,225 4,404,563
- -----------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 7.75s, 2015 3,090 3,105,450
- -----------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45s, 2029 3,215 2,073,675
- -----------------------------------------------------------------------------------------------------
Xerox Corp., 7.625s, 2013 4,290 4,096,950
- -----------------------------------------------------------------------------------------------------
$25,272,138
- -----------------------------------------------------------------------------------------------------
Chemicals - 4.1%
- -----------------------------------------------------------------------------------------------------
Compass Minerals Group, Inc., 10s, 2011 $5,385 $6,004,275
- -----------------------------------------------------------------------------------------------------
CP Kelco, 5.1s, 2008 795 787,301
- -----------------------------------------------------------------------------------------------------
CP Kelco, 5.35s, 2008 266 262,899
- -----------------------------------------------------------------------------------------------------
Equistar Chemicals LP, 10.625s, 2011 6,800 6,732,000
- -----------------------------------------------------------------------------------------------------
Huntsman ICI Chemicals, 0s, 2009 975 380,250
- -----------------------------------------------------------------------------------------------------
Huntsman ICI Chemicals, 9.875s, 2009 1,120 1,148,000
- -----------------------------------------------------------------------------------------------------
Huntsman ICI Chemicals, 10.125s, 2009 15,710 15,081,600
- -----------------------------------------------------------------------------------------------------
IMC Global, Inc., 10.875s, 2013## 5,665 5,580,025
- -----------------------------------------------------------------------------------------------------
Johnson Diversey, Inc., 9.625s, 2012 12,280 13,537,401
- -----------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 9.625s, 2007 500 483,750
- -----------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 9.875s, 2007 1,555 1,508,350
- -----------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 9.5s, 2008 3,590 3,410,500
- -----------------------------------------------------------------------------------------------------
MacDermid, Inc., 9.125s, 2011 5,020 5,572,200
- -----------------------------------------------------------------------------------------------------
Sovereign Specialty Chemicals, 11.875s, 2010 4,740 4,503,000
- -----------------------------------------------------------------------------------------------------
$64,991,551
- -----------------------------------------------------------------------------------------------------
Conglomerates - 0.5%
- -----------------------------------------------------------------------------------------------------
Rexnord Corp., 10.125s, 2012 $3,120 $3,416,400
- -----------------------------------------------------------------------------------------------------
SPX Corp., 7.5s, 2013 4,525 4,706,000
- -----------------------------------------------------------------------------------------------------
$8,122,400
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.0%
- -----------------------------------------------------------------------------------------------------
American Safety Razor Co., 9.875s, 2005 $3,590 $3,554,100
- -----------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.5s, 2009 4,865 4,974,462
- -----------------------------------------------------------------------------------------------------
Remington Arms, Inc., 10.5s, 2011## 6,625 6,839,650
- -----------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 12s, 2005 4,380 4,193,850
- -----------------------------------------------------------------------------------------------------
Samsonite Corp., 10.75s, 2008 5,125 5,278,750
- -----------------------------------------------------------------------------------------------------
Sealy Mattress Co., 9.875s, 2007 12,340 11,846,400
- -----------------------------------------------------------------------------------------------------
Simmons Co., 10.25s, 2009 9,940 10,610,950
- -----------------------------------------------------------------------------------------------------
$47,298,162
- -----------------------------------------------------------------------------------------------------
Containers - 2.5%
- -----------------------------------------------------------------------------------------------------
Ball Corp., 6.875s, 2012 $3,035 $3,035,000
- -----------------------------------------------------------------------------------------------------
Chesapeake Capital Corp., 10.375s, 2011 1,800 3,012,422
- -----------------------------------------------------------------------------------------------------
Graham Packaging Co., 8.75s, 2008## 4,725 4,701,375
- -----------------------------------------------------------------------------------------------------
Huntsman Packaging Corp., 13s, 2010 6,710 5,837,700
- -----------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, 8.875s, 2009 750 783,750
- -----------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, 8.75s, 2012 10,185 10,745,175
- -----------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, 8.25s, 2013## 1,165 1,176,650
- -----------------------------------------------------------------------------------------------------
Plastipak Holdings, Inc., 10.75s, 2011 10,330 11,156,400
- -----------------------------------------------------------------------------------------------------
Silgan Holdings, Inc., 9s, 2009 71 73,396
- -----------------------------------------------------------------------------------------------------
$40,521,868
- -----------------------------------------------------------------------------------------------------
Corporate Asset-Backed - 2.5%
- -----------------------------------------------------------------------------------------------------
Anthracite CDO Ltd., 6s, 2037## $5,148 $3,644,824
- -----------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 5.44s, 2030 5,000 4,267,009
- -----------------------------------------------------------------------------------------------------
Deutsche Mortgage Acceptance Corp., 7.5s, 2031 4,500 3,236,132
- -----------------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., 8s, 2003+ 130 129,909
- -----------------------------------------------------------------------------------------------------
Falcon Auto Dealership LLC, 3.877s, 2023 (Interest Only) 19,151 3,676,458
- -----------------------------------------------------------------------------------------------------
First Union Lehman Brothers Commercial Mortgage, 7s, 2014 4,850 4,423,902
- -----------------------------------------------------------------------------------------------------
First Union Lehman Brothers Commercial Mortgage, 7.5s, 2029 4,000 3,673,906
- -----------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Security, Inc., 6.02s, 2033 4,000 3,462,542
- -----------------------------------------------------------------------------------------------------
LB Commercial Conduit Mortgage Trust, 0s, 2028 63,118 2,281,380
- -----------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.706s, 2039 5,920 5,635,587
- -----------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 7.214s, 2007 2,500 2,537,853
- -----------------------------------------------------------------------------------------------------
Nationslink Funding Corp., 5s, 2031 2,500 2,207,128
- -----------------------------------------------------------------------------------------------------
$39,176,630
- -----------------------------------------------------------------------------------------------------
Defense Electronics - 0.2%
- -----------------------------------------------------------------------------------------------------
L-3 Communications Corp., 8s, 2008 $3,200 $3,304,000
- -----------------------------------------------------------------------------------------------------
Electronics - 0.4%
- -----------------------------------------------------------------------------------------------------
ON Semiconductor Corp., 13s, 2008 $6,000 $6,180,000
- -----------------------------------------------------------------------------------------------------
Energy - Independent - 3.8%
- -----------------------------------------------------------------------------------------------------
Belden & Blake Corp., 9.875s, 2007 $10,910 $10,146,300
- -----------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 8.125s, 2011## 11,400 12,012,750
- -----------------------------------------------------------------------------------------------------
Continental Resources, Inc., 10.25s, 2008 5,400 5,373,000
- -----------------------------------------------------------------------------------------------------
Magnum Hunter Resources, Inc., 9.6s, 2012 2,565 2,744,550
- -----------------------------------------------------------------------------------------------------
Pioneer Natural Resources Co., 9.625s, 2010 3,495 4,220,212
- -----------------------------------------------------------------------------------------------------
Pioneer Natural Resources Co., 7.5s, 2012 3,435 3,778,500
- -----------------------------------------------------------------------------------------------------
Range Resources Corp., 7.375s, 2013## 1,005 974,850
- -----------------------------------------------------------------------------------------------------
Semco Energy, Inc., 7.125s, 2008## 630 632,363
- -----------------------------------------------------------------------------------------------------
Semco Energy, Inc., 7.75s, 2013## 630 638,662
- -----------------------------------------------------------------------------------------------------
Stone Energy Corp., 8.25s, 2011 2,085 2,189,250
- -----------------------------------------------------------------------------------------------------
Vintage Petroleum, Inc., 8.25s, 2012 5,655 6,022,575
- -----------------------------------------------------------------------------------------------------
Westport Resources Corp., 8.25s, 2011 5,055 5,383,575
- -----------------------------------------------------------------------------------------------------
Westport Resources Corp., 8.25s, 2011## 620 663,400
- -----------------------------------------------------------------------------------------------------
XTO Energy, Inc., 6.25s, 2013## 5,396 5,422,980
- -----------------------------------------------------------------------------------------------------
$60,202,967
- -----------------------------------------------------------------------------------------------------
Entertainment - 1.3%
- -----------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5s, 2011 $6,530 $6,758,550
- -----------------------------------------------------------------------------------------------------
American Skiing Co., 12s, 2006 5,300 3,703,375
- -----------------------------------------------------------------------------------------------------
Premier Parks, Inc., 9.75s, 2007 1,480 1,402,300
- -----------------------------------------------------------------------------------------------------
Regal Cinemas Corp., 9.375s, 2012 4,175 4,613,375
- -----------------------------------------------------------------------------------------------------
Six Flags, Inc., 9.75s, 2013## 5,130 4,783,725
- -----------------------------------------------------------------------------------------------------
$21,261,325
- -----------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 0.6%
- -----------------------------------------------------------------------------------------------------
Merisant Co., 9.5s, 2013## $3,185 $3,272,588
- -----------------------------------------------------------------------------------------------------
Michael Foods, Inc., 11.75s, 2011 5,380 6,187,000
- -----------------------------------------------------------------------------------------------------
$9,459,588
- -----------------------------------------------------------------------------------------------------
Forest & Paper Products - 3.4%
- -----------------------------------------------------------------------------------------------------
Buckeye Cellulose Corp., 8.5s, 2005 $1,250 $1,231,250
- -----------------------------------------------------------------------------------------------------
Buckeye Cellulose Corp., 9.25s, 2008 1,875 1,818,750
- -----------------------------------------------------------------------------------------------------
Buckeye Cellulose Corp., 8s, 2010 6,965 6,372,975
- -----------------------------------------------------------------------------------------------------
Fibermark, Inc., 10.75s, 2011 7,405 6,886,650
- -----------------------------------------------------------------------------------------------------
Georgia Pacific Corp., 9.375s, 2013## 5,915 6,269,900
- -----------------------------------------------------------------------------------------------------
Graphic Packaging Corp., 8.625s, 2012 6,450 6,579,000
- -----------------------------------------------------------------------------------------------------
Greif Brothers Corp., 8.875s, 2012 6,235 6,671,450
- -----------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.625s, 2007 6,625 6,856,875
- -----------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.875s, 2008 8,530 8,743,250
- -----------------------------------------------------------------------------------------------------
Speciality Paperboard, Inc., 9.375s, 2006## 2,350 2,156,125
- -----------------------------------------------------------------------------------------------------
$53,586,225
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 7.5%
- -----------------------------------------------------------------------------------------------------
Ameristar Casinos, Inc., 10.75s, 2009 $3,460 $3,875,200
- -----------------------------------------------------------------------------------------------------
Argosy Gaming Co., 10.75s, 2009 6,100 6,618,500
- -----------------------------------------------------------------------------------------------------
Argosy Gaming Co., 9s, 2011 4,620 4,920,300
- -----------------------------------------------------------------------------------------------------
Aztar Corp., 8.875s, 2007 6,350 6,572,250
- -----------------------------------------------------------------------------------------------------
Coast Hotels & Casinos, Inc., 9.5s, 2009 8,345 8,783,112
- -----------------------------------------------------------------------------------------------------
Corrections Corp. of America, 9.875s, 2009 1,720 1,892,000
- -----------------------------------------------------------------------------------------------------
Corrections Corp. of America, 7.5s, 2011 2,725 2,802,163
- -----------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 7.625s, 2012 3,000 3,150,000
- -----------------------------------------------------------------------------------------------------
Hollywood Park, Inc., 9.25s, 2007 5,790 5,732,100
- -----------------------------------------------------------------------------------------------------
Hollywood Park, Inc., 9.5s, 2007 2,685 2,658,150
- -----------------------------------------------------------------------------------------------------
Host Marriott LP, 8.45s, 2008 9,190 9,304,875
- -----------------------------------------------------------------------------------------------------
Mandalay Resort Group, 9.5s, 2008 2,435 2,721,113
- -----------------------------------------------------------------------------------------------------
Meristar Hospitality Corp., 10.5s, 2009 3,635 3,689,525
- -----------------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.5s, 2010 6,345 7,074,675
- -----------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., 8.875s, 2008 2,000 2,185,000
- -----------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., 8.125s, 2011 4,540 4,925,900
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts, 7.375s, 2007 3,845 3,979,575
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts, 7.875s, 2012 5,165 5,474,900
- -----------------------------------------------------------------------------------------------------
Station Casinos, Inc., 8.375s, 2008 3,305 3,519,825
- -----------------------------------------------------------------------------------------------------
Station Casinos, Inc., 8.875s, 2008 3,290 3,421,600
- -----------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.875s, 2010 9,885 10,749,937
- -----------------------------------------------------------------------------------------------------
Vail Resorts, Inc., 8.75s, 2009 5,880 6,085,800
- -----------------------------------------------------------------------------------------------------
Venetian Casino Resort LLC, 11s, 2010 6,825 7,541,625
- -----------------------------------------------------------------------------------------------------
Wackenhut Corrections Corp., 8.25s, 2013 2,095 2,126,425
- -----------------------------------------------------------------------------------------------------
$119,804,550
- -----------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.4%
- -----------------------------------------------------------------------------------------------------
Willis Corroon Corp., 9s, 2009 $5,150 $5,510,500
- -----------------------------------------------------------------------------------------------------
Machinery & Tools - 3.9%
- -----------------------------------------------------------------------------------------------------
Agco Corp., 9.5s, 2008 $8,365 $9,076,025
- -----------------------------------------------------------------------------------------------------
Blount, Inc., 7s, 2005 7,510 7,134,500
- -----------------------------------------------------------------------------------------------------
Blount, Inc., 13s, 2009 $315 $270,900
- -----------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25s, 2011## 3,320 3,220,400
- -----------------------------------------------------------------------------------------------------
Columbus McKinnon Corp., 8.5s, 2008 2,370 1,860,450
- -----------------------------------------------------------------------------------------------------
Columbus McKinnon Corp., 10s, 2010## 2,695 2,748,900
- -----------------------------------------------------------------------------------------------------
JLG Industries, Inc., 8.25s, 2008## 4,880 4,977,600
- -----------------------------------------------------------------------------------------------------
Joy Global, Inc., 8.75s, 2012 4,021 4,342,680
- -----------------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.375s, 2011 3,785 4,378,853
- -----------------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.5s, 2012 945 1,011,150
- -----------------------------------------------------------------------------------------------------
Motors & Gears, Inc., 10.75s, 2006 7,010 6,133,750
- -----------------------------------------------------------------------------------------------------
NMHG Holding Co., 10s, 2009 1,372 1,509,200
- -----------------------------------------------------------------------------------------------------
Terex Corp., 10.375s, 2011 8,260 8,920,800
- -----------------------------------------------------------------------------------------------------
United Rentals, Inc., 10.75s, 2008 6,420 6,901,500
- -----------------------------------------------------------------------------------------------------
$62,486,708
- -----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 2.1%
- -----------------------------------------------------------------------------------------------------
Alliance Imaging, Inc., 10.375s, 2011 $5,910 $5,880,450
- -----------------------------------------------------------------------------------------------------
Beverly Enterprises, Inc., 9.625s, 2009 5,925 6,043,500
- -----------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc., 8.125s, 2012## 1,310 1,401,700
- -----------------------------------------------------------------------------------------------------
HCA Healthcare Co., 7.875s, 2011 2,685 2,809,238
- -----------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp., 8.5s, 2008** 5,640 4,737,600
- -----------------------------------------------------------------------------------------------------
Insight Health Services Corp., 9.875s, 2011 4,905 5,027,625
- -----------------------------------------------------------------------------------------------------
NDC Health Corp., 10.5s, 2012## 1,370 1,476,175
- -----------------------------------------------------------------------------------------------------
Prime Medical Services, Inc., 8.75s, 2008 2,160 2,041,200
- -----------------------------------------------------------------------------------------------------
Triad Hospital, Inc., 8.75s, 2009 3,970 4,228,050
- -----------------------------------------------------------------------------------------------------
$33,645,538
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 0.3%
- -----------------------------------------------------------------------------------------------------
Alpharma, Inc., 8.625s, 2011## $4,865 $5,108,250
- -----------------------------------------------------------------------------------------------------
Metals & Mining - 0.9%
- -----------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75s, 2013## $5,565 $5,481,525
- -----------------------------------------------------------------------------------------------------
Doe Run Resources Corp., 8.5s, 2008 2,901 1,160,437
- -----------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 9.875s, 2049** 6,155 4,862,450
- -----------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 12.75s, 2049** 10,455 836,400
- -----------------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75s, 2010 2,520 2,419,200
- -----------------------------------------------------------------------------------------------------
$14,760,012
- -----------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.3%
- -----------------------------------------------------------------------------------------------------
Amerigas Partners LLP, 8.875s, 2011 $5,030 $5,457,550
- -----------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 3.9%
- -----------------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875s, 2010## $1,510 $1,555,300
- -----------------------------------------------------------------------------------------------------
ANR Pipeline Co., 9.625s, 2021 7,200 7,920,000
- -----------------------------------------------------------------------------------------------------
Barrett Resources Corp., 7.55s, 2007 7,465 7,726,275
- -----------------------------------------------------------------------------------------------------
Dynegy, Inc., 6.875s, 2011 6,930 5,162,850
- -----------------------------------------------------------------------------------------------------
El Paso Energy Corp., 7.625s, 2010## 5,935 5,519,550
- -----------------------------------------------------------------------------------------------------
El Paso Energy Corp., 8.5s, 2010## 5,220 5,507,100
- -----------------------------------------------------------------------------------------------------
El Paso Energy Corp., 7.75s, 2013## 5,225 4,793,937
- -----------------------------------------------------------------------------------------------------
Northwest Pipeline Corp., 8.125s, 2010 1,250 1,284,375
- -----------------------------------------------------------------------------------------------------
Plains All American Pipeline, 7.75s, 2012 2,305 2,529,738
- -----------------------------------------------------------------------------------------------------
Southern Natural Gas Co., 8.875s, 2010## 2,500 2,575,000
- -----------------------------------------------------------------------------------------------------
Williams Cos., Inc., 8.625s, 2010 2,360 2,354,100
- -----------------------------------------------------------------------------------------------------
Williams Cos., Inc., 7.125s, 2011 17,350 15,962,000
- -----------------------------------------------------------------------------------------------------
$62,890,225
- -----------------------------------------------------------------------------------------------------
Oil Services - 1.3%
- -----------------------------------------------------------------------------------------------------
Dresser, Inc., 9.375s, 2011 $3,705 $3,806,888
- -----------------------------------------------------------------------------------------------------
Gulfmark Offshore, Inc., 8.75s, 2008 5,240 5,240,000
- -----------------------------------------------------------------------------------------------------
Hanover Equipment Trust, 8.75s, 2011 7,215 7,539,675
- -----------------------------------------------------------------------------------------------------
Sesi LLC, 8.875s, 2011 4,320 4,665,600
- -----------------------------------------------------------------------------------------------------
$21,252,163
- -----------------------------------------------------------------------------------------------------
Oils - 1.0%
- -----------------------------------------------------------------------------------------------------
Citgo Petroleum Corp., 11.375s, 2011## $6,500 $7,166,250
- -----------------------------------------------------------------------------------------------------
Tesoro Petroleum Corp., 8s, 2008## 5,275 5,380,500
- -----------------------------------------------------------------------------------------------------
Tesoro Petroleum Corp., 9s, 2008## 2,675 2,434,250
- -----------------------------------------------------------------------------------------------------
Tesoro Petroleum Corp., 9.625s, 2012 1,311 1,219,230
- -----------------------------------------------------------------------------------------------------
$16,200,230
- -----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.0%
- -----------------------------------------------------------------------------------------------------
Unisys Corp., 7.875s, 2008 $15 $15,450
- -----------------------------------------------------------------------------------------------------
Pollution Control - 1.4%
- -----------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 8.875s, 2008 $3,875 $4,126,875
- -----------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 10s, 2009 14,515 15,295,181
- -----------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875s, 2013 3,235 3,299,700
- -----------------------------------------------------------------------------------------------------
$22,721,756
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 2.5%
- -----------------------------------------------------------------------------------------------------
American Media Operations, Inc., 8.875s, 2011## $720 $765,000
- -----------------------------------------------------------------------------------------------------
Dex Media East LLC, 9.875s, 2009 3,775 4,133,625
- -----------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 9s, 2010 2,935 3,037,725
- -----------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 11.875s, 2011## 2,455 2,675,950
- -----------------------------------------------------------------------------------------------------
Houghton Mifflin Co., 8.25s, 2011## 1,260 1,282,050
- -----------------------------------------------------------------------------------------------------
Houghton Mifflin Co., 9.875s, 2013## 4,430 4,618,275
- -----------------------------------------------------------------------------------------------------
Mail-Well Corp., 8.75s, 2008 1,700 1,632,000
- -----------------------------------------------------------------------------------------------------
Mail-Well Corp., 9.625s, 2012 4,650 4,940,625
- -----------------------------------------------------------------------------------------------------
Moore North America Finance, Inc., 7.875s, 2011## 3,120 3,198,000
- -----------------------------------------------------------------------------------------------------
Primedia, Inc., 8.875s, 2011 3,255 3,368,925
- -----------------------------------------------------------------------------------------------------
RH Donnelley Finance Corp., 8.875s, 2010## 1,300 1,407,250
- -----------------------------------------------------------------------------------------------------
RH Donnelley Finance Corp., 10.875s, 2012## 2,250 2,531,250
- -----------------------------------------------------------------------------------------------------
Transwestern Publishing Co., 9.625s, 2007 5,555 5,763,313
- -----------------------------------------------------------------------------------------------------
$39,353,988
- -----------------------------------------------------------------------------------------------------
Steel - 0.8%
- -----------------------------------------------------------------------------------------------------
AK Steel Corp., 7.875s, 2009 $1,905 $1,419,225
- -----------------------------------------------------------------------------------------------------
Commonwealth Aluminum Corp., 10.75s, 2006 4,615 4,626,537
- -----------------------------------------------------------------------------------------------------
Jorgensen Earle M. Co., 9.75s, 2012 3,575 3,758,219
- -----------------------------------------------------------------------------------------------------
WCI Steel, Inc., 10s, 2004** 6,870 2,232,750
- -----------------------------------------------------------------------------------------------------
$12,036,731
- -----------------------------------------------------------------------------------------------------
Stores - 3.6%
- -----------------------------------------------------------------------------------------------------
Cole National Group, Inc., 8.875s, 2012 $8,075 $7,873,125
- -----------------------------------------------------------------------------------------------------
Dollar General Corp., 8.625s, 2010 4,560 5,078,700
- -----------------------------------------------------------------------------------------------------
Finlay Enterprises, Inc., 9s, 2008 4,040 4,040,000
- -----------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 8.375s, 2008 5,725 5,782,250
- -----------------------------------------------------------------------------------------------------
J.Crew Group, Inc. 0s to 2005, 16s to 2008 ## 6,274 4,454,820
- -----------------------------------------------------------------------------------------------------
J.Crew Operating Corp., 10.375s, 2007 5,790 5,674,200
- -----------------------------------------------------------------------------------------------------
Oxford Industries, Inc., 8.875s, 2011## 3,205 3,357,237
- -----------------------------------------------------------------------------------------------------
PCA LLC, 11.875s, 2009 5,910 6,323,700
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp, 12.5s, 2006 4,735 5,303,200
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 8.125s, 2010## 3,505 3,575,100
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.5s, 2011## 3,190 3,397,350
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25s, 2013## 2,510 2,478,625
- -----------------------------------------------------------------------------------------------------
$57,338,307
- -----------------------------------------------------------------------------------------------------
Supermarkets - 0.5%
- -----------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 10.125s, 2008** $1,460 $175,200
- -----------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 9.25s, 2010** 4,850 582,000
- -----------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875s, 2012 6,350 6,508,750
- -----------------------------------------------------------------------------------------------------
$7,265,950
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.1%
- -----------------------------------------------------------------------------------------------------
Fairpoint Communications, Inc., 11.875s, 2010## $2,305 $2,627,700
- -----------------------------------------------------------------------------------------------------
Qwest Services Corp., 13.5s, 2010## 12,800 13,760,000
- -----------------------------------------------------------------------------------------------------
Qwest Services Corp., 8.875s, 2012## 7,050 7,226,250
- -----------------------------------------------------------------------------------------------------
Time Warner Telecommunications LLC, 9.75s, 2008 6,530 6,268,800
- -----------------------------------------------------------------------------------------------------
Worldcom, Inc., 7.5s, 2011** 16,295 4,297,806
- -----------------------------------------------------------------------------------------------------
$34,180,556
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.3%
- -----------------------------------------------------------------------------------------------------
AES Corp., 10s, 2005## $4,890 $4,987,800
- -----------------------------------------------------------------------------------------------------
AES Corp., 8.875s, 2011 10,610 9,708,150
- -----------------------------------------------------------------------------------------------------
AES Corp., 8.75s, 2013## 2,540 2,495,550
- -----------------------------------------------------------------------------------------------------
AES Corp., 9s, 2015## 2,550 2,518,125
- -----------------------------------------------------------------------------------------------------
Aquila, Inc., 8.194s, 2006 2,000 2,010,000
- -----------------------------------------------------------------------------------------------------
Calpine Corp., 8.5s, 2011 6,050 4,386,250
- -----------------------------------------------------------------------------------------------------
Calpine Corp., 8.75s, 2013## 9,600 8,640,000
- -----------------------------------------------------------------------------------------------------
Centerpoint Energy Resources Corp., 7.875s, 2013## 5,200 5,651,646
- -----------------------------------------------------------------------------------------------------
CMS Energy Corp., 8.5s, 2011 4,400 4,334,000
- -----------------------------------------------------------------------------------------------------
Illinois Power Co., 11.5s, 2010## 5,875 6,521,250
- -----------------------------------------------------------------------------------------------------
PG & E Corp., 6.875s, 2008## 1,220 1,238,300
- -----------------------------------------------------------------------------------------------------
PSE&G Power LLC, 7.75s, 2007## 6,725 6,893,125
- -----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25s, 2010## 3,710 3,561,600
- -----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.5s, 2013## 4,480 4,345,600
- -----------------------------------------------------------------------------------------------------
Teco Energy, Inc., 7.5s, 2010 1,440 1,432,800
- -----------------------------------------------------------------------------------------------------
$68,724,196
- -----------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.2%
- -----------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 7.25s, 2013## $3,630 $3,439,425
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 3.5%
- -----------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 0s to 2005, 12.875s to 2010 $8,040 $5,386,800
- -----------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 12.5s, 2011 2,100 1,806,000
- -----------------------------------------------------------------------------------------------------
American Tower Corp., 0s, 2008 8,375 5,527,500
- -----------------------------------------------------------------------------------------------------
Centennial Cellular Operating Co., 10.125s, 2013## 7,045 6,886,487
- -----------------------------------------------------------------------------------------------------
Crown Castle International Corp., 0s to 2004,
10.375s to 2011 5,607 5,494,860
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 9.75s, 2007 3,305 3,404,150
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 9.375s, 2009 4,490 4,759,400
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 7.375s, 2015 1,550 1,511,250
- -----------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.75s, 2010 8,000 6,800,000
- -----------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.875s, 2010## 3,650 3,449,250
- -----------------------------------------------------------------------------------------------------
Triton PCS, Inc., 8.75s, 2011 3,250 3,152,500
- -----------------------------------------------------------------------------------------------------
Triton PCS, Inc., 8.5s, 2013## 4,365 4,517,775
- -----------------------------------------------------------------------------------------------------
Western Wireless Corp., 9.25s, 2013## 2,545 2,417,750
- -----------------------------------------------------------------------------------------------------
$55,113,722
- -----------------------------------------------------------------------------------------------------
Total U.S. Bonds $1,356,573,485
- -----------------------------------------------------------------------------------------------------
Foreign Bonds - 8.8%
- -----------------------------------------------------------------------------------------------------
Australia - 0.6%
- -----------------------------------------------------------------------------------------------------
Burns Philip Capital Property Ltd., 9.75s, 2012
(Food & Non Alcoholic Beverage)## $10,125 $10,023,750
- -----------------------------------------------------------------------------------------------------
Canada - 1.2%
- -----------------------------------------------------------------------------------------------------
Acetex Corp., 10.875s, 2009 (Chemicals) $6,010 $6,580,950
- -----------------------------------------------------------------------------------------------------
Norske Skog Ltd., 8.625s, 2011
(Forest & Paper Products)## 4,000 3,960,000
- -----------------------------------------------------------------------------------------------------
Quebecor Media, Inc., 11.125s, 2011
(Advertising & Broadcasting) 1,325 1,497,250
- -----------------------------------------------------------------------------------------------------
Russel Metals, Inc., 10s, 2009 (Metals & Mining) 2,975 3,138,625
- -----------------------------------------------------------------------------------------------------
Tembec Industry, Inc., 7.75s, 2012
(Forest & Paper Products) 4,305 3,917,550
- -----------------------------------------------------------------------------------------------------
$19,094,375
- -----------------------------------------------------------------------------------------------------
France - 2.0%
- -----------------------------------------------------------------------------------------------------
Crown Cork & Seal, 9.5s, 2011 (Containers)## $2,135 $2,220,400
- -----------------------------------------------------------------------------------------------------
Crown Cork & Seal, 10.875s, 2013 (Containers)## 14,575 15,449,500
- -----------------------------------------------------------------------------------------------------
Rhodia S.A., 8.875s, 2011 (Chemicals)## 7,615 7,272,325
- -----------------------------------------------------------------------------------------------------
Vivendi Universal S.A., 6.25s, 2008
(Advertising & Broadcasting)## 2,720 2,655,400
- -----------------------------------------------------------------------------------------------------
Vivendi Universal S.A., 9.25s, 2010
(Advertising & Broadcasting)## 3,610 4,016,125
- -----------------------------------------------------------------------------------------------------
$31,613,750
- -----------------------------------------------------------------------------------------------------
Germany - 0.3%
- -----------------------------------------------------------------------------------------------------
Kronos International, Inc., 8.875s, 2009 (Chemicals) EUR 300 $333,591
- -----------------------------------------------------------------------------------------------------
Messer Griesheim, 10.375s, 2011 (Chemicals) $4,205 5,148,133
- -----------------------------------------------------------------------------------------------------
$5,481,724
- -----------------------------------------------------------------------------------------------------
Ireland - 0.7%
- -----------------------------------------------------------------------------------------------------
Eircom Funding, 8.25s, 2013 (Wireless Communications) EUR 2,100 $2,394,102
- -----------------------------------------------------------------------------------------------------
Eircom Funding, 8.25s, 2013 (Wireless Communications)## $2,635 2,681,112
- -----------------------------------------------------------------------------------------------------
MDP Acquisitions PLC, 9.625s, 2012 (Forest & Paper
Products) 5,410 5,707,550
- -----------------------------------------------------------------------------------------------------
$10,782,764
- -----------------------------------------------------------------------------------------------------
Luxembourg - 0.5%
- -----------------------------------------------------------------------------------------------------
Tyco International Group S.A., 7s, 2028 (Conglomerates) $8,545 $7,946,850
- -----------------------------------------------------------------------------------------------------
Mexico - 0.9%
- -----------------------------------------------------------------------------------------------------
Corparacion Durango S.A. de C.V., 13.75s, 2009
(Forest & Paper Products)**## $5,729 $2,864,500
- -----------------------------------------------------------------------------------------------------
Grupo Elektra SA de C.V., 12s, 2008 (Electronics) 4,000 4,180,000
- -----------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 9.125s, 2010
(Quasi-Government) 3,000 3,502,500
- -----------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625s, 2022
(Quasi-Governement) 3,125 3,265,625
- -----------------------------------------------------------------------------------------------------
$13,812,625
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.5%
- -----------------------------------------------------------------------------------------------------
Kappa Beheer B.V., 10.625s, 2009
(Forest & Paper Products) $5,910 $6,323,700
- -----------------------------------------------------------------------------------------------------
Yell Finance B.V., 10.75s, 2011 (Printing & Publishing) 795 914,250
- -----------------------------------------------------------------------------------------------------
$7,237,950
- -----------------------------------------------------------------------------------------------------
Norway - 0.4%
- -----------------------------------------------------------------------------------------------------
Ocean Rig Norway S.A., 10.25s, 2008 (Oil Services) $7,750 $6,587,500
- -----------------------------------------------------------------------------------------------------
Russia - 0.2%
- -----------------------------------------------------------------------------------------------------
Gazprom, 9.625s, 2013 (Utilities - Gas)## $3,600 $3,771,000
- -----------------------------------------------------------------------------------------------------
Singapore - 0.4%
- -----------------------------------------------------------------------------------------------------
Flextronics International Ltd., 9.875s, 2010 (Electronics) $2,985 $3,402,900
- -----------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5s, 2013 (Electronics)## 3,500 3,237,500
- -----------------------------------------------------------------------------------------------------
$6,640,400
- -----------------------------------------------------------------------------------------------------
United Kingdom - 1.1%
- -----------------------------------------------------------------------------------------------------
Colt Telecom Group PLC, 12s, 2006
(Telecommunications - Wireline) $6,630 $6,696,300
- -----------------------------------------------------------------------------------------------------
Energis PLC, 9.75s, 2009
(Telecommunications - Wireline)** 1,535 30,700
- -----------------------------------------------------------------------------------------------------
Global Tele Systems Ltd., 10.875s, 2008
(Telecommunications - Wireline) 370 37
- -----------------------------------------------------------------------------------------------------
Premier International Foods PLC, 12s, 2009
(Food & Non Alcoholic Beverages) 2,530 2,783,000
- -----------------------------------------------------------------------------------------------------
Telewest Communications PLC, 11s, 2007
(Broadcast & Cable TV)** 205 77,131
- -----------------------------------------------------------------------------------------------------
Telewest Communications PLC, 0s to 2004, 9.25s to 2009
(Broadcast & Cable TV)** 3,940 1,270,650
- -----------------------------------------------------------------------------------------------------
Telewest Communications PLC, 0s to 2005, 11.375s to 2010
(Broadcast & Cable TV)** 6,025 1,717,125
- -----------------------------------------------------------------------------------------------------
United Biscuits Finance PLC, 10.625s, 2011
(Food & Non Alcoholic Beverages) EUR 1,000 1,274,833
- -----------------------------------------------------------------------------------------------------
United Biscuits Finance PLC, 10.75s, 2011
(Food & Non Alcoholic Beverages) GBP 2,000 3,652,883
- -----------------------------------------------------------------------------------------------------
$17,502,659
- -----------------------------------------------------------------------------------------------------
Total Foreign Bonds $140,495,347
- -----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,524,350,606) $1,497,068,832
- -----------------------------------------------------------------------------------------------------
Stocks - 1.2%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 0.9%
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.1%
- -----------------------------------------------------------------------------------------------------
Sind Holdings, Inc.* 13,126 $853,174
- -----------------------------------------------------------------------------------------------------
Automotive - 0.2%
- -----------------------------------------------------------------------------------------------------
Hayes Lemmerz International, Inc.** 156,692 $2,154,515
- -----------------------------------------------------------------------------------------------------
Oxford Automotive, Inc.* 1,087 241,890
- -----------------------------------------------------------------------------------------------------
$2,396,405
- -----------------------------------------------------------------------------------------------------
Basic Industry
- -----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp.** 22,722 $272,664
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.5%
- -----------------------------------------------------------------------------------------------------
NTL, Inc.* 64,504 $2,696,912
- -----------------------------------------------------------------------------------------------------
Sirius Satellite Radio, Inc.* 3,158,387 5,685,097
- -----------------------------------------------------------------------------------------------------
$8,382,009
- -----------------------------------------------------------------------------------------------------
Chemicals
- -----------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.** 9,680 $135,520
- -----------------------------------------------------------------------------------------------------
Machinery & Tools
- -----------------------------------------------------------------------------------------------------
IKS Corp.* 11,443 $15,448
- -----------------------------------------------------------------------------------------------------
Metals & Mining - 0.1%
- -----------------------------------------------------------------------------------------------------
Metals Management, Inc.* 112,624 $2,025,092
- -----------------------------------------------------------------------------------------------------
Special Products & Services
- -----------------------------------------------------------------------------------------------------
Ranger Industries, Inc.* 23,475 $1,408
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc.* 1,320 $8,448
- -----------------------------------------------------------------------------------------------------
Utilities - Telephone
- -----------------------------------------------------------------------------------------------------
ITC Deltacom, Inc.* 154,828 $572,864
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $14,663,032
- -----------------------------------------------------------------------------------------------------
Portfolio of Investments (unaudited) - continued
Foreign Stocks - 0.3%
- -----------------------------------------------------------------------------------------------------
Canada
- -----------------------------------------------------------------------------------------------------
Allstream, Inc. (Telecommunications - Wireline)* 106 $4,213
- -----------------------------------------------------------------------------------------------------
Allstream, Inc. (Telecommunications - Wireline)* 5,735 232,841
- -----------------------------------------------------------------------------------------------------
$237,054
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.1%
- -----------------------------------------------------------------------------------------------------
Completel Europe N.V. (Telecommunications - Wireline)* 38,274 $548,115
- -----------------------------------------------------------------------------------------------------
Completel Europe N.V. Preferred 0s to 2004, thereafter 11s
(Telecommunications - Wireline)* 382 644,023
- -----------------------------------------------------------------------------------------------------
Versatel Telecom International N.V.
(Telecommunications - Wireline)* 19,740 29,710
- -----------------------------------------------------------------------------------------------------
$1,221,848
- -----------------------------------------------------------------------------------------------------
Sweden - 0.1%
- -----------------------------------------------------------------------------------------------------
Song Networks Holding AB (Telephone Services) 373,880 $1,910,592
- -----------------------------------------------------------------------------------------------------
Song Networks Holding AB Preferred, 0s
(Telephone Services)* 40,357 117,842
- -----------------------------------------------------------------------------------------------------
$2,028,434
- -----------------------------------------------------------------------------------------------------
United Kingdom - 0.1%
- -----------------------------------------------------------------------------------------------------
Colt Telecom Group PLC, ADR
(Telecommunications - Wireline)* 5,873 $31,421
- -----------------------------------------------------------------------------------------------------
Jazztel PLC (Telecommunications - Wireline)** 2,742,850 893,423
- -----------------------------------------------------------------------------------------------------
$924,844
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $4,412,180
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $59,432,916) $19,075,212
- -----------------------------------------------------------------------------------------------------
Preferred Stocks - 1.8%
- -----------------------------------------------------------------------------------------------------
Automotive
- -----------------------------------------------------------------------------------------------------
Hayes Lemmerz International, Inc., 8s** 522 $39,150
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.9%
- -----------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 11.125s 141,406 $14,706,224
- -----------------------------------------------------------------------------------------------------
NTL, Inc., 10.5s 107 342
- -----------------------------------------------------------------------------------------------------
$14,706,566
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 0.4%
- -----------------------------------------------------------------------------------------------------
Primedia, Inc., 8.625s 74,390 $6,732,295
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline
- -----------------------------------------------------------------------------------------------------
Global Crossings Holdings Ltd., 10.5s 49,993 $24,997
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 0.5%
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 11.125s 6,582 $7,108,560
- -----------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $31,493,574) $28,611,568
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 Omitted)
- -----------------------------------------------------------------------------------------------------
Convertible Bonds - 0.7%
- -----------------------------------------------------------------------------------------------------
United Kingdom - 0.0%
- -----------------------------------------------------------------------------------------------------
Jazztel PLC, 12s, 2012 (Telecommunications - Wireline)** $559 $231,297
- -----------------------------------------------------------------------------------------------------
United States - 0.7%
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25s, 2010 (Wireless Communications) $11,525 $10,530,969
- -----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 5s, 2010 (Utilities - Electric Power) 200 175,750
- -----------------------------------------------------------------------------------------------------
$10,706,719
- -----------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $9,153,594) $10,938,016
- -----------------------------------------------------------------------------------------------------
Warrants - 0.0%
- -----------------------------------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------------------------------
Doe Run Resources Corp. (Metals & Mining)* 10 $0
- -----------------------------------------------------------------------------------------------------
GT Group Telecom, Inc. (Telephone Services)* 11,650 2,912
- -----------------------------------------------------------------------------------------------------
Loral Orion Network Systems, Inc. (Business Services)* 5,000 76
- -----------------------------------------------------------------------------------------------------
Loral Orion Network Systems, Inc. (Business Services)* 11,775 207
- -----------------------------------------------------------------------------------------------------
Metronet Communications Corp. (Broadcast & Cable TV)**## 3,250 33
- -----------------------------------------------------------------------------------------------------
Ono Finance PLC (Broadcast & Cable TV)* 12,105 121
- -----------------------------------------------------------------------------------------------------
Ono Finance PLC (Broadcast & Cable TV)* 2,870 29
- -----------------------------------------------------------------------------------------------------
Pliant Corp. (Containers)*## 6,795 3,397
- -----------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (Chemicals)** 19,497 195
- -----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Basic Industry)** 35,939 17,970
- -----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Basic Industry)** 21,743 8,697
- -----------------------------------------------------------------------------------------------------
XM Satellite Radio, Inc. (Advertising & Broadcasting)** 4,020 38,190
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc. (Telecommunications - Wireline)* 2,640 7,392
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc. (Telecommunications - Wireline)* 1,980 5,742
- -----------------------------------------------------------------------------------------------------
XO Communications, Inc. (Telecommunications - Wireline)* 1,980 3,366
- -----------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $3,971,094) $88,327
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,628,401,784) $1,555,781,955
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 2.4% 38,313,768
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,594,095,723
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security-in default.
## SEC Rule 144A restriction.
+ Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown
below.
EUR = Euro GBP = British Pound
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 7/31/03
ASSETS
Investments, at value (identified cost, $1,628,401,784) $1,555,781,955
- -----------------------------------------------------------------------------------------------------
Cash 38,945
- -----------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 980,676
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 83,110,715
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 3,277,576
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 33,348,912
- -----------------------------------------------------------------------------------------------------
Other assets 15,245
- -----------------------------------------------------------------------------------------------------
Total assets $1,676,554,024
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Notes payable $9,989,000
- -----------------------------------------------------------------------------------------------------
Distributions payable 10,671,838
- -----------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange
contracts 305,730
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased 27,316,601
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 33,716,511
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 15,574
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 5,010
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 26,657
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 411,380
- -----------------------------------------------------------------------------------------------------
Total liabilities $82,458,301
- -----------------------------------------------------------------------------------------------------
Net assets $1,594,095,723
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $2,100,917,493
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (71,941,202)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (429,653,621)
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net
investment income (5,226,947)
- -----------------------------------------------------------------------------------------------------
Total $1,594,095,723
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 428,675,296
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $862,499,274
- -----------------------------------------------------------------------------------------------------
Shares outstanding 232,142,202
- -----------------------------------------------------------------------------------------------------
Net asset value per share $3.72
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$3.72) $3.91
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $473,071,852
- -----------------------------------------------------------------------------------------------------
Shares outstanding 127,124,905
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.72
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $206,600,274
- -----------------------------------------------------------------------------------------------------
Shares outstanding 55,408,673
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.73
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $51,043,563
- -----------------------------------------------------------------------------------------------------
Shares outstanding 13,762,296
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $3.71
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $451,217
- -----------------------------------------------------------------------------------------------------
Shares outstanding 121,501
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $3.71
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $271,003
- -----------------------------------------------------------------------------------------------------
Shares outstanding 73,068
- -----------------------------------------------------------------------------------------------------
Net asset value per share $3.71
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$3.71) $3.90
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $52,381
- -----------------------------------------------------------------------------------------------------
Shares outstanding 14,124
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.71
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $106,159
- -----------------------------------------------------------------------------------------------------
Shares outstanding 28,527
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.72
- -----------------------------------------------------------------------------------------------------
On sales of $100,000 or more, the offering price of Class A and Class 529A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class 529A, Class B,
Class 529B, Class C, and Class 529C shares.
See notes to financial statements.
- ----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- ----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR SIX MONTHS ENDED 7/31/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Interest $72,832,961
- -----------------------------------------------------------------------------------------------------
Dividends 937,659
- -----------------------------------------------------------------------------------------------------
Total investment income $73,770,620
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $3,714,635
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 25,834
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 870,213
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,378,725
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 2,276,063
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 1,064,990
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 646
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 311
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 208
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 396
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 222
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 52
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 99
- -----------------------------------------------------------------------------------------------------
Administrative fee 135,601
- -----------------------------------------------------------------------------------------------------
Custodian fee 225,657
- -----------------------------------------------------------------------------------------------------
Printing 63,138
- -----------------------------------------------------------------------------------------------------
Postage 58,730
- -----------------------------------------------------------------------------------------------------
Auditing fees 22,956
- -----------------------------------------------------------------------------------------------------
Legal fees 4,787
- -----------------------------------------------------------------------------------------------------
Miscellaneous 539,965
- -----------------------------------------------------------------------------------------------------
Total expenses $10,383,228
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (18,011)
- -----------------------------------------------------------------------------------------------------
Net expenses $10,365,217
- -----------------------------------------------------------------------------------------------------
Net investment income $63,405,403
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $20,172,812
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (1,859,734)
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $18,313,078
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- -----------------------------------------------------------------------------------------------------
Investments $69,031,245
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 1,395,113
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation $70,426,358
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $88,739,436
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $152,144,839
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
SIX MONTHS YEAR
ENDED ENDED
7/31/03 1/31/03
(UNAUDITED)
OPERATIONS
Net investment income $63,405,403 $116,490,702
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 18,313,078 (190,892,545)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 70,426,358 111,528,679
- --------------------------------------------------------- -------------- --------------
Increase in net assets from operations $152,144,839 $37,126,8369
- --------------------------------------------------------- -------------- --------------
Distributions declared to shareholders -
- -----------------------------------------------------------------------------------------------------
From net investment income (Class A) $(38,186,329) $(67,731,408)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class B) (17,370,554) (35,483,340)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class C) (8,116,905) (12,677,503)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class I) (1,598,681) (1,769,898)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class R) (10,412) (299)*
- -----------------------------------------------------------------------------------------------------
From net investment income (Class 529A) (7,056) (877)**
- -----------------------------------------------------------------------------------------------------
From net investment income (Class 529B) (1,527) (338)**
- -----------------------------------------------------------------------------------------------------
From net investment income (Class 529C) (2,897) (540)**
- --------------------------------------------------------- -------------- --------------
Total distributions declared to shareholders $(65,294,361) $(117,664,203)
- --------------------------------------------------------- -------------- --------------
Net increase in net assets from fund share
transactions $116,739,468 $104,809,901
- --------------------------------------------------------- -------------- --------------
Total increase in net assets $203,589,946 $24,272,5349
- --------------------------------------------------------- -------------- --------------
NET ASSETS
At beginning of period $1,390,505,777 $1,366,233,243
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $5,226,947 and
$3,337,989, respectively) $1,594,095,723 $1,390,505,777
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class R, December 31, 2002, through January 31, 2003.
** For the period from the inception of Class 529A, 529B, and 529C, July 31, 2002, through
January 31, 2003.
See notes to financial statements.
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and
the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table
represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all
distributions).
SIX MONTHS YEAR ENDED 1/31
ENDED ---------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS A (UNAUDITED)
Net asset value, beginning of
period $3.52 $3.78 $4.44 $4.95 $5.21 $5.62
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)
Net investment income $0.15 $0.33 $0.41 $0.47 $0.46 $0.46
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.20 (0.25) (0.65) (0.51) (0.24) (0.40)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.35 $0.08 $(0.24) $(0.04) $0.22 $0.06
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.15) $(0.34) $(0.41) $(0.47) $(0.46) $(0.46)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- (0.01) (0.00)+++ (0.02) (0.01)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.15) $(0.34) $(0.42) $(0.47) $(0.48) $(0.47)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period $3.72 $3.52 $3.78 $4.44 $4.95 $5.21
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 9.84++ 2.34 (5.50) (0.65) 4.35 1.06
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED -----------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS A (CONTINUED) (UNAUDITED)
RATIOS (%) (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses## 1.00+ 1.00 1.06 1.00 0.98 0.99
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income(S) 8.10+ 9.32 10.12 10.07 9.08 8.62
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80 72 64 91 135
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $862,500 $769,069 $746,096 $785,256 $768,734 $792,295
- --------------------------------------------------------------------------------------------------------------------------------
(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended January
31, 2002 was to decrease net investment income per share and increase net realized and unrealized gains and losses per
share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment income to
average net assets decreased by 0.04%. Per share, ratios, and supplemental data for periods prior to February 1, 2001 have
not been restated to reflect this change in presentation.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED ---------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS B (UNAUDITED)
Net asset value, beginning of
period $3.53 $3.79 $4.44 $4.95 $5.21 $5.62
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)
Net investment income $0.14 $0.31 $0.38 $0.44 $0.42 $0.43
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.19 (0.26) (0.64) (0.51) (0.24) (0.40)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.33 $0.05 $(0.26) $(0.07) $0.18 $0.03
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.14) $(0.31) $(0.38) $(0.44) $(0.42) $(0.43)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- (0.01) (0.00)+++ (0.02) (0.01)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.14) $(0.31) $(0.39) $(0.44) $(0.44) $(0.44)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period $3.72 $3.53 $3.79 $4.44 $4.95 $5.21
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 9.45++ 1.64 (5.94) (1.35) 3.63 0.35
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED --------------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS B (CONTINUED) (UNAUDITED)
RATIOS (%) (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses## 1.70+ 1.70 1.76 1.69 1.68 1.69
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income(S) 7.43+ 8.65 9.45 9.37 8.38 7.92
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80 72 64 91 135
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $473,072 $411,533 $439,987 $463,638 $499,830 $479,181
- --------------------------------------------------------------------------------------------------------------------------------
(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended January
31, 2002 was to decrease net investment income per share and increase net realized and unrealized gains and losses per
share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment income to
average net assets decreased by 0.04%. Per share, ratios, and supplemental data for periods prior to February 1, 2001 have
not been restated to reflect this change in presentation.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED --------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS C (UNAUDITED)
Net asset value, beginning of
period $3.54 $3.80 $4.45 $4.97 $5.22 $5.64
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)
Net investment income $0.14 $0.30 $0.38 $0.44 $0.43 $0.42
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.19 (0.25) (0.64) (0.52) (0.24) (0.40)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.33 $0.05 $(0.26) $(0.08) $0.19 $0.02
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.14) $(0.31) $(0.38) $(0.44) $(0.43) $(0.43)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- (0.01) (0.00)+++ (0.01) (0.01)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.14) $(0.31) $(0.39) $(0.44) $(0.44) $(0.44)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period $3.73 $3.54 $3.80 $4.45 $4.97 $5.22
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 9.43++ 1.64 (5.91) (1.55) 3.83 0.35
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED -----------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS C (CONTINUED) (UNAUDITED)
RATIOS (%) (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses## 1.70+ 1.70 1.76 1.69 1.68 1.69
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income(S) 7.42+ 8.59 9.39 9.38 8.38 7.93
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80 72 64 91 135
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $206,600 $183,364 $160,798 $128,567 $108,253 $93,671
- --------------------------------------------------------------------------------------------------------------------------------
(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended January
31, 2002 was to decrease net investment income per share and increase net realized and unrealized gains and losses per
share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment income to
average net assets decreased by 0.05%. Per share, ratios, and supplemental data for periods prior to February 1, 2001 have
not been restated to reflect this change in presentation.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED ---------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS I (UNAUDITED)
Net asset value, beginning of
period $3.52 $3.78 $4.43 $4.95 $5.21 $5.61
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)
Net investment income $0.15 $0.33 $0.42 $0.48 $0.48 $0.49
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.20 (0.24) (0.64) (0.52) (0.24) (0.40)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.35 $0.09 $(0.22) $(0.04) $0.24 $0.09
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.16) $(0.35) $(0.42) $(0.48) $(0.48) $(0.48)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- (0.01) (0.00)+++ (0.02) (0.01)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.16) $(0.35) $(0.43) $(0.48) $(0.50) $(0.49)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period $3.71 $3.52 $3.78 $4.43 $4.95 $5.21
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 10.00++ 2.66 (4.99) (0.57) 4.68 1.55
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED -----------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS I (CONTINUED) (UNAUDITED)
RATIOS (%) (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses## 0.70+ 0.70 0.76 0.70 0.68 0.69
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income(S) 8.33+ 9.58 10.43 10.39 9.38 8.99
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80 72 64 91 135
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $51,044 $26,373 $19,352 $22,128 $17,916 $8,665
- --------------------------------------------------------------------------------------------------------------------------------
(S) As required, effective February 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended January
31, 2002 was to decrease net investment income per share and increase net realized and unrealized gains and losses per
share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment income to
average net assets decreased by 0.04%. Per share, ratios, and supplemental data for periods prior to February 1, 2001 have
not been restated to reflect this change in presentation.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS ENDED PERIOD ENDED
7/31/03 1/31/03*
CLASS R (UNAUDITED)
Net asset value, beginning of period $3.52 $3.50
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.14 $0.02
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.20 0.03
- -------------------------------------------------------------------- ------ ------
Total from investment operations $0.34 $0.05
- -------------------------------------------------------------------- ------ ------
Less distributions declared to shareholders from net investment
income $(0.15) $(0.03)
- -------------------------------------------------------------------- ------ ------
Net asset value, end of period $3.71 $3.52
- -------------------------------------------------------------------- ------ ------
Total return (%) 9.73++ 1.32++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## 1.20+ 1.20+
- -------------------------------------------------------------------------------------------------------
Net investment income 7.77+ 7.97+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $451 $40
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R, December 31, 2002, through January 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS ENDED PERIOD ENDED
7/31/03 1/31/03*
CLASS 529A (UNAUDITED)
Net asset value, beginning of period $3.52 $3.43
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.14 $0.13
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.20 0.12
- -------------------------------------------------------------------- ------ ------
Total from investment operations $0.34 $0.25
- -------------------------------------------------------------------- ------ ------
Less distributions declared to shareholders from net investment
income $(0.15) $(0.16)
- -------------------------------------------------------------------- ------ ------
Net asset value, end of period $3.71 $3.52
- -------------------------------------------------------------------- ------ ------
Total return (%) 9.68++ 7.39++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## 1.30+ 1.30+
- -------------------------------------------------------------------------------------------------------
Net investment income 7.64+ 8.66+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $271 $53
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A, July 31, 2002, through January 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class 529A 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.
Financial Highlights - continued
SIX MONTHS ENDED PERIOD ENDED
7/31/03 1/31/03*
CLASS 529B (UNAUDITED)
Net asset value, beginning of period $3.52 $3.43
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.13 $0.11
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.19 0.13
- -------------------------------------------------------------------- ------ ------
Total from investment operations $0.32 $0.24
- -------------------------------------------------------------------- ------ ------
Less distributions declared to shareholders from net investment
income $(0.13) $(0.15)
- -------------------------------------------------------------------- ------ ------
Net asset value, end of period $3.71 $3.52
- -------------------------------------------------------------------- ------ ------
Total return (%) 9.04++ 7.04++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## 1.95+ 1.95+
- -------------------------------------------------------------------------------------------------------
Net investment income 7.13+ 8.37+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $52 $31
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B, July 31, 2002, through
January 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS ENDED PERIOD ENDED
7/31/03 1/31/03*
CLASS 529C (UNAUDITED)
Net asset value, beginning of period $3.53 $3.44
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.13 $0.13
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.19 0.11
- -------------------------------------------------------------------- ------ ------
Total from investment operations $0.32 $0.24
- -------------------------------------------------------------------- ------ ------
Less distributions declared to shareholders from net investment
income $(0.13) $(0.15)
- -------------------------------------------------------------------- ------ ------
Net asset value, end of period $3.72 $3.53
- -------------------------------------------------------------------- ------ ------
Total return (%) 9.31++ 7.02++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## 1.95+ 1.95+
- -------------------------------------------------------------------------------------------------------
Net investment income 7.06+ 8.05+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 50 80
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $106 $43
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C, July 31, 2002, through
January 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS High Income Fund (the fund) is a diversified series of MFS Series Trust
III (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
accounting principles generally accepted in the United States of America
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. The fund can invest up to 100% 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. The fund can invest in foreign securities. Investments in
foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
INVESTMENT VALUATIONS - Bonds and other fixed income securities (other than
short-term obligations) of U.S. issuers in the fund's portfolio are valued at
an evaluated bid price on the basis of quotes from brokers and dealers or on
the basis of valuations furnished by a pricing service. Prices obtained from
pricing services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the fund's portfolio
for which market quotations are available are valued at the last sale or
official closing price on the primary market or exchange on which they are
primarily traded or at the last quoted bid price for securities in which there
were no sales during the day. If no sales are reported, as is the case for
most securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Forward contracts will be valued using a
pricing model taking into consideration market data from an external pricing
source. Use of the pricing services has been approved by the Board of
Trustees. Short-term obligations in the fund's portfolio are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Short-term obligations with a remaining maturity in excess of 60
days will be valued upon dealer-supplied valuations. Portfolio investments for
which market quotations are not readily available, or whose values have been
materially affected by events occurring after the close of their primary
markets, are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize
a joint trading account for the purpose of entering into one or more
repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The fund may enter
into forward foreign currency exchange contracts for hedging purposes as well
as for non-hedging purposes. For hedging purposes, the fund may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The fund may also use contracts
in a manner intended to protect foreign currency-denominated securities from
declines in value due to unfavorable exchange rate movements. For non-hedging
purposes, the fund may enter into contracts with the intent of changing the
relative exposure of the fund's portfolio of securities to different
currencies to take advantage of anticipated changes. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded as unrealized until
the contract settlement date. On contract settlement date, the gains or losses
are recorded as realized gains or losses on foreign currency transactions.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date. 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 - The fund's custody 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 total expenses on the
Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. 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 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. Common types of book and tax
differences that could occur include differences in accounting for currency
transactions, defaulted bonds, capital losses, and amortization and accretion
on debt securities.
The tax character of distributions declared for the years ended January 31,
2003 and January 31, 2002 was as follows:
1/31/03 1/31/02
Distributions declared from:
- ------------------------------------------------------------------------------
Ordinary income $118,233,379 $135,115,820
- --------------------------------------------------------------------------------
As of January 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $10,735,789
-----------------------------------------------------------------
Capital loss carryforward (385,327,872)
-----------------------------------------------------------------
Unrealized depreciation (145,730,251)
-----------------------------------------------------------------
Other temporary differences (73,349,917)
-----------------------------------------------------------------
At January 31, 2003, the fund, for federal income tax purposes, had a capital
loss carryforward of $385,327,872 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration date.
EXPIRATION DATE
January 31, 2004 $(35,661,057)
-----------------------------------------------------------------
January 31, 2007 (17,432,351)
-----------------------------------------------------------------
January 31, 2008 (10,853,391)
-----------------------------------------------------------------
January 31, 2009 (24,778,024)
-----------------------------------------------------------------
January 31, 2010 (137,538,425)
-----------------------------------------------------------------
January 31, 2011 (159,064,624)
-----------------------------------------------------------------
Total $(385,327,872)
-----------------------------------------------------------------
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 and Class 529B shares will convert to Class A and Class 529A
shares, respectively approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $1.4 billion of average net assets 0.46%
----------------------------------------------------------------------
In excess of $1.4 billion of average net assets 0.44%
----------------------------------------------------------------------
Management fees incurred for the six months ended July 31, 2003 were 0.46% of
average daily net assets on an annualized basis.
The fund pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and 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 inactive Trustees and an
unfunded retirement benefit deferral plan for active Trustees. Included in
Trustees' compensation is a net increase of $8,290 as a result of the change
in the fund's pension liability for active Trustees and a pension expense of
$4,740 for inactive trustees for the six months ended July 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
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 $2 billion 0.0175%
---------------------------------------------------------------------
Next $2.5 billion 0.0130%
---------------------------------------------------------------------
Next $2.5 billion 0.0005%
---------------------------------------------------------------------
In excess of $7 billion 0.0000%
---------------------------------------------------------------------
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$200,419 and $1,313 for the six months ended July 31, 2003, as its portion
of the sales charge on sales of Class A and Class 529A shares of the
fund, respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R, Class 529A, Class 529B and Class 529C 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the six months ended July 31,
2003, amounted to:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by
MFD $44,731 $1,060 $625 $1 $46 $0 $1
- ---------------------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year six months ended July 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Total Distribution Plan 0.30% 1.00% 1.00% 0.50% 0.35% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
A portion of the Class A distribution fee is currently being paid by the fund. Payment of the remaining 0.05% per annum
Class A distribution fee is currently not imposed and will be implemented on such date as the Trustees of the fund may
determine.
A portion of the Class 529A distribution fee is currently being paid by the fund. Payment of the remaining 0.15% per annum
Class 529A distribution fee is currently not imposed and will be implemented on such date as the Trustees of the fund may
determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent deferred sales charge in the event of a
shareholder redemption within, for class A shares, 12 months following the purchase, and, for class C and 529C shares, the
first year from the end of the calendar month of purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B and Class 529B shares in the event of a shareholder redemption within six years from the end of the
calendar month of purchase. MFD receives all contingent deferred sales charges. Contingent deferred sales charges imposed
during the six months ended July 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS 529A CLASS 529B CLASS 529C
Contingent Deferred
Sales Charges Imposed $13,285 $416,685 $24,469 $-- $-- $--
- ---------------------------------------------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties which administer the tuition programs through which
an investment in the fund's 529 share classes is made. The fund has entered
into an agreement with MFD pursuant to which MFD receives an annual fee of up
to 0.25% from the fund based solely upon the value of the fund's 529 share
classes attributable to tuition programs to which MFD or a third party which
contracts with MFD provides administrative services. The current fee has been
established at 0.25% annually of average net assets of the fund's 529 share
classes attributable to such programs. The fee may only be increased with the
approval of the board of trustees that oversees the fund. The services
provided by MFD or a third party with which MFD contracts include
recordkeeping and tax reporting and account services, as well as services
designed to maintain the program's compliance with the Internal Revenue Code
and other regulatory requirements.
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 annual rate of
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$895,237,567 and $752,219,321, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $1,665,155,392
---------------------------------------------------------------------
Gross unrealized depreciation (177,634,757)
---------------------------------------------------------------------
Gross unrealized appreciation 68,261,320
---------------------------------------------------------------------
Net unrealized depreciation $(109,373,437)
---------------------------------------------------------------------
(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. Transactions in
fund shares were as follows:
Six months ended 7/31/03 Year ended 1/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 160,988,731 $589,915,920 172,131,906 $605,274,892
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 6,657,632 24,261,613 11,139,531 39,541,998
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (153,776,896) (570,920,794) (162,168,856) (578,606,040)
- ------------------------------------------------------------------------------------------------------------
Net increase 13,869,467 $43,256,739 21,102,581 $66,210,850
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 25,326,657 $92,581,647 47,525,171 $168,253,354
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 2,743,205 10,001,898 5,061,712 18,022,151
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (17,575,486) (64,779,098) (52,110,785) (186,284,014)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) 10,494,376 $37,804,447 476,098 $(8,509)***
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 20,363,416 $74,296,493 46,056,918 $163,295,533
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 1,492,635 5,453,119 1,973,480 7,045,104
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (18,307,104) (67,789,490) (38,522,898) (139,892,598)
- ------------------------------------------------------------------------------------------------------------
Net increase 3,548,947 $11,960,122 9,507,500 $30,448,039
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 6,742,732 $24,799,262 4,106,294 $14,231,462
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 354,636 1,294,042 318,132 1,127,306
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (832,677) (3,066,155) (2,048,339) (7,365,064)
- ------------------------------------------------------------------------------------------------------------
Net increase 6,264,691 $23,027,149 2,376,087 $7,993,704
- ------------------------------------------------------------------------------------------------------------
Six months ended 7/31/03 Period ended 1/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R SHARES
Shares sold 137,736 $501,342 11,439 $40,092
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 2,185 8,069 -- --
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (29,859) (108,592) -- --
- ------------------------------------------------------------------------------------------------------------
Net increase 110,062 $400,819 11,439 $40,092
- ------------------------------------------------------------------------------------------------------------
Six months ended 7/31/03 Period ended 1/31/03**
SHARES AMOUNT SHARES AMOUNT
CLASS 592A SHARES
Shares sold 58,036 $211,476 14,925 $51,744
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 1,544 5,680 150 520
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,519) (5,637) (68) (235)
- ------------------------------------------------------------------------------------------------------------
Net increase 58,061 $211,519 15,007 $52,029
- ------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 4,969 $18,193 8,792 $30,752
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 357 1,307 69 240
- ------------------------------------------------------------------------------------------------------------
Shares reacquired -- -- (63) (218)
- ------------------------------------------------------------------------------------------------------------
Net increase 5,326 $19,500 8,798 $30,774
- ------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 15,600 $56,656 12,221 $42,851
- ------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 685 2,517 83 287
- ------------------------------------------------------------------------------------------------------------
Shares reacquired -- -- (62) (216)
- ------------------------------------------------------------------------------------------------------------
Net increase 16,285 $59,173 12,242 $42,922
- ------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R, December 31, 2002, through January 31, 2003.
** For the period from the inception of Class 529A, 529B, and 529C, July 31, 2002, through January 31, 2003.
*** The net capital stock share activity is not in accordance with the net amount because of the timing of
purchases and sales of capital stock shares and the net asset value per share at such time.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. A commitment fee of $6,964 which is based on the average daily
unused portion of the line of credit is included in miscellaneous expense. The
fund had no significant borrowings during the period.
(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 and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange 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.
Forward Foreign Currency Exchange Contracts
- ------------
SALES
- ------------
CONTRACTS NET
TO IN UNREALIZED
SETTLEMENT DELIVER/ EXCHANGE CONTRACTS APPRECIATION
DATE RECEIVE FOR AT VALUE (DEPRECIATION)
8/4/03 EUR 23,552,090 $27,282,017 $26,425,461 $856,556
8/4/03 GBP 3,600,000 5,904,000 5,779,880 124,120
----------- ----------- --------
$33,186,017 $32,205,341 $980,676
=========== =========== ========
- ------------
PURCHASES
- ------------
8/4/03 EUR 10,726,045 $12,319,882 $12,046,113 $(273,769)
8/4/03 GBP 1,800,000 2,927,790 2,895,829 (31,961)
----------- ----------- ----------
$15,247,672 $14,941,942 $(305,730)
=========== =========== ==========
At July 31, 2003, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) RESTRICTED SECURITIES
The fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At July 31, 2003,
the fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting less than 0.01% of net assets which may
not be publicly sold without registration under the Securities Act of 1933.
The fund does not have the right to demand that 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 the direction
of the Trustees.
DATE OF PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
Airplane Pass-Through
Trust, 10.875s, 2019 3/13/96 $5,185,425 $5,185,425 $103,708
- --------------------------------------------------------------------------------
DLJ Mortgage Acceptance
Corp., 8s, 2003 4/06/01 130,401 119,643 129,909
- --------------------------------------------------------------------------------
$233,617
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust III,
of which the fund is a series, including their principal occupations, which, unless specific dates are shown,
are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Ives, Perera and Poorvu, and Ms. Smith, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Messrs. Ballen and Gutow have each served as a Trustee of
the Trust since August 1, 2001. Messrs. Cohn, Sherratt and Smith, and Ms. O'Neill, were elected by
shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke has served as Trustee
of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 112 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
John F. Addeo(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255)
or stock and bond outlooks touch-tone required 24 hours a day, 365 days a
year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C)2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116 MFH-SEM-9/03 130M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 7/31/03
MFS(R) MUNICIPAL
HIGH INCOME FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) MUNICIPAL HIGH INCOME FUND
The fund seeks high current income exempt from federal income taxes by
investing primarily in municipal bonds and notes which may be of medium and
lower quality.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ----------------------------------------------------
FINANCIAL STATEMENTS 39
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 50
- ----------------------------------------------------
TRUSTEES AND OFFICERS 61
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES
OF INVESTORS 63
- ----------------------------------------------------
CONTACT INFORMATION 64
- ----------------------------------------------------
ASSET ALLOCATION 65
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MFS Investment Management(R)
August 20, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
From the beginning of the period through mid-June of 2003, an environment of
weak economic growth and low inflation proved positive for fixed-income
investors. Beginning in mid-March, corporate bonds, as well as stocks, also
received a boost as the coalition military campaign in Iraq proved relatively
successful and major hostilities concluded quickly. In May and early June, a
bond market rally drove yields, as well as home mortgage rates, to their
lowest levels in more than four decades. This rally was fueled by a statement
issued by Federal Open Market Committee discussing the risk of an "unwelcome
substantial fall in inflation".
In the final weeks of the period, however, longer-term bond prices retreated
sharply (and interest rates climbed) after the Federal Reserve Board (the Fed)
lowered short-term rates by only a quarter-point on June 25, rather than by
the half-point that many investors had hoped for. The Fed's action apparently
led many investors to conclude that the economic recovery was strengthening
and that perhaps rates had become unrealistically low. For the six-month
period as a whole, interest rates rose modestly.
In the municipal arena, high-yield debt outperformed high-grade issues over
the period. We believe the outperformance of high-yield bonds was caused
largely by two factors. High-yield bonds paid higher coupon yields, and their
prices were less affected by rising interest rates as spreads narrowed.
Spreads - the differences in yield between high-yield issues and less risky
"AAA"-rated bonds - decreased because investors were searching for higher
yields in a period of historically low yields, and they became more
comfortable with taking on the higher risk of high-yield investments.
PORTFOLIO QUALITY RATINGS
7/31/03
"A" 7.2%
"AA" 3.0%
"AAA" 16.3%
"B" 2.1%
"BB" 9.3%
"BBB" 25.4%
"CCC" 0.7%
"D" 0.2%
Not Rated 34.9%
Other 0.9%
The portfolio is actively managed, and current holdings may be different.
CONTRIBUTORS TO RELATIVE PERFORMANCE
For the six-month period, the fund outperformed its benchmark, the Lehman
Brothers Municipal Bond Index (the Lehman Index), but modestly underperformed
its peers, as represented by the Lipper average high-yield municipal debt
fund.
The fund's outperformance against the Lehman Index was mainly a product of the
fund's relative overweighting in high-yield bonds during a period in which
high yield outperformed. The fund had a larger position in "BBB"-rated debt
than the Lipper Index. In addition, the fund had significant holdings in
below-investment-grade debt (bonds rated lower than "BBB"), whereas the index
does not contain bonds rated below "BBB."
Relative to our Lipper high-yield peers, however, the fund historically has
tended to be somewhat higher in credit quality - overweighted in investment-
grade debt and underweighted in bonds rated below "BBB." While we feel that
strategy leads to lower risk and competitive returns over the longer term, our
higher overall bond quality hurt performance against our Lipper peers over the
period, as lower-rated issues performed well.
INFLUENCE OF SECTOR ALLOCATIONS
The fund's underweighting in airline bonds, which helped performance in 2002,
proved negative for performance over the period and was perhaps the largest
factor in our underperformance relative to our Lipper peers. During the
period, American Airlines was able to restructure its labor contracts and
avoid bankruptcy at the eleventh hour. We believe investors then jumped to the
conclusion that the airline industry as a whole would be able to restructure
its financial situation without going through bankruptcies.
As a result, airline bonds rose sharply and funds that were overweighted in
airline debt outperformed. In our view, however, most airlines still face
precarious financial conditions, and the industry still may need to go through
a difficult period of financial restructuring. We continue to believe that
underweighting airline bonds is a better, less risky strategy over the
longer term.
Conversely, the fund's overweighted position in utilities, which hampered
returns in 2002, aided performance relative to our peers over the period. The
fund's utility assets have been largely in regulated utilities with hard
assets - companies that generate power and deliver power and invest in their
own plants and equipment. Although we avoided companies such as Enron and
Dynegy that derived a large part of their earnings from energy trading,
scandals in the trading area of the business brought down utility stocks as a
group last year. By late 2002, however, utilities had begun to improve their
balance sheets by issuing equity to pay down debt, and banks were
restructuring utility debt. Investors seemed to realize that most utilities
were not going to go bankrupt and that perhaps those securities had become
undervalued. The result was strong performance over the period, as beaten-down
utility securities recovered from the turmoil of mid-2002.
/s/ Michael W. Roberge /s/ Geoffrey L. Schechter
Michael W. Roberge Geoffrey L. Schechter
Portfolio Manager Portfolio Manager
Note to shareholders: Effective August 2002, Geoffrey L. Schechter became a
manager of the portfolio.
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 7/31/03
- -------------------------------------------------------------------------------
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. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (See
Notes to Performance Summary.)
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 2/24/84 -- 3.41% 5.63% 3.93% 5.16%
- ------------------------------------------------------------------------------
B 9/7/93 -- 2.61% 4.80% 3.12% 4.25%
- ------------------------------------------------------------------------------
C 9/25/98 -- 2.51% 4.62% 2.96% 4.67%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average high-yield
municipal debt fund+ 1.97% 2.84% 4.98% 2.89% 4.77%
- ------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index# 0.43% 3.60% 6.76% 5.48% 5.98%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- --------------------
Average annual
with sales charge
- --------------------
- ------------------------------------------------------------------------------
A -- -1.50% 3.93% 2.92% 4.65%
- ------------------------------------------------------------------------------
B -- -1.29% 3.89% 2.80% 4.25%
- ------------------------------------------------------------------------------
C -- 1.53% 4.62% 2.96% 4.67%
- ------------------------------------------------------------------------------
- --------------------
Cumulative without
sales charge
- --------------------
Share
class 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 1.71% 3.41% 17.85% 21.26% 65.38%
- ------------------------------------------------------------------------------
B 1.45% 2.61% 15.09% 16.62% 51.63%
- ------------------------------------------------------------------------------
C 1.34% 2.51% 14.50% 15.71% 57.81%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
LEHMAN BROTHERS MUNICIPAL BOND INDEX: A broad measure of the municipal bond
market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflects the deduction of the maximum
4.75% sales charge. Class B results, including sales charge, reflects the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales
charge, redeemed within one year from the end of the calendar month of
purchase reflects the deduction of the 1% CDSC.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
All performance results reflect any applicable expense subsidies and waivers
in effect during the periods shown; without these, the results would have
been less favorable. See the prospectus and financial statements 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, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investments in high yield or lower-rated securities may provide greater
returns but are subject to greater-than-average risk.
Because the portfolio invests in a limited number of companies a change in one
security's value may have a more significant effect on the
portfolio's value.
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.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - (unaudited) 7/31/2003
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It's divided by
broad-based asset classes.
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Municipal Bonds - 97.5%
- -----------------------------------------------------------------------------------------------------
Airport and Port Revenue - 0.2%
- -----------------------------------------------------------------------------------------------------
Denver CO, City & County Airport Rev.,
RITES, AMBAC, 10.8s, 2017+(+) $2,500 $2,944,700
- -----------------------------------------------------------------------------------------------------
Chemicals - 1.2%
- -----------------------------------------------------------------------------------------------------
Brazos River, TX, Harbor Navigation District Rev.
(Dow Chemicals Co.), 5.70s, 2033 $5,000 $5,038,600
- -----------------------------------------------------------------------------------------------------
Michigan State Strategic Fund, Obligation Rev.
(Dow Chemicals Co.), 4.6s, 2014 1,150 1,160,442
- -----------------------------------------------------------------------------------------------------
Power County, ID, Pollution Control Rev.
(FMC Corp.), 5.625s, 2014 1,000 873,830
- -----------------------------------------------------------------------------------------------------
Red River Auth. of Texas, Pollution Control Rev.
(CNA Holdings, Inc.), 6.7s, 2030 6,000 6,187,860
- -----------------------------------------------------------------------------------------------------
Sweetwater County, WY, Solid Waste Disposal Rev.
(FMC Corp.), 7s, 2024 3,835 3,678,916
- -----------------------------------------------------------------------------------------------------
$16,939,648
- -----------------------------------------------------------------------------------------------------
General Obligations - General Purpose - 2.5%
- -----------------------------------------------------------------------------------------------------
Cranston, RI, FGIC, 6.375s, 2014 $855 $991,920
- -----------------------------------------------------------------------------------------------------
Delaware County, OH, 6.25s, 2020 1,000 1,134,800
- -----------------------------------------------------------------------------------------------------
Hidalgo County, TX, AMBAC, 6s, 2016 1,010 1,132,735
- -----------------------------------------------------------------------------------------------------
Houston County, AL, AMBAC, 6.25s, 2019 3,500 4,007,605
- -----------------------------------------------------------------------------------------------------
Little Rock, AR, Capital Improvement Rev., 5.7s, 2018 895 905,642
- -----------------------------------------------------------------------------------------------------
New York City, NY, 6.125s, 2006(++) 3,235 3,613,689
- -----------------------------------------------------------------------------------------------------
New York City, NY, FGIC, 5.875s, 2024 7,000 7,608,440
- -----------------------------------------------------------------------------------------------------
New York City, NY, 6.125s, 2025 1,765 1,872,683
- -----------------------------------------------------------------------------------------------------
New York City, NY, FGIC, 6.125s, 2025 8,000 8,911,600
- -----------------------------------------------------------------------------------------------------
State of Florida, Board of Education, RITES, 8.866s, 2017+(+) 2,300 2,476,318
- -----------------------------------------------------------------------------------------------------
State of Massachusetts, ROLs, 9.932s, 2017+(+),(++) 2,000 2,452,760
- -----------------------------------------------------------------------------------------------------
West Warwick, RI, 7.45s, 2013 535 552,339
- -----------------------------------------------------------------------------------------------------
$35,660,531
- -----------------------------------------------------------------------------------------------------
General Obligations - Improvement - 1.3%
- -----------------------------------------------------------------------------------------------------
Birmingham, AL, 5.75s, 2019 $1,000 $1,091,820
- -----------------------------------------------------------------------------------------------------
District of Columbia, 6s, 2007(++) 5,000 5,744,750
- -----------------------------------------------------------------------------------------------------
Los Angeles, CA, RITES, FGIC, 9.2s, 2015+(+) 5,310 6,238,825
- -----------------------------------------------------------------------------------------------------
Manchester, NH, 5.875s, 2019 2,325 2,556,989
- -----------------------------------------------------------------------------------------------------
New Lenox, IL, Community Park Development Auth.,
8.25s, 2004(++) 3,510 3,825,584
- -----------------------------------------------------------------------------------------------------
$19,457,968
- -----------------------------------------------------------------------------------------------------
General Obligations - Schools - 2.4%
- -----------------------------------------------------------------------------------------------------
Chicago, IL, Board of Education, RITES, 9.165s, 2020+ (+) $7,910 $8,682,016
- -----------------------------------------------------------------------------------------------------
Forsyth County, GA, School District, 6s, 2016 1,700 1,918,875
- -----------------------------------------------------------------------------------------------------
Houston, TX, Independent School District, RITES, PSF,
9.177s, 2017+(+) 5,000 5,460,400
- -----------------------------------------------------------------------------------------------------
Kane Cook & Dupage Counties, IL, FSA, 6.5s, 2017 1,355 1,543,358
- -----------------------------------------------------------------------------------------------------
Kane Cook & Dupage Counties, IL, FSA, 6.375s, 2019 1,255 1,415,339
- -----------------------------------------------------------------------------------------------------
Lake County, IL, FGIC, 6s, 2020 2,500 2,782,425
- -----------------------------------------------------------------------------------------------------
Lane County, OR, 6.25s, 2010(++) 1,370 1,597,968
- -----------------------------------------------------------------------------------------------------
McHenry & Lake Counties, IL, FSA, 6.125s, 2018 1,700 1,893,290
- -----------------------------------------------------------------------------------------------------
State of Florida Board of Education, RITES, FGIC, 9.2s, 2012+(+) 1,500 1,774,860
- -----------------------------------------------------------------------------------------------------
State of Florida Board of Education, RITES, FGIC, 9.2s, 2013+(+) 5,000 5,892,100
- -----------------------------------------------------------------------------------------------------
Wasco County, OR, FSA, 6s, 2010(++) 1,485 1,709,636
- -----------------------------------------------------------------------------------------------------
$34,670,267
- -----------------------------------------------------------------------------------------------------
Health Care Revenue - Hospitals - 19.2%
- -----------------------------------------------------------------------------------------------------
Allegheny County, PA, Hospital Development Auth. Rev.
(South Hills Health System), 6.75s, 2025 $1,200 $1,188,720
- -----------------------------------------------------------------------------------------------------
Allegheny County, PA, Hospital Development Auth. Rev.
(West Penn Allegheny Health), 9.25s, 2022 3,360 3,217,099
- -----------------------------------------------------------------------------------------------------
Allegheny County, PA, Hospital Development Auth. Rev.
(West Penn Allegheny Health), 9.25s, 2030 6,100 5,833,247
- -----------------------------------------------------------------------------------------------------
Baldwin County, AL, Eastern Shore Health Care Auth. Rev.
(Thomas Hospital), 6.75s, 2015 500 508,660
- -----------------------------------------------------------------------------------------------------
Baldwin County, AL, Eastern Shore Health Care Auth. Rev.
(Thomas Hospital), 5.75s, 2027 1,900 1,736,942
- -----------------------------------------------------------------------------------------------------
Baxter County, AR, Hospital Rev., 5.6s, 2021 3,000 2,952,120
- -----------------------------------------------------------------------------------------------------
Brookhaven, NY, Industrial Development Agency (Memorial
Hospital Medical Center, Inc.), 8.25s, 2030 2,500 2,615,900
- -----------------------------------------------------------------------------------------------------
Chautauqua County, NY, Civic Facilities Rev.
(Woman's Christian Assn.), 6.35s, 2017 1,430 1,420,948
- -----------------------------------------------------------------------------------------------------
Chautauqua County, NY, Civic Facilities Rev.
(Woman's Christian Assn.), 6.4s, 2029 3,430 3,278,257
- -----------------------------------------------------------------------------------------------------
Chemung County, NY, Civic Facilities Rev.
(St. Joseph's Hospital-Elmira), 6s, 2013 $2,370 $2,302,574
- -----------------------------------------------------------------------------------------------------
Chemung County, NY, Civic Facilities Rev.
(St. Joseph's Hospital-Elmira), 6.35s, 2013 1,640 1,633,489
- -----------------------------------------------------------------------------------------------------
Chester County, PA, Health & Education Facilities
(Chester County Hospital), 6.75s, 2031 2,500 2,259,425
- -----------------------------------------------------------------------------------------------------
Citrus County, FL, Hospital Development Auth. Rev.
(Citrus Memorial Hospital), 6.25s, 2023 995 998,373
- -----------------------------------------------------------------------------------------------------
Colorado Health Facilities Auth. Rev.,
Facilities Auth. Rev. (Parkview Hospital), 6s, 2016 7,000 7,272,090
- -----------------------------------------------------------------------------------------------------
Colorado Health Facilities Auth. Rev.,
Facilities Auth. Rev. (Parkview Hospital), 6.5s, 2020 770 803,903
- -----------------------------------------------------------------------------------------------------
Colorado Health Facilities Auth. Rev., Facilities Auth.
Rev. (Portercare Adventist Health Systems), 6.625s, 2026 2,200 2,336,378
- -----------------------------------------------------------------------------------------------------
Comal County, TX, Health Facilities Development Rev.
(McKenna Memorial Hospital), 6.125s, 2022 2,000 1,959,220
- -----------------------------------------------------------------------------------------------------
Crittenden County, AR, Hospital Rev., 7.15s, 2025 1,165 1,261,753
- -----------------------------------------------------------------------------------------------------
Cullman, AL, Board Rev. (Cullman Regional Medical
Center), 6.5s, 2013 1,505 1,522,127
- -----------------------------------------------------------------------------------------------------
Cuyahoga County, OH, Hospital Facilities Rev.
(Canton, Inc.), 7.5s, 2030 3,500 3,799,250
- -----------------------------------------------------------------------------------------------------
Delaware Health Facilities Auth. Rev.
(Nanticoke Memorial Hospital), 5.625s, 2032 2,175 2,180,525
- -----------------------------------------------------------------------------------------------------
Delta County, CO, Memorial Hospital District Rev., 5.35s, 2017 1,500 1,450,065
- -----------------------------------------------------------------------------------------------------
Denver, CO, Health & Hospital Auth. Rev., 5.375s, 2018 3,700 3,550,372
- -----------------------------------------------------------------------------------------------------
Denver, CO, Health & Hospital Auth. Rev., 6s, 2023 1,000 998,050
- -----------------------------------------------------------------------------------------------------
Denver, CO, Health & Hospital Auth. Rev., 5.375s, 2028 5,000 4,484,750
- -----------------------------------------------------------------------------------------------------
District of Columbia, Health & Hospital Auth. Rev.
(Medstar University Hospital), 6.875s, 2031 3,875 4,144,700
- -----------------------------------------------------------------------------------------------------
Grand Forks, ND, Health Care Auth. Rev.
(Altru Health Systems Obligation Group), 7.125s, 2024 2,250 2,410,605
- -----------------------------------------------------------------------------------------------------
Grand Junction, CO, Hospital Rev.
(Community Hospital), 6.9s, 2017 2,900 2,911,281
- -----------------------------------------------------------------------------------------------------
Highlands County, FL, Health Facilities Auth. Rev.
(Adventist/Sunbelt Hospital), 6s, 2031 3,000 3,082,650
- -----------------------------------------------------------------------------------------------------
Huntsville, AL, Health Care Auth. Rev., 5.625s, 2026 2,830 2,799,323
- -----------------------------------------------------------------------------------------------------
Illinois Development Finance Auth., Hospital Auth. Rev.
(Adventist/Sunbelt Hospital), 5.65s, 2024 3,000 2,952,030
- -----------------------------------------------------------------------------------------------------
Indiana Health Facilities Hospital Rev.,
(Munster Medical Research Foundation, Inc.), 6.375s, 2021 3,300 3,344,682
- -----------------------------------------------------------------------------------------------------
Indiana Health Facility Financing Auth., Hospital Auth.
Rev. (Munster Medical Research Foundation, Inc.), 6.375s, 2031 8,950 9,009,696
- -----------------------------------------------------------------------------------------------------
Indiana Health Facility Financing Auth. Rev.,
Hospital Auth. Rev. (Riverview Hospital), 6.125s, 2031 3,750 3,718,237
- -----------------------------------------------------------------------------------------------------
Kentucky Economic Development Finance Auth.,
Health Systems Rev. (Norton Healthcare, Inc.), 6.5s, 2020 5,000 5,143,150
- -----------------------------------------------------------------------------------------------------
Kentucky Economic Development Finance Auth.,
Health Systems Rev. (Norton Healthcare, Inc.), 6.625s, 2028 2,000 2,045,980
- -----------------------------------------------------------------------------------------------------
Knox County, TN, Health Educational Housing Facilities
Board, Hospital Facilities Rev. (Baptist Health
Systems), 6.5s, 2031 4,700 4,761,946
- -----------------------------------------------------------------------------------------------------
Lehigh County, PA, General Purpose Auth. Rev.
(Saint Lukes Bethlehem Hospital), 5.375s, 2033 1,500 1,376,190
- -----------------------------------------------------------------------------------------------------
Lufkin, TX, Health Facilities Rev.
(Memorial Health System of East Texas), 6.875s, 2026 1,345 1,274,603
- -----------------------------------------------------------------------------------------------------
Lufkin, TX, Health Facilities Rev.
(Memorial Health System of East Texas), 5.7s, 2028 3,305 2,655,666
- -----------------------------------------------------------------------------------------------------
Macomb County, MI, Hospital Finance Auth. Rev.
(Mount Clemens General Hospital), 5.75s, 2025 2,000 1,866,280
- -----------------------------------------------------------------------------------------------------
Macomb County, MI, Hospital Finance Auth. Rev.
(Mount Clemens General Hospital), 5.875s, 2034 1,500 1,401,675
- -----------------------------------------------------------------------------------------------------
Maryland Health & Higher Educational Facilities Rev.,
(University of Maryland Medical System), 6.75s, 2030 1,000 1,088,560
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(Anna Jaques Hospital), 6.875s, 2012 2,760 2,785,972
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(Caritas Christi Obligation), 6.5s, 2012 1,500 1,514,310
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(Caritas Christi Obligation), 5.7s, 2015 3,500 3,156,650
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(Jordan Hospital), 5.25s, 2018 4,600 3,742,974
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(Milford Whitinsville Hospital), 6.35s, 2032 1,450 1,449,478
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(North Adams Regional Hospital), 6.625s, 2018 2,990 2,850,307
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(St. Memorial Medical Center), 6s, 2023 13,530 12,193,236
- -----------------------------------------------------------------------------------------------------
Massachusetts Health & Education Facilities Auth. Rev.,
(University of Massachusetts), 6.5s, 2021 500 507,040
- -----------------------------------------------------------------------------------------------------
Mecosta County, MI, General Hospital Rev., 6s, 2018 1,200 1,129,548
- -----------------------------------------------------------------------------------------------------
Miami Beach, FL, Health Facilities Rev.
(Mount Sinai Medical Center), 6.7s, 2019 2,750 2,559,838
- -----------------------------------------------------------------------------------------------------
Michigan Hospital Finance Auth. Rev.,
(Memorial Healthcare Center), 5.875s, 2021 1,000 964,260
- -----------------------------------------------------------------------------------------------------
Mississippi Business Finance Corp., Health Facilities Rev.
(Medical Foundation, Inc.), 5.375s, 2015 700 640,143
- -----------------------------------------------------------------------------------------------------
Mississippi Business Finance Corp., Health Facilities Rev.
(Rush Medical Foundation, Inc.), 5.625s, 2023 1,195 1,076,098
- -----------------------------------------------------------------------------------------------------
Mount Lebanon, PA, Hospital Auth. Rev.
(St. Clair Memorial Hospital), 5.625s, 2032 1,455 1,388,317
- -----------------------------------------------------------------------------------------------------
New Hampshire Higher Educational & Health Facilities
Auth. Rev. (Catholic Medical Center), 6.125s, 2032 1,500 1,457,520
- -----------------------------------------------------------------------------------------------------
New Hampshire Higher Educational & Health Facilities
Auth. Rev., (Covenant Health), 6.5s, 2017 4,860 5,284,132
- -----------------------------------------------------------------------------------------------------
New Hampshire Higher Educational & Health Facilities
Auth. Rev., (Franklin Pierce Law Center), 5.5s, 2018 1,200 1,229,592
- -----------------------------------------------------------------------------------------------------
New Hampshire Higher Educational & Health Facilities
Auth. Rev., (Littleton Hospital Assn.), 5s, 2008 1,000 882,290
- -----------------------------------------------------------------------------------------------------
New Hampshire Higher Educational & Health Facilities
Auth. Rev., (Littleton Hospital Assn.), 5.9s, 2018 1,750 1,438,448
- -----------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Auth. Rev.,
(Palisades Medical Center), 6.625s, 2031 1,115 1,145,986
- -----------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Auth. Rev.,
(St. Peter's University Hospital), 6.875s, 2030 4,000 4,192,120
- -----------------------------------------------------------------------------------------------------
New York City, NY, Industrial Development Agency, Civic
Facilities Rev. (Staten Island University Hospital), 6.375s, 2031 1,485 1,525,363
- -----------------------------------------------------------------------------------------------------
New York City, NY, Industrial Development Agency, Civic
Facilities Rev. (Staten Island University Hospital), 6.45s, 2032 945 980,853
- -----------------------------------------------------------------------------------------------------
Ohio County, WV, County Commission Health System Rev.
(Ohio Valley Medical Center), 5.75s, 2013 5,000 4,288,850
- -----------------------------------------------------------------------------------------------------
Oklahoma Development Finance Auth. Rev.,
(Comanche County Hospital), 6s, 2014 2,400 2,449,776
- -----------------------------------------------------------------------------------------------------
Oklahoma Development Finance Auth. Rev.,
(Comanche County Hospital), 6.6s, 2031 2,750 2,755,637
- -----------------------------------------------------------------------------------------------------
Pennsylvania Ports Auth. Rev., (Whittaker Memorial),
FHA, 8.7s, 2023 500 609,125
- -----------------------------------------------------------------------------------------------------
Philadelphia, PA, Hospital & Higher Education
Facilities Auth. Rev., RIBS, FGIC, 9.47s, 2012(+) 2,000 2,103,980
- -----------------------------------------------------------------------------------------------------
Rhode Island Health & Education Building Rev.,
Hospital Financing (Lifespan Obligation Group), 6.5s, 2032 9,000 8,942,310
- -----------------------------------------------------------------------------------------------------
Richardson, TX, Hospital Auth. Rev.
(Baylor-Richardson Hospital), 5.25s, 2013 1,500 1,502,460
- -----------------------------------------------------------------------------------------------------
Royston, GA, Hospital Auth. Rev. (Ty Cobb Healthcare
Systems, Inc.), 6.375s, 2014 1,395 1,333,843
- -----------------------------------------------------------------------------------------------------
Royston, GA, Hospital Auth. Rev. (Ty Cobb Healthcare
Systems, Inc.), 6.5s, 2027 1,855 1,660,503
- -----------------------------------------------------------------------------------------------------
Russell, KY, (Franciscan Sisters of the Poor), 8.1s, 2006(++) 360 409,525
- -----------------------------------------------------------------------------------------------------
Shelby County, TN, Health Educational Hospital
(Methodist Healthcare), 6s, 2016 1,200 1,247,172
- -----------------------------------------------------------------------------------------------------
Shelby County, TN, Health Educational Hospital
(Methodist Healthcare), 6s, 2017 2,000 2,071,360
- -----------------------------------------------------------------------------------------------------
Shelby County, TN, Health Educational Hospital
(Methodist Healthcare), 6.25s, 2018 2,000 2,099,460
- -----------------------------------------------------------------------------------------------------
Sierra View, CA, Local Health Care District, 5.4s, 2022 4,000 3,742,040
- -----------------------------------------------------------------------------------------------------
Southwestern Illinois Development Auth. Rev.,
(Anderson Hospital), 5.375s, 2015 1,385 1,347,411
- -----------------------------------------------------------------------------------------------------
Southwestern Illinois Development Auth. Rev.,
(Anderson Hospital), 5.5s, 2020 1,625 1,521,650
- -----------------------------------------------------------------------------------------------------
Southwestern Illinois Development Auth. Rev.,
(Anderson Hospital), 5.625s, 2029 4,200 3,858,582
- -----------------------------------------------------------------------------------------------------
Springfield, TN, Health & Educational Facilities Rev.
(Northcrest Medical Center), 5.25s, 2018 3,500 3,191,405
- -----------------------------------------------------------------------------------------------------
Springfield, TN, Health & Educational Facilities Rev.
(Northcrest Medical Center), 5.375s, 2024 4,000 3,523,920
- -----------------------------------------------------------------------------------------------------
State of Arkansas, Development Finance Auth. Rev.
(Washington Regional Medical Center), 7.25s, 2020 2,500 2,686,050
- -----------------------------------------------------------------------------------------------------
Suffolk County, NY, (Huntington Hospital Project), 5.875s, 2032 2,000 1,955,120
- -----------------------------------------------------------------------------------------------------
Suffolk County, NY, Industrial Development Agency Rev.
(Southampton Hospital), 7.25s, 2020 3,500 3,232,355
- -----------------------------------------------------------------------------------------------------
Suffolk County, NY, Industrial Development Agency Rev.
(Southampton Hospital), 7.625s, 2030 $1,500 $1,385,325
- -----------------------------------------------------------------------------------------------------
Tallahassee, FL, Health Facilities Rev.
(Tallahassee Memorial Healthcare), 6.25s, 2020 4,500 4,309,155
- -----------------------------------------------------------------------------------------------------
Texas Metro Health Facilities Development Corp.,
Metro Health Facilities Development Rev.
(Wilson N. Jones Memorial Hospital), 7.2s, 2021 4,300 4,132,300
- -----------------------------------------------------------------------------------------------------
Texas Metro Health Facilities Development Corp.,
Metro Health Facilities Development Rev.
(Wilson N. Jones Memorial Hospital), 7.25s, 2031 2,000 1,907,980
- -----------------------------------------------------------------------------------------------------
Tom Green County, TX, Health Facilities Rev.
(Shannon Health System), 6.75s, 2021 3,150 3,268,944
- -----------------------------------------------------------------------------------------------------
Upper Illinois River Valley Development, Health
Facilities Rev. (Morris Hospital), 6.625s, 2031 1,900 1,966,196
- -----------------------------------------------------------------------------------------------------
Valley, AL, (Lanier Memorial Hospital), 5.45s, 2011 1,175 1,138,575
- -----------------------------------------------------------------------------------------------------
Wapello County, IA, Hospital Auth. Rev.
(Ottumwa Regional Health Center), 6.25s, 2022 2,000 2,008,640
- -----------------------------------------------------------------------------------------------------
Wapello County, IA, Hospital Auth. Rev.
(Ottumwa Regional Health Center), 6.375s, 2031 2,595 2,615,994
- -----------------------------------------------------------------------------------------------------
Weirton, WV, Municipal Hospital Building Commission
Rev. (Weirton Hospital Medical Center), 6.375s, 2031 3,500 3,491,950
- -----------------------------------------------------------------------------------------------------
Welasco, TX, Health Facilities Rev.
(Knapp Medical Center), 6.25s, 2032 4,000 3,997,600
- -----------------------------------------------------------------------------------------------------
West Plains, MO, Industrial Development Auth.,
Hospital Rev. (Ozarks Medical Center), 6.75s, 2024 810 820,400
- -----------------------------------------------------------------------------------------------------
West Shore Pennsylvania, Hospital Auth. Rev.
(Holy Spirit Hospital), 6.2s, 2026 4,500 4,477,635
- -----------------------------------------------------------------------------------------------------
Wichita, KS, Hospital Auth. Rev. (Via Christi Health
System), 6.25s, 2019 1,500 1,622,355
- -----------------------------------------------------------------------------------------------------
Wichita, KS, Hospital Auth. Rev. (Via Christi Health
System), 6.25s, 2020 2,500 2,686,350
- -----------------------------------------------------------------------------------------------------
Wisconsin Health & Educational Facilities, Nursing Home
Rev. (Aurora Health Care), 5.625s, 2029 1,100 1,011,395
- -----------------------------------------------------------------------------------------------------
Yonkers, NY, Industrial Development Agency, Civic
Facilities Rev. (St. John's Riverside Hospital), 6.15s, 2015 2,000 1,814,320
- -----------------------------------------------------------------------------------------------------
Yonkers, NY, Industrial Development Agency, Civic
Facilities Rev. (St. John's Riverside Hospital), 6.8s, 2016 1,760 1,819,594
- -----------------------------------------------------------------------------------------------------
Yonkers, NY, Industrial Development Agency, Civic
Facilities Rev. (St. John's Riverside Hospital), 7.125s, 2031 3,495 3,558,574
- -----------------------------------------------------------------------------------------------------
$276,211,782
- -----------------------------------------------------------------------------------------------------
Health Care Revenue - Long Term Care - 11.3%
- -----------------------------------------------------------------------------------------------------
Abilene, TX, Health Facilities Development Co.,
Retirement Facilities Rev. (Sears Methodist Retirement
System, Inc.), 7s, 2033 $1,155 $1,116,723
- -----------------------------------------------------------------------------------------------------
Baltimore County, MD, Nursing Facility Mortgage Rev.
(Eastpoint Rehabilation & Nursing Center), 3s, 2028** 1,250 375,000
- -----------------------------------------------------------------------------------------------------
Bell County, TX, Health Facilities Development Rev.
(Advanced Living Technology), 7.75s, 2006 330 307,223
- -----------------------------------------------------------------------------------------------------
Bell County, TX, Health Facilities Development Rev.
(Advanced Living Technology), 8.125s, 2016 1,420 1,169,753
- -----------------------------------------------------------------------------------------------------
Bell County, TX, Health Facilities Development Rev.
(Advanced Living Technology), 8.5s, 2026 3,150 2,495,021
- -----------------------------------------------------------------------------------------------------
Blair County, PA, Industrial Development Auth. Rev.
(Village of Penn St. Project), 7s, 2034 1,050 1,060,427
- -----------------------------------------------------------------------------------------------------
Cambria County, PA, Industrial Development Auth. Rev.
(Beverly Enterprises, Inc.), 10s, 2012 720 812,477
- -----------------------------------------------------------------------------------------------------
Chester County, PA, Industrial Development Rev.
(First Mortgage RHA Nursing Home), 8.5s, 2032 1,205 1,140,099
- -----------------------------------------------------------------------------------------------------
Clarion County, PA, Industrial Development Auth. Rev.
(Beverly Enterprises, Inc.), 7.5s, 2012 1,950 1,993,622
- -----------------------------------------------------------------------------------------------------
Colorado Health Facilities Auth. Rev.,
(Covenant Retirement Communities, Inc.), 6.125s, 2033 1,500 1,464,750
- -----------------------------------------------------------------------------------------------------
Colorado Health Facilities Auth. Rev.,
Nursing Home Rev. (National Benevolent Assoc.), 7.125s, 2030 1,300 533,000
- -----------------------------------------------------------------------------------------------------
Contra Costa County, CA, Residential Rental Facilities
Rev. (Cypress Meadows), 7s, 2028** 3,000 2,499,030
- -----------------------------------------------------------------------------------------------------
Cumberland County, PA, Retirement Community Rev.
(Wesley Affiliated Services), 7.25s, 2035 2,725 2,687,967
- -----------------------------------------------------------------------------------------------------
Daphne, AL, Special Care Facilities Financing Auth.
(1st Mortgage Rev.), 0s, 2008(++) 29,975 25,616,035
- -----------------------------------------------------------------------------------------------------
Daphne, AL, Special Care Facilities Financing Auth.
(2nd Mortgage Rev.), 0s, 2008(++) 4,500 3,845,610
- -----------------------------------------------------------------------------------------------------
Daphne, AL, Special Care Facilities Financing Auth.
(Presbyterian Hospital), 0s, 2008(++) 48,475 11,756,157
- -----------------------------------------------------------------------------------------------------
Goldsboro, NC, Housing Auth. Rev.
(North Carolina Housing Foundation, Inc.), 7.25s, 2029 2,165 1,853,543
- -----------------------------------------------------------------------------------------------------
Illinois Health Facilities Auth. Rev.,
(Lutheran Senior Ministries), 7.375s, 2031 2,700 2,715,012
- -----------------------------------------------------------------------------------------------------
Indiana Health Facility Financing Auth. Rev.
(Metro Health/Indiana, Inc.), 6.3s, 2023** 3,820 267,400
- -----------------------------------------------------------------------------------------------------
Iowa Finance Auth., Health Care Facilities Rev.
(Care Initiatives Project), 5.75s, 2018 2,520 2,195,323
- -----------------------------------------------------------------------------------------------------
Iowa Finance Auth., Health Care Facilities Rev.
(Care Initiatives Project), 9.25s, 2025 5,740 6,776,989
- -----------------------------------------------------------------------------------------------------
Jacksonville, FL, Health Facilities Auth. (National
Benevolent), 7s, 2022 1,000 410,000
- -----------------------------------------------------------------------------------------------------
Jacksonville, FL, Industrial Development Rev.
(National Benevolent), 6.4s, 2016 1,625 666,250
- -----------------------------------------------------------------------------------------------------
Jefferson County, KY, Health Care Auth. Rev.
(Beverly Enterprises, Inc.), 5.875s, 2007 160 156,370
- -----------------------------------------------------------------------------------------------------
Kansas City, MO, Industrial Development Auth.
(Bishop Spencer Place, Inc.), 8s, 2024 7,720 8,009,346
- -----------------------------------------------------------------------------------------------------
Kansas City, MO, Industrial Development Auth.
(Kingswood), 9s, 2003(++) 4,450 4,678,196
- -----------------------------------------------------------------------------------------------------
Lenexa, KS, Health Care Facilities Rev.
(Lakeview Village, Inc.), 6.25s, 2026 1,500 1,469,280
- -----------------------------------------------------------------------------------------------------
Lenexa, KS, Health Care Facilities Rev.
(Lakeview Village, Inc.), 6.875s, 2032 1,250 1,284,800
- -----------------------------------------------------------------------------------------------------
Loves Park, IL (Hoosier Care), 7.125s, 2034 1,950 1,610,252
- -----------------------------------------------------------------------------------------------------
Luzerne County, PA, Industrial Development Auth.
(Beverly Enterprise, Inc.), 6.75s, 2008 1,280 1,278,707
- -----------------------------------------------------------------------------------------------------
Maine Health & Higher Educational Facilities Rev.
(Piper Shores), 7.5s, 2019 1,500 1,519,965
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.
(GF Revere, Inc.), 8.875s, 2025 7,250 7,259,497
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.
(Glenmeadow Retirement Community), 8.375s, 2006(++) 2,300 2,698,360
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.
(Glenmeadow Retirement Community), 8.625s, 2006(++) 3,520 4,151,242
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.
(Metro Health Foundation, Inc.), 6.75s, 2027 5,830 5,328,853
- -----------------------------------------------------------------------------------------------------
Millbrae, CA, Residential Facilities Rev.
(Magnolia of Millbrae), 7.375s, 2027 7,435 7,652,771
- -----------------------------------------------------------------------------------------------------
Mocksville, NC (Housing Foundation, Inc.), 7.25s, 2029 2,145 1,884,018
- -----------------------------------------------------------------------------------------------------
Monongalia County, WV, Health Facilities Rev.
(Beverly Enterprises, Inc.), 5.875s, 2007 500 489,925
- -----------------------------------------------------------------------------------------------------
Montgomery County, PA, Higher Education & Health Auth.
Rev. (AHF/Montgomery), 10.5s, 2020 2,265 2,264,932
- -----------------------------------------------------------------------------------------------------
New Hampshire Business Finance Auth., Health Care
Facilities Rev. (Metro Health Foundation, Inc.), 6.55s, 2028 2,875 2,608,114
- -----------------------------------------------------------------------------------------------------
New Hampshire Industrial Development Auth.,
(Tall Pines), 11.25s, 2016** 1,265 127
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth. Rev.,
(Courthouse Convalescent Center), 8.7s, 2014 1,350 1,363,702
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth. Rev.,
(Geriatric & Medical Services), 10.5s, 2020 3,000 3,001,320
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth. Rev.,
(Wanaque Convalescent Center), 8.5s, 2009 700 711,858
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth. Rev.,
(Wanaque Convalescent Center), 8.6s, 2011 1,000 1,017,250
- -----------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Auth. Rev.,
(Cherry Hill), 8s, 2027 4,000 3,406,720
- -----------------------------------------------------------------------------------------------------
Oklahoma Development Finance Auth. Rev.,
(Continuing Care Retirement), 8s, 2032 3,750 3,618,375
- -----------------------------------------------------------------------------------------------------
Portsmouth, VA, Industrial Development Auth.
(Beverly Enterprises), 10s, 2011 1,390 1,418,370
- -----------------------------------------------------------------------------------------------------
Reedley, CA, (Mennonite Home), 7.5s, 2026 5,105 5,111,228
- -----------------------------------------------------------------------------------------------------
Santa Fe, NM, Industrial Development Rev.
(Casa Real Nursing Home), 9.75s, 2013 1,580 1,611,268
- -----------------------------------------------------------------------------------------------------
Shelby County, TN, Nursing Home Rev.
(Beverly Enterprises), 7.4s, 2011 920 913,054
- -----------------------------------------------------------------------------------------------------
State of Hawaii, Department of Budget & Finance,
Special Purpose Rev. (Kahala Nui Senior Living
Community), 8s, 2033 1,500 1,481,625
- -----------------------------------------------------------------------------------------------------
Sterling, IL, (Hoosier Care), 7.125s, 2034 1,360 1,123,047
- -----------------------------------------------------------------------------------------------------
Waterford Township, MI, Economic Development Corp. Rev.
(Canterbury Health), 6s, 2039 3,125 2,135,656
- -----------------------------------------------------------------------------------------------------
Wilkinsburg, PA, Municipal Auth. Health Rev.
(Monroeville Christian), 8.25s, 2027 7,045 6,731,497
- -----------------------------------------------------------------------------------------------------
$161,747,136
- -----------------------------------------------------------------------------------------------------
Human Services - 2.0%
- -----------------------------------------------------------------------------------------------------
California Statewide Community Development Auth.
(Prides Industries), 7.125s, 2016 $1,810 $1,805,746
- -----------------------------------------------------------------------------------------------------
Cheneyville, LA (Westside Habilitation Center),
8.375s, 2013 4,890 5,044,328
- -----------------------------------------------------------------------------------------------------
Lehigh County, PA, General Purpose Auth.
(Kidspeace Obligation Group), 6s, 2018 3,550 3,370,654
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.,
(Brandon Residential Treatment), 8.75s, 2024 4,885 5,212,442
- -----------------------------------------------------------------------------------------------------
Montgomery County, PA, Industrial Development Auth.
(Wordsworth Academy), 8s, 2024 2,850 2,949,294
- -----------------------------------------------------------------------------------------------------
New Hampshire Higher Educational & Health Facilities
Auth. Rev., (Child & Family Services), 6.125s, 2019 1,315 1,316,657
- -----------------------------------------------------------------------------------------------------
New York City, NY, Industrial Development Agency
(Special Needs Facilities Pooled Program), 6.1s, 2012 1,955 1,978,108
- -----------------------------------------------------------------------------------------------------
Orange County, FL, Health Facilities Auth. Rev.,
8.875s, 2021 1,925 1,934,375
- -----------------------------------------------------------------------------------------------------
Orange County, FL, Health Facilities Auth. Rev.
(GF/Orlando), 9s, 2031 2,185 2,199,115
- -----------------------------------------------------------------------------------------------------
Osceola County, FL, Industrial Development Rev.
(Community Provider Pooled Loan), 7.75s, 2017 2,500 2,541,100
- -----------------------------------------------------------------------------------------------------
Philadelphia, PA, Industrial Development Auth.,
Rev., 6.125s, 2019 1,430 1,144,000
- -----------------------------------------------------------------------------------------------------
$29,495,819
- -----------------------------------------------------------------------------------------------------
Industrial Revenue - Airlines - 1.7%
- -----------------------------------------------------------------------------------------------------
Alliance Airport Auth., Inc., Special Facilities Rev.
(AMR Corp.), 7.5s, 2029 $1,500 $716,250
- -----------------------------------------------------------------------------------------------------
Cleveland, OH, Special Facilites Rev. (Continental
Airlines), 5.375s, 2027 2,500 1,550,650
- -----------------------------------------------------------------------------------------------------
Dallas-Fort Worth, TX, International Airport Facility
Improvement Corp. Rev. (AMR Corp.), 5.95s, 2029 2,680 2,510,436
- -----------------------------------------------------------------------------------------------------
Dallas-Fort Worth, TX, International Airport Facility
Improvement Corp. Rev. (Delta Airlines, Inc.), 7.625s, 2021 4,500 3,580,290
- -----------------------------------------------------------------------------------------------------
Kenton County, KY, Airport Auth. Rev.
(Delta Airlines, Inc.), 7.5s, 2012 3,500 3,240,755
- -----------------------------------------------------------------------------------------------------
Los Angeles, CA, Regional Airport Lease Rev.
(American Airlines, Inc.), 7s, 2012 1,700 1,487,840
- -----------------------------------------------------------------------------------------------------
Los Angeles, CA, Regional Airport Lease Rev.
(AMR Corp.), 7.5s, 2024 5,300 4,365,557
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth., Special
Facilities Rev. (Continental Airlines, Inc.), 6.25s, 2019 3,205 2,720,148
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth., Special
Facilities Rev. (Continental Airlines, Inc.), 6.4s, 2023 3,040 2,577,190
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth., Special
Facilities Rev. (Continental Airlines, Inc.), 6.25s, 2029 545 454,694
- -----------------------------------------------------------------------------------------------------
State of Hawaii, Special Facilities Rev.
(Continental Airlines, Inc.), 7s, 2020 940 751,342
- -----------------------------------------------------------------------------------------------------
$23,955,152
- -----------------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 1.9%
- -----------------------------------------------------------------------------------------------------
California Pollution Control Financing Auth.,
Solid Waste Disposal Rev. (Browning-Ferris, Inc.), 5.8s, 2016 $5,000 $4,472,550
- -----------------------------------------------------------------------------------------------------
Henrico County, VA, Industrial Development Auth. Rev.
(Browning-Ferris, Inc.), 5.3s, 2011 3,000 3,018,630
- -----------------------------------------------------------------------------------------------------
Henrico County, VA, Industrial Development Auth. Rev.
(Browning-Ferris, Inc.), 5.45s, 2014 2,000 1,782,060
- -----------------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency Rev.,
Resource Recovery Rev. (Waste Management, Inc.), 6.9s, 2029 1,700 1,863,999
- -----------------------------------------------------------------------------------------------------
Nevada Department of Business, Solid Waste Disposal
Rev. (Republic Services, Inc.), 5.625s, 2026 2,000 1,974,040
- -----------------------------------------------------------------------------------------------------
New Morgan, PA, Industrial Development Auth. Rev.
(Browning-Ferris, Inc.), 6.5s, 2019 2,500 2,265,350
- -----------------------------------------------------------------------------------------------------
New York Environmental Facilities Corp.,
Solid Waste Disposal Rev. (Waste Management Project), 4s, 2012 6,000 6,042,840
- -----------------------------------------------------------------------------------------------------
Ohio Solid Waste Rev., Ohio Water Development Auth.
(Waste Management), 4.85s, 2022 3,000 3,047,490
- -----------------------------------------------------------------------------------------------------
Schuylkill County, PA, Industrial Development Auth.
(Pine Grove Landfill, Inc.), 5.1s, 2019 1,000 1,003,280
- -----------------------------------------------------------------------------------------------------
Tooele County, UT, (Allied Waste), 6.75s, 2010 2,500 1,125,000
- -----------------------------------------------------------------------------------------------------
Tooele County, UT, Pollution Control Rev.
(Laidlaw Environmental Services), 7.55s, 2027** 5,000 200,000
- -----------------------------------------------------------------------------------------------------
$26,795,239
- -----------------------------------------------------------------------------------------------------
Industrial Revenue - Other - 5.1%
- -----------------------------------------------------------------------------------------------------
Bucks County, PA, Industrial Development Auth. (USX
Corp.), 5.4s, 2017 $1,200 $1,254,252
- -----------------------------------------------------------------------------------------------------
Fairfield Alabama Enrionment Improvement, (USX Corp.),
5.4s 2016 1,600 1,672,336
- -----------------------------------------------------------------------------------------------------
Gulf Coast, TX, Waste Disposal Rev.
(Valero Energy Corp.), 6.65s, 2032 1,500 1,511,790
- -----------------------------------------------------------------------------------------------------
Hardeman County, TN, Correctional Facilities Rev.,
7.75s, 2017 6,500 6,598,410
- -----------------------------------------------------------------------------------------------------
Hernando County, FL, Water & Sewer Rev.
(Florida Crushed Stone Co.), 8.5s, 2014 18,555 8,828,247
- -----------------------------------------------------------------------------------------------------
Janesville, WI, Industrial Development Rev.
(Simmons Manufacturing Co.), 7s, 2017 3,900 3,972,228
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth.,
Economic Development Rev. (Holt Hauling & Warehousing),
8.4s, 2015**+ 4,000 2,360,000
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth.,
Economic Development Rev. (Holt Hauling & Warehousing),
8.6s, 2017**+ 8,000 4,720,000
- -----------------------------------------------------------------------------------------------------
Philadelphia, PA, Industrial Development Auth. Rev.
(Host Marriott LP), 7.75s, 2017 2,000 2,024,060
- -----------------------------------------------------------------------------------------------------
Port of Corpus Christ, TX, Industrial Development Auth.
Rev. (Citgo Petroleum Corp.), 8.25s, 2031 2,300 2,302,668
- -----------------------------------------------------------------------------------------------------
Port of New Orleans, LA, Industrial Develoment Auth.
Rev. (Avondale Industries), 8.5s, 2014 20,535 22,264,252
- -----------------------------------------------------------------------------------------------------
Spirit Lake, IA, Industrial Development Rev.
(Crystal Tips, Inc.), 0s, 2008(++) 7,377 9,545,070
- -----------------------------------------------------------------------------------------------------
State of Ohio, Air Quility Development, Auth. Rev.
(U.S. Steel Corp.), 5s, 2015 1,925 1,947,291
- -----------------------------------------------------------------------------------------------------
Tooele County, UT, Hazardous Waste Treatment Rev.
(Union Pacific Corp.), 5.7s, 2026 3,895 3,782,201
- -----------------------------------------------------------------------------------------------------
$72,782,805
- -----------------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 5.4%
- -----------------------------------------------------------------------------------------------------
Arkansas State Development Finance Auth.,
Industrial Facilities Rev. (Potlatch Corp.), 7.75s, 2025 $1,200 $1,203,984
- -----------------------------------------------------------------------------------------------------
Beauregard Parish, LA, (Boise Cascade Corp.), 6.8s, 2027 3,250 3,246,230
- -----------------------------------------------------------------------------------------------------
Butler, AL, Solid Waste Disposal Facilities Rev.
(James River Corp.), 8s, 2028 7,000 6,966,820
- -----------------------------------------------------------------------------------------------------
Cass County, TX, Industrial Development Corp.
(International Paper Co.), 5.35s, 2012 2,800 2,849,140
- -----------------------------------------------------------------------------------------------------
Courtland, AL, Solid Waste Disposal Rev.
(Champion International Corp.), 6.375s, 2029 2,500 2,511,500
- -----------------------------------------------------------------------------------------------------
De Soto Parish, LA, Environmental Improvement Rev.
(International Paper Co.), 6.35s, 2025 1,650 1,683,594
- -----------------------------------------------------------------------------------------------------
Delta County, MI, Economic Development Corp.
Envirmonmental Improvements Rev.
(Mead Westvaco Escanaba), 6.45s, 2023 1,100 1,098,559
- -----------------------------------------------------------------------------------------------------
Delta County, MI, Economic Development Corp.
Envirmonmental Improvements Rev.
(Mead Westvaco Escanaba), 6.25s, 2027 3,100 3,098,078
- -----------------------------------------------------------------------------------------------------
Erie County, PA, Industrial Development Auth.
(International Paper Co.), 5.25s, 2010 2,100 2,173,710
- -----------------------------------------------------------------------------------------------------
Florence County, SC, Industrial Development Rev.
(Stone Container Corp.), 7.375s, 2007 1,290 1,315,361
- -----------------------------------------------------------------------------------------------------
Georgetown County, SC, Enviormental Improvement
(International Paper Co.), 5.7s, 2014 3,600 3,715,704
- -----------------------------------------------------------------------------------------------------
Green Bay, WI, Redevelopment Auth.
(Industrial Rev.), 5.6s, 2019 1,000 832,460
- -----------------------------------------------------------------------------------------------------
Hodge Village, LA, Utilities Rev.
(Stone Container Corp.), 9s, 2010 5,490 5,503,670
- -----------------------------------------------------------------------------------------------------
Maine Finance Auth., Solid Waste Recycling Facility Rev.
(Bowater, Inc.), 7.75s, 2022 8,500 8,465,065
- -----------------------------------------------------------------------------------------------------
Onondaga County, NY, Industrial Development Auth. Rev.,
Solid Waste Disposal Rev.
(Solvay Paperboard LLC), 6.8s, 2014 3,800 3,961,880
- -----------------------------------------------------------------------------------------------------
Perry County, KY, Solid Waste Disposal Resources
(TJ International), 7s, 2024 11,000 11,428,890
- -----------------------------------------------------------------------------------------------------
Sabine River Auth., TX, Louisiana Water Facilities
(International Paper Co.), 6.2s, 2025 2,250 2,271,690
- -----------------------------------------------------------------------------------------------------
Savannah, GA, Economic Development Auth. Rev.
(Stone Container Corp.), 7.4s, 2026 7,500 7,526,925
- -----------------------------------------------------------------------------------------------------
Wabash, IN, Solid Waste Disposal Rev.
(Jefferson Smurfit Corp.), 7.5s, 2026 2,000 1,968,900
- -----------------------------------------------------------------------------------------------------
West Point, VA, Solid Waste Disposal Rev.
(Chesapeake Corp.), 6.25s, 2019 6,475 5,408,956
- -----------------------------------------------------------------------------------------------------
$77,231,116
- -----------------------------------------------------------------------------------------------------
Industrial Revenue - Metals - 0.5%
- -----------------------------------------------------------------------------------------------------
Burns Habor, IN, Solid Waste Disposal Facilities Rev.
(Bethlehem Steel), 8s, 2024** $10,455 $104,550
- -----------------------------------------------------------------------------------------------------
Cambria County, PA, Industrial Development Auth. Rev.
(Bethlehem Steel), 7.5s, 2015** 3,890 38,900
- -----------------------------------------------------------------------------------------------------
Indiana Development Finance Auth. Rev.,
(Inland Steel), 7.25s, 2011 6,000 3,240,000
- -----------------------------------------------------------------------------------------------------
Mobile County, AL, Industrial Development Auth. rev.
(Ipsco, Inc.), 6.875s, 2030 2,850 2,781,800
- -----------------------------------------------------------------------------------------------------
Ohio Solid Waste Rev., (Republic Engineered Steels,
Inc.), 8.25s, 2014** 7,000 350
- -----------------------------------------------------------------------------------------------------
Spokane County, WA, Industrial Development Corp.
(Kaiser Aluminum & Chemical Corp.), 7.6s, 2027** 3,700 1,295,000
- -----------------------------------------------------------------------------------------------------
$7,460,600
- -----------------------------------------------------------------------------------------------------
Industrial Revenue - Retail - 0.3%
- -----------------------------------------------------------------------------------------------------
Chester County, SC, Industrial Development Rev.
(Springs Industries, Inc), 7.35s, 2014 $1,500 $1,518,390
- -----------------------------------------------------------------------------------------------------
Chester County, SC, Industrial Development Rev.
(Springs Industries, Inc.), 7.8s, 2014 1,025 1,027,101
- -----------------------------------------------------------------------------------------------------
Harrison County, WV, Commercial Development Rev.
(Kroger Co.), 8.1s, 2014 1,900 1,959,470
- -----------------------------------------------------------------------------------------------------
$4,504,961
- -----------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 1.2%
- -----------------------------------------------------------------------------------------------------
California Statewide Community Development Auth.,
Development Auth. Rev. (East Valley Tourist), 9.25s, 2020 $3,845 $3,561,739
- -----------------------------------------------------------------------------------------------------
Colorado River Indian Tribes, AZ (Blue Water Casino), 6.25s, 2004+ 3,000 3,007,350
- -----------------------------------------------------------------------------------------------------
Long Beach, CA (Aquarium of Pacific), 6.125s, 2005(++) 1,000 1,106,390
- -----------------------------------------------------------------------------------------------------
Mississippi Development Bank, Special Obligation
(Diamond Lake Utilities), 6.25s, 2017 3,800 3,799,886
- -----------------------------------------------------------------------------------------------------
Nevada Department of Business & Industry Rev.
(Las Vegas Monorail), 7.375s, 2040 6,185 5,439,336
- -----------------------------------------------------------------------------------------------------
$16,914,701
- -----------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 1.8%
- -----------------------------------------------------------------------------------------------------
Austin, TX, Convention Center (Convention Enterprises,
Inc.), 6.6s, 2021 $1,300 $1,322,607
- -----------------------------------------------------------------------------------------------------
Austin, TX, Convention Center (Convention Enterprises,
Inc.), 6.7s, 2028 2,000 2,018,220
- -----------------------------------------------------------------------------------------------------
Capital Trust Agency of Florida Rev.
(Seminole Tribe Convention), 10s, 2033 11,000 12,832,380
- -----------------------------------------------------------------------------------------------------
Harris County, TX, Cultural Education Facility (Space
Center Houston), 9.25s, 2023 70 57,301
- -----------------------------------------------------------------------------------------------------
New Jersey Economic Development Auth. Rev.
(Kapowski Project), 6.8s, 2018 4,000 4,266,320
- -----------------------------------------------------------------------------------------------------
Rockbridge County, VA, Industrial Development Auth.
Rev. (Virginia Horse Center), 6.85s, 2021 2,300 2,306,693
- -----------------------------------------------------------------------------------------------------
Southwestern Illinois Development Auth. Rev.,
Solid Waste Disposal Rev., 5.9s, 2014 2,500 2,504,425
- -----------------------------------------------------------------------------------------------------
St. Louis County, MO, Industrial Development Auth. Rev.
(Kiel Center Arena), 7.875s, 2024 1,000 1,028,610
- -----------------------------------------------------------------------------------------------------
$26,336,556
- -----------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 3.1%
- -----------------------------------------------------------------------------------------------------
Alexandria, VA, Redevelopment & Housing Finance Auth.
Rev., 9s, 2018 $1,930 $1,916,162
- -----------------------------------------------------------------------------------------------------
Alexandria, VA, Redevelopment & Housing Finance Auth.
Rev., 5.5s, 2029 3,360 3,270,187
- -----------------------------------------------------------------------------------------------------
Austin, TX, Housing Finance Corp.
(Woodland Heights Apartments), 7.25s, 2027** 4,000 3,188,600
- -----------------------------------------------------------------------------------------------------
California Statewide Community Development Auth.,
Multi-family Rev. (Equity Residential), 5.2s, 2029 2,940 3,115,459
- -----------------------------------------------------------------------------------------------------
Charter Mac Equity Issuer Trust, 6.625s, 2009 ## 8,000 8,580,960
- -----------------------------------------------------------------------------------------------------
Dallas-Fort Worth, TX, Housing Corp., 8.5s, 2011 2,390 2,393,227
- -----------------------------------------------------------------------------------------------------
Florida Multi-Family Housing Finance Agency Rev.,
(Center Court Apartments), 8.5s, 2018 1,550 1,515,342
- -----------------------------------------------------------------------------------------------------
Maplewood, RI, Housing Development Corp.
(Terrace Apartments), 6.9s, 2025 3,935 3,976,711
- -----------------------------------------------------------------------------------------------------
Memphis, TN, Educational & Housing Facilities (Wesley
Highlands Terrace), 8.5s, 2024 5,485 5,516,264
- -----------------------------------------------------------------------------------------------------
Munimae TE Bond Subsidiary LLC, 6.875s, 2009 ## 6,000 6,477,120
- -----------------------------------------------------------------------------------------------------
Ridgeland, MS, Urban Renewal, Multi-Family Housing Rev.
(Northbrook I & III Apartments), 6.25s, 2029** 5,000 3,456,400
- -----------------------------------------------------------------------------------------------------
Texas Housing & Community Board, (Harbor & Plumtree), 10s, 2026+ 1,695 1,627,336
- -----------------------------------------------------------------------------------------------------
Virginia Housing & Development Auth., 0s, 2017 115 30,299
- -----------------------------------------------------------------------------------------------------
$45,064,067
- -----------------------------------------------------------------------------------------------------
Parking - 0.1%
- -----------------------------------------------------------------------------------------------------
Rail Connections, Inc., MA, Rev., 0s, 2009(++) $375 $212,494
- -----------------------------------------------------------------------------------------------------
Rail Connections, Inc., MA, Rev., 0s, 2009(++) 450 238,590
- -----------------------------------------------------------------------------------------------------
Rail Connections, Inc., MA, Rev., 0s, 2009(++) 975 483,366
- -----------------------------------------------------------------------------------------------------
Rail Connections, Inc., MA, Rev., 0s, 2009(++) 1,235 573,435
- -----------------------------------------------------------------------------------------------------
$1,507,885
- -----------------------------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 0.1%
- -----------------------------------------------------------------------------------------------------
Illinois Sales Tax, 6.25s, 2015 $1,500 $1,702,650
- -----------------------------------------------------------------------------------------------------
Single Family Housing Revenue - Local - 1.1%
- -----------------------------------------------------------------------------------------------------
California Rural Home Mortgage Finance Auth. Rev.,
GNMA, 6.55s, 2030 $1,485 $1,561,180
- -----------------------------------------------------------------------------------------------------
Chicago, IL, Single Family Mortgage Rev., GNMA, 7.05s, 2030 355 371,873
- -----------------------------------------------------------------------------------------------------
Cook County, IL, Single Family Mortgage Rev., 0s, 2015 360 98,363
- -----------------------------------------------------------------------------------------------------
Corpus Christi, TX, Housing Finance Auth. Rev., MBIA, 0s, 2011 3,395 1,562,617
- -----------------------------------------------------------------------------------------------------
Escambia County, FL, Single Family Housing Rev., GNMA, 6.95s, 2024 1,075 1,173,534
- -----------------------------------------------------------------------------------------------------
Jefferson County, TX, Housing Finance Corp., MBIA, 0s, 2015 1,315 354,051
- -----------------------------------------------------------------------------------------------------
Jefferson Parish, LA, Home Mortgage Auth. Rev., GNMA, 6.625s, 2023 1,145 1,265,271
- -----------------------------------------------------------------------------------------------------
Jefferson Parish, LA, Home Mortgage Auth. Rev., GNMA, 6.75s, 2030 1,035 1,092,070
- -----------------------------------------------------------------------------------------------------
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA, 7.5s, 2026 570 608,036
- -----------------------------------------------------------------------------------------------------
Lee County, FL, Housing Finance Auth. Rev., GNMA, 7s, 2031 330 343,342
- -----------------------------------------------------------------------------------------------------
Maricopa County, AZ, GNMA, 7.65s, 2024 16 16,203
- -----------------------------------------------------------------------------------------------------
New Castle County, DE, Single Family Mortgage Rev., FGIC, 0s, 2016 180 48,226
- -----------------------------------------------------------------------------------------------------
Pima County, AZ, Industrial Development Auth. Rev.,
GNMA, 7.05s, 2030 1,335 1,361,233
- -----------------------------------------------------------------------------------------------------
Reno County, KS, Single Family Mortgage Rev., AMBAC, 0s, 2014 125 35,169
- -----------------------------------------------------------------------------------------------------
San Bernardino County, CA, Single Family Mortgage Rev.,
GNMA, 7.375s, 2020 230 239,103
- -----------------------------------------------------------------------------------------------------
Sedgwick & Shawnee Counties, KS, Single Family Housing
Rev., GNMA, 6.875s, 2026 2,230 2,356,129
- -----------------------------------------------------------------------------------------------------
Sedgwick & Shawnee Counties, KS, Single Family Housing
Rev., GNMA, 6.45s, 2029 910 974,938
- -----------------------------------------------------------------------------------------------------
Sedgwick & Shawnee Counties, KS, Single Family Housing
Rev., GNMA, 6.45s, 2033 2,190 2,331,605
- -----------------------------------------------------------------------------------------------------
$15,792,943
- -----------------------------------------------------------------------------------------------------
Single Family Housing Revenue - Other - 0.1%
- -----------------------------------------------------------------------------------------------------
Texas Veteran Housing Assistance Program, 7s, 2025 $1,100 $1,134,562
- -----------------------------------------------------------------------------------------------------
Single Family Housing Revenue - State - 2.7%
- -----------------------------------------------------------------------------------------------------
California Housing Finance Agency Rev.,
Home Mortgage, MBIA, 0s, 2027 $2,380 $643,314
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 7.15s, 2014 146 149,742
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 6.75s, 2021 610 638,359
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 5.9s, 2023 1,335 1,416,515
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 6.1s, 2023 725 746,620
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 6.55s, 2025 474 496,705
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 7.4s, 2027 360 363,229
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 7.15s, 2030 495 508,697
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 6.6s, 2032 1,430 1,512,582
- -----------------------------------------------------------------------------------------------------
Colorado Housing & Finance Auth. Rev., 6.55s, 2033 990 1,038,668
- -----------------------------------------------------------------------------------------------------
Delaware Single Family Housing Auth. Rev., 6.75s, 2024 1,615 1,660,575
- -----------------------------------------------------------------------------------------------------
Louisiana Housing Finance Agency, Single Family
Mortgage Rev., GNMA, 7.55s, 2031 1,125 1,208,509
- -----------------------------------------------------------------------------------------------------
Mississippi Home Corp. Rev., GNMA, 6.5s, 2032 4,460 4,906,089
- -----------------------------------------------------------------------------------------------------
Mississippi Home Corp. Rev., GNMA, 6.1s, 2034 4,100 4,149,200
- -----------------------------------------------------------------------------------------------------
Missouri Housing Development Commission, Single Family
Mortgage Rev., 6.35s, 2032 1,485 1,565,546
- -----------------------------------------------------------------------------------------------------
Missouri Housing Development Commission, Single Family
Mortgage Rev. (Homeownership Loan Program), GNMA, 6.85s, 2032 1,125 1,243,823
- -----------------------------------------------------------------------------------------------------
Missouri State Housing Development Commission, Single
Family Mortgage Rev., GNMA, 6.7s, 2030 3,025 3,192,948
- -----------------------------------------------------------------------------------------------------
Missouri State Housing Development Commission, Single
Family Mortgage Rev., GNMA, 7.45s, 2031 495 516,849
- -----------------------------------------------------------------------------------------------------
Missouri State Housing Development Commission, Single
Family Mortgage Rev. (Homeownership Loan Program),
GNMA, 6.75s, 2034 1,170 1,245,395
- -----------------------------------------------------------------------------------------------------
New Hampshire Housing Finance Auth. Rev., 5.875s, 2030 1,215 1,278,787
- -----------------------------------------------------------------------------------------------------
New Hampshire Housing Finance Auth. Rev., 6.3s, 2031 1,295 1,381,843
- -----------------------------------------------------------------------------------------------------
New Mexico Mortgage Finance Auth. Rev., GNMA, 6.35s, 2033 1,325 1,407,508
- -----------------------------------------------------------------------------------------------------
North Dakota Housing Finance Agency., Housing Finance, 5s, 2033 2,260 2,274,102
- -----------------------------------------------------------------------------------------------------
Oklahoma Housing Finance Agency, Single Family, 7.55s, 2028 715 766,351
- -----------------------------------------------------------------------------------------------------
Phoenix, AZ, Single Family Mortgage Rev., GNMA, 6.1s, 2028 1,100 1,150,468
- -----------------------------------------------------------------------------------------------------
Texas Housing & Community Affairs, Residential Mortgage
Rev., GNMA, 7.1s, 2021 3,815 4,067,210
- -----------------------------------------------------------------------------------------------------
$39,529,634
- -----------------------------------------------------------------------------------------------------
Solid Waste Revenue - 1.2%
- -----------------------------------------------------------------------------------------------------
Delaware County, PA, Industrial Development Auth. Rev.
(American Ret-fuel), 6.2s, 2019 $3,900 $4,001,829
- -----------------------------------------------------------------------------------------------------
Delaware County, PA, Resources Recovery Facility Rev.,
6.1s, 2005 3,460 3,548,196
- -----------------------------------------------------------------------------------------------------
Hudson County, NJ, Solid Waste System Rev., 6s, 2019 2,000 1,885,440
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.,
(Ogden Haverhill), 5.5s, 2013 2,475 2,345,161
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.,
Resources Recovery Rev. (Ogden Haverhill), 5.6s, 2019 5,425 4,995,937
- -----------------------------------------------------------------------------------------------------
$16,776,563
- -----------------------------------------------------------------------------------------------------
State and Local Appropriation - 2.7%
- -----------------------------------------------------------------------------------------------------
Alabama Building Renovation Auth., AMBAC, 6s, 2017 $1,805 $2,048,097
- -----------------------------------------------------------------------------------------------------
Alabama Building Renovation Auth., AMBAC, 6s, 2018 1,155 1,304,492
- -----------------------------------------------------------------------------------------------------
Chicago, IL, Public Building Commerce Rev.,
RITES, 5.598s, 2017+ 4,500 5,165,550
- -----------------------------------------------------------------------------------------------------
College Park, GA, (Civic Center), AMBAC, 5.75s, 2020 3,000 3,293,730
- -----------------------------------------------------------------------------------------------------
Delaware Valley, PA, Regional Finance Auth.,
RITES, AMBAC, 9.854s, 2018(+) 7,000 8,349,180
- -----------------------------------------------------------------------------------------------------
Essex County, NJ, RITES, 10.393s, 2020+(+) 6,000 7,007,760
- -----------------------------------------------------------------------------------------------------
Harris County, TX, 5.8s, 2014 1,605 1,607,247
- -----------------------------------------------------------------------------------------------------
Harris County, TX, 5.625s, 2020 2,678 2,489,777
- -----------------------------------------------------------------------------------------------------
Houston, TX, 6.3s, 2020 5,000 5,490,200
- -----------------------------------------------------------------------------------------------------
Northumberland County, PA, 6.65s, 2020 1,250 1,278,362
- -----------------------------------------------------------------------------------------------------
Northumberland County, PA, 7s, 2020 1,000 1,025,630
- -----------------------------------------------------------------------------------------------------
Shawnee County, KS, (Community Mental Health Center
Inc.), 5.35s, 2019 250 223,863
- -----------------------------------------------------------------------------------------------------
$39,283,888
- -----------------------------------------------------------------------------------------------------
Student Loan Revenue - 1.0%
- -----------------------------------------------------------------------------------------------------
Access To Loans For Learning, California Student Loan
Rev., 7.95s, 2030 $2,700 $2,744,577
- -----------------------------------------------------------------------------------------------------
Arizona Student Loan Acquisition Auth., 7.25s, 2010 2,970 3,074,158
- -----------------------------------------------------------------------------------------------------
Arizona Student Loan Acquisition Auth., 7.625s, 2010 4,610 4,792,648
- -----------------------------------------------------------------------------------------------------
Arizona Student Loan Acquisition Auth., 6.15s, 2029 1,500 1,543,965
- -----------------------------------------------------------------------------------------------------
South Dakota Student Loan Rev., Education Loans, Inc., 5.6s, 2020 2,700 2,703,645
- -----------------------------------------------------------------------------------------------------
$14,858,993
- -----------------------------------------------------------------------------------------------------
Tax Assesment - 3.1%
- -----------------------------------------------------------------------------------------------------
Broadview, IL, Tax Increment Rev., 5.25s, 2012 $4,180 $4,284,542
- -----------------------------------------------------------------------------------------------------
Broadview, IL, Tax Increment Rev., 5.375s, 2015 3,400 3,462,798
- -----------------------------------------------------------------------------------------------------
Capital Region Community Development District of
Florida, Capital Improvement Rev., 5.95s, 2006 1,050 1,058,316
- -----------------------------------------------------------------------------------------------------
Capital Region Community Development District of
Florida, Economic Improvement Rev., 6.85s, 2031 735 753,456
- -----------------------------------------------------------------------------------------------------
Denver, CO, Urban Renewal Tax (Downtown Denver), 8.5s, 2003(++) 1,024 1,039,636
- -----------------------------------------------------------------------------------------------------
Denver, CO, Urban Renewal Tax (Musicland), 8.5s, 2003 (++) 950 964,507
- -----------------------------------------------------------------------------------------------------
Double Branch Community Development, 5.6s, 2007 1,000 998,900
- -----------------------------------------------------------------------------------------------------
Greyhawk Landing Community Development, 6.25s, 2009 1,210 1,218,422
- -----------------------------------------------------------------------------------------------------
Heritage Harbour South Community, Capital Improvement, 5.4s, 2008 2,450 2,434,834
- -----------------------------------------------------------------------------------------------------
Hyland Hills Metropolitan Park & Recreation District, 6.75s, 2015 2,500 2,627,875
- -----------------------------------------------------------------------------------------------------
Katy, TX, Development Auth. Rev., 5.8s, 2011 2,910 2,957,055
- -----------------------------------------------------------------------------------------------------
Katy, TX, Development Auth. Rev., 6s, 2018 6,000 6,034,140
- -----------------------------------------------------------------------------------------------------
Lake Elsinore, CA, Public Financing Auth., 7.1s, 2020 2,410 2,527,102
- -----------------------------------------------------------------------------------------------------
Markham, IL, Tax Increment Rev., 9s, 2012 2,350 2,382,524
- -----------------------------------------------------------------------------------------------------
Panther Trace, FL, Development District Rev., 5.4s, 2008 2,610 2,571,659
- -----------------------------------------------------------------------------------------------------
Panther Trace, FL, Development District Rev., 6.5s, 2009 2,380 2,389,568
- -----------------------------------------------------------------------------------------------------
Preserve at Wilderness Lake, 5.9s, 2006 505 505,692
- -----------------------------------------------------------------------------------------------------
Preserve at Wilderness Lake, 6.2s, 2008 2,000 2,004,520
- -----------------------------------------------------------------------------------------------------
Renaissance Community Dev., 6.25s, 2008 2,750 2,783,467
- -----------------------------------------------------------------------------------------------------
Reunion East Community Development District of Florida, 5.9s, 2007 1,660 1,664,930
- -----------------------------------------------------------------------------------------------------
$44,663,943
- -----------------------------------------------------------------------------------------------------
Tax-Other - 0.6%
- -----------------------------------------------------------------------------------------------------
Black Hawk, CO, Device Tax Rev., 5.625s, 2021 $2,750 $2,589,510
- -----------------------------------------------------------------------------------------------------
Park Creek Metropolitan District Company Rev., 7.875s, 2032 ## 4,230 4,122,727
- -----------------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth. Rev., 6s, 2006 500 534,385
- -----------------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth. Rev., 5.875s, 2018 1,500 1,494,270
- -----------------------------------------------------------------------------------------------------
$8,740,892
- -----------------------------------------------------------------------------------------------------
Tobacco - 2.2%
- -----------------------------------------------------------------------------------------------------
Badger Tobacco, Wisconsin (Asset Securitization Corp.),
6.125s, 2027 $5,000 $4,463,050
- -----------------------------------------------------------------------------------------------------
California Statewide Financing Auth.,
Tobacco Settlement, 5.625s, 2029 4,890 4,012,147
- -----------------------------------------------------------------------------------------------------
District of Columbia, Tobacco Settlement, 6.25s, 2024 3,935 3,629,093
- -----------------------------------------------------------------------------------------------------
Golden State Tobacco Securitization, 7.8s, 2042 3,000 2,906,910
- -----------------------------------------------------------------------------------------------------
Iowa Tobacco Settlement Auth., 5.3s, 2025 5,000 3,755,700
- -----------------------------------------------------------------------------------------------------
Louisiana Tobacco Settlement Auth., 5.5s, 2030 4,250 3,383,255
- -----------------------------------------------------------------------------------------------------
New Jersey Tobacco Settlement Auth., 5.75s, 2032 2,500 2,106,225
- -----------------------------------------------------------------------------------------------------
Rhode Island Tobacco Settlement Auth., 6s, 2023 5,000 4,341,200
- -----------------------------------------------------------------------------------------------------
South Carolina Tobacco Settlement Auth., 6.375s, 2028 3,500 3,012,905
- -----------------------------------------------------------------------------------------------------
$31,610,485
- -----------------------------------------------------------------------------------------------------
Toll Roads - 3.2%
- -----------------------------------------------------------------------------------------------------
Arapahoe County, CO, Capital Improvement
(Highway Rev.), 0s, 2005(++) $69,000 $13,962,150
- -----------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor Agency, CA,
Toll Road Rev., 0s to 2005, 7.15s to 2013(++) 5,000 5,506,950
- -----------------------------------------------------------------------------------------------------
New Jersey Turnpike Auth., RITES, 9.476s, 2020+(+) 5,000 5,407,200
- -----------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2011 2,700 1,088,640
- -----------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2012 2,100 973,392
- -----------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2012 1,700 612,119
- -----------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2013 7,000 2,965,550
- -----------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2014 6,600 2,553,078
- -----------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2015 7,250 2,558,307
- -----------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA, Toll Road Rev., 0s, 2016 2,000 643,140
- -----------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Toll Road Rev.
(Transportation Corridor Agency), 0s, 2011(++) 13,400 9,985,010
- -----------------------------------------------------------------------------------------------------
$46,255,536
- -----------------------------------------------------------------------------------------------------
Transportation - Special Tax - 0.8%
- -----------------------------------------------------------------------------------------------------
Telluride, CO, (Gondola Transit Co.), 9s, 2006(++) $2,105 $2,482,300
- -----------------------------------------------------------------------------------------------------
Telluride, CO, Real Estate Transfer Assessment Rev.
(Gondola Transit Co.), 11.5s, 2012(++) 5,025 7,616,644
- -----------------------------------------------------------------------------------------------------
Telluride, CO, Real Estate Transfer Assessment Rev.
(Gondola Transit Co..), 11.5s, 2012 975 1,393,889
- -----------------------------------------------------------------------------------------------------
Texas Department of Transportortation, 7s, 2012 172 176,225
- -----------------------------------------------------------------------------------------------------
$11,669,058
- -----------------------------------------------------------------------------------------------------
Universities - Colleges - 2.3%
- -----------------------------------------------------------------------------------------------------
California Education Facilities Auth. Rev.,
College & University Rev. (L.A. College of
Chiropractic Medicine), 5.6s, 2017 $2,000 $1,793,200
- -----------------------------------------------------------------------------------------------------
Houston, TX, Community College Systems, MBIA, 7.875s, 2025 9,150 11,275,911
- -----------------------------------------------------------------------------------------------------
Illinois Educational Facilities Auth. Rev.,
College & University Rev. (Augustana College), 5.25s, 2008(++) 750 833,805
- -----------------------------------------------------------------------------------------------------
Illinois Educational Facilities Auth. Rev.
(Columbia College), College & University Rev., 6.875s, 2017 750 769,155
- -----------------------------------------------------------------------------------------------------
Illinois Educational Facilities Auth. Rev.,
College & University Rev. (Augustana College), 5.625s, 2022 1,300 1,283,997
- -----------------------------------------------------------------------------------------------------
Indiana State Educational Facilities Auth. Rev.
(Manchester College), 5.75s, 2018 1,000 1,003,780
- -----------------------------------------------------------------------------------------------------
Islip, NY, Community Development Agency Rev.
(New York Institute of Technology), 7.5s, 2006(++) 6,000 6,940,560
- -----------------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency Rev.
(Eastern Nazarene College), 5.625s, 2019 1,235 995,163
- -----------------------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency Rev.
(Curry College), 8s, 2004(++) 1,180 1,265,361
- -----------------------------------------------------------------------------------------------------
New Hampshire Higher Educational & Health Facilities
Auth. Rev. (New Hampshire College), 6.3s, 2016 1,690 1,756,163
- -----------------------------------------------------------------------------------------------------
Savannah, GA, Economic Development Auth. Rev.
(College of Art & Design, Inc.), 6.2s, 2009 820 897,293
- -----------------------------------------------------------------------------------------------------
Savannah, GA, Economic Development Auth. Rev.
(College of Art & Design, Inc.), 6.5s, 2013 2,000 2,145,500
- -----------------------------------------------------------------------------------------------------
State of Massachusetts, Development Finance Agency Rev.
(Eastern Nazarene College), 5.625s, 2029 1,250 934,988
- -----------------------------------------------------------------------------------------------------
$31,894,876
- -----------------------------------------------------------------------------------------------------
Universities - Dormatories - 0.5%
- -----------------------------------------------------------------------------------------------------
Illinois Educational Facilities Auth. Rev.,
Educational Advancement Fund (University Center), 6.625s, 2017 $1,500 $1,586,340
- -----------------------------------------------------------------------------------------------------
Illinois Educational Facilities Auth. Rev.,
Educational Advancement Fund (University Center), 6.25s, 2034 5,460 5,415,119
- -----------------------------------------------------------------------------------------------------
$7,001,459
- -----------------------------------------------------------------------------------------------------
Universities - Secondary Schools - 1.7%
- -----------------------------------------------------------------------------------------------------
California Statewide Community Development Auth.,
(Aspire Public Schools Lodi Project), 7.25s, 2032 $4,695 $4,660,680
- -----------------------------------------------------------------------------------------------------
California Statewide Community Development Auth.,
(Escondido Charter High School), 7.5s, 2023 2,015 2,017,075
- -----------------------------------------------------------------------------------------------------
California Statewide Community Development Auth.,
(Escondido Charter High School), 7.5s, 2036 3,485 3,488,590
- -----------------------------------------------------------------------------------------------------
Illinois Development Finance Auth., Economic
Development Rev. (Latin School of Chicago), 5.6s, 2018 850 868,572
- -----------------------------------------------------------------------------------------------------
Illinois Development Finance Auth., Economic
Development Rev. (Latin School of Chicago), 5.65s, 2028 1,730 1,649,936
- -----------------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency Rev.,
(Williston Northampton School), 6.5s, 2028 1,400 1,448,118
- -----------------------------------------------------------------------------------------------------
Michigan Municipal Bond Auth. Rev.,
(YMCA), 7.75s, 2031 2,450 2,456,688
- -----------------------------------------------------------------------------------------------------
Michigan Municipal Bond Auth. Rev.
(Detroit Academy of Arts & Science), 8s, 2031 2,700 2,434,320
- -----------------------------------------------------------------------------------------------------
Michigan Municipal Bond Auth. Rev.
(YMCA), 7.625s, 2021 1,150 1,151,438
- -----------------------------------------------------------------------------------------------------
Pima County, AZ, Industrial Development Auth. Rev.
(Arizona Charter Schools), 6.4s, 2013 1,065 1,080,059
- -----------------------------------------------------------------------------------------------------
Pima County, AZ, Industrial Development Auth. Rev.
(Arizona Charter Schools), 6.75s, 2031 3,000 2,958,810
- -----------------------------------------------------------------------------------------------------
$24,214,286
- -----------------------------------------------------------------------------------------------------
Utilities - Cogeneration - 3.5%
- -----------------------------------------------------------------------------------------------------
Alaska Industrial Development & Export Auth.,
Electrical Power Rev., 5.7s, 2012 $1,350 $1,256,715
- -----------------------------------------------------------------------------------------------------
Alaska Industrial Development & Export Auth.,
Electrical Power Rev., 5.875s, 2032 1,800 1,444,662
- -----------------------------------------------------------------------------------------------------
Carbon County, PA, Industrial Development Auth. Rev.
(Panther Creek Partners), 6.65s, 2010 8,260 8,644,173
- -----------------------------------------------------------------------------------------------------
Klamath Falls, OR, Electric Rev. (Klamath
Cogeneration), 6s, 2025 10,000 9,422,700
- -----------------------------------------------------------------------------------------------------
Mecklenburg County, VA, Industrial Development Auth.
Rev. (UAE Mecklenburg, LP), 6.5s, 2017 2,800 2,782,388
- -----------------------------------------------------------------------------------------------------
Ohio Water Development Auth., (Bay Shore Power), 5.875s, 2020 2,000 1,874,940
- -----------------------------------------------------------------------------------------------------
Pennsylvania Economic Development Financing Auth.,
Resources Recovery Rev. (Northhampton Generating), 6.5s, 2013 2,300 2,321,137
- -----------------------------------------------------------------------------------------------------
Pennsylvania Economic Development Financing Auth.,
Resources Recovery Rev. (Northhampton Generating), 6.6s, 2019 5,000 5,029,300
- -----------------------------------------------------------------------------------------------------
Pittsylvania County, VA, Industrial Development Auth.
Rev. (Multi-trade of Pittsylvania), 7.55s, 2019 10,000 10,139,000
- -----------------------------------------------------------------------------------------------------
Pittsylvania County, VA, Industrial Development Auth.
Rev. (Multi-trade of Pittsylvania), 7.5s, 2014 3,500 3,548,720
- -----------------------------------------------------------------------------------------------------
Port Auth. NY & NJ, Special Obligation (KIAC), 6.75s, 2019 1,750 1,775,690
- -----------------------------------------------------------------------------------------------------
Suffolk County, NY, Industrial Development Agency
(Nissequogue Cogen Partners Facility), 5.3s, 2013 1,750 1,639,277
- -----------------------------------------------------------------------------------------------------
$49,878,702
- -----------------------------------------------------------------------------------------------------
Utilities - Investor Owned - 6.3%
- -----------------------------------------------------------------------------------------------------
Beaver County, PA, Pollution Control Rev. (Toledo
Edison), 7.75s, 2020 $1,500 $1,631,070
- -----------------------------------------------------------------------------------------------------
Brazos River, TX, Pollution Control Rev.
(Texas Utility Co.), 7.7s, 2033 2,225 2,478,161
- -----------------------------------------------------------------------------------------------------
Calcasieu Parish, LA, Industrial Development Board,
Pollution Control Rev. (Entergy Gulf States, Inc.), 5.45s, 2010 4,800 4,806,144
- -----------------------------------------------------------------------------------------------------
California Pollution Control Financing Auth.,
Pollution Control Rev. (Pacific Gas & Electric Co.),
MBIA, 5.35s, 2016 6,400 6,711,488
- -----------------------------------------------------------------------------------------------------
California Pollution Control Financing Auth.,
Pollution Control Rev. (Pacific Gas & Electric Co.), 5.85s, 2023 3,250 3,111,127
- -----------------------------------------------------------------------------------------------------
California Pollution Control Financing Auth.,
Pollution Control Rev. (Southern California Edison Co.), 6.4s, 2024 4,000 3,966,520
- -----------------------------------------------------------------------------------------------------
Clark County, NV, Industrial Development Rev.
(Nevada Power Co.), FGIC, 6.7s, 2022 4,000 4,058,800
- -----------------------------------------------------------------------------------------------------
Farmington, NM, Pollution Control Rev.
(Connecticut Light & Power), 5.8s, 2022 2,690 2,620,168
- -----------------------------------------------------------------------------------------------------
Farmington, NM, Pollution Control Rev.
(New Mexico Public Service Co.), 5.8s, 2022 4,500 4,383,180
- -----------------------------------------------------------------------------------------------------
Farmington, NM, Pollution Control Rev.
(San Juan Public Services Co.), 6.3s, 2016 3,240 3,292,974
- -----------------------------------------------------------------------------------------------------
Farmington, NM, Pollution Control Rev.
(Tucson Electric Power Co.), 6.95s, 2020 3,000 3,027,960
- -----------------------------------------------------------------------------------------------------
Forsyth County, GA, Pollution Control Rev.
(Portland General), 5.2s, 2033 770 775,998
- -----------------------------------------------------------------------------------------------------
Maricopa County, AZ, Pollution Control Rev.
(El Paso Electric), 6.375s, 2015 4,000 4,142,680
- -----------------------------------------------------------------------------------------------------
Matagorda County, TX, Pollution Control Rev.
(Central Power & Light Co.), 4.55s, 2029 5,000 5,148,400
- -----------------------------------------------------------------------------------------------------
Matagorda County, TX, Pollution Control Rev.
(Reliant Energy), 5.95s, 2030 4,500 4,291,425
- -----------------------------------------------------------------------------------------------------
New Hampshire Business Finance Auth.,
Pollution Control Rev.
(United Illuminating Co.), 5.875s, 2033 2,985 2,994,582
- -----------------------------------------------------------------------------------------------------
New Hampshire Industrial Development Auth.,
Pollution Control Rev.
(CT Light and Power), 5.9s, 2018 1,000 1,035,360
- -----------------------------------------------------------------------------------------------------
Ohio Water Development Auth., Pollution Control Rev.
(Cleveland Electric), 8s, 2023 4,700 4,974,809
- -----------------------------------------------------------------------------------------------------
Pima County, AZ, Industrial Development Auth. Rev.
(Tucson Electric Power Co.), 6.1s, 2025 2,000 1,836,040
- -----------------------------------------------------------------------------------------------------
Pima County, AZ, Industrial Development Auth. Rev.
(Tucson Electric Power Co.), 6s, 2029 9,465 8,629,240
- -----------------------------------------------------------------------------------------------------
Pointe Coupee Parish, LA, Pollution Control Rev.
(Gulf States), 6.7s, 2013 1,000 1,012,980
- -----------------------------------------------------------------------------------------------------
Port Morrow, OR, Pollution Control Rev.
(Portland General Electric), 5.2s, 2033 1,900 1,914,801
- -----------------------------------------------------------------------------------------------------
Sabine River Auth., TX, Pollution Control Rev.
(TXU Electric Co.), 4s, 2030 3,500 3,561,250
- -----------------------------------------------------------------------------------------------------
Trinity River Auth., TX, Pollution Control Rev.
(TXU Electric Co.), 4s, 2028 1,500 1,491,015
- -----------------------------------------------------------------------------------------------------
West Feliciana Parish, LA, Pollution Control Rev.
(Gulf States), 6.6s, 2028 3,335 3,379,022
- -----------------------------------------------------------------------------------------------------
West Feliciana Parish, LA, Pollution Control Rev.
(Gulf States Utilities Co.), 7.7s, 2014 2,000 2,049,860
- -----------------------------------------------------------------------------------------------------
West Feliciana Parish, LA, Pollution Control Rev.
(Gulf States Utilities Co.), 9s, 2015 2,500 2,535,450
- -----------------------------------------------------------------------------------------------------
$89,860,504
- -----------------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 1.4%
- -----------------------------------------------------------------------------------------------------
California State, Department of Water Resources Power, 5.125s, 2018 $5,750 $5,675,020
- -----------------------------------------------------------------------------------------------------
Municipal Electric Auth., GA, RIBS, AMBAC, 11.034s, 2022(+) 9,900 10,784,664
- -----------------------------------------------------------------------------------------------------
North Carolina Municipal Power Agency, Catawba Electric
Rev., 6.375s, 2013 2,750 2,998,352
- -----------------------------------------------------------------------------------------------------
Southern California Public Power Auth.,
Transmission Project Rev. RIBS, 10.55s, 2012(+) 150 153,809
- -----------------------------------------------------------------------------------------------------
$19,611,845
- -----------------------------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 1.8%
- -----------------------------------------------------------------------------------------------------
Forsyth County, GA, Water & Sewage Auth.,
6.25s, 2010(++) $2,010 $2,351,499
- -----------------------------------------------------------------------------------------------------
Massachusetts Water Resources Auth.,
RITES, FGIC, 11.531s, 2019+(+) 765 1,059,066
- -----------------------------------------------------------------------------------------------------
Michigan Municipal Bond Auth. Rev.,
RITES, 9.677s, 2021+(+) 7,585 9,662,076
- -----------------------------------------------------------------------------------------------------
New York City, NY, Municipal Water & Sewer Finance
Auth. Rev., 5.75s, 2029 8,590 9,215,266
- -----------------------------------------------------------------------------------------------------
Phoenix, AR, FGIC, 6.25s, 2010(++) 1,000 1,175,230
- -----------------------------------------------------------------------------------------------------
State of Virginia, Clean Water Rev., 5.75s, 2019 2,500 2,729,225
- -----------------------------------------------------------------------------------------------------
$26,192,362
- -----------------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $1,422,350,471) $1,400,354,114
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 1.1%
- -----------------------------------------------------------------------------------------------------
Bay Area Toll Auth., due 08/05/03 $700 $700,000
- -----------------------------------------------------------------------------------------------------
California Pollution Control Financing Auth. Rev.,
(Shell Oil), due 08/01/03 900 900,000
- -----------------------------------------------------------------------------------------------------
California Statewide Community Development Auth.,
(Sutter Health), due 08/01/03 100 100,000
- -----------------------------------------------------------------------------------------------------
East Baton Rouge Parish, LA, Pollution Control Rev.
(Exxon Corp.), due 08/01/03 1,400 1,400,000
- -----------------------------------------------------------------------------------------------------
Harris County, TX, Industrial Development Corp.,
Pollution Control Rev.
(Exxon Corp.), due 08/01/03 250 250,000
- -----------------------------------------------------------------------------------------------------
Illinois Health Facilities Auth. Rev.
(University of Chicago Hospital), due 08/01/03 1,900 1,900,000
- -----------------------------------------------------------------------------------------------------
Jackson County, MS, Pollution Control Rev.
(Chevron USA, Inc.), due 08/01/03 300 300,000
- -----------------------------------------------------------------------------------------------------
Jefferson County, AL, Water & Sewer Rev., due 08/05/03 500 500,000
- -----------------------------------------------------------------------------------------------------
Lincoln County, WY, Pollution Control Rev.
(Exxon Corp.), due 08/01/03 800 800,000
- -----------------------------------------------------------------------------------------------------
MSR Public Power Agency, CA, due 08/05/03 4,400 4,400,000
- -----------------------------------------------------------------------------------------------------
New York City, NY, due 08/01/03 191 191,000
- -----------------------------------------------------------------------------------------------------
New York City, NY, Job Development Auth. Rev., due 08/01/03 385 385,000
- -----------------------------------------------------------------------------------------------------
New York City, NY, Municipal Water & Sewer Finance
Auth. Rev., due 08/01/03 550 550,000
- -----------------------------------------------------------------------------------------------------
Pinellas County, FL, Health Facility Auth. Rev., due 08/01/03 900 900,000
- -----------------------------------------------------------------------------------------------------
Sevier County, TN, Public Building Auth., due 08/05/03 1,700 1,700,000
- -----------------------------------------------------------------------------------------------------
Uinta County, WY, Pollution Control Rev.
(Chevron USA, Inc.), due 08/01/03 500 500,000
- -----------------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes Identified Cost,
at amortized cost and value $15,476,000
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,437,826,471) $1,415,830,114
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.4% $19,439,495
- -----------------------------------------------------------------------------------------------------
Net assets - 100.0% $1,435,269,609
- -----------------------------------------------------------------------------------------------------
** Non-income producing security in default.
## SEC Rule 144A Restriction.
+ Restricted security.
(+) Inverse floating rate security.
(++) Refunded security.
The following abbreviations for insurers and inverse floaters are used in the
portfolio of investments and are defined as such.
INSURERS:
AMBAC - AMBAC Indemnity Corp.
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Administration
FSA - Financial Security Assurance, Inc.
GNMA - Government National Mortgage Assn.
MBIA - Municipal Bond Investors Corp.
PSF - Permanent School Fund
INVERSE FLOATERS:
RIBS - Residual Interest Bonds
RITES - Residual Interest Tax-Exempt Security
ROLS - Residual Option Longs
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- ------------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 7/31/03
ASSETS
Investments, at value (identified cost, $1,437,826,471) $1,415,830,114
- -----------------------------------------------------------------------------------------------------
Cash 64,846
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 2,490,730
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 2,266,345
- -----------------------------------------------------------------------------------------------------
Interest receivable 22,560,558
- -----------------------------------------------------------------------------------------------------
Interest receivable on swaps 76,613
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on rate lock swaps 2,442,534
- -----------------------------------------------------------------------------------------------------
Other assets 8,795
- -----------------------------------------------------------------------------------------------------
Total assets $1,445,740,535
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $6,857,983
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased 351,764
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 2,503,777
- -----------------------------------------------------------------------------------------------------
Interest payable on swaps 119,999
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation on interest rate swaps 300,986
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 23,795
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 4,370
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 46,841
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 261,411
- -----------------------------------------------------------------------------------------------------
Total liabilities $10,470,926
- -----------------------------------------------------------------------------------------------------
Net assets $1,435,269,609
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,609,899,399
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation on investments (19,854,809)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (149,715,351)
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (5,059,630)
- -----------------------------------------------------------------------------------------------------
Net assets $1,435,269,609
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 178,571,650
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $1,015,720,820
- -----------------------------------------------------------------------------------------------------
Shares outstanding 126,412,213
- -----------------------------------------------------------------------------------------------------
Net asset value per share $8.03
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$8.03) $8.43
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $343,778,467
- -----------------------------------------------------------------------------------------------------
Shares outstanding 42,742,185
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.04
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $75,770,322
- -----------------------------------------------------------------------------------------------------
Shares outstanding 9,417,252
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.05
- -----------------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- ------------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR SIX MONTHS ENDED 7/31/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Interest income $48,298,710
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $4,396,332
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 15,912
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 783,735
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 1,379,529
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 368,677
- -----------------------------------------------------------------------------------------------------
Administrative fee 122,915
- -----------------------------------------------------------------------------------------------------
Custodian fee 211,202
- -----------------------------------------------------------------------------------------------------
Printing 54,823
- -----------------------------------------------------------------------------------------------------
Postage 19,460
- -----------------------------------------------------------------------------------------------------
Auditing fees 13,106
- -----------------------------------------------------------------------------------------------------
Legal fees 8,593
- -----------------------------------------------------------------------------------------------------
Miscellaneous 401,750
- -----------------------------------------------------------------------------------------------------
Total expenses $7,776,034
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (4,054)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (237,628)
- -----------------------------------------------------------------------------------------------------
Net expenses $7,534,352
- -----------------------------------------------------------------------------------------------------
Net investment income $40,764,358
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss (identified cost basis) on
- -----------------------------------------------------------------------------------------------------
Investment transactions $(4,144,006)
- -----------------------------------------------------------------------------------------------------
Swap transactions (2,581,513)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments $(6,725,519)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) on
- -----------------------------------------------------------------------------------------------------
Investments $(10,976,169)
- -----------------------------------------------------------------------------------------------------
Swap transactions 3,516,715
- -----------------------------------------------------------------------------------------------------
Net unrealized loss on investments $(7,459,454)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $(14,184,973)
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $26,579,385
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
SIX MONTHS YEAR
ENDED ENDED
7/31/03 1/31/03
(UNAUDITED)
OPERATIONS
Net investment income $40,764,358 $84,144,743
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments (6,725,519) (13,955,929)
- -----------------------------------------------------------------------------------------------------
Net unrealized loss on investments (7,459,454) (4,081,584)
- ----------------------------------------------------------- ------------ ---------------
Increase in net assets from operations $26,579,385 $66,107,230
- ----------------------------------------------------------- ------------ ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (Class A) $(30,780,344) $(64,079,983)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class B) (9,054,259) (19,684,730)
- -----------------------------------------------------------------------------------------------------
From net investment income (Class C) (1,805,726) (3,363,233)
- -----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(41,640,329) $(87,127,946)
- ----------------------------------------------------------- ------------ ---------------
Net increase (decrease) in net assets from fund share
transactions $(26,994,376) $18,342,051
- ----------------------------------------------------------- ------------ ---------------
Total decrease in net assets $(42,055,320) $(2,678,665)
- ----------------------------------------------------------- ------------ ---------------
NET ASSETS
At beginning of period $1,477,324,929 $1,480,003,594
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $5,059,630 and
$4,183,659, respectively) $1,435,269,609 $1,477,324,929
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and
the past 5 fiscal years (or, if shorter, the period of the Fund's operation). Certain information reflects financial results for
a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an
investment in the fund (assuming reinvestment of all distributions).
SIX MONTHS YEAR ENDED 1/31
ENDED ----------------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS A (UNAUDITED)
Net asset value,
beginning of period $8.12 $8.23 $8.24 $8.06 $9.03 $9.07
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.24 $0.48 $0.51 $0.51 $0.51 $0.53
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments (0.09) (0.09) (0.02) 0.19 (0.95) (0.04)
- --------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.15 $0.39 $0.49 $0.70 $(0.44) $0.49
- --------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment
income $(0.24) $(0.50) $(0.50) $(0.51) $(0.53) $(0.53)
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- (0.01) (0.00)+++ --
- --------------------------- ------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.24) $(0.50) $(0.50) $(0.52) $(0.53) $(0.53)
- --------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period $8.03 $8.12 $8.23 $8.24 $8.06 $9.03
- --------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 1.71++ 4.96 6.13 9.04 (5.09) 5.54
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED ----------------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS A (CONTINUED) (UNAUDITED)
RATIOS (%) TO
AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:(S)
Expenses## 0.79+ 0.79 0.76 0.76 0.76 0.81
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment
income(S)(S) 5.81+ 5.88 6.11 6.29 5.94 5.84
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 3 20 17 22 27 12
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $1,015,721 $1,050,204 $1,037,925 $981,580 $985,622 $1,168,479
- ---------------------------------------------------------------------------------------------------------------------------------
(S) From February 1, 1998 through May 31, 2003, the investment adviser contractually waived a portion of its fee for the periods
indicated. If this fee had been incurred by the fund, the net investment income per share and the ratios would have been:
Net investment income(S)(S) $0.23 $0.48 $0.50 $0.51 $0.50 $0.53
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 0.82+ 0.84 0.83 0.84 0.82 0.82
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.78+ 5.83 6.04 6.21 5.88 5.83
- ---------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective February 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended
January 31, 2002 was to increase net investment income per share and decrease net realized and unrealized gains and losses
per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment
income to average net assets increased by 0.02%. Per share, ratios, and supplemental data for periods prior to February 1,
2001 have not been restated to reflect this change in presentation.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower. See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED ----------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS B (UNAUDITED)
Net asset value, beginning of
period $8.13 $8.24 $8.25 $8.07 $9.04 $9.08
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.20 $0.42 $0.44 $0.45 $0.44 $0.45
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (0.08) (0.10) (0.01) 0.19 (0.95) (0.04)
- --------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.12 $0.32 $0.43 $0.64 $(0.51) $0.41
- --------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.21) $(0.43) $(0.44) $(0.45) $(0.46) $(0.45)
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- -- (0.01) (0.00)+++ --
- --------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.21) $(0.43) $(0.44) $(0.46) $(0.46) $(0.45)
- --------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $8.04 $8.13 $8.24 $8.25 $8.07 $9.04
- --------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 1.45++ 4.01 5.28 8.17 (5.85) 4.62
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31
ENDED ----------------------------------------------------------------------
7/31/03 2003 2002 2001 2000 1999
CLASS B (CONTINUED) (UNAUDITED)
RATIOS (%) TO AVERAGE NET
ASSETS AND SUPPLEMENTAL
DATA:(S)
Expenses## 1.57+ 1.58 1.56 1.54 1.57 1.69
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.02+ 5.09 5.29 5.50 5.13 4.95
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 3 20 17 22 27 12
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $343,778 $355,602 $382,280 $343,841 $340,157 $363,062
- ---------------------------------------------------------------------------------------------------------------------------------
(S) From February 1, 1998 through May 31, 2003, the investment adviser contractually waived a portion of its fee for the periods
indicated. If this fee had been incurred by the fund, the net investment income per share and the ratios would have been:
Net investment income(S)(S) $0.20 $0.41 $0.43 $0.44 $0.43 $0.45
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.60+ 1.63 1.63 1.62 1.63 1.70
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.99+ 5.04 5.22 5.42 5.07 4.94
- ---------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective February 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended
January 31, 2002 was to increase net investment income per share and decrease net realized and unrealized gains and losses
per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment
income to average net assets increased by 0.02%. Per share, ratios, and supplemental data for periods prior to February 1,
2001 have not been restated to reflect this change in presentation.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS C (UNAUDITED)
Net asset value, beginning of period $8.13 $8.24 $8.25 $8.07 $9.04 $9.10
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.19 $0.40 $0.43 $0.43 $0.43 $0.15
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.07) (0.10) (0.02) 0.19 (0.96) (0.06)
- ------------------------------------ ------ ------ ------ ------ ------ ------
Total from investment operations $0.12 $0.30 $0.41 $0.62 $(0.53) $0.09
- ------------------------------------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.20) $(0.41) $(0.42) $(0.43) $(0.44) $(0.15)
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (0.01) (0.00)+++ --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.20) $(0.41) $(0.42) $(0.44) $(0.44) $(0.15)
- ------------------------------------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $8.05 $8.13 $8.24 $8.25 $8.07 $9.04
- ------------------------------------ ------ ------ ------ ------ ------ ------
Total return (%) 1.34++ 3.92 5.07 7.95 (6.04) 0.96++
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 1/31 PERIOD
ENDED ------------------------------------------------- ENDED
7/31/03 2003 2002 2001 2000 1/31/99*
CLASS C (CONTINUED) (UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:(S)
Expenses## 1.79+ 1.79 1.76 1.76 1.76 1.75+
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.79+ 4.86 5.07 5.27 4.94 4.45+
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 3 20 17 22 27 12
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $75,770 $71,519 $59,799 $25,413 $17,378 $2,872
- ---------------------------------------------------------------------------------------------------------------------------------
(S) From February 1, 1998 through May 31, 2003, the investment adviser contractually waived a portion of its fee for the periods
indicated. If this fee had been incurred by the fund, the net investment income per share and the ratios would have been:
Net investment income(S)(S) $0.19 $0.39 $0.42 $0.42 $0.42 $0.15
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.82+ 1.84 1.83 1.84 1.82 1.76+
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.76+ 4.81 5.00 5.19 4.88 4.44+
- ---------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective February 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended
January 31, 2002 was to increase net investment income per share and decrease net realized and unrealized gains and losses
per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment
income to average net assets increased by 0.02%. Per share, ratios, and supplemental data for periods prior to February 1,
2001 have not been restated to reflect this change in presentation.
* For the period from the inception of Class C shares, September 25, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Municipal High Income Fund (the fund) is a non-diversified series of MFS
Series Trust III (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
accounting principles generally accepted in the United States of America
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. The fund can invest up to 100% 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 - Bonds and other fixed income securities (other than
short-term obligations) of U.S. issuers in the fund's portfolio are valued at
an evaluated bid price on the basis of quotes from brokers and dealers or on
the basis of valuations furnished by a pricing service. Prices obtained from
pricing services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Short-term obligations in the fund's
portfolio are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
Portfolio investments for which market quotations are not readily available,
or whose values have been materially affected by events occurring after the
close of their primary markets, are valued at fair value as determined in good
faith by or at the direction of the Board of Trustees.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or contracts based on financial indices at a fixed
price on a future date. In entering such contracts, the fund is required to
deposit with the broker either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the fund each day, depending on the daily fluctuations in the
value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the fund. The fund's investment in futures
contracts is designed to hedge against anticipated future changes in interest
rates or securities prices. Investments in interest rate futures for purposes
other than hedging may be made to modify the duration of the portfolio without
incurring the additional transaction costs involved in buying and selling the
underlying securities. Should interest rates or security prices move
unexpectedly, the fund may not achieve the anticipated benefits of the futures
contracts and may realize a loss.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party, which is based
on a specific financial index. Cash payments are exchanged at specified
intervals and the expected income or expense is recorded on the accrual basis.
The value of the swap is adjusted daily and the change in value is recorded as
unrealized appreciation or depreciation. Risks may arise upon entering into
these agreements from the potential inability of counterparties to meet the
terms of their contract and from unanticipated changes in the value of the
financial index on which the swap agreement is based. The fund uses swaps for
both hedging and non-hedging purposes. For hedging purposes, the fund may use
swaps to reduce its exposure to interest and foreign exchange rate
fluctuations. For non-hedging purposes, the fund may use swaps to take a
position on anticipated changes in the underlying financial index.
RATE LOCK SWAPS - The fund may enter into rate lock swaps, which are used to
reduce the interest rate risk of the portfolio. A rate lock swap is a payment
or receipt of cash on a specified future date, calculated as the difference
between the strike rate and a specific index yield on that date. The payment
received or made at the end of the measurement period is recorded as a
realized gain or loss in the Statement of Operations. The value of the swap is
adjusted daily and the change in value is recorded as unrealized appreciation
or depreciation.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with generally accepted accounting principles. All premium and
original issue discount is amortized or accreted for 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 a date. 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 - The fund's custody 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 total 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 tax-
exempt and taxable 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 the
fund to pay exempt-interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986 may be considered
a tax-preference item to shareholders.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and 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. Common
types of book and tax differences that could occur include differences in
accounting for defaulted bonds, capital losses, and amortization and accretion
on debt securities.
The tax character of distributions declared for the years ended January 31,
2003 and January 31, 2002 was as follows:
1/31/03 1/31/02
Distributions declared from:
---------------------------------------------------------------------
Tax-exempt income $86,746,184 $85,332,889
Ordinary income 381,762 8,962
---------------------------------------------------------------------
Total distributions declared $87,127,946 $85,341,851
---------------------------------------------------------------------
As of January 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed tax-exempt income $5,198,081
---------------------------------------------------------------------
Undistributed ordinary income 44,507
---------------------------------------------------------------------
Capital loss carryforward (141,942,609)
---------------------------------------------------------------------
Unrealized depreciation (10,793,610)
---------------------------------------------------------------------
Post-October capital loss deferral (2,538,901)
---------------------------------------------------------------------
Other temporary differences (9,536,314)
---------------------------------------------------------------------
Post-October capital loss deferral represents losses realized during the
current fiscal year, but recognized for tax purposes in the next fiscal year.
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration.
EXPIRATION DATE
January 31, 2004 $(30,637,034)
-------------------------------------------------------------------
January 31, 2005 (26,148,057)
-------------------------------------------------------------------
January 31, 2006 (45,409,970)
-------------------------------------------------------------------
January 31, 2007 (6,121,853)
-------------------------------------------------------------------
January 31, 2008 (1,353,678)
-------------------------------------------------------------------
January 31, 2009 (10,935,605)
-------------------------------------------------------------------
January 31, 2010 (2,971,573)
-------------------------------------------------------------------
January 31, 2011 (18,364,839)
-------------------------------------------------------------------
Total (141,942,609)
-------------------------------------------------------------------
The availability of a portion of these respective capital loss carryforwards,
which were acquired on March 9, 2001 in connection with the Paine Webber
Municipal High Income Fund acquisition, may be limited in a given year.
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 the following annual
rates:
Based on average net assets:
First $1.4 billion 0.60%
----------------------------------------------------------
In excess of $1.4 billion 0.57%
----------------------------------------------------------
Prior to June 1, 2003, the investment adviser had contractually agreed to
waive its fee, which is shown as a reduction of total expenses in the
Statement of Operations. Effective June 1, 2003, the management fee waiver was
terminated. Management fees incurred for the six months ended July 31, 2003
were 0.57% of average daily net assets on an annualized basis.
The fund pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and 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).
On January 1, 2002, the Trustees terminated the Independent Trustee unfunded
defined benefit plan for active Trustees. Included in Trustees' compensation
is a pension expense of $3,078 for inactive trustees for the six months ended
July 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
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 $2 billion 0.0175%
----------------------------------------------------------
Next $2.5 billion 0.0130%
----------------------------------------------------------
Next $2.5 billion 0.0005%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$160,808 for the six months ended July 31, 2003 as its portion of the sales
charge on sales of Class A shares of the fund. The Trustees have adopted a
distribution plan for Class B 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS B CLASS C
Distribution Fee 0.75% 0.75%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25%
- --------------------------------------------------------------------------------
Total Distribution Plan 1.00% 1.00%
- --------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the six months ended July 31, 2003, amounted to:
CLASS B CLASS C
Service Fee Retained by MFD $0 $45
- --------------------------------------------------------------------------------
Except in the case of the 0.25% per annum Class B service fee paid by the fund
upon the sale of Class B shares in the first year, payment of the Class B
service fee will be suspended until such date as the trustees of the fund
may determine
Fees incurred under the distribution plan during the six months ended
July 31, 2003, were as follows:
CLASS B CLASS C
Total Distribution Plan 0.78% 1.00%
- --------------------------------------------------------------------------------
Certain Class A shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within, for class A shares, 12 months
following the purchase, and, for class C shares, the first year from the end
of the calendar month of 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 from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the six months ended July 31, 2003, were
as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $9,819 $391,611 29,755
- --------------------------------------------------------------------------------
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 annual rate of
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities, and
short-term obligations, aggregated $46,380,853 and $83,411,772, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $1,436,066,154
-----------------------------------------------------------------------
Gross unrealized depreciation $(82,000,880)
-----------------------------------------------------------------------
Gross unrealized appreciation 61,764,840
-----------------------------------------------------------------------
Net unrealized depreciation $(20,236,040)
(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. Transactions in
fund shares were as follows:
Six months ended Year ended
7/31/03 1/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 9,480,499 $77,625,604 22,623,282 $185,401,388
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of
distributions 1,751,288 14,303,817 3,206,513 26,274,367
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (14,173,146) (115,734,471) (22,540,447) (184,431,938)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) (2,941,359) $(23,805,050) 3,289,348 $27,243,817
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 2,588,921 $21,167,446 6,059,110 $49,712,843
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of
distributions 446,104 3,646,620 884,574 7,257,000
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (4,048,449) (33,085,483) (9,576,305) (78,548,102)
- ------------------------------------------------------------------------------------------------------------
Net decrease (1,013,424) $(8,271,417) (2,632,621) $(21,578,259)
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,670,369 $13,664,479 2,982,471 $24,492,854
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of
distributions 104,599 855,685 180,280 1,479,084
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,154,667) (9,438,073) (1,619,268) (13,295,445)
- ------------------------------------------------------------------------------------------------------------
Net increase 620,301 $5,082,091 1,543,483 $12,676,493
- ------------------------------------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. 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 July 31, 2003, was $4,282. The fund had no borrowings during the
period.
(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 swap
agreements and futures contracts. The notional or contractual amounts of these
instruments represent the investment the fund has in particular classes of
financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered.
Swap Agreements
Interest Rate Swaps
NOTIONAL
PRINCIPAL CASH FLOWS
AMOUNT OF RECEIVED BY CASH FLOWS PAID UNREALIZED
EXPIRATION CONTRACT (000) THE FUND BY THE FUND DEPRECIATION
- -------------------------------------------------------------------------------
11/15/04 21,400 Floating-7 day Fixed-1.945% $(149,108)
BMA Swap Index
- --------------------------------------------------------------------------------
10/31/12 15,000 Floating-3 month Floating-7 day (45,701)
LIBOR X 78.875% BMA Swap Index
- --------------------------------------------------------------------------------
12/18/12 30,500 Floating-3 month Floating-7 day (106,177)
LIBOR X 78.75% BMA Swap Index
- --------------------------------------------------------------------------------
TOTAL: $(300,986)
- --------------------------------------------------------------------------------
Rate Lock Swaps
NOTIONAL
PRINCIPAL UNREALIZED
AMOUNT OF APPRECIATION
CONTRACT (000) DESCRIPTION (DEPRECIATION)
- -------------------------------------------------------------------------------
30,000 Agreement with Merrill Lynch terminating $140,344
September 10, 2003 to pay the difference
between 4.92% and the MMD general
obligation yield curve rate for the
designated maturity year as of the close
of business on the termination date times
the notional amount times 12.63, if
negative (receive if positive).
- --------------------------------------------------------------------------------
21,000 Agreement with Merrill Lynch terminating $2,044,741
December 3, 2003 to pay the difference
between the notional value and the market
value of a bond with a 4.248% coupon
maturity on
12/3/2023 priced at a yield to maturity
equal to the MMD general obligation
yield curve rate for the designated
maturity year as of the close of business
on the termination date, if negative
(receive if positive).
- --------------------------------------------------------------------------------
11,000 Agreement with Goldman Sachs terminating $(166,182)
August 20, 2003 to pay the difference
between the notional value and the market
value of a bond with a 5.01% coupon
maturing on 8/20/2022 priced at a yield
to maturity equal to the MMD general
obligation yield curve rate for the
designated maturity year as of the close
of business on the termination date, if
negative (received if positive).
- --------------------------------------------------------------------------------
10,550 Agreement with Goldman Sachs terminating $(30,669)
October 16, 2003 to pay the difference
between the notional value and the market
value of a bond with a 4.65% coupon
maturing on 10/16/18 priced at a yield to
maturity equal to the MMD general
obligation yield curve rate for the
designated maturity year as of the close
of business on the termination date, if
negative (received if positive).
- --------------------------------------------------------------------------------
10,000 Agreement with Goldman Sachs terminating $335,720
December 10, 2003 to pay the difference
between the notional value and the market
value of a bond with a 4.78% coupon
maturing on
12/10/23 priced at a yield to maturity
equal to the MMD general obligation yield
curve rate for the designated maturity
year as of the close of business on the
termination date, if negative (received
if positive).
- --------------------------------------------------------------------------------
2,500 Agreement with Merrill Lynch terminating $118,580
January 7, 2004 to pay the difference
between the notional value and the market
value of a bond with a 4.285% coupon
maturity on 1/7/2019 priced at a yield to
maturity equal to the MMD general
obligation yield curve rate for the
designated maturity year as of the close
of business on the termination date, if
negative (receive if positive).
- --------------------------------------------------------------------------------
TOTAL: $2,442,534
- --------------------------------------------------------------------------------
At July 31, 2003, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) RESTRICTED SECURITIES
The fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At July 31, 2003,
the fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 5.3% 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 at the direction of
the Trustees.
DATE OF PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- ------------------------------------------------------------------------------------------------------------
Chicago, IL Board of Education, RITES,
9.165s, 2020 2/9/2000 7,910,000 $6,211,881 $8,682,016
Chicago, IL, Public Building Commerce Rev.,
RITES, 5.598s, 2017 3/18/1999 4,500,000 4,782,559 5,165,550
Colorado River Indian Tribes, AZ (Blue Water
Casino), 6.25s, 2004 5/6/1998 3,000,000 3,000,000 3,007,350
Denver, CO, City & County Airport Rev.,
RITES, AMBAC, 10.8s, 2017 8/28/2000 2,500,000 2,664,662 2,944,700
Essex County, NJ, RITES, 10.393s, 2020 4/6/2000 6,000,000 5,968,656 7,007,760
Houston, TX, Independent School District,
RITES, PSF, 9.177s, 2017 2/26/1999 5,000,000 5,187,731 5,460,400
Los Angeles, CA, RITES, FGIC,
9.2s, 2015 7/21/1999 5,310,000 5,536,037 6,238,825
Massachusetts Water Resource Auth., RITES,
FGIC, 11.531s, 2019 3/16/2000 765,000 896,354 1,059,066
Michigan Municipal Bond Auth. Rev, RITES,
9.677s, 2021 2/23/2000 7,585,000 6,633,841 9,662,076
New Jersey Economic Development Auth.,
Economic Development Rev., (Holt Hauling &
Warehousing), 8.4s, 2015 1/30/1997 4,000,000 4,134,185 2,360,000
New Jersey Economic Development Auth.,
Economic Development Rev., (Holt Hauling &
Warehousing), 8.6s, 2017 1/31/1997 8,000,000 8,272,359 4,720,000
New Jersey Turnpike Auth., RITES, 9.476s,
2020 4/19/2000 5,000,000 4,643,778 5,407,200
State of Florida, Board of Education, RITES,
8.866s, 2017 4/9/1999 2,300,000 2,330,620 2,476,318
State of Florida, Board of Education, RITES,
FGIC, 9.2s, 2012 2/25/2002 1,500,000 1,756,860 1,774,860
State of Florida, Board of Education, RITES,
FGIC, 9.2s, 2013 2/25/2002 5,000,000 5,791,400 5,892,100
State of Massachusetts, ROLs,
9.932s, 2017 8/28/2002 2,000,000 2,194,825 2,452,760
Texas Housing & Community Board, (Harbor &
Plumtree), 10s, 2026 10/31/1996 1,695,000 1,695,000 1,627,336
- ------------------------------------------------------------------------------------------------------------
Total: $75,938,317
- ------------------------------------------------------------------------------------------------------------
(9) CHANGE IN ACCOUNTING PRINCIPLE
As required, effective February 1, 2001, the fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. Prior to February 1, 2001, the fund did
not amortize premium on debt securities. The cumulative effect of this
accounting change had no impact on total net assets of the fund, but resulted
in a $805,139 increase in cost of securities held by the fund on February 1,
2001.
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TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust III,
of which the fund is a series, including their principal occupations, which, unless specific dates are shown,
are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Ives, Perera and Poorvu, and Ms. Smith, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Messrs. Ballen and Gutow have each served as a Trustee of
the Trust since August 1, 2001. Messrs. Cohn, Sherratt and Smith, and Ms. O'Neill, were elected by
shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke has served as Trustee
of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 112 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
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INVESTMENT ADVISER PORTFOLIO MANAGERS
Massachusetts Financial Services Company Michael W. Roberge(1)
500 Boylston Street, Boston, MA Geoffrey L. Schechter(1)
02116-3741
CUSTODIAN
DISTRIBUTOR State Street Bank and Trust Company
MFS Fund Distributors, Inc. 225 Franklin Street, Boston, MA
500 Boylston Street, Boston, MA 02110
02116-3741
(1) MFS Investment Management
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255)
or stock and bond outlooks touch-tone required 24 hours a day, 365 days a
year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C)2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116 MMH-SEM-9/03 66M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in the instructions to Form N-CSR that
applies to the Registrant's principal executive officer and principal financial
and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. J. Atwood Ives and Ward Smith, members of the Audit Committee, have
been determined by the Board of Trustees in their reasonable business judgment
to meet the definition of "audit committee financial expert" as such term is
defined in the instructions to Form N-CSR. In addition, Messrs. Ives and Smith
are both "independent" members of the Audit Committee as defined in the
instructions to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time. Applicable for annual reports filed for the first
fiscal year ending after December 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
If applicable, not applicable at this time. Applicable for annual reports
covering periods ending on or after the compliance date for the listing
standards applicable to the particular issuer. Listed issuers must be in
compliance with the new listing rules by the earlier of the registrant's first
annual shareholders meeting after January 15, 2004 or October 31, 2004.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Applicable for annual reports filed on or after July 1, 2003.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal financial officer and principal executive officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.
(a) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the registrant's last fiscal half-year (the registrant's second fiscal
half-year in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 10. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule
30a-2 under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14 under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C.
78r), or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference:
Attached hereto
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST III
-------------------------------------------------------------------
By (Signature and Title)* /s/ JOHN W. BALLEN
-----------------------------------------------------
John W. Ballen, President
Date: September 23, 2003
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ JOHN W. BALLEN
------------------------------------------------------
John W. Ballen, President
(Principal Executive Officer)
Date: September 23, 2003
------------------
By (Signature and Title)* /s/ RICHARD M. HISEY
------------------------------------------------------
Richard M. Hisey, Treasurer
(Principal Financial Officer and Accounting Officer)
Date: September 23, 2003
------------------
* Print name and title of each signing officer under his or her signature.